Comcast And Economic Analysis of Class Certification Issues

By Drew Claxton and Dr. Faten Sabry1

Introduction

The US Supreme Court's recent decision in Comcast Corp. v. Behrend on 27 March 2013 is likely to have significant implications on the use of economic analysis at the certification stage of class action litigation.2 In the Court's opinion, Justice Antonin Scalia wrote:

"By 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 Appeals ran afoul of our precedents requiring precisely that inquiry. And it is clear that, under the proper standard for evaluating certification, respondents' model falls far short of establishing that damages are capable of measurement on a classwide basis. Without presenting another methodology, respondents cannot show Rule 23(b)(3) predominance: Questions of individual damage calculations will inevitably overwhelm questions common to the class."

In this brief note, we discuss the Court's decision and its potential impact on consumer class actions, with a focus on the role of economic analysis in the certification stage of consumer class actions. For our discussion, we use two recent product liability consumer class actions, Whirlpool Corp. v. Gina Glazer and Sears Roebuck and Co. v. Larry Butler, as illustrative examples.3

The Requirements of Class Certification

Both academics and practitioners have long examined the rationale and drawbacks of class actions. Some have argued class actions could "promote the efficient and orderly adjudication of substantive rights affecting an entire class of persons, without the necessity of joining all such persons as formal parties."4 With increased judicial efficiency, however, comes an "extraordinary settlement power."5 Courts have recognized that certifying a class could make it more likely to find a defendant liable and increase the size of any damage awards. Therefore, the certification stage is critical in any class action whether the case is related to antitrust, labor, product liability, consumer finance, or securities.

Rule 23 of the Federal Rules of Civil Procedures identifies the requirements for a class to be certified, and the plaintiffs bear the burden of proving that they have met the requirements of Rule 23. To meet these requirements, the plaintiffs must establish that they meet all of the conditions of Rule 23(a) - numerosity, commonality, typicality, and adequacy 6 - and at least one of the following requirements of Rule 23(b): 1) that separate actions by individual class members would create a risk of adjudications leading to incompatible standards of conduct for the party opposing the class, or the impairment of the ability of class members to protect their interests; or 2) injunctive or declaratory relief is appropriate for the class and the party opposing the class has acted or refused to act; or 3) that common issues of law or fact predominate over issues affecting only individual class members, and that a class action would be superior to other methods for "fair and efficient adjudication of the controversy." 7, 8

The Comcast Decision

In March 2013, the US Supreme Court, in a 5-4 decision, reversed the judgment of the Court of Appeals for the Third Circuit in Comcast Corp. v. Behrend, where the Appeals Court had affirmed the District Court's decision to certify a class of more than two million Comcast cable subscribers who alleged federal antitrust violations. The Supreme Court reiterated that the District and Circuit Courts needed to take a more critical look at how plaintiffs claimed to be harmed as a class and how damages would be calculated for each individual class member, even if such review involved the merits of the case, and found that the plaintiffs had failed to meet the predominance requirements of Rule 23(b)(3) as their methodology to calculate damages was not tied to their theory of liability.

In Comcast, plaintiffs alleged that Comcast Corp., a cable television service provider, had engaged in unlawful swap agreements that decreased competition in the Philadelphia market area and enabled the company to charge prices that were above competitive levels.9 The plaintiffs sought class certification under Rule 23(b)(3), which requires that "questions of law or fact common to class members predominate over any questions affecting only individual members."10 The District Court held and the Supreme Court agreed that, to meet the predominance requirement, plaintiffs had to show "(1) that the existence of individual injury resulting from the...