On Nov. 5, 2012, the U.S. Supreme Court heard oral arguments over whether class action plaintiffs must provide a trial court with admissible expert testimony sufficient to make a class-wide determination of damages in order to obtain class certification. While nominally dealing with an antitrust case, the Supreme Court’s eventual decision in Comcast Corp. v. Behrend,No. 11-864 could require trial courts to rule on the admissibility of damages models at class certification and may limit the viability of securities and other class actions by demanding that plaintiffs provide more than a plausible damages model before they can proceed on a class-wide basis.
Until now, trial courts have regularly declined to consider whether plaintiffs have provided enough evidence to establish damages before ruling on whether a group of plaintiffs could proceed as a class. Instead, trial courts have tasked plaintiffs with showing that they shared common questions of fact and that such facts outweighed individual questions of fact.
But by agreeing to consider Comcast, the Supreme Court appears poised to require more of class action plaintiffs seeking certification. The antitrust case was originally brought by a group of cable customers who argued that Comcast violated antitrust laws by acquiring competing companies and causing price increases for cable services. In their arguments for class certification, the cable customers provided the trial court with an expert report that sought to establish class-wide damages. The Third Circuit Court of Appeals upheld the lower court’s decision to accept the damages model and affirm class certification, explaining that courts are not required at class certification to evaluate whether a plaintiff’s expert damages model has merit.
The Supreme Court granted Comcast’s request for review of the Third Circuit’s decision, invoking the high court’s 2011 decision in Wal-mart Stores, Inc. v. Dukes, which held that a trial court must resolve some fact questions for class certification even if those questions must again be proven again at trial. The question for review focused on one seemingly narrow issue with wide-ranging implications: whether plaintiffs seeking class certification must introduce to the trial court “admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.”
During the Nov. 5 oral arguments, counsel for Comcast argued that the expert model presented by the plaintiffs amounted to “bunk,” and that the court should have decided “whether what [plaintiffs’ expert] came up with was an adequatemethodology for measuring” the impact of Comcast’s conduct. In so arguing, Comcast’s lawyers effectively urged the Court to extend the reasoning of the Wal-mart decision to other sorts of cases and thus create additional early-stage barriers for class actions. Counsel for the plaintiff customers countered that their expert’s testimony satisfied admissibility standards and that in attacking only the weight of the expert’s testimony at the trial court (as opposed to its admissibility), Comcast had waived its right to argue as to the narrow issue reformulated by the Supreme Court.
During questioning, Justice Elena Kagan suggested that in deciding to review the Third Circuit’s decision, the Supreme Court had intended to answer only a question of law, not one of fact: “[W]hat we wanted to talk about was whether a district court at a class certification stage . . .has to decide on the admissibility of expert testimony relating to class-wide damages.” Judge Kagan continued: “[W]e wanted to decide a legal question, rather than a question about who was right as to this particular expert’s report and how strong it was. And it turns out that, as to that legal question, [Comcast] waived their . . . argument that this was inadmissible evidence.”
Facing this procedural dilemma, Chief Justice John Roberts offered what may be construed as an activist solution, saying that: “… one option for the court, since we did reformulate the question, is to answer the question and then send it back for the court to determine whether or not the parties adequately preserved that … objection or not.”
Plunging into the issue of whether a trial court must act as more than a gatekeeper of admissible evidence at class certification, Justice Kennedy questioned the decision to allow the case to move forward and hinted that he may support a holding subjecting plaintiffs to heightened evidentiary standards at class certification, stating: “The judge has to make a determination that in his view the class can be certified,” and such a determination “includes some factual inquiries as to the damages alleged and the cause of the injury and whether or not there is a common – whether or not there’s a commonality.”
Frustrated as it appeared with Comcast’s procedural misstep, it is conceivable that the Supreme Court may require class action plaintiffs seeking class certification to offer more than an admissible and plausible damages model (or other expert testimony) establishing that class-wide damages are measureable, thus potentially expanding the reach of Wal-mart and erecting another costly barrier to the diligent resolutions of securities and other class actions.
– November 7, 2012