Damages and the Predominance Analysis Following Behrend: The D.C. Circuit Gives Behrend a Robust Interpretation

Practice area:

Earlier this year, I blogged about the Supreme Court’s decision in Comcast Corp. v. Behrend.  At the time, I noted that Behrend reaffirmed that damages methodologies must be closely examined prior to class certification and emphasized the relevance of individualized damages issues in the predominance inquiry.  Just this past Friday, in what is apparently one of the first appellate decisions to apply Behrend, the D.C. Circuit took a similar view, holding that Behrend requires district courts to dig into the evidence regarding damages prior to certifying a class action.

In its In re Rail Freight Fuel Surcharge Antitrust Litigation opinion, the D.C. Circuit vacated an order certifying a class of businesses who accused several major railroad freight companies of conspiring to raise freight shipping rates.  The D.C. Circuit reversed the class certification on the grounds that the district court had not sufficiently examined the plaintiffs’ damages methodology, and, particularly, the possibility that the plaintiffs’ damages report included too many “false positives,” i.e., businesses that had not actually sustained any injury.

Writing for the court, Judge Janice Rogers Brown reaffirmed that plaintiffs seeking to certify a class must “show that they can prove, through common evidence, that all class members were in fact injured by the alleged conspiracy,” and that a district court must closely examine whether damages could be so proved before certifying a class.  The court found that the Behrend decision had raised the bar for this inquiry:  “As we see it, Behrend sharpens the defendants’ critique of the damages model as prone to false positives.  It is now indisputably the role of the district court to scrutinize the evidence before granting certification, even when doing so requires inquiry into the merits of the claim.”  According to the court, a damages model “is not just a merits issue” given that it is “essential to the plaintiffs’ claim they can offer common evidence of classwide injury.”  As Judge Brown wrote, pithily: “No damages model, no predominance, no class certification.”  Because the district court “never grappled” with the flaws identified in the plaintiff’s damages model, the court remanded the case for an examination of whether the class in fact included businesses not injured by the alleged conspiracy.

In reaching the conclusion that it did, the D.C. Circuit brushed aside the claim of the dissenting justices in Behrend, highlighted in my earlier blog post, that Behrend was “good for this day and case only” and broke no new ground.  In the D.C. Circuit’s view, “[b]efore Behrend, the case law was far more accommodating to class certification,” but, after Behrend, it is “clear . . . that Rule 23 not only authorizes a hard look at the soundness of statistical models that purport to show predominance – the rule commands it.”

In re Rail Freight Fuel Surcharge is notable for its refusal to allow the Behrend dissenters to define the effect and significance of the majority opinion in Behrend, and for its unqualified endorsement of a rigorous review of plaintiffs’ damages analyses in class certification proceedings.  Further, as a practical matter, the D.C. Circuit’s opinion indicates that circuit courts and district courts should, and likely will, reject damages methodologies that fail to prove classwide damages based on common proof after Behrend.  Nevertheless, it remains to be seen how other circuits, including the First Circuit, interpret Behrend.