Supreme Court Redefines Required Damages Showing for Class Certification
Labor & Employment @lert
Date: March 27, 2013
The class action has become an increasingly common element of American civil jurisprudence, particularly in the context of federal employment litigation. On March 27, 2013, however, the Supreme Court of the United States dealt a potentially serious blow to the availability of this scheme by redefining the required showing of damages in order to certify a class action.
In Comcast Corp. v. Behrend, the Supreme Court addressed whether a group of plaintiffs had established a sufficient commonality of damages to certify an antitrust class action. The plaintiffs sought to certify their class under Federal Rule of Civil Procedure 23(b)(3), which required them to show that the existence of individual injury from Comcast's activities could be proved at trial through evidence common to the class rather than individual to its members, and that damages resulting from this injury were measurable "on a class-wide basis" through use of a "common methodology."
To show common evidence of injury, the Behrend plaintiffs proposed four different theories, including the argument that Comcast's business practices reduced the level of competition from "overbuilders" in their geographic region, which are companies that build competing cable networks in an area where an incumbent cable provider operates. This overbuilder theory was the only concept accepted by the district court. The plaintiffs also presented a damages expert who utilized a regression model to calculate general class-wide damages from Comcast's alleged antitrust violations. Importantly, however, the model did not isolate damages resulting from any single theory of injury, including the plaintiff's overbuilder theory. Nevertheless, both the district court and Third Circuit approved class certification under Rule 23(b)(3).
In a 5-4 decision, the Supreme Court rejected the class certification and held that the plaintiffs had failed to show damages "on a class-wide basis." As an initial matter, the court dismissed the argument that a court cannot consider the merits of a claim at the class certification stage. Instead, the majority emphasized that "class determination generally involves considerations that are enmeshed in the factual and legal issues" that "will frequently entail overlap with the merits of the underlying claim." Accordingly, the Behrend court held that a court may consider arguments regarding a damages model during class certification, even if those same arguments are relevant to the merits of a case.
Analyzing the plaintiffs' regression model, the court found that it fell "far short" of Rule 23(b)(3)'s requirement that damages be measurable on a class-wide basis. The majority explained that the first step in the analysis is "the translation of the legal theory of the harmful event into an analysis of the economic impact of that event." Since the plaintiffs' sole basis for class-wide injury was its overbuilder theory, the court reasoned that "a model purporting to serve as evidence of damages in this class action must measure only those damages attributable to that theory."
Importantly, the Behrend majority emphasized that the plaintiffs' regression model did not tie damages to the overbuilder theory. In fact, the model "did not attribute damages to any one particular theory of anticompetitive impact." As a result, the court found that the regression model "cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3)." Accordingly, the Supreme Court held that the plaintiffs failed to show class-wide damages and were not entitled to class certification under Rule 23(b)(3).
In light of Behrend, employers facing potential class actions under federal employment laws should be mindful of their defenses to class certification. Importantly, employees who assert multiple class-wide theories of injury can no longer rely on a model that makes a general damages calculation for their class. Instead, employees are now required to specifically attribute damages to each theory presented. Failure to do so now gives employers a ripe argument that class certification should be denied.