Supreme Court may raise hurdles to class actions again

November 5, 2012: 11:55 AM ET

'Class certification' might become more difficult because of an antitrust case against Comcast.

By Roger Parloff, senior editor

FORTUNE -- In a followup to its landmark class-action ruling in the Wal-Mart Stores v. Dukes case last year, the U.S. Supreme Court is hearing an antitrust case Monday in which it could, once again, raise the hurdles plaintiffs must vault before they can win "class certification"—i.e., the right to bring a case as a class-action.

Specifically, the Court may decide whether district judges must act as vigilant gatekeepers—applying so-called Daubert standards of admissibility—before permitting testimony from experts at the class certification hearings, to make sure the experts are not, basically, peddling junk science.

The 2003 lawsuit, Comcast v. Behrend, alleges that cable operator Comcast (CMSCA) engaged in attempted monopolization and illegal restraints of trade when it increased its Philadelphia market share from 23.9% in 1998 to 77.8% in 2002. The company achieved its dominance through "clustering," meaning that it swapped cable systems it owned outside of Philadelphia for other companies' systems within Philadelphia, or it simply acquired Philadelphia systems outright.

In broad terms, the case concerns whether and how rigorously a federal district judge must wade into the ultimate merits of a case while deciding whether that case can go forward as a class action. In theory, the class certification decision hinges on issues separate and distinct from the merits of a case, like whether questions of law and fact common to all class members "predominate" over questions unique to each.

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A 1947 Supreme Court ruling known as Eisen v. Carlisle & Jacquelin was once understood as requiring courts to avoid wading into merits-related determinations at the class certification stage. In practice, though, it was often hard to keep merits issues entirely separate from class-certification issues. More important, it gradually became apparent that the class certification hearing was the critical stage of the typical class action, because full trials on the merits almost never took place in the real world. If the plaintiffs won class certification, the risks to the defendant of proceeding to trial were too great, and it would settle for a steep sum. If the defendant won class certification, on the other hand, the plaintiffs had to either drop the case entirely or settle very cheaply.

Two terms ago, in its Dukes ruling of June 2011, the Court decisively declared that the old, expansive interpretations of Eisen were "mistaken," and ruled that, on the contrary, whenever merits determinations are crucial to class certification questions, courts must make them. The Court also said it "doubt[ed]" the correctness of the assumption of the district judge in Dukes that Daubert (junk science) hearings were not required at the certification stage. (Nevertheless, the Dukes Court formally did not reach or decide the Daubert issue.)

In the Comcast suit, Comcast argued that calculation of the damages, if any, suffered by the 2 million alleged class members would have to be calculated on an individual basis, making the suit unsuitable for class treatment.

To rebut that argument, the plaintiffs' attorneys called an expert economist, James McClave, who proposed a mathematical model that would allow computation of damages on a classwide basis. But the model had been devised anticipating four types of damages, while the district judge later ruled that only one of those four categories of damages was permissible. Since there was no way to tease out the recoverable from the unrecoverable damages measured by the model, Comcast protested that the model was worthless.

The district judge certified the class nonetheless and, in August 2011, a split panel of the U.S. Court of Appeals for the Third Circuit affirmed. The majority clung to the view that Eisen still had some vitality, notwithstanding the Dukes decision of two months earlier, writing that "attacks on the methodology" of damage calculation "have no place in the class certification inquiry."

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While reversal might sound likely based on the facts described so far, there are some major procedural complications with the case. Although Comcast objected to class certification because of the alleged irrelevance of the expert's methodology for calculating damages, the company never explicitly asked for a Daubert hearing before the district judge, never framed its appeal as raising a Daubert issue, and did not expressly raise the Daubert question in its petition for Supreme  Court review.

The attorneys representing the plaintiffs—led in the Supreme Court by Barry Barnett of Susman Godfrey—have forcefully argued that Comcast waived the Daubert issue, and that the Supreme Court should, therefore, simply retract its earlier decision to hear the case in the first place. (In formal terms, the plaintiffs argue, it should dismiss the writ of certiorari as "improvidently granted," leaving the Third Circuit ruling in place but setting no precedent at the Supreme Court level.)

If the Court does use this case to decide the Daubert issue, it may, therefore, invite criticism for having acted as judicial activists who reached out to decide an issue that wasn't properly before them.

At the Supreme Court argument, Comcast will be represented by Miguel Estrada, of Gibson, Dunn & Crutcher.

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