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SCOTUS to consider damages proof needed for class certification

11/2/2012 COMMENTS (0)

Monday is class action day at the U.S. Supreme Court. I've already told you about Amgen v. Connecticut Retirement Plans, in which the justices will decide whether shareholders in a securities class action must provide evidence of the materiality of the defendant's alleged misstatements in order to win class certification. The other case the court will hear on Monday, Comcast v. Behrend, also deals with standards for class certification, but the court's eventual decision in Comcast could affect a swath of cases much broader than securities fraud class actions.

Comcast, as we've reported, is an antitrust class action in which two million Philadelphia area residents alleged that their cable provider engaged in anticompetitive "clustering," conspiring with other providers essentially to assure all of them a monopoly in different zones of the map. When the case was in federal district court in Philadelphia, U.S. District Judge John Padova knocked out most of the plaintiffs' theories, leaving alive only an argument that Comcast's alleged clustering blocked competition from "overbuilders," which offer alternative telecom service. Padova's ruling meant that the class's damages would be limited to the impact of overbuilders declining to enter the market.

The plaintiffs' expert, however, had presented a damages report that encompassed all of the plaintiffs' theories. Comcast argued that the class could not be certified because the plaintiffs couldn't show classwide issues predominated on damages, since the expert report didn't segregate the impact of the alleged lack of competition from overbuilders from the other supposedly anticompetitive effects of Comcast's clustering. Padova nevertheless certified the class, concluding that the expert's model, regardless of the specifics, showed that "there is a common methodology available to measure and quantify damages on a class-wide basis."

A divided panel of the 3rd Circuit Court of Appeals agreed. The majority held that to be certified as a class, plaintiffs merely had to be able to show by a preponderance of evidence that there was classwide impact from Comcast's allegedly anticompetitive behavior and that a methodology existed for determining common damages. The majority cited the U.S. Supreme Court's 1974 decision in Eisen v. Carlisle and said that district courts aren't supposed to conduct a preliminary inquiry into the merits of a suit when they decide whether to certify a class, so just showing that it's reasonably possible to calculate damages is enough to justify certification.

Comcast's Supreme Court lawyers at Gibson, Dunn & Crutcher argued in their merits brief that the 3rd Circuit majority erroneously applied Eisen instead of the Supreme Court's more recent directives in its 2011 ruling in Wal-Mart v. Dukes. Under Dukes, Comcast asserted, courts are required to engage in a rigorous analysis at the class cert stage to assure themselves that classwide issues predominate. In this case, Comcast argued, the trial court's class certification ruling didn't resolve the question of admissible evidence to support the plaintiffs' theory of classwide damages -- particularly because Comcast believes the conclusions of the plaintiffs' expert must be tested in a Daubert hearing to determine whether they're even statistically sound.

"Because plaintiffs' damages model does not calculate damages from the sole theory of antitrust impact approved by the district court, and in any event is insufficiently helpful and reliable to be considered in the certification inquiry, plaintiffs failed to carry their burden of proof ... and class treatment is inappropriate," the Comcast brief said.

The class, represented by Susman Godfrey, countered that under any standard for class certification, its expert evidence, admitted at the district court without a Daubert challenge by Comcast, "would meet any applicable test for admission and validly show, on a class-wide basis, that all class members suffered measurable damages."

The Comcast class is notably bitter, given what we've previously reported about Comcast reneging on an almost complete settlement after the Supreme Court granted cert. But you can see that the issue before the court has implications far beyond this case. If the court agrees with Comcast about what standard of proof for classwide damages must apply to class certification decisions, that ruling has the potential to add layers of complexity and expense to the increasingly risky business of class action litigation.

I called Comcast counsel Miguel Estrada of Gibson Dunn and class counsel Barry Barnett of Susman but didn't hear back.

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