Monday, April 8, 2013

FYI: US Sup Ct Reverses Class Certification for Failure to Meet "Predominance" Element

The U.S. Supreme Court recently ruled that class certification was improper in an antitrust action where the model used to measure alleged classwide damages did not show that any harm was the certain result of the one theory of anticompetitive conduct the lower court relied on to certify the class.


A copy of the opinion is available at:


The named plaintiffs ("Plaintiffs") filed a putative class-action lawsuit, alleging that a cable-television provider ("Cable Provider") improperly concentrated operations within the Philadelphia "Designated Market Area" ("DMA") consisting of 16 counties located in Pennsylvania, Delaware, and New Jersey.  Specifically, Plaintiffs alleged that Cable Provider unlawfully acquired competitors within the DMA, thereby allegedly engaging in monopolizing behavior in supposed violation of federal antitrust law.  Cable Provider's alleged "clustering scheme" supposedly harmed cable customers in the DMA by allegedly eliminating competition and holding prices for cable services above levels they would otherwise be in a more competitive environment.


Plaintiffs sought class certification under Federal Rule of Civil Procedure 23, proposing four theories of harm, each of which supposedly increased cable subscription rates throughout the DMA.  One such theory related to the allegedly anticompetitive effects of Cable Provider's activities on "overbuilders," companies that build competing networks in areas in which other cable companies already operate. 


Rejecting the three other theories of antitrust impact, the District Court accepted only the so-called "overbuilder theory" of antitrust impact as capable of class-wide proof, thus limiting proof of antitrust harm to showing that Cable Provider's anticompetitive clustering conduct deterred the entry of overbuilders into the DMA.  The trial court also concluded that the damages resulting from this particular alleged anticompetitive conduct could be calculated on a classwide basis, despite critical expert testimony that evidence comparing actual cable prices with hypothetical prices failed to isolate damages resulting from any one theory of anticompetitive impact.  Nevertheless, the district court certified the class based on the overbuilder theory of antitrust harm.

Cable Provider appealed, arguing that the damages methodology the district court relied on failed to attribute damages stemming specifically from the overbuilder theory to all subscribers within the DMA.  The Court of Appeals affirmed, reasoning in part that at the class certification stage, it was not necessary to "tie each theory of antitrust impact to an exact calculation of damages" and that "an attack on the merits of the methodology" used to determine damages was premature. 


The Supreme Court reversed, ruling that class certification was improper based on the theory of damages the lower courts used, as that model failed to show that damages could be measured on a class-wide basis to satisfy the predominance requirement of Rule 23(b)(3).


As you may recall, class certification requires numerosity of parties, common questions of law or fact, typicality of claims or defenses, and adequacy of representation.  Fed. R. Civ. Proc. 23(a).  In addition, Rule 23(b)(3) requires in pertinent part that questions of law or fact common to class members predominate over any questions affecting only individual members."  Fed. R. Civ. Proc. 23(b)(3).


With regard to Rule 23(a), the Court emphasized that it may be necessary to take up issues related to the merits of the plaintiffs' underlying claim in order to conduct the "rigorous analysis" required to rule on the certification question, and pointed out that the same principles govern Rule 23(b)(3)'s predominance element.  In so doing, the Court noted certain procedural safeguards, such as the opt-out provision, and stressed that Rule 23(b)(3), designed for situations in which class-action treatment may not be so clear-cut, is even more exacting than Rule 23(a).  


Thus, taking the Court of Appeals to task for failing to consider arguments against Plaintiffs' damages model merely because doing so required an examination of the merits, the Court, while noting the duty imposed by Rule 23(b)(3) to take a "close look" at whether common questions predominate over individual ones, concluded that class certification in this case was improper, because Plaintiffs' model failed to establish that damages were actually capable of measurement on a classwide basis. 


As the Court explained, in this case "[q]uestions of individual damage calculations will inevitably overwhelm questions common to the class[,]" given that: (1) the damages methodology used by the lower court would mean that any damages Plaintiffs could expect would be limited to damages specifically resulting from reduced overbuilder competition; and, moreover, (2) in purporting to serve as evidence of all damages in this case, the damages model must measure only those damages attributable to the overbuilder theory, regardless of whether Plaintiffs in fact suffered damages attributable to some other theory of Cable Provider's anticompetitive conduct.   Accordingly, the Court ruled that the lower court erred in reasoning that, because Plaintiffs had provided a method to measure and quantify class-wide damages, it was unnecessary to inquire as to whether that methodology was "a just and reasonable inference or speculative." 


The Court further observed that the model of damages that the lower court relied on for certification failed to measure damages allegedly stemming specifically from conduct with respect to overbuilders, because that model assumed the validity of all four theories of anticompetitive harm as a whole, and did not attribute damages specifically to any one particular theory of anticompetitive impact.  The Court also offered that the model may have been sound had all four of the theories of antitrust injury remained in the case, but that without all four in the case, it was impossible to identify how any anticompetitive harm was the "certain result" of the overbuilder theory of anticompetitive conduct.


Thus, the Court stressed that at the class-certification stage, any model supporting "a plaintiff's damages case must be consistent with its liability case, particularly with respect to the alleged anticompetitive effect of the violation[,]" thereby reiterating the need to consider the merits of a claim in assessing compliance with Rule 23.  See ABA Section of Antitrust Law, Proving Antitrust Damages; Legal and Economic Issues 57, 62 (2d ed. 2010); Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ___, ___ n.6  (2011)(slip op. at 10-11,  and n.6).   See also Federal Judicial Center, Reference Manual on Scientific Evidence 432 (3d ed. 2011)("The first step in a damages study is the translation of the legal theory of the harmful event into an analysis of the economic impact of that event.").  In the Court's view, following the lower court's reasoning would reduce Rule 23(b)(3)'s predominance requirement to a "nullity." 


Accordingly, the Court reversed the judgment of the Appellate Court and trial court, ruling that Rule 23(b)(3) did not authorize treating cable subscribers in the Philadelphia DMA as members of a single class.




Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
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