Wednesday, March 27, 2013

Comcast v. Behrend: Supreme Court Conservative Majority Reaches to Strike Down Class Action, with Holdings of Limited Weight

by Bryan J. Schwartz and Michael D. Thomas

This morning, the Supreme Court issued its ruling in Comcast v. Behrend. In a 5-4 decision written by Justice Scalia, regarding which the justices split along ideological lines, the Supreme Court’s conservative majority held that the plaintiffs’ class action was improperly certified under Federal Rule of Civil Procedure Rule 23(b)(3).

The practical impact of the Court’s ruling should be limited to antitrust cases and the particular facts of the case, according to the dissent. Written by Justices Ginsburg and Breyer, and joined by Justices Sotomayor and Kagan, the dissent states, “[t]he court’s ruling is good for this day and this case only.” Slip Op., dissent at 5. In particular, the dissent points out that the seemingly sweeping language of the majority requiring that “damages attributable to a classwide injury be measurable ‘on a class-wide basis’” (Slip Op., dissent at p. 3) could not be read as a general holding, since: "the need to prove damages on a classwide basis through a common methodology was never challenged" by the plaintiffs in the case (Slip Op., dissent at p. 5), rendering the majority’s discussions of such to be nothing more than dicta; and "it remains the 'black letter rule' that a class may obtain certification under Rule 23(b)(3) when liability questions common to the class predominate over damages questions unique to class members." Id.

It is a mystery why the Court granted certiorari in the first place or issued any decision ultimately. In particular, the Supreme Court granted review to decide "[w]hether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence..." (Slip Op., dissent at p. 1), though such did not resemble the petitioner's question presented for review. Then, the justices learned that Comcast had failed in the lower court to raise any evidentiary objections, such that the question of admissible evidence was not properly before the Supreme Court. The majority ultimately decided a totally different question (namely, whether the case was susceptible to awarding damages on a class-wide basis) without briefing by the parties on the issue. Id. at 2.

By way of background, the named plaintiffs in the Comcast antitrust class action claimed that they and other subscribers in the Philadelphia “cluster” were harmed because Comcast’s tactics lessen competition and lead to overpriced services. They 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.”

Plaintiffs originally alleged four types of antitrust impact. The District Court ruled that the plaintiffs could proceed on only one of those theories of liability, called “overbuilding,” regarding how smaller entrants into the market were inhibited based upon Comcast’s anti-competitive behaviors, leading to higher prices. Plaintiffs’ expert prepared a damages model that did not distinguish among the four different types of antitrust impacts, but simply measured the overall effect of Comcast’s practices (an $875M damages estimate from overpriced services). Slip Op., majority at p. 4.The District Court and Third Circuit concluded that it was inappropriate to consider the merits at the Rule 23 stage, but certification was appropriate, because a method of determining class-wide damages existed, meeting the predominance standard.

Writing for the majority, Justice Scalia held that at the class certification stage (as at trial), any model supporting a plaintiff's damages case must be consistent with the liability case theory, in order to be given weight by the courts. Slip Op., majority at p. 7. See also Slip Op., majority at p. 11 (“’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.”). The majority emphasized that consideration of the merits is permissible where it overlaps with the Rule 23(b)(3) predominance inquiry. The Court therefore held that because the plaintiffs’ damages model was not specific as to which of the four theories of antitrust liability it relied upon, and because three of the theories had been rejected, plaintiffs’ proposed damages model could not show damages on a class-wide basis. Therefore, the majority found, the class should not have been certified.

The scathing dissent begins: “Today the Court reaches out to decide a case hardly fit for our consideration. On both procedural and substantive grounds, we dissent. This case comes to the Court infected by our misguided reformulation of the question presented. For that reason alone, we would dismiss the writ of certiorari as improvidently granted.” Slip Op., dissent at p. 1.

In addition to the points discussed above, the dissent notes that the Supreme Court’s majority inappropriately fails to defer to the trial court’s factual findings, namely, that striking three of the theories of antitrust liability did not impeach the plaintiffs’ expert’s damages model. Slip Op., dissent at p. 9. Ultimately, the only conclusion that can reasonably be drawn as to why the majority insisted on deciding this case is that the conservative Court is willing to go to great lengths, including considering a case where the writ of certiorari was improvidently granted, in order to deny class certification.

The Comcast v. Behrend case should not change plaintiffs’ arguments, and courts’ analysis, that “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.” Slip Op., dissent at p. 4.

If you have questions about class action employment litigation, contact Bryan Schwartz Law today.

Bryan Schwartz Discusses Standard Fire v. Knowles Decision

The Lawyers USA news service relied upon several viewpoints expressed by Bryan Schwartz Law's principal in its discussion of the U.S. Supreme Court's recent Standard Fire v. Knowles decision.

The article is reprinted here.

Bryan Schwartz also expressed the view, not captured in the article, that the impact of the particular decision will be very limited, since few plaintiffs' lawyers use the device of a stipulation to a less-than-$5M claim to avoid federal court jurisdiction, raising the query as to why the Supreme Court felt the need to address the question. Schwartz conveyed, however, that some inherent contradictions arise with the defense bar's view (embraced by the Supreme Court) that fathoms expansive class actions for the purpose of seeking federal court jurisdiction, but then seeks to break a class into smithereens by using the notion of an arbitration class waiver, as articulated in ATT Mobility v. Concepcion.

Thursday, March 21, 2013

Supreme Court's Standard Fire Insurance Decision Eliminates Plaintiffs’ Ability to Avoid CAFA Jurisdiction through Pre-Certification Stipulations Limiting Amount in Controversy

On Tuesday, the Supreme Court published a unanimous decision in Standard Fire Insurance Co. v. Knowles, No. 11-1450 (Mar. 19, 2013), authored by Justice Breyer, holding that a pre-certification putative class representative may not avoid federal jurisdiction under the Class Action Fairness Act of 2005 (“CAFA”) by stipulating that the amount in controversy is less than CAFA’s $5 million floor. The Court’s reasoning rested on the premise that a pre-certification class representative cannot bind potential members of the yet-to-be-certified class, and therefore cannot enter into a “stipulation” on their behalf.

The case, brought in Arkansas state court, involved a proposed class action alleging that the defendant insurer had unlawfully failed to include a general contractor fee when making certain homeowner’s insurance loss payments. Named plaintiff Knowles sought to certify “hundreds, and possibly thousands” of similarly harmed policyholders. The complaint stated that “Plaintiff and Class stipulate they will seek to recover total aggregate damages of less than five million dollars,” and an attached affidavit by Knowles stipulated that he would “not at any time during this case … seek damages for the class … in excess of $5,000,000 in the aggregate.”

The defendant removed, but the district court remanded, holding that although the amount in controversy would have slightly exceeded the $5 million threshold, the stipulation deprived the federal court of jurisdiction under CAFA. Although the Eighth Circuit declined to hear an appeal from the remand order, the Supreme Court reached to take the case, evidencing a continued interest in defining the scope of plaintiffs’ class action remedies.

By holding that plaintiffs may not enter into pre-certification stipulations to limit the amount-in-controversy, the Court eliminated an arrow from plaintiffs’ quiver, making it more difficult to ensure that class claims are litigated in the class’s forum of choice. The Court was unswayed by the fact that plaintiffs proceeding on a non-class basis are free to stipulate that their damages will not exceed a specified amount-in-controversy.

As a result of the ruling, some class actions that would otherwise have proceeded in state court will presumably be forced into federal court. Plaintiffs may thus be deprived of more lenient state certification requirements and forced to proceed under Federal Rule 23, as interpreted by Wal-Mart v. Dukes, 564 U.S. __ (2011). Other “procedural” advantages of proceeding in state court, such as the availability of non-unanimous jury verdicts, will also become unavailable to such classes. And in some states, the federal bench tends to view class claims less favorably than the state. The Court’s ruling suggests an interest in reaching out to circumscribe the options of plaintiff classes. Nonetheless, in the Northern District of California, where Bryan Schwartz Law is located and frequently practices, the excellent federal bench may mitigate any damage that may be done by Standard Fire in other jurisdictions.

If you have questions about your class action rights, contact Bryan Schwartz Law today.

Disclaimer: Nothing in the foregoing commentary is intended to provide legal advice in any particular case. The author and Bryan Schwartz Law cannot represent you unless you have a signed representation agreement with the firm.