On June 25, 2012, the U.S. Supreme Court granted Comcast’s petition for a writ of certiorari seeking review of the Third Circuit’s decision in Behrend v. Comcast Corp., 655 F.3d 182 (3d Cir. 2011). In the class action world, this grant of certorari is big news for employers.
The Supreme Court limited its review to a single issue: whether a district court may certify a class action without finding that the plaintiff has introduced admissible evidence, including expert testimony, to show that damages can be awarded on a class-wide basis.
In the Supreme Court’s landmark decision in Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2554 (2011) (discussed here), it suggested that, even at the class certification stage of class action proceedings, expert testimony must meet the standards for admission set forth in Federal Rule of Civil Procedure 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).
Behrend gives the Supreme Court an opportunity to solidify – or distance itself from – that dicta and provide additional guidance on the type of showing or quantum of proof required for class certification. In particular, in Behrend, the Third Circuit panel members disagreed about whether plaintiffs must show a method for proving class-wide injury through common evidence – or whether plaintiffs must show that such a method yields reliable, non-speculative results. The question that the Supreme Court selected for review suggests that it may weigh in on this key issue.
The stakes are high for employers, as this issue continues to rear its head in virtually all workplace class actions on the make or break issue of whether a class should be certified.
Background Of Behrend v. Comcast
In Behrend, Plaintiffs, a group of cable television customers of Comcast, brought a class action antitrust suit alleging that Comcast violated sections 1 and 2 of the Sherman Act. In particular, Plaintiffs alleged that Comcast eliminated competition in the Philadelphia Designated Market Area (“Philadelphia DMA”) by acquiring competing cable providers or by “swapping” cable systems that it owned in areas outside the Philadelphia DMA for cable systems within the Philadelphia DMA. Behrend, 655 F.3d at 185-87.
The District Court certified a class encompassing all cable television customers who subscribed to Comcast’s video programming services (other than solely to basic cable) in the most of the counties in the Philadelphia DMA at any time since December 1, 1999. Id. at 187-88. In certifying the class, the District Court narrowed the various theories of class-wide impact to a single theory – that Comcast engaged in anti-competitive clustering conduct, the effect of which was to deter the entry of overbuilders (companies that build and offer a competitive alternative where another telecom company already operates) in the Philadelphia DMA. Id. at 188.
On January 27, 2010, Comcast filed a Rule 23(f) petition, and on June 9, 2010, the Third Circuit granted permission to appeal. On appeal, among other things, Comcast argued that the District Court abused its discretion in holding that Plaintiffs had established that the alleged damages were capable of measurement on a class-wide basis using common proof. Id.
The Third Circuit’s Opinion In Behrend
The Third Circuit panel majority found that Plaintiffs, through their expert Dr. McClave, provided a common methodology that could be used to measure and quantify damages on a class-wide basis. Id. at 205-07.
Dr. McClave constructed a “but-for” market with prices that allegedly would have existed in the Philadelphia market absent the alleged anti-competitive conduct. He did so by selecting allegedly comparable “benchmark” counties using two criteria or “screens.” The “benchmark” counties had a Comcast subscriber penetration rate of less than 40% and an Alternative Delivery System penetration level at or higher than the national average in Comcast markets. Dr. McClave compared the “but-for” prices to the actual prices and “conservatively” estimated that Comcast overcharged the class by more than $875 million. Id. at 201.
The panel majority found that Plaintiffs met their burden by providing a method – the constructed “but-for” market – that could be used to measure the anti-competitive impact on the class members. Id. at 205-06. It held that, at the class certification stage, it needed only to address “whether Plaintiffs have provided a method to measure and quantify damages on a class-wide basis” and that it had “not reached the stage of determining on the merits whether the methodology is a just and reasonable inference or speculative.” Id. at 206.
Judge Jordan’s Dissent
Judge Jordan dissented in part; as a result, the “issues” presented by the case positioned the ruling on cutting-edge legal issues. Judge Jordan opined that Dr. McClave’s method was incapable of identifying damages caused by reduced overbuilding in the Philadelphia DMA, and, therefore, it was irrelevant and inadmissible under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). Judge Jordan reasoned that Dr. McClave formulated his model at a time when Plaintiffs had four separate theories of antitrust impact, so he did not select his benchmark counties to isolate the alleged impact of reduced overbuilding. Behrens, 655 F.3d at 216.
Judge Jordan identified multiple ways in which Dr. McClave’s model produced damages that were not “the certain result of the wrong.” Id. at 217-221. For instance, in his report, Dr. McClave assumed that only 5 of the 18 counties would have been overbuilt in the absence of anti-competitive conduct; “[f]or the remaining counties, while there may be some uncertainty as to what exactly caused any elevated prices, this much is certain: the elevated prices identified by Dr. McClave in those thirteen counties were, according to Dr. McClave himself, the result of something other than reduced overbuilding.” Id. at 218.
Judge Jordan also expressed doubt as to whether any expert model could calculate damages for all class members collectively. The evidence demonstrated that the Philadelphia DMA had 649 unique franchise areas, and that overbuilding, DBS penetration, and incumbent market shares varied widely from franchise area to franchise area. The dissent concluded that “[e]ven if Dr. McClave’s benchmarks were not problematic, to say that Comcast’s ‘but for’ share of the market throughout the Philadelphia DMA would be, on average, 40% is about as meaningful as saying that ‘with one foot on fire and the other on ice, I am, on average, comfortable.’” Id. at 223-24.
Implications For Employers
The Supreme Court’s future opinion in Behrend could have wide-ranging impact on class actions, including those in the workplace arena. The Supreme Court may solidify its suggestion from Wal-Mart Stores v. Dukes that Daubert applies at the class certification stage, but more significantly, it may opine more broadly on the extent to which judges must resolve merits issues at the class certification stage and whether the need for more individualized damages calculations makes class certification inappropriate. Briefing and argument is expected later in 2012, and a ruling is likely by late 2012 or early 2013. Stay tuned.