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On Wednesday, the Supreme Court held in a 5-4 opinion in Comcast Corp. v. Behrend, 569 U.S. ___ (2013), that a party seeking to maintain a class action must satisfy Rule 23’s requirements through evidentiary proof, even where such analysis may overlap with the merits of the underlying claim. InBehrend, the majority found that the plaintiffs’ expert’s damages model failed to establish that damages could be measured on a class-wide basis, and so the Court ruled that certification of the class was improper. However, this decision did not resolve the broader question of whether the Daubert standard for admissibility of expert testimony applies at the class certification stage, an issue referenced in the Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. __, 131 S. Ct. 2541 (2011).

Background Facts and Procedural History

The plaintiffs in Behrend brought an antitrust suit alleging that the defendant cable company attempted to monopolize the cable market in Philadelphia through a series of “swap” transactions with cable providers in other markets. The putative plaintiffs proposed four different theories of antitrust impact in their motion for class certification, which the district court granted. However, in certifying the class, the district court accepted only one theory of antitrust impact as capable of class-wide proof: the theory that Comcast’s conduct reduced the level of competition from “overbuilders,” companies that build competing cable networks in areas where an existing cable company operates. The district court rejected the other three theories of antitrust impact because they were incapable of class-wide proof.

On appeal, the Third Circuit affirmed the district court’s decision in its entirety. Citing the Supreme Court’s decision in Dukes, the Court of Appeals noted that although district courts must engage in a “rigorous analysis” at the certification stage, they may not engage in a merits inquiry for any other pretrial purpose. As such, the Court focused on whether the plaintiffs could establish the elements of their claim at trial through proof common to the class. With respect to the issue of damages, the Court found that the plaintiffs had established through their expert witnesses that damages could be measured on a class-wide basis. The majority stated in a footnote that district courts need not apply Daubert to experts at the certification stage where the analysis would turn class certification into a mini-trial. Comcast again appealed.

Supreme Court: Damages Model Insufficient for Rule 23’s Requirements

The Supreme Court granted certiorari on the question “whether a district court may certify a class action without resolving whether the plaintiff class had introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.” The plaintiffs, as respondents, argued that Comcast had forfeited its argument by failing to object to the admission of the expert’s testimony under Daubert. The majority opinion noted that Comcast had argued throughout the case that the respondents had failed to establish that damages could be measured on a class-wide basis, and so the Court addressed that issue.

Writing for the majority, Justice Scalia emphasized that courts may need to look beyond the pleadings before resolving the class certification question. The Court continued that certification is only proper where, after a rigorous analysis, the trial court is satisfied that Rule 23’s requirements have been met (citing Dukes). As such, the Court faulted the district court and Court of Appeals for refusing to entertain arguments against the respondents’ damages model on the grounds that such arguments would also be relevant to the merits determination. The Supreme Court held that such an approach is inconsistent with precedent.

The Court then analyzed Rule 23(b)(3)’s predominance requirements and concluded that the respondents’ class action was improperly certified. According to the Court, although the district court had rejected three of the four antitrust impact theories offered by the respondents, the expert’s damages model made no attempt to identify the damages attributable to the one remaining theory. Therefore, the Court concluded that the expert’s model could not establish that the putative damages of the proposed class related to that theory were susceptible to class-wide measurement.

Justices Ginsburg, Breyer, Sotomayor, and Kagan dissented and would have found that Comcast had forfeited the question presented for review. The dissent added further that individual damages calculations do not preclude class certification, so the dissent would limit the Court’s holding to the facts in Behrend.

Takeaway

Although the Court did not address the broader question of whether the Daubert standard applies to expert testimony at class certification, the Court did reaffirm the “rigorous analysis” standard from its Dukesopinion. Under this standard, district courts may look beyond the pleadings to resolve the class certification requirements, even if such analysis overlaps with the merits of the underlying case. In the antitrust context, the Behrend case suggests that plaintiffs in putative class action suits may need to tie their damages models to their theory of antitrust injury in order to certify a class. Defendants facing class certification in antitrust class actions should challenge damages models that do not correlate with the plaintiffs’ theory of antitrust injury. More generally, the Behrend decision confirms that class certification will remain a major battleground in class action lawsuits. In any case involving individualized determinations of damages, defendants should argue that damages cannot be established on a class-wide basis as part of their predominance challenge to class certification.

For more information, please visit the Securities Class Action Defense and Shareholder Litigation or the Antitrust and Competition pages of the Haynes and Boone, LLP website, or contact one of the attorneys below.