By Nate Raymond
What happens to a class action settlement when the U.S. Supreme
Court decides at the last minute to intervene in the case?
That was the dilemma facing Barry Barnett of Susman Godfrey,
who's leading an antitrust class action on behalf of
Philadelphia cable subscribers who claim Comcast Corp conspired
to gain a monopoly in their region. When the Supreme Court
agreed on June 25 to review the certification of the subscriber
class, Barnett had all but finished negotiating a settlement in
the case, which sought up to $2.6 billion in damages. The next
day, Comcast's lawyers at Davis Polk & Wardwell told Barnett
that the company didn't regard the settlement term sheet as
binding. Barnett went to court to try to enforce the deal, but
on Tuesday U.S. District Judge John Padova in Philadelphia
declined to do so. "We find that the term sheet is incomplete in
significant respects and cannot be summarily enforced," Padova
wrote.
The judge's decision ensures that one of the biggestbusiness cases on the Supreme Court's upcoming docket will move
ahead as planned. The justices will consider the question of
whether a court may certify a class action without first
deciding whether the plaintiffs have introduced admissible
evidence supporting their theory of damages. A year after the
Supreme Court issued its landmark class action decision in
Wal-Mart Stores, Inc v. Dukes, the Comcast case gives the
Supreme Court another shot to further define what trial courts
must look at when certifying a class action.
The Comcast class asserted that the cable company engaged in
"clustering," when cable operators concentrate themselves in
particular regions while giving up assets in other parts of the
country through sales or swaps with other operators. Susman
Godfrey put forward an experts' estimate that classwide damages
were $875 million, which, if trebled under the Clayton Antitrust
Act, a federal antitrust law, come to a whopping $2.6 billion.
But after Padova limited the plaintiffs' damages theory, Comcast
argued that the expert's model was flawed and the class couldn't
be certified.
Padova sided with the plaintiffs, and in August 2011 a
divided panel of the 3rd Circuit Court of Appeals upheld
certification of the class, which consists of 2 million Comcast
subscribers. Judge Ruggero Aldisert, writing for the majority,
said Padova hadn't exceeded his discretion when he ruled that
the plaintiffs would be able to prove classwide impact and
damages. Judge Kent Jordan dissented, concluding that the
plaintiffs couldn't prove damages using evidence common to the
class.
Comcast and its team of lawyers -- at Davis Polk; Kasowitz,
Benson, Torres & Friedman; and Ballard Spahr -- tried to get the
3rd Circuit to reconsider, but it denied that request in
September 2011. The company then hired Miguel Estrada of Gibson,
Dunn & Crutcher to petition the Supreme Court in January to take
up the interlocutory issue.
Supreme Court cert petitions are far from sure things,
though, and with a trial date looming on Sept. 5, 2012,
settlement talks commenced. By a mediation on June 11, the
parties signed an "outline sheet" of proposed key terms for a
settlement. (The amount of the settlement is not part of the
court record, and much of the briefing is under seal.) The
parties told Padova in a June 13 letter that a final settlement
would be submitted by June 30.
But the term sheet Susman Godfrey negotiated didn't include
any clause requiring the parties to notify the Supreme Court of
a settlement. Michael Carroll, the Davis Polk partner who
represented Comcast in settlement negotiations, said in a
declaration cited in Tuesday's opinion that Barnett raised that
point during a June 13 call. Carroll said he told Barnett that
according to Gibson Dunn's Estrada, the Supreme Court is not
told of settlements in pending cases until the deals have
received preliminary court approval.
Unfortunately for Barnett, Padova didn't even get to see a
motion asking for his approval before the Supreme Court granted
Comcast's writ of certiorari on June 15. The next day, Carroll
told Barnett that Comcast was backing out of the settlement.
Padova's ruling Wednesday moots one of the arguments the
class expected to make before the Supreme Court -- that the
settlement reflected the worth of the case -- which meant that
the justices shouldn't have agreed to review it. That was one of
the key arguments in a brief filed with the Supreme Court on
Tuesday before Padova declined to enforce the settlement. In a
letter to the Supreme Court on Wednesday, Barnett said that
while the plaintiffs may appeal Padova's new ruling, "we
understand that in light of the decision the court will not
defer consideration of the case or dismiss the writ on that
ground."
Comcast declined to comment. Barnett, for whom the Comcast
case will mark the first he'll argue before the Supreme Court,
said it's unclear exactly what will happen after the Supreme
Court rules. "There's a lot of unknowns here," he said. "But
we'll be arguing the Supreme Court case, and it'll be decided on
grounds parties presented to the court, and we'll probably go
back to the chalkboard."
(This story has been modified to clarify what Barnett said
might occur after the Supreme Court rules.)
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