By Donald R. Frederico
Shortly after the Supreme Court’s decisions in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) and AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2011), I appeared before a federal district judge on a motion to dismiss a WARN Act class action. I was arguing that the plaintiffs’ complaint should be dismissed because it did not satisfy the pleading requirements that the Court set out in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009). To my astonishment, the judge interrupted me at that point in the argument to say “If the Supreme Court had its way, no class action could ever be brought.” I knew he was alluding to the recent decisions.
At the end of the hearing, the judge ruled from the bench, denying the motion to dismiss and setting a schedule for discovery and class certification. As I reflected on what had just happened, I was reminded of how powerful federal district judges are. This judge would allow the case to go forward, correctly or incorrectly, and there was nothing I could do about it. And rightly or wrongly, I could take solace in the thought that the judge ruled against me not because my position was wrong or I hadn’t argued it effectively, but because he disagreed with the Supreme Court.
I play this scenario in my mind every time I learn of a federal appellate court reacting to the Supreme Court’s decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), as I often wonder whether courts interpret Comcast narrowly not because the Comcast majority intended a narrow interpretation, but because they disagree with the majority opinion. And as with the WARN Act case, unless a circuit split develops and the Supreme Court again takes up the issue, there is very little defendants can do about what may be a growing rift.
The Comcast Decision
As class action lawyers know, Comcast was an antitrust case involving allegations that the defendant “clustered” its cable television operations within certain regions in order to achieve an anti-competitive effect, allowing it to charge high prices. To support class certification, plaintiffs relied on an expert witness who offered four theories that he claimed would allow him to prove damages on a class-wide basis. The district court rejected all but one of the theories but still certified the class, even though the expert admitted that the regression model he intended to use could not isolate the sole permissible theory. A divided panel of the Third Circuit affirmed the class certification decision. It refused to consider the merits of plaintiffs’ proffered expert testimony, finding that it was sufficient for class certification that plaintiffs could assure the court that damages resulting from the expert’s methodology “will not require labyrinthine individual calculations.” Id. at 1431.
The Supreme Court granted certiorari to consider whether a district court must determine the admissibility of a plaintiff’s expert testimony to show that the class should be certified. After it became apparent that that issue had not been properly preserved for appeal, the Court proceeded to rule on the different issue -- whether certification was improper because plaintiffs had failed to establish that damages could be determined on a classwide basis. A divided Court held that the case should not have been certified, reversing the Third Circuit’s decision.
As with Wal-Mart and Concepcion, the majority opinion was authored by Justice Scalia. After reviewing the standards for class certification, Justice Scalia summarized the basis for the majority’s decision:
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.
Id. at 1432-33. (emphasis added). The opinion went on to hold that class certification was improper because the model proposed by plaintiff’s expert to prove damages did not measure only those damages attributable to the permissible damages theory. “If the model does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3).” Id. at 1433. In the course of his opinion, Justice Scalia criticized the Third Circuit’s decision because the expert’s methodology did not “produce commonality of damages,” but may have included damages resulting from theories of liability that are “not capable of classwide proof.” Id. at 1434. In a footnote, Justice Scalia again referred to the need to establish “commonality of damages” to support class certification. Id. at 1435, n.6.
Although the Court’s specific ruling focused on the mismatch between the expert’s methodology and the narrowed theory of liability, the mismatch mattered only because, without a proper methodology, plaintiffs had not established that they would be able to prove damages on a classwide basis. It is difficult to read the Court’s opinion as expressing anything other than the principle that individualized issues of damages can defeat the showing of predominance necessary to sustain Rule 23(b)(3) certification.
The Comcast Dissent
The apparent significance of the majority opinion stirred Justices Ginsburg and Breyer to author a vigorous joint dissent. First, they criticized the
Court for deciding the case after learning that the question on which certiorari had originally been granted had been waived. Id. at 1436. They then argued that “the opinion breaks no new ground,” and that it “should not be read to require, as a prerequisite to certification, that damages attributable to a classwide injury be measurable ‘on a class-wide basis.’” Id. Rather, the dissent opined, “when adjudication of questions of liability common to the class will achieve economies of time and expense, the predominance standard is generally satisfied even if damages are not provable in the aggregate.” Id. at 1437. We can ignore the offending language, the dissent suggested, because “[r]ecognition that individual damages calculations do not preclude class certification under Rule 23(b)(3) is well-nigh universal.” Id. In a transparent attempt at nullification, the dissent concluded: “The Court’s ruling is good for this day and case only.” Id.
Transparent or not, the dissent’s effort to limit the reach of the majority opinion has been effective. Since Comcast, several federal appellate courts have addressed the scope of its holding. At least three interpretations have emerged: 1) Comcast applies only where there is a mismatch between the plaintiffs’ liability and damages theories, and the need for individualized damages determinations is no obstacle to class certification; 2) Comcast does not require plaintiffs to present a common method for proving class-wide damages in every case, but the individualized nature of plaintiffs’ alleged damages is a factor that should be considered in determining whether common issues predominate; and 3) Comcast always requires classwide proof of damages, at least in antitrust cases. The first and third interpretations represent the extremes along the spectrum, and the second represents the middle ground. But it is the first interpretation, exemplified by the moldy washing machine cases, and supported by the Comcast dissent, that has gained the most traction.
Moldy Washing Machines
It took little time for the dissent’s position to take hold. At the time it decided Comcast, the Court had two other class action cases on its dockets, from the Sixth and Seventh Circuits, both of which concerned claims about allegedly moldy washing machines: Whirlpool and Butler.
In In re: Whirlpool Corp. Front Loading Washer Products Liability Litigation, 722 F. 3d 838 (6th Cir. 2013), a judge in the Northern District of Ohio had certified a liability-only class under Rule 23(b)(3), expressly reserving the issue of damages for individual determination. The Sixth Circuit affirmed the certification order, Whirlpool petitioned the Supreme Court for a writ of certiorari, and the Court granted the petition. When it decided Comcast, however, the Supreme Court vacated the grant of certiorari and remanded the case to the Sixth Circuit to reconsider the appeal in light of Comcast. On remand, the Sixth Circuit again affirmed the district court’s certification order.
In reaffirming class certification, the Sixth Circuit relied on what it viewed as a key distinction between Comcast and Whirlpool – that the district court in Comcast had certified a liability and damages class, while the district court in Whirlpool had certified a liability-only class, reserving all damages issues for individual determination. Id. at 860. The court also invoked the portion of the Comcast dissent quoted above, including the “well-nigh universal” recognition that individual damages do not preclude Rule 23(b)(3) certification. Id. at 861.
The Seventh Circuit, citing Whirlpool and having received the same direction from the Supreme Court’s remand order, reached the same conclusion in Butler v. Sears, Roebuck & Co., 727 F.3d 796 (7th Cir. 2013). Like the Sixth Circuit, the Seventh Circuit distinguished Comcast because the district court in Butler had certified a liability-only class, leaving individual damages issues for separate determination:
[A] class action limited to determining liability on a class-wide basis, with separate hearings to determine – if liability is established – the damages of individual class members or homogeneous groups of class members, is permitted by Rule 23(c)(4) and will often be the sensible way to proceed.
Id. at 800.
The Seventh Circuit also identified another basis for distinguishing Comcast – that the expert’s blunt methodology in the Supreme Court case, which could not distinguish among four theories of injury, did not match the one theory that the district court approved. “Unlike the situation in Comcast, there is no possibility in this case that damages could be attributed to acts of the defendants that are not challenged on a class-wide basis; all members of the mold class attribute their damages to mold and all members of the control-unit class to a defect in the control unit.” Id.
Other Federal Appellate Decisions Distinguishing Comcast
Other circuits have adopted similarly narrow interpretations of Comcast. One of the first to do so was the Ninth Circuit in Leyva v. Medline Industries, Inc., 716 F. 3d 510 (9th Cir. 2013). In that case, the court reversed a district court order that had denied class certification because, it found, individualized damages issues would overwhelm any common liability issues. The Ninth Circuit not only relied on a prior ruling that “damage calculations alone cannot defeat certification,” id. at 513, but also distinguished Comcast because, in Comcast, plaintiffs’ expert relied on a model that measured damages that were not attributable to the plaintiffs’ theory of liability, while in Leyva the method for calculating damages would be aligned with the liability theory. Id. at 574.
The Fifth Circuit soon aligned itself with the Sixth, Seventh and Ninth Circuits in In re Deep Horizons, 739 F.3d 790 (5th Cir. 2014). Deep Horizons concerned the class action settlement stemming from the massive oil spill that occurred in the Gulf of Mexico in 2010. In contesting the class certification order, both the settling defendant (which was trying to get out of the settlement) and certain objectors championed a broad interpretation of the majority opinion in Comcast, arguing that Comcast “precludes certification under Rule 23(b)(3) in any case where the class members’ damages are not susceptible to a formula for classwide measurement.” Id. at 815. The Fifth Circuit rejected this argument, citing the prior decisions of the Sixth, Seventh and Ninth Circuits. Id., n. 104. Like those courts, it reasoned that “Comcast held that a district court errs by premising its Rule 23(b)(3) decision on a formula for classwide measurement of damages whenever the damages measured by that formula are incompatible with the class action’s theory of liability.” 739 F.3d at 815. It continued: “But nothing in Comcast mandates a formula for classwide measurement of damages in all cases.” Id. The court held:
As our three fellow circuits have already concluded, we agree that the rule of Comcast is largely irrelevant “[w]here determinations on liability and damages have been bifurcated” in accordance with Rule 23(c)(4) and the district court has “reserved all issues concerning damages for individual determination.”
Id., at 817 (quoting Whirlpool, 722 F.3d at 860).
More recently, in In re Nexium Antitrust Litigation, 777 F. 3d 9 (1st Cir. 2015), a pharmaceutical “pay-for-delay” case, a divided panel of the First Circuit echoed Whirlpool and Butler while seeming to offer a slightly different interpretation. Focusing on the issue whether a class that included uninjured class members could be certified, the Nexium majority held that “Comcast did not require that plaintiffs show that all members of the putative class had suffered injury at the class certification stage—simply that at class certification, the damages calculation must reflect the liability theory.” Id. at 23. And in July of this year, the Third Circuit joined the growing chorus, rejecting the argument that Rule 23(b)(3) requires a showing that damages are susceptible to classwide proof, and concluding that the Supreme Court’s holding “was specific to the antitrust claim at issue.” Neale v. Volvo Cars of North America, 2015 WL 4466919 *16 (3rd Cir. July 22, 2015).
Finally, in Roach v. T.L. Cannon Corp.,778 F. 3d 401 (2nd Cir. 2015), the Second Circuit also rejected the argument that Comcast requires, as a prerequisite for Rule 23(b)(3) certification, a finding that damages can be proved on a classwide basis, and reaffirmed its prior holdings that individualized damages issues alone are not sufficient to defeat a finding of predominance. While voicing agreement with the other circuits’ interpretations of Comcast, id. at 408, the Second Circuit also concluded that Comcast did not disturb its precedents holding that the need to determine damages on an individual basis is one factor in determining whether common issues predominate. Id. at 405. The Tenth Circuit had reached a similar conclusion in Wallace B. Roderick Revocable Living Trust, 725 F. 3d 1213, 1220 (10th Cir. 2013).
In the weeks between the Whirlpool and Butler decisions, just months after Comcast was decided, the District of Columbia Circuit issued an opinion in which it appeared to read the Supreme Court’s opinion more broadly. In In re: Rail Freight Fuel Surcharge Antitrust Litigation, 725 F.3d at 244 (D.C. Cir. 2013), defendant freight railroads appealed from the certification of a class of shippers who alleged that they had been injured by the imposition of fuel surcharges which violated the antitrust laws. In a challenge to plaintiffs’ expert’s testimony, reminiscent of Comcast, defendants argued that the expert’s regression model could not determine which shippers were in fact harmed. They argued, and the D.C. Circuit agreed, that predominance required plaintiffs to show that all class members were injured by the defendants’ alleged conspiracy. The court explained that it was not saying that “plaintiffs must be prepared at the certification stage to demonstrate through common evidence the precise amount of damages incurred by each class member . . . , [b]ut we do expect the common evidence to show all class members suffered some injury.” Id. at 252 (emphasis in original, citations omitted). Reviewing the case in light of Comcast (which the court referred to as Behrend), the court held:
As we see it, Behrend sharpens the defendants’ critique of the damages model as prone to false positives. It is now indisputably the role of the district court to scrutinize the evidence before granting certification, even when doing so “requires inquiry into the merits of the claim.” 133 S. Ct. at 1433. If the damages model cannot withstand this scrutiny then, that is not just a merits issue. [The expert’s] models are essential to the plaintiffs’ claim they can offer common evidence of classwide injury. . . . No damages model, no predominance, no class certification.
Id. at 253. (emphasis added, citation omitted). The court further observed that “[b]efore Behrend, the case law was far more accommodating to class certification under Rule 23(b)(3),” and that “[i]t is now clear . . . that Rule 23 not only authorizes a hard look at the soundness of statistical models that purport to show predominance—the rule commands it.” Id. at 255. With that, the court vacated the class certification order and remanded the case for further consideration in light of Comcast.
Not surprisingly, the D.C. Circuit’s decision has received the same narrow interpretation from its sister circuits as has the majority opinion in Comcast. See, e.g., Neale, 2015 WL 4466919, at n.10 (“One could read [the Rail Freight] analysis out of context as saying that all classes require a damages model; however, like Comcast the analysis as to class-wide damages was specific to that antitrust claim.”)
Where This Leaves Us
What seems clear from this line of decisions is that the Comcast dissent has largely won the debate over the reach of the majority’s decision. Arguably at least, the Sixth and Seventh Circuit decisions in Whirlpool and Butler have proven more persuasive to their sister circuits than Justice Scalia’s opinion and the D.C. Circuit’s opinion in Rail Freight. Of course, it is possible that all of these decisions are correct, that there really is no conflict, and that even the Comcast majority would agree with the narrow interpretation that has taken hold. But it seems at least equally plausible that the saga of Comcast evidences a willingness of federal appellate judges to marginalize Supreme Court decisions with which they disagree, particularly when they can invoke a dissenting opinion in support of their interpretations. And perhaps nowhere can this willingness be better tested than in the polarized world of class actions.
This paper was originally published in connection with the American Bar Association's 19th Annual National Institute on Class Actions, New Orleans, Louisiana, October 23, 2015.