Argument preview: An inch, or a mile?
on Nov 1, 2012 at 10:33 am
In 2011, the Court decided Wal-Mart Stores, Inc. v. Dukes, which many considered one of the Court’s most significant class action decisions in decades. On Monday, November 5, the Court will hear oral arguments in Comcast v. Behrend, a case that will determine just how far the Wal-Mart decision extends.
In Wal-Mart the Court rejected a class action which alleged that Wal-Mart deliberately looked the other way while local store managers discriminated against female employees in “literally millions of employment decisions.” A majority concluded, among other things, that the proposed class had failed to show a common “glue holding the alleged reasons for all those decisions together,” apart from the “the bare existence of delegated discretion.” The Court found an absence of a “general policy of discrimination” in part because it rejected expert testimony that Wal-Mart fostered a “strong corporate culture” which could instill gender bias in all of its managers. The Ninth Circuit had credited this expert testimony, and further concluded that a Daubert hearing to determine the admissibility of the testimony for purposes of trial was not appropriate at the class certification stage. But the Court, in rejecting the expert testimony, questioned the Ninth Circuit’s view that a Daubert hearing was inappropriate, noting as an aside that “[w]e doubt that is so.”
Comcast puts the Court’s passing comment on Daubert to the test. In this case, the plaintiffs brought a class action alleging that Comcast violated federal antitrust laws by “clustering” in the Philadelphia area – swapping subregions with other cable providers or buying cable providers outright to be the only provider in the area. The plaintiffs proposed four theories to demonstrate that Comcast’s clustering activity in the Philadelphia area had an anticompetitive effect. The district court certified the class action as to only one theory – that clustering deterred competitors, also known as “overbuilders,” from entering the area. The court further found that antitrust impact – that is, that the alleged antitrust violation injured the class members – could be proven with evidence that was common for the entire class. Thus, the district court concluded that class certification was appropriate under Federal Rule of Civil Procedure 23(b)(3), which requires, among other things, that common issues “predominate” over issues unique to each individual class member. However, in finding predominance, the district court relied upon a damage model proposed by the plaintiffs’ expert that failed to exclude the other three theories of anticompetitive effect rejected by the court. The district court also did not find that the damage model was admissible under Daubert.
A divided panel of the Third Circuit affirmed the district court’s certification of the class action. In the majority’s view, a Daubert hearing was unnecessary to determine predominance, and requiring one would have impermissibly allowed the district court to assess the merits. The dissent, however, emphasized that the proposed damage method failed to isolate the damages caused by the sole theory of antitrust violation which was certified. The dissent, more importantly, questioned whether any model could prove impact on a common basis. It pointed out that only five counties of the eighteen counties in the Philadelphia area were possible targets of overbuilders. In addition, the dissent noted that Comcast’s presence and the availability of direct broadcast satellite services, which would not have been deterred by Comcast’s clustering, varied in the area, suggesting that the damages varied among the class members.
The Court granted certiorari on the question “[w]hether 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.” The current trend among the lower courts is for the district court to assess evidence of common injury at the certification stage because the evidence is also relevant to the predominance requirement under Rule 23(b)(3). Wal-Mart, in fact, permitted courts to review evidence of a merits issue if it overlapped with a class certification requirement.
Reviewing expert evidence of common injury would seem to require an assessment of the admissibility of the evidence under Daubert, but whether a Daubert hearing is required for purposes of class certification is unclear. For example, in In re Hydrogen Peroxide Antitrust Litigation, a price-fixing case decided before this case, the Third Circuit approved of the district court’s review of the evidence of common injury for class certification purposes, which included a Daubert hearing on expert testimony. But in that case, the parties agreed that a Daubert hearing was appropriate, allowing the Third Circuit to avoid the issue.
In its brief on the merits, Comcast urges the Court to adopt a rule requiring admissible evidence of common injury for class certification purposes, stressing the flaws of the damage model in its own case. In response, the plaintiffs (respondents in the Supreme Court) first point out that the litigation has essentially settled, making the issue moot. Moreover, they note that Comcast failed to ask the district court for a Daubert hearing on the damage model and thus is only entitled to a very limited “plain error” review of the issue which is deferential to the district court’s findings. Finally, and most importantly, the plaintiffs-respondents argue that the flaws in the damage model do not necessarily demonstrate that common issues fail to predominate. Unlike in Wal-Mart, where the alternative to common proof of injury was millions of mini-trials for each plaintiff, the plaintiffs-respondents here argue that a more refined model (even a version of Comcast’s own experts’ model) could show damages on a classwide basis.
At least seven amicus briefs have been filed urging the Court to require admissibility determinations under Daubert because of the significant settlement pressure on defendants caused by class certification. Amici, which include many trade groups, insist that any certification decision must be based on a rigorous review of admissible evidence to prevent plaintiffs from “blackmailing” defendants into settling what may be frivolous claims. This concern with the blackmail effect of the class action has been emphasized in the legal scholarship on class actions, and the Court quoted some of this scholarship with approval in Wal-Mart.
Two amicus briefs filed in support of the plaintiffs-respondents question whether any such “blackmail” effect is present. Moreover, the briefs argue, imposing such a requirement makes it more difficult to file antitrust class actions, which would diminish the enforcement of federal antitrust laws. One amicus brief points out that it would be odd to require plaintiffs to present admissible evidence of a merits issue to obtain the one thing – class certification – which would give them an incentive to develop such evidence. In fact, some scholarship has noted that the class action is necessary in small claims litigation to allow plaintiffs to invest in the merits on equal footing with the defendant.
The Court’s decision will have a significant impact on class actions in all areas of the law. Until recently, antitrust class actions like this one have been certified without requiring admissible evidence of antitrust impact. This was in part because courts have presumed that damages could be calculated using averages or could be determined individually after liability has been determined collectively. In fact, the dissent in the decision below suggested that the case should be remanded back to the district court to determine whether subclasses could be used to determine damages. But antitrust class actions have primarily been certified because courts have recognized the importance of class actions in enforcing antitrust law.
Of course, the same had been said about employment discrimination litigation under Title VII, in which courts, prior to Wal-Mart, similarly did not require admissible proof of common injury to certify a class. Prior to Wal-Mart, courts had certified employment discrimination class actions on the understanding that damages could be determined through individual trials at the back end, and that the enforcement objectives of Title VII obviated any need for more definitive proof of classwide injury for purposes of class certification. The Court rejected that approach in Wal-Mart; it will now determine whether that rejection applies wholesale.
[Disclosure: Goldstein & Russell, P.C., whose attorneys work for or contribute to this blog in various capacities, is among the counsel to the respondents in this case. However, the author of this post is neither associated with the law firm nor involved in the case.]