Last week the Supreme Court made it more difficult to certify class actions in the federal courts. In Comcast Corp. v. Behrend, No. 11-864 (U.S. Mar. 27, 2013), the Supreme Court prohibited the certification of a class of plaintiffs in an antitrust case against Comcast.
The Court’s decision shows that it meant what it said in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (U.S. 2011), another case defining when class actions are permissible. The Supreme Court in Comcast reiterated that questions of law and fact common to class action plaintiffs must predominate over individual questions to meet the class certification requirements of Federal Rule of Civil Procedure 23(b)(3).
In class action cases in which the plaintiffs seek monetary damages, courts must find that common questions predominate not only in the plaintiffs’ theories of liability, but also in their damage theories – how they claim the defendant’s actions damaged them, and the types of injuries they allegedly suffered. Only where common questions predominate is a class action to resolve these questions appropriate.
In the Comcast case, the plaintiffs were subscribers to the cable company’s services in the Philadelphia area. They alleged that Comcast had violated federal antitrust laws by eliminating competition and charging monopoly prices. The plaintiffs claimed that Comcast caused their class members injury under four different theories, but the lower court certified the class action under only one of these theories. The plaintiffs also claimed they suffered damages under all four of their liability theories. However, the lower court did not limit the damages at issue to the one theory under which the class was certified.
The Third Circuit upheld the class certification, but refused to consider the damage issues, because it would have required analysis of the plaintiffs’ theories of liability. The Supreme Court majority held that the Third Circuit should have analyzed the damage questions before approving the class certification. According to the Supreme Court, the lower courts should have determined whether the plaintiffs’ damages methodology was “just and reasonable” or merely speculative. If it was merely speculative, it could not satisfy Rule 23(b)(3)’s predominance requirement.
Citing Wal-Mart Stores, Inc. v. Dukes, the majority opinion stated that lower courts may need to look beyond the pleadings in analyzing class-certification motions. Rule 23(b)(3) requires that courts take a “close look” at whether common questions of law and fact predominate over individual questions. According to the majority opinion, rigorous analysis of the Rule 23 factors “will frequently entail ‘overlap with the merits of the plaintiff’s underlying claims.’” Therefore, the trial court may need to examine the plaintiff’s evidence at the class certification stage.
Moreover, “[t]he first step in a damages study is the translation of the legal theory of the harmful event into an analysis of the economic impact of that event” (again citing Wal-Mart Stores, Inc. v. Dukes), which the lower courts in Comcast failed to do. The Supreme Court majority determined that individual questions would overwhelm the common questions in the Comcast case, and therefore, the lower courts should not have certified the class.
According to the majority opinion, class plaintiffs cannot elect to pursue just one theory of damages, in order to maintain the viability of a class action. Class actions are appropriate only where all class members in fact suffered the same type of injury.
The dissenting justices in Comcast stated that this opinion should be viewed narrowly, “good for this day and case only.” The dissent believed the Supreme Court should not have ruled so broadly on class certification, because the briefs had focused on a narrower question of admissibility of expert evidence.
It is clear after Comcast that a majority of the Supreme Court believes that both theories of damages and liability must deal primarily with common questions before class certification is appropriate. Lower courts may deny class certification more frequently where individualized damages assessments are necessary.
As the dissent argued, cases involving requests that a class action be certified are always based on the facts and circumstances of each set of plaintiffs. Nevertheless, the Supreme Court’s opinion in Comcast is a welcome addition to defendants’ arsenal of arguments to reduce the likelihood of a class being certified.
Where class actions are appropriate, they are a cost-effective tool for determining liability. But class actions can be used by the plaintiffs’ bar as bludgeons to beat corporate defendants into paying millions to resolve minor disputes – or to bring in as plaintiffs class members who never thought they were damaged in the first place.
Alternative dispute mechanisms, such as mediation and arbitration, are far more effective tools for resolving disputes when small amounts at stake. After Comcast trail courts will have to make more complete assessments as to whether class actions truly involve common questions appropriate for group determinations. Perhaps many of these smaller cases will ultimately be resolved through mediation or arbitration, at a lower cost and more quickly for everyone.