On March 27, 2013, the U.S. Supreme Court decided Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), an antitrust monopoly case in which the Court determined “[w]hether 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 awardingdamages on a class-wide basis.” Comcast Corp. v. Behrend, 133 S. Ct. 24 (2012). Although the Court’s decision was highly anticipated, the final decision broke very little new ground.
The Comcast case began in 2003, when six non-basic cable-television-services customers filed a class-action suit against Comcast Corp. alleging unlawful monopolization and attempted monopolization in violation of the Sherman Act. Behrend v. Comcast Corp., 245 F.R.D. 195, 196–97 (E.D. Pa. 2007). The plaintiffs alleged, based on four theories of antitrust impact, that Comcast’s swaps and transactions, known as clustering, in the relevant geographic markets eliminated competition resulting in increased prices for basic-cable subscribers, including the entire putative class. Behrend v. Comcast Corp., 655 F.3d 182, 187 (3d Cir. 2011). First, the plaintiffs claimed that Comcast’s clustering impaired the ability of rival providers, also known as overbuilders, to effectively compete, resulting in higher rates for all class members. Behrend v. Comcast Corp., 264 F.R.D. 150, 162 (E.D. Pa. 2010). Second, the plaintiffs claimed that Comcast decreased penetration in the relevant market by denying its direct broadcast satellite competitors access to its regional sports programming. Third, the plaintiffs alleged that Comcast’s anti-competitive activities impaired the ability of regulators, firms, and/or customers to compare the performance of different companies, known as benchmark competition. Finally, the plaintiffs alleged that clustering increased Comcast’s bargaining power in its negotiations with content providers, which allowed Comcast to negotiate lower prices for its content, while increasing cable subscriber rates.
Relying on these four theories, the plaintiffs sought certification of a class comprising all cable-television customers who subscribed at any time since December 1, 1999, to video-programming services other than just basic cable from Comcast in the so-called Philadelphia cluster. Comcast opposed this motion for class certification, disputing that the adequacy, typicality, predominance, and superiority requirements of Federal Rule of Civil Procedure (FRCP) 23 had been satisfied, and emphasizing that the putative class included cable customers who were subject to different cable charges, depending on the local cable-franchise provider, and that the franchise areas were too dissimilar to satisfy the requirements of FRCP 23. Behrend, 245 F.R.D. at 203, 207. On May 2, 2007, the District Court for the Eastern District of Pennsylvania granted the plaintiffs’ motion for class certification.
After the court issued its class-certification order, however, the Third Circuit issued an opinion in In re Hydrogen Peroxide Antitrust Litigation clarifying the standard of review that a district court should apply in deciding a class-certification motion. Hydrogen Peroxide, 552 F.3d 305, 316 (3d Cir. 2008). Specifically, the Third Circuit held that the “rigorous analysis” necessary when a district court decides whether to certify a FRCP 23(b) class “may include a preliminary inquiry into the merits”; that a district court “errs as a matter of law when it fails to resolve a genuine legal or factual dispute relevant to determining the [Rule 23] requirements”; and that “[f]actual determinations necessary to make Rule 23 findings must be made by a preponderance of the evidence.” In addition, the Third Circuit made clear that “[r]esolving expert disputes in order to determine whether a class certification requirement has been met is always a task for the court—no matter whether a dispute might appear to implicate ‘credibility’ of one or more experts. . . .” Arguing that the district court had failed to conduct the rigorous analysis required by In re Hydrogen Peroxide Antitrust Litigation, Comcast filed a motion to decertify the class.
The district court treated Comcast’s motion as a motion for reconsideration and granted the motion with respect to the portion of the court’s class certification order finding that the plaintiffs had satisfied the FRCP 23(b) requirement that common questions predominate. Behrend v. Comcast Corp., 245 F.R.D. 195 (E.D.Pa. 2007) (order granting defendant’s motion to decertify classes). In particular, the court noted that it had previously found only that the plaintiffs’ expert’s report was sufficient to establish that common issues predominate, but that the court did not previously require the plaintiffs to show the factual basis of their expert’s opinions by a preponderance of the evidence and did not make specific credibility determinations. The court granted leave for the plaintiffs to file an amended motion for class certification, as it pertains to the FRCP 23(b) issue of the predominance of the common issues of (1) antitrust impact and (2) methodology of damages, and the plaintiffs filed such an amended motion for class certification.
The district court held a four-day evidentiary hearing on the plaintiffs’ amended motion for class certification. Behrend v. Comcast Corp., 655 F.3d 182, 188 (3d Cir. 2011). To support their argument that common issues of law and fact predominate over individualized issues, the plaintiffs proffered, among other things, expert reports and testimony purporting to establish a methodology for proving class-wide damages. In turn, Comcast submitted rebuttal expert reports and testimony critiquing the plaintiffs’ experts’ methodology. Following the hearing, the court issued a series of questions related to antitrust impact and damages methodology, and entertained additional argument regarding those questions.
In 2010, the court granted the plaintiffs’ amended motion for class certification. Behrend, 264 F.R.D. 150. Articulating the standard of review established by FRCP 23 and Hydrogen Peroxide, 552 F.3d 305, the court explained that its review asked whether “ . . . based on all relevant evidence and arguments presented by the parties the evidence more likely than not establishe[d] each fact necessary to meet the requirements of Rule 23.” [login required] Behrend, 264 F.R.D. at 154. Applying this standard to the damages evidence offered by the plaintiffs, the court rejected the critiques Comcast’s rebuttal expert had offered regarding the flaws in the plaintiffs’ damages model and concluded that the plaintiffs could establish antitrust impact through common evidence applicable to all class members with regard to the overbuilder theory, one of the four theories of antitrust impact alleged, and that the models and analyses of the plaintiffs’ damages expert were common evidence available to measure and quantify damages on a class-wide basis.
Comcast appealed the district court’s order granting the plaintiff’s amended motion for class certification, but the Third Circuit affirmed. On appeal, Comcast argued that the plaintiffs’ expert’s damages model could not demonstrate that common evidence was available to measure damages on a class-wide basis because the model was based on all four theories of antitrust impact initially pled, rather than the sole theory that remained following the district court’s 2010 holding. Behrend, 655 F.3d at 182, 207. The Third Circuit refused to consider this argument, however, calling it an “attack on the merits of the methodology” that had “no place in the class certification inquiry.” In dissent, Judge Jordan of the Third Circuit indicated that he would have vacated the district court’s class certification because the plaintiffs’ expert’s report on class-wide damages “fails the requirement of ‘fit’ because it is disconnected from Plaintiffs’ only viable theory of antitrust impact . . . and thus, the proffered expert testimony cannot help the jury determine whether reduced overbuilding caused damages.” Id. at 214–25 (citing Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993)).
Judge Jordan’s focus on the admissibility of evidence under Federal Rule of Evidence (FRE) 702 and Daubert v. Merrill Dow Pharm., Inc., rather than on the review required by FRCP 23, hit upon anissue that has sharply divided the federal circuits. In recent years, federal courts across the country have grappled with the question of whether a district court may certify a class without first deciding that the plaintiff has introduced evidence that would be admissible at trial under FRE 702 and Daubert to prove that the elements of a claim may be established on a class-wide basis. The Seventh Circuit, for example, has held that a full Daubert analysis is appropriate at the class-certification phase. See American Honda Motor Co., Inc. v. Allen, 600 F.3d 813, 814–15 (7th Cir. 2010) (“[T]he district court must perform a full Daubert [login required] analysis before certifying the class if the situation warrants.”). But other courts have held otherwise. In In re Zurn Pex Plumbing Products Liability Litigation, the Eighth Circuit declined to hold that a complete Daubert analysis is necessary when certifying a class, finding instead that district courts in the Eighth Circuit have never been required “to decide conclusively at the class certification stage what evidence will ultimately be admissible at trial.” 644 F.3d 604, 611–12 (8th Cir. 2011). This conflict also exists among district courts within the same circuit. In Cholakyan v. Mercedes-Benz USA, LLC, 281 F.R.D. 534, 541–42 (C.D. Cal. 2012), for example, the District Court for the Central District of California held that Ellis v. Costco Wholesale Corp., 281 F.R.D. 534, 541–42 (C.D. Cal. 2012), a Ninth Circuit decision, had clarified that Daubert is properly applied to evidence offered at the class-certification phase. Less than two months after the Ellis decision, however, the District Court for the Western District of Washington held that “[t]he Ninth Circuit . . . has not yet resolved whether a full analysis under Federal Rule of Evidence 702 [login required] and Daubert [login required] is required at the class certification stage,” and chose to adopt the approach used by the Eighth Circuit in Zurn to address this issue. Fosmire v. Progressive Max Ins. Co., 277 F.R.D. 625, 628–29 (W.D. Wash. 2011).
Comcast’s Petition for Certiorari
After the Third Circuit affirmed the district court’s certification of the class, Comcast petitioned the Supreme Court for a writ of certiorari. Behrend v. Comcast Corp., 655 F.3d 182 (3d Cir. 2011), petition for cert. filed, 2012 WL 105558 (Jan. 11, 2012). In its petition, Comcast continued to focus on the Third Circuit’s majority opinion and the merits review a court should conduct under FRCP 23 at the class-certification phase. Comcast asserted that in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011) (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 161 (1982)), the Supreme Court had disavowed the portion of its holding in Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974), limiting a merits inquiry when certifying a class, but that the Third Circuit had nonetheless repeatedly relied on Eisen in declining to consider the “merits arguments” relevant to the certification analysis in the case. Comcast Corp. v. Behrend, 2012 WL 105558. Comcast characterized the question at issue as “whether a district court may certify a class action without resolving 'merits arguments' that bear on Rule 23’s prerequisites for certification, including whether purportedly common issues predominate over individual ones under Rule 23(b)(3).”
The (New?) Issue Before the Supreme Court
The Court granted certiorari but reformulated the question presented. Comcast Corp. v. Behrend, 133 S. Ct. 24 (2012). Specifically, the Supreme Court granted review regarding the following question: “Whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.” After the Supreme Court reformulated the question presented to address “admissible evidence,” the parties and many observers believed that the Court had decided to take on the admissibility question raised in Judge Jordan’s dissent in the Third Circuit. In light of this change, Comcast recast the arguments in its appellate brief to focus on whether a district court, prior to certifying a class under FRCP 23, must determine that the plaintiff has proffered adequate evidence that would be admissible at trial under FRE 702 and the standard of admissibility set inDaubert v. Merrill Dow Pharmaceuticals, Inc. that damages may be measured and quantified on a class-wide basis. Brief for the Petitioners at 36–43, Comcast Corp. v. Behrend, 133 S.Ct. 24 (2012) (No. 11-864) 2012 WL 3613365, at *36–44 (citing Daubert, 509 U.S. 579 (1993)).
The Supreme Court heard oral argument on this issue on November 5, 2012. During the argument, the Court continued to address the question of whether evidence offered at class certification must be admissible at trial, even though Comcast repeatedly attempted to bait the justices into addressing whether the district court erred in not conducting more of a merits review under FRCP 23. Several justices questioned Comcast about admissibility in the context of waiver. Transcript of Oral Argument at 17–18 (lines 25–17) and 22 (lines 7–13), Comcast Corp. v. Behrend, No. 11-864 (Nov. 5, 2012). Justice Sotomayor, for example, pointedly told Comcast’s counsel: “. . . I think you really can’t deny that you never raised the word ‘Daubert’ below until the very end.” Chief Justice Roberts suggested that the Court could decide the standard to apply to the underlying legal issue regarding admissibility and remand the case for a decision on waiver.
A Surprise Ending
Following oral argument, the Court appeared poised to determine whether evidence that a plaintiff has proffered at the class-certification stage must be admissible at trial under FRE 702 and the standard for admissibility set in Daubert. It also seemed possible that the Court could decide the appeal on narrower grounds, by, for example, finding that Comcast waived its Daubert objection and leaving open the question of whether district courts should or must determine at the class-certification stage that the evidence proffered in support of class certification would be admissible at trial under FRE 702 and Daubert. But the Court’s March 27 decision did none of these things. Instead, the Court ignored the admissibility question and held, as Comcast had urged all along, that “[b]y refusing to entertain arguments against respondents’ damages model that bore on the propriety of class certification, simply because those arguments would also be pertinent to the merits determination, the Court of ppeals ran afoul of our precedents requiring precisely that inquiry.” Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1432–33 (2013).
The Court’s opinion, written by Justice Scalia and joined by Justices Roberts, Kennedy, Thomas, and Alito, mentions Daubert only once, in a footnote. In this footnote, the Court reconciles its formulation of the question presented with its final decision by focusing on the second half of the question presented rather than the first. While acknowledging that Comcast may have forfeited its ability to “argue that [plaintiffs’ expert’s] testimony was not ‘admissible evidence’ under the Rules” by failing to object to admissibility in the lower courts, the Court found that Comcast was still able to “argue that the evidence failed to show that the case is susceptible to awarding damages on a class-wide basis.” And with that, the Court simply sidestepped the question of admissibility of evidence at the class-certification phase.
Instead, the Court decided the case based on its prior precedent regarding the standard of review of class-certification motions under FRCP 23. In particular, the Court explained that it had repeatedly “emphasized . . . that certification is proper only if ‘the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied’” and that this analysis will “frequently entail overlap with the merits of the plaintiff’s underlying claim.”It further explained that these “same analytical principles govern Rule 23(b)” and, “[i]f anything, Rule 23(b)(3)’s predominance criterion is even more demanding than Rule 23(a).” The Court thus held that the district court’s refusal to address Comcast’s arguments regarding the damages model plaintiffs offered to prove class-wide injury because those arguments overlapped with the merits was reversible error.
Given this holding, the Court did not resolve the split in authority regarding whether evidence proffered in support of class certification must satisfy FRE 702 and the standard for admissibility set in Daubert at the class-certification stage. The Court’s opinion, however, reemphasizes that a district court considering a class-certification motion must conduct merits inquiries if necessary to determine whether the requirements of FRCP 23 have been satisfied.
Keywords: litigation, corporate counsel, FRCP 23, FRE 702, antitrust, monopoloy, admissibility
David R. Singh and Alison Bain-Lucey are associates with Weil, Gotshal & Manges LLP in New York, New York.