[Editor’s Note: The following update is authored by Arnold & Porter LLP]
Earlier this month, the influential U.S. Court of Appeals for the D.C. Circuit issued an important decision on the standards for certifying antitrust class actions. Taking its cue from the Supreme Court’s decision this past March in Comcast Corp. v. Behrend, the D.C. Circuit vacated a lower court decision certifying a class of shippers in an antitrust case against railroads alleging collusion on fuel surcharges. The ruling in In re: Rail Freight Fuel Surcharge Antitrust Litigation is significant as the first known decision to apply Comcast to reject a proposed antitrust class. Companies facing overreaching class action suits may be able to take comfort that, after a few lower court decisions sidestepping Comcast, the principles set forth in that decision are now catching on in the lower courts.
BACKGROUND
Class certification allows plaintiffs’ lawyers to aggregate the claims of many individuals or entities to be tried in a single proceeding, giving them enormous leverage that often overshadows the actual legal or factual merit of the claims. The certification decision is often the pivotal moment in such litigations, because if a class is certified, the company faces enormous pressure to settle to avoid even a small risk of a colossal verdict.
In theory, the federal courts are supposed to certify classes only after a rigorous analysis shows that they meet certain standards set forth in Federal Rule of Civil Procedure 23. In antitrust cases, the most important requirement is usually “predominance,” which means that “questions of law or fact common to class members predominate over any questions affecting only individual members.” Under the federal antitrust laws, the plaintiff has to show, among other things, that it was impacted by the alleged violation (e.g., paid higher prices), and certification typically hinges on whether injury and damages to each class member can be shown with evidence common to all of them.
For much of the five-decade history of the modern Federal Rule of Civil Procedure 23, the scales were tilted in favor of finding antitrust cases susceptible to class certification. That began to change in the last decade with several circuit decisions heralding a more analytically rigorous, evenhanded approach. Then the Supreme Court issued its landmark 2011 decision reversing certification of a class in Wal-Mart Stores, Inc. v. Dukes. Although Wal-Mart was an employment discrimination, not antitrust, case, and did not turn on the predominance requirement of Rule 23(b)(3), the Supreme Court spoke forcefully about the need to engage in rigorous analysis and meaningfully test expert testimony before certifying a class.
COMCAST AND ITS AFTERMATH
This past March, the Supreme Court decided Comcast, reversing a Third Circuit decision allowing cable subscribers to bring antitrust claims against Comcast as a class. Building on Wal-Mart, the Court held that “under the proper standard for evaluating certification,” the plaintiffs’ expert’s damages model in Comcast “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” because “[q]uestions of individual damage calculations will inevitably overwhelm questions common to the class.”
Despite this seemingly clear takeaway, Comcast’s impact in the lower courts had generally been muted until this month’s decision in Rail Freight. That may be partly due to a debate over how far the Comcast decision reaches. In Comcast, the plaintiffs’ expert’s damages model assumed the validity of four distinct theories of antitrust violation, but three of the four theories did not survive the class certification determination, leaving plaintiffs with a damages model that was out of sync with their liability case. Espousing a narrow view of Comcast, the plaintiffs’ bar has argued that its holding is limited to that precise fact pattern, frequently invoking a remark by four dissenting Justices that the majority’s decision was “good for this day and case only.”
However, the majority in Comcast expressed several important general principles governing the predominance analysis. For example, Comcast makes clear that the “proper standard for evaluating certification” involves “establishing hat damages are capable of measurement on a classwide basis.” That teaching cannot be squared with the notion that the Court’s decision was somehow “good for this day and case only.” Also, the Court rejected the lower courts’ logic that “at the class-certification stage any method of measurement is acceptable so long as it can be applied classwide, no matter how arbitrary the measurements may be. Such a proposition would reduce Rule 23(b)(3)’s predominance requirement to a nullity.” The standard articulated in that passage applies to every antitrust class certification case in which expert testimony is offered to show common impact and damages.
Nevertheless, until Rail Freight, lower courts that had considered Comcast when deciding certification issues in antitrust cases had found the decision limited and distinguishable. Similarly, in a consumer fraud case that the Supreme Court had expressly directed the Sixth Circuit to revisit in light of Comcast, the Sixth Circuit adhered to its earlier ruling in favor of certification, finding that Comcast has “limited application” and “breaks no new ground.” These decisions are notable for the extent to which they rely on the dissent in Comcast as opposed to the majority opinion that constitutes the actual binding precedent of the Court.
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