Comcast v. Behrend: SCOTUS Issues Decision on Damages Evidence Required for Class Certification

The Supreme Court of the United States on Tuesday issued its opinion in Comcast Corp. v. Behrend (Case No. 11-864). Comcast is an antitrust action raising issues about the damages evidence required for certification under Federal Rule 23. Here is the syllabus from the opinion, which was written by Scalia, with Roberts, Kennedy, Thomas, and Alito joining: 

Petitioners, Comcast Corporation and its subsidiaries, allegedly “cluster” their cable television operations within a particular region by swapping their systems outside the region for competitor systems inside the region. Respondents, named plaintiffs in this class-action antitrust suit, claim that they and other Comcast subscribers in the Philadelphia “cluster” are harmed because Comcast’s strategy lessens competition and leads to supra-competitive prices. They sought class certification under Federal Rule of Civil Procedure 23(b)(3), which requires that “questions of law or fact common to class members predominate over any questions affecting only individual members.”The District Court required them to show (1) that the “antitrust impact” of the violation could be proved at trial through evidence common to the class and (2) that the damages were measurable on a classwide basis through a “common methodology.” The court accepted only one of respondents’ four proposed theories of antitrust impact:that Comcast’s actions lessened competition from “overbuilders,” i.e., companies that build competing networks in areas where an incumbent cable company already operates. It then certified the class, finding that the damages from overbuilder deterrence could be calculated on a classwide basis, even though respondents’ expert acknowledged that his regression model did not isolate damages resulting from any one of respondents’ theories. In affirming, the Third Circuit refused to consider petitioners’ argument that the model failed to attribute damages to overbuilder deterrence because doing so would require reaching the merits of respondents’ claims at the class certification stage.  

Held: Respondents’ class action was improperly certified under Rule 23(b)(3). Pp. 5–11.  

(a) A party seeking to maintain a class action must be prepared to show that Rule 23(a)’s numerosity, commonality, typicality, and adequacy-of-representation requirements have been met, Wal-Mart Stores, Inc. v. Dukes, 564 U. S. ___, ___, and must satisfy through evidentiary proof at least one of Rule 23(b)’s provisions. The same analytical principles govern certification under both Rule 23(a) and Rule 23(b). Courts may have to “ ‘probe behind the pleadings before coming to rest on the certification question,’ and [a] certification is proper only if ‘the trial court is satisfied, after a rigorous analysis, that [Rule 23’s] prerequisites . . . have been satisfied.’ ” Ibid. The analysis will frequently “overlap with the merits of the plaintiff ’s underlying claim” because a “ ‘class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff ’s cause of action.’ ” Ibid. Pp. 5–6.  

(b) The Third Circuit ran afoul of this Court’s precedents when it refused to entertain arguments against respondents’ damages model that bore on the propriety of class certification simply because they would also be pertinent to the merits determination. If they prevail, respondents would be entitled only to damages resulting from reduced overbuilder competition. A model that does not attempt to measure only those damages attributable to that theory cannot establish that damages are susceptible of measurement across the entire class for Rule 23(b)(3) purposes. The lower courts’ contrary reasoning flatly contradicts this Court’s cases, which require a determination that Rule 23 is satisfied, even when that requires inquiry into the merits of the claim. Wal-Mart, supra, at ___, and n. 6. Pp. 6–8.  

(c) Under the proper standard for evaluating certification, respondents’ model falls far short of establishing that damages can be measured classwide. The figure respondents’ expert used was calculated assuming the validity of all four theories of antitrust impact initially advanced by respondents. Because the model cannot bridge the differences between supra-competitive prices in general and supracompetitive prices attributable to overbuilder deterrence, Rule 23(b)(3) cannot authorize treating subscribers in the Philadelphia cluster as members of a single class. Pp. 8–11.

Justices Ginsburg and Breyer wrote a dissenting opinion, in which Justices Sotomayor and Kagan joined, arguing that review was improvidently granted, that the question decided was not properly before the Court, and that the majority’s decision was wrongly decided and subject to misinterpretation: 

While the Court’s decision to review the merits of the District Court’s certification order is both unwise and unfair to respondents, the opinion breaks no new ground on the standard for certifying a class action under Federal Rule of Civil Procedure 23(b)(3). In particular, the decision 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.’” See ante, at 2–3 (acknowledging Court’s dependence on the absence of contest on the matter in this case); Tr. of Oral Arg. 41.

The opinion is available here.  

I am very pleased to announce that Miguel A. Estrada of Gibson, Dunn & Crutcher, who argued the case in the Supreme Court for the petitioners, and Barry C. Barnett of Susman Godfrey, who argued for the respondents, have agreed to speak on our Watch List program, which will be presented jointly by the State Bar's Labor and Employment Law and Antitrust and Unfair Competition Law Sections. Thank you to Niall Lynch of Latham & Watkins for organizing this event. I will post the program date and time once we have them.  

Bradley v. Networkers International: Supreme Court Denies Review of Post-Brinker Decision Reversing Denial of Meal and Rest Period Certification

The California Supreme Court on March 20 denied review in Bradley v. Networkers International (12/12/12) 211 Cal.App.4th 1129 (discussed here), modified 1/8/13 (discussed here).

Of the eight Brinker grant-and-hold cases (discussed here) Bradley is one of only two that has resulted in a citable post-Brinker decision. The other is Muldrow v. Surrex Corporation (8/29/12) 208 Cal. App. 4th 1381, depub. denied 1/3/13 (discussed here). Here's how the others have fared: 

Brookler v. Radioshack Corporation: Unpublished    

Hernandez v. Chipotle Mexican Grill: Depublished  

Tien v. Tenet Healthcare: Depublished  

Lamps Plus Overtime Cases: Depublished 

Brinkley v. Public Storage: Pending  

Faulkinbury v. Boyd & Associates: Pending  

Compton v. Superior Court: Court Finds Arbitration Agreement Unconscionable

In Compton v. Superior Court (American Management Services, LLC) (3/19/13) --- Cal.App.4th ---, the plaintiff, Compton, filed a putative class action against her former employer, AMS. After the Supreme Court's decision in AT&T Mobility, LLC v. Concepcion, ___ U.S. ___ (2011), AMS sought to enforce its arbitration agreement, which included a class action waiver. The trial court granted the motion to compel individual arbitration. The Court of Appeal reversed, holding:

Although the order compelling arbitration was not appealable, the Court elected to treat the appeal as a petition for writ of mandate. The Court did not consider whether the death knell doctrine applied. Slip op. at 10-11.

The unconscionability defense to enforcement of the agreement survives Concepcion. Slip op. at 11-12.  

The arbitration agreement was substantively unconscionable because it was unfairly one-sided: it required employees to arbitrate all claims; it imposed a one-year statute of limitations on employee claims, but did not impose the same period on employer claims for unfair competition and trade secret violations; and it gave the arbitrator discretion on attorney fees that may be mandatory in certain claims. Slip op. at 12-17.

Concepcion does not abrogate the rule, which the Court imputed to Armendariz, that an may be found unconscionable where it is unfairly one-sided. Slip op. at 17-22.

Excluding claims for workers compensation, unemployment benefits, and disability insurance did not make the agreement bilateral. Slip op. at 22-23.

The broad equitable relief that the agreement allowed AMS to seek in court exceeded what would be allowed under the California Arbitration Act. Slip op. at 24-25.

AMS did not show that the "business realities" exception to unconscionability analysis applied. Slip op. at 26-27.

The agreement was presented on a take-it-or-leave-it basis and was procedurally unconscionable. Slip op. at 28-32.

The opinion is available here.  I assume that the employer will petition for review and that the Supreme Court will grant and hold pending Sanchez v. Valencia Holding Co., LLC (discussed here).  

Riverside County Sheriff’s Dep’t v. Stiglitz: Cal. Supreme Court to Decide Whether Hearing Officer in Public Employee Termination Matter May Grant Pitchess Motion

On January 16, 2013, the California Supreme Court granted review in Riverside County Sheriff’s Department v. Stiglitz (Case No. S206350).  The court limited review to the following issue: 

Does the hearing officer in an administrative appeal of the dismissal of a correctional officer employed by a county sheriff's department have the authority to grant a motion under Pitchess v. Superior Court (1974) 11 Cal.3d 531? 

In the underlying opinion (available here), the Court of Appeal reversed an order granting a petition for writ of administrative mandate, holding that a hearing officer in such a case has authority to to grant a Pitchess motion. 

The Supreme Court's case summary page is here.  I have added the case to our Watch List of pending cases.  

Standard Fire Ins. Co. v. Knowles: Plaintiff Cannot Defeat CAFA Jurisdiction By Stipulating To Recover Less Than $5 Million

In a unanimous opinion written by Justice Breyer, the Supreme Court of the United States in Standard Fire Insurance Co. v. Knowles, ___ U.S. ___ (3/19/13), has held that a plaintiff in a putative class action may not defeat federal jurisdiction under the Class Action Fairness Act (CAFA) by stipulating at the start of the case that he or she will not seek to recover more than $5 million.  The official syllabus does a good job of stating the Court's decision succinctly:  

The Class Action Fairness Act of 2005 (CAFA) gives federal district courts original jurisdiction over class actions in which, among other things, the matter in controversy exceeds $5 million in sum or value, 28 U. S. C. §§ 1332(d)(2), (5), and provides that to determine whether a matter exceeds that amount the "claims of the individual class members must be aggregated," § 1332(d)(6). When respondent Knowles filed a proposed class action in Arkansas state court against petitioner Standard Fire Insurance Company, he stipulated that he and the class would seek less than $5 million in damages. Pointing to CAFA, petitioner removed the case to the Federal District Court, but it remanded to the state court, concluding that the amount in controversy fell below the CAFA threshold in light of Knowles' stipulation, even though it found that the amount would have fallen above the threshold absent the stipulation. The Eighth Circuit declined to hear petitioner's appeal.

Held: Knowles' stipulation does not defeat federal jurisdiction under CAFA. Pp. 3-7. 

(a) Here, the precertification stipulation can tie Knowles' hands because stipulations are binding on the party who makes them, see Christian Legal Soc. Chapter of Univ. of Cal., Hastings College of Law v. Martinez, 561 U. S. ___. However, the stipulation does not speak for those Knowles purports to represent, for a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified. See Smith v. Bayer Corp., 564 U. S. ___, ___. Because Knowles lacked authority to concede the amount in controversy for absent class members, the District Court wrongly concluded that his stipulation could overcome its finding that the CAFA jurisdictional threshold had been met. Pp. 3-4.  

(b) Knowles concedes that federal jurisdiction cannot be based on contingent future events. Yet, because a stipulation must be binding and a named plaintiff cannot bind precertification class members, the amount he stipulated is in effect contingent. CAFA does not forbid a federal court to consider the possibility that a nonbinding, amount-limiting, stipulation may not survive the class certification process. To hold otherwise would, for CAFA jurisdictional purposes, treat a nonbinding stipulation as if it were binding, exalt form over substance, and run counter to CAFA's objective: ensuring "Federal court consideration of interstate cases of national importance." § 2(b)(2), 119 Stat. 5.  

It may be simpler for a federal district court to value the amount in controversy on the basis of a stipulation, but ignoring a nonbinding stipulation merely requires the federal judge to do what she must do in cases with no stipulation: aggregate the individual class members' claims. While individual plaintiffs may avoid removal to federal court by stipulating to amounts that fall below the federal jurisdictional threshold, the key characteristic of such stipulations — missing here — is that they are legally binding on all plaintiffs. Pp. 4-7.  

Vacated and remanded.  

The opinion is available here.  SCOTUSblog.com has a page for the case here, which includes the opinion below, transcript of oral argument, and other materials.  

I had thought that we would present a Watch List program on this case, but the decision is pretty straight-forward, and there likely would not be tremendous interest in the program, so we are going to skip this one. Stay tuned for information on other Watch List programs.  

City of L.A. v. Superior Court: Supreme Court To Hear Oral Argument In Action To Compel Arbitration Of City's Furlough Plan

Thank you to Erich Shiners of Renne Sloan Holtzman Sakai LLP,  my colleague on the State Bar Labor and Employment Law Executive Committee, for pointing out that the California Supreme Court has scheduled oral argument in City of Los Angeles v. Superior Court (Engineers & Architects Association) (Case No. S192828). 

In the decision below, the Court of Appeal overturned a trial court order compelling the City to arbitrate grievances filed by City employees and their union over the City's plan to furlough those employees. The Court held: 

While there are questions as to whether the issue of furloughs is grievable under the terms of the controlling Memoranda of Understanding (MOUs), we conclude that any agreement to arbitrate the issue of furloughs would constitute an improper delegation of discretionary policymaking power vested in the City Council. 

The Supreme Court granted the union's petition for review. After initial briefing, the Court requested briefing on the following issue: 

Do the memorandums of understanding at issue here, including but not limited to their management rights clauses (article 1.9), render the decision whether to impose employee furloughs inarbitrable? 

The Court's case summary page is here.   You can request email notification of developments here.  

Argument will be Wednesday, April 3, 2013, at 9:00 a.m., at the Ronald Reagan State Office Building, 300 South Spring Street, Third Floor, North Tower, Los Angeles. This is the same session at which the Court will hear argument in Sonic-Calabasas A, Inc. v. Moreno, which considers whether an employer can compel its employees to waive their right to bring claims to the Labor Commissioner.  Should be a very interesting morning.  

I have added City of L.A. to our Watch List of Pending Cases.  Erich has agreed very generously to shepherd our Watch List webinar, which we will present within a week or two of the Court announcing its decision.

Sonic-Calabasas A, Inc. v. Moreno: California Supreme Court Schedules Oral Argument

The California Supreme Court will hear oral argument in Sonic-Calabasas A, Inc. v. Moreno on Wednesday, April 3, 2013, at 9:00 a.m., in Los Angeles. Hearings are at the Ronald Reagan State Office Building, 300 South Spring Street, Third Floor, North Tower.

As a reminder, in Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659, the California Supreme Court held: (1) an employee's "statutory right to seek a Berman hearing [a wage hearing before the DLSE or Labor Commissioner], with all the possible protections that follow from it, is itself an unwaivable right that an employee cannot be compelled to relinquish as a condition of employment;" (2) waiver of an employee's right to seek a Berman hearing is a substantively unconscionable contract term; and (3) the Federal Arbitration Act does not preempt the Court's holdings on points one and two.

The Supreme Court of the United States granted review and vacated that decision, remanding the case for further consideration in light of AT&T Mobility LLC v Concepcion 563 U.S. ___ (2011).

The issues presented are as follows:

1. Can a mandatory employment arbitration agreement be enforced prior to the conclusion of an administrative proceeding conducted by the Labor Commissioner concerning an employee's statutory wage claim? 
2. Was the Labor Commissioner's jurisdiction over employee's statutory wage claim divested by the Federal Arbitration Act under Preston v. Ferrer (2008) __ U.S. __, 128 S.Ct. 978, 169 L.Ed.2d 917? 

The Court's web page for the case is here.