April 8, 2013

Supreme Court's Comcast Decision Makes Consumer Class Actions Tougher To Certify

Seller Beware: Consumer Protection Insights for Industry,

By now, most people likely have heard about the US Supreme Court's decision in Comcast Corp. v. Behrend on March 27, 2013. Comcast is a lawsuit brought by cable subscribers who claim that Comcast monopolized Philadelphia's cable market through "anticompetitive clustering." The lower courts had ruled that a class of as many as two million cable subscribers in the Philadelphia area could bring their claims collectively in a single class action. The Supreme Court, however, ruled that class-wide treatment of these claims was improper because the plaintiffs did not provide a class-wide method for calculating the individual subscriber's damages.

In an opinion authored by Justice Scalia and joined by Chief Justice Roberts and Justices Kennedy, Thomas and Alito, the Court began by reaffirming the standards that apply when determining whether Rule 23's requirements are satisfied. In accord with its 2011 decision in Wal-Mart v. Dukes, the Court explained that parties must satisfy the requirements for class certification with "evidentiary proof" and that courts must undertake a "rigorous analysis" when evaluating whether those requirements are met, even if that analysis overlaps with the merits in the case. The Court continued by holding that a party seeking class certification must offer a class-wide means for calculating damages. The Court then explained that the plaintiffs in Comcast had failed to do this. As the Court explained, "under the proper standard for evaluating certification, respondents' model falls far short of establishing that damages are capable of measurement on a classwide basis."

Comcast is a profoundly significant and positive development for companies facing class actions. In holding that a plaintiff seeking certification of a damages class under Rule 23(b)(3) must establish, through "evidentiary proof," that damages can be measured on a classwide basis, Comcast imposes a significant hurdle to certification in cases where individual damage calculations are required. Comcast also makes clear that the trial court must probe the merits of the claim at the certification stage to ensure that the method for measuring damages (or for proving other elements of their claims) fits the plaintiffs' theories of liability and is not arbitrary. The Court's decision will make it substantially more difficult for many purported class actions to obtain certification, and will render vulnerable many classes that have already been certified.

Comcast also should make it more challenging for plaintiffs bringing consumer fraud claims to obtain class certification. Indeed, earlier this week, the Supreme Court confirmed that Comcast is relevant outside of the antitrust context and could present obstacles to class-wide treatment of consumer protection claims when it vacated the decision in In re Whirlpool Corp. Front-Loading Washer Products Liability Litigation and instructed the Sixth Circuit to revisit, in light of Comcast, whether that case could go forward as a class action.

Whilrpool is a lawsuit brought by purchasers of certain Whirlpool washing machines who claim those machines were defective. The lawsuit claims that, as a result of certain design features, residue accumulates in the brands of washing machines which can cause mold and mildew to grow inside the machines, resulting in ruined laundry and offensive odors. The trial court certified a class of all Ohio consumers who had purchased these washing machines for domestic use. Whirlpool argued that treating all purchasers of these washing machines on a class-wide basis would be improper for several reasons, including that many consumers never experienced a mold problem and that consumers' laundry habits and experiences with the machines varied widely. Despite such differences, the lower courts concluded that class certification was appropriate. The trial court explained that whether some consumers had not experienced a mold problem was a merits question that did not prevent it from certifying a class. The Sixth Circuit also rejected Whirlpool's argument that many consumers never experienced a mold problem, explaining that "the class plaintiffs may be able to show that each class member was injured at the point of sale upon paying a premium price" even if their machines had not manifested a defect.

Although it is not entirely clear what the Sixth Circuit will do now that the Supreme Court has returned the case to it, defendants certainly have arguments that the lower courts' approach violated the standard set forth in Comcast. For instance, Comcast holds that plaintiffs must come forward with "evidentiary proof" to satisfy the requirements of Rule 23, and cannot offer only an assurance that they "may be able" to prove something at trial. Moreover, Comcast holds that, for a class action seeking damages to proceed, those damages must be capable of class-wide resolution. The company thus can argue that individual damages questions, among other things, prevent plaintiffs' claims from proceeding on a class-wide basis.

Whatever direction the Sixth Circuit takes, the fact that the Supreme Court sent the case back to the lower courts based on Comcast makes one lesson clear: Comcast will have significant implications for class actions seeking monetary damages in many contexts, including consumer fraud cases.

© Arnold & Porter Kaye Scholer LLP 2013 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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