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March 27, 2013

Supreme Court Decertifies Comcast Subscriber Class Based on Faulty Damage Calculation

By Jody Coultas, J.D.

A class of Comcast cable television subscribers, alleging that Comcast Corporation's strategy of concentrating operations within a geographic region violated Section 1 and 2 of the Sherman Act, was improperly certified because the subscribers' damages model did not allow for a calculation of damages across the class, according to the U.S. Supreme Court (Comcast Corp. v. Behrend, March 27, 2013, Scalia, A.). In the 5-4 decision, Justice Antonin Scalia was joined by Justices Roberts, Kennedy, Thomas, and Alito.

Comcast acquired competing cable providers in and around Philadelphia in exchange for giving the competitor their systems located outside the region. The subscribers argued that these "swap agreements" violated the Sherman Act and monopolized services in the area. The swaps allegedly eliminated competition in the region and held cable service prices above competitive levels. The subscribers sought to certify a class of all cable television customers who subscribe or subscribed at any time since December 1, 1999 to the present to video programming services from Comcast or any of its subsidiaries.

The federal district court in Philadelphia limited the subscribers' proof of antitrust impact to their theory that Comcast engaged in anticompetitive clustering conduct that deterred entry of companies that build competing networks in the Philadelphia region, called "overbuilders," and certified the class. A divided court of the Third Circuit affirmed the certification, refusing to rule on Comcast's argument that the subscribers' damages calculation failed to attribute damages to overbuilder deterrence.

At issue was whether a district court may certify a class action without resolving whether the plaintiff class had introduced admissible evidence, including expert testimony, to show that damages could be awarded on a class-wide basis.

The court of appeals' refusal to rule on Comcast's argument concerning the subscribers' damages model because the issue went to the merits of the claims was contrary to precedent requiring the inquiry, according to the court. The district court held that damages from overbuilder deterrence could be calculated on a class-wide basis despite the subscribers' expert acknowledged the damages model did not isolate damages resulting from any one theory of antitrust impact. A damages model that included theories of antitrust not at issue could not serve as the basis for damages from alleged violations that were in question. The lower courts erred in determining whether the methodology used to calculate damages was a just and reasonable inference or speculative, according to the court. The subscribers were required to tie a theory of antitrust impact to an exact calculation of damages.

Because the subscribers' damages model failed to establish damages that were capable of measurement on a class-wide basis, the court reversed the certification order. In order to obtain certification, the subscribers were required to meet the requirements of Federal Rules of Civil Procedure 23(a) and (b). Courts may only find that certification is proper after finding that the Rule 23 prerequisites were satisfied, and the court's analysis may overlap with the merits of the claims. Here, the damages model failed to meet the Rule 23 requirements because it would require individual inquiries.

Dissent. Justices Ginsburg and Breyer, joined by Justices Sotomayor and Kagan, dissented based on procedural and substantive grounds. The opinion noted that the majority's ruling was "good for this day and case only" and that courts may still certify a class action whenever common questions predominate, even if the court must use separate procedures to determine individual damages at a later stage.

The dissent first noted that the court granted review of a different question than what was presented by Comcast for review. The reformulation shifted the focus from a Rule 23 analysis to the admissibility of expert testimony, and Comcast's forfeiture of the question that was granted review was sufficient to dismiss the writ as improvidently granted. The dissent argued that the majority's holding deviated from ordinary practice, risked inaccurate judicial decision making, and was unfair to the subscribers and the lower courts.

The dissent also would have upheld the lower courts' findings that the damages model was sufficient. Although the Court is reluctant to disturb findings of fact from the lower courts, the majority found the finding that the damage model failed to measure damages resulting from the particular antitrust injury on which liability was premised. Three other theories of liability were rejected by the district court as having no impact on prices. Therefore, it would reason that the damages model stemmed exclusively from conduct that deterred new entry by overbuilders.

The case is No. 11-864.

Attorneys: Miguel A. Estrada (Gibson, Dunn & Crutcher LLP) for Comcast Corporation. Barry C. Barnett (Susman Godfrey, L.L.P.) for Caroline Behrend.

Company: Comcast Corporation

MainStory: TopStory Antitrust

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