LEL Flash | Issue: May 2013

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Issue: May 2013

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Recent Developments in Federal Class Actions--Plaintiffs' and Defense Counsel Assess the Impact of the Supreme Court's Decisions in Comcast Corp. v. Behrend and Standard Fire Ins. Co. v. Knowles on Employment Class Actions

This term, through its decisions in Comcast Corp. v. Behrend and Standard Fire Ins. Co. v. Knowles, the Supreme Court has continued down the path set in Wal-Mart v. Dukes. The Court's decisions have potentially limited the tools used by plaintiffs' counsel to obtain early class certification and pressure defendants to discuss an early resolution. The universal lesson to be taken from both cases is that preparation and evidence is king. Plaintiffs must have solid evidentiary support earlier on their cases to help ensure successful class certification and obtain their choice of forum. The practical effect of these decisions is that the costs of litigation may become more front-loaded and discourage large class actions. The Suprme Court cases may be largely seen as a victory for defense counsel because they may make it more challenging for plaintiffs to obtain class certification and obtain their preferred forum. Nevertheless, plaintiffs' counsel may continue to find success obtaining class certification if they limit the application of these decisions to very large, unworkable class actions, present sufficient evidence to meet Rule 23 standards, and skillfully structure more manageable class actions.

Set forth below is a short discussion of each decision, and plaintiffs' and defense counsel's consideration of the practical effects of these decisions.

Comcast Corp. v. Behrend, 133 S.Ct. 1426 (2013)

A divided (5-4) Supreme Court, in Comcast Corp. v. Behrend, held that an antitrust class action was improperly certified under Rule 23(b)(3) because the plaintiffs' damages model failed to establish that damages could be determined on a class-wide basis. 133 S. Ct. 1426, 1432-33 (2013). Accordingly, the Court vacated the district court's certification of the class.

The District Court had certified a class of more than two million cable subscribers who claimed that Comcast monopolized the Philadelphia cable market through a strategy known as "clustering," whereby Comcast allegedly concentrated its services in a particular region by acquiring competitors in the region, and entering into swap transactions wherein Comcast would swap its systems outside the region for competitor systems in the region. This strategy allegedly allowed Comcast to increase its market share from about 23% to 69%, which allowed Comcast to charge "supra-competitive" prices. The Third Circuit affirmed the class certification.

The Supreme Court held the plaintiffs' damages model established by their expert was not sufficient evidence to show that damages could be measured on a class-wide basis, as required for class certification by Rule 23(b)(3), which requires that common questions of law or fact predominate over any questions affecting individuals. The Court noted there were four theories of antitrust impact advanced by the plaintiffs, but the District Court had found that only one--the "overbuilder theory"--was subject to common proof, such that the class could only be certified as to that theory of antitrust impact. Fatal to the plaintiffs' class certification, however, the plaintiffs' damages model did not disaggregate the impact of the four different theories of antitrust impact. Thus, the Supreme Court held that the plaintiffs' damages model was insufficient to establish that damages could be measured on a class-wide basis.

Almost immediately, the Supreme Court's decision was cited in decisions related to labor and employment class actions, leading to inconsistent results. For example, in Martins v. 3PD, Inc., the District of Massachusetts, in a wage and hour dispute, granted class certification under Rule 23(b)(3), holding that the Supreme Court's decision does "not to foreclose the possibility of class certification where some individual issues of the calculation of damages might remain . . ., but those determinations will neither be particularly complicated nor overwhelmingly numerous." CIV.A. 11-11313-DPW, 2013 WL 1320454, *8 fn.3 (D. Mass. Mar. 28, 2013). In contrast, in Roach v. T.L. Cannon Corp., the Northern District of New York, also in a wage and hour dispute, denied class certification under Rule 23(b)(3), finding that plaintiffs failed to offer a damages model that could be determined on a class-wide basis. 3:10-CV-0591 TJM/DEP, 2013 WL 1316452, *3-4 (N.D.N.Y. Mar. 29, 2013).

What does this mean for plaintiffs' counsel? The Court's decision in Behrend reminds putative class counsel that motions for class certification must be supported by evidence rather than conclusory arguments and must show the court there is a common methodology for determining potential class members' damages.  However, the dissent in Behrend persuasively points out that the "opinion breaks no new ground on the standard for certifying a class action under [Rule 23(b)(3)]." Behrend, 133 S.Ct. at 1436 (dissent). Although the dissent cautions that "the decision should not be read to require, as a prerequisite to certification, that damages attributable to a class wide injury be measurable 'on a class-wide basis'" see id., defense counsel will undoubtedly use this decision, like Wal-Mart v. Dukes, to raise the bar necessary to obtain class certification.

The class certified in Behrend included over two million subscribers spread out over 16 counties. Plaintiff's counsel must distinguish between (1) cases where there are some individual issues of damages, although common questions of liability predominate; and (2) cases where the damage calculation is so complex, or where it implicates so many potential class members, that the damage issues overwhelms liability issues. See Martins v. 3PD, Inc., 2013 WL 1320454, at *8 fn.3. Because the Supreme Court did not expressly address the first type of case, common issues will likely predominate if the damages calculation is not complicated, and the class is not overwhelmingly numerous. See id. To meet the predominance requirement plaintiffs' counsel must be prepared to show (1) evidence of an injury common to the class rather than individuals; and (2) that the damages are measurable "on a class-wide basis" through use of a common methodology. See Behrend, 133 S. Ct. at 1430. Thus, some of the perceived challenges created by Behrend may be overcome through the creation of sub-classes with simple and clear methodologies to determine damages. In the alternative, plaintiffs' counsel may consider asserting multiple separate individual lawsuits, which will undoubtedly increase the costs of litigation for all parties involved.

The potential impact of Dukes and Behrend on the Rule 23(b)(3) class action certification standard may become synonymous to the impact of the Court's decisions in Twombly and Iqbal on the Rule 12(b)(6) dismissal standard. As plaintiffs' counsel begin to learn how broadly or narrowly district courts will interpret the Supreme Court's decisions, counsel will need to adapt and ensure compliance with the Court's standard.

What does this mean for defense counsel? Although Behrend was an antitrust case, its holding is likely to have impact in all types of class actions. Defendants will certainly use Behrend to argue that plaintiffs have failed to "establish[] that damages are capable of measurement on a classwide basis," and accordingly that class certification should be denied. The practical effect of the Behrend decision is that class certification will certainly become a battle of the experts. This will drive up the cost of litigating for all plaintiffs, and make it more difficult for plaintiffs to extract settlements after successful class certification motions in cases that are less strong on the merits.

Standard Fire Ins. Co. v. Knowles, 568 U.S. ____, 133 S.Ct. 1345 (2013)

The Supreme Court, in Standard Fire Ins. Co. v. Knowles, unanimously held that putative class representatives cannot avoid removal to federal court under the Class Action Fairness Act ("CAFA") by stipulating to seek damages for the class in an amount below the CAFA's $5,000,000 jurisdictional threshold.

Mr. Knowles's home in Arkansas was damaged during a hail storm, and he made an insurance claim to Standard Fire Insurance Company ("Standard Fire"), under his homeowner's insurance policy, for the repairs. Standard Fire refused to pay for Mr. Knowles's general contractor's fees.

Subsequently, Mr. Knowles filed suit in state court on behalf of himself, and on behalf of a putative class of "hundreds, and possibly thousands" of similarly-situated Arkansans. Both via the complaint itself and via an affidavit attached to the complaint, Mr. Knowles stipulated that both he and the class would seek to recover total aggregate damages of less than $5,000,000.

Standard Fire removed the case to federal district court based upon the CAFA's $5,000,000 jurisdictional threshold. On the basis of evidence presented by Standard Fire, the district court found that the "sum or value" of the amount in controversy was "just above" the $5,000,000 jurisdictional threshold, but that, because of the stipulation, the district court concluded that the amount in controversy was below the jurisdictional threshold and ordered the case to be remanded. The Eighth Circuit declined to hear the appeal, and the Supreme Court granted Standard Fire's petition for a writ of certiorari.

The Supreme Court based its holding on a simple principle--"[s]tipulations must be binding," and Mr. Knowles lacked the authority to concede the amount in controversy issue for absent class members. Accordingly, Mr. Knowles's pre-certification stipulation was not effective to reduce the value of the putative class members' claims.

What does this mean for plaintiffs' counsel? The Court's reasoning was unambiguous, and its holding was unanimous. This case will likely not have a significant impact on employment class actions. Many employment class actions, for example, are subject to federal jurisdiction on the basis of federal question jurisdiction (i.e. FLSA, ERISA). Accordingly, the jurisdictional limit under CAFA is only an issue in labor or employment class actions that assert only state or common law causes of action, such as state law-based wage and hour claims. If defense counsel chooses to argue and show the court that the amount in controversy is greater than $5,000,000, when plaintiffs' counsel estimated a lesser value, plaintiffs will likely welcome that argument and will remember it when defendant later wants to discuss settlement. The Knowles case, however, should remind putative class counsel that they lack authority to make decisions on behalf of a putative class, if the court has not yet certified a class.

What does this mean for defense counsel? This case should be seen as a significant win, as it effectively shut the door on the plaintiffs bar's efforts to circumvent the CAFA's jurisdictional limit in order to litigate in states that are believed to be especially plaintiff-friendly. While litigating in federal court is certainly no panacea for defense counsel, defendants in federal court benefit from the generally stricter class certification standards in federal court, particular after the Supreme Court's 2011 decision in Wal-Mart v. Dukes. Th Knowles decision will likely lead to plaintiffs' counsel filing more cases directly in federal court, as there is less of an incentive to filing in state court, particularly because plaintiffs' counsel would have to do more work up-front to demonstrate the aggregate amount in controversy. Defense counsel cannot forget, however, that if they do seek to remove a case filed in state court, the defendant still bears the burden of demonstrating that the amount of controversy exceeds the $5,000,000 jurisdictional threshold.

Christina H. Bost Seaton practices law in the New York, NY office of Troutman Sanders LLP, an international employer/ management law firm; Mark A. Bracken practices law at Martin & Bonnett, PLLC, a union & employee law firm in Phoenix, AZ.

Contents

Opening Page

Comments from the Chair

Section News

Flash Co-Chairs:
Jeremy J Glenn, Meckler Bulger et al | Elana Hollo, National Labor Relations Board | Katherine Huibonhoa, Paul Hastings LLP | Amy F. Shulman, Broach & Stulberg LLP

American Bar Association Section of Labor and Employment Law
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