Comcast Corp. v. Behrend - 11-864 (2013)
NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
COMCAST CORPORATION, et al., PETITIONERS v. CAROLINE BEHREND et al.
on writ of certiorari to the united states court of appeals for the third circuit
[March 27, 2013]
Justice Scalia delivered the opinion of the Court.
The District Court and the Court of Appeals approved certification of a class of more than 2 million current and former Comcast subscribers who seek damages for al- leged violations of the federal antitrust laws. We consider whether certification was appropriate under Federal Rule of Civil Procedure 23(b)(3).
Comcast Corporation and its subsidiaries, petitioners here, provide cable-television services to residential and commercial customers. From 1998 to 2007, petitioners engaged in a series of transactions that the parties have described as “clustering,” a strategy of concentrating op- erations within a particular region. The region at issue here, which the parties have referred to as the Philadel- phia “cluster” or the Philadelphia “Designated Market Area” (DMA), includes 16 counties located in Pennsylvania, Delaware, and New Jersey. [ 1 ] Petitioners pursued their clustering strategy by acquiring competitor cable providers in the region and swapping their own systems outside the region for competitor systems located in the region. For instance, in 2001, petitioners obtained Adelphia Com- munications’ cable systems in the Philadelphia DMA, along with its 464,000 subscribers; in exchange, petitioners sold to Adelphia their systems in Palm Beach, Florida, and Los Angeles, California. As a result of nine cluster- ing transactions, petitioners’ share of subscribers in the re- gion allegedly increased from 23.9 percent in 1998 to 69.5 percent in 2007. See 264 F. R. D. 150, 156, n. 8, 160 (ED Pa. 2010).
The named plaintiffs, respondents here, are subscribers to Comcast’s cable-television services. They filed a class-action antitrust suit against petitioners, claiming that petitioners entered into unlawful swap agreements, in violation of §1 of the Sherman Act, and monopolized or at- tempted to monopolize services in the cluster, in viola- tion of §2. Ch. 647, 26Stat. 209, as amended, 15 U. S. C. §§1, 2. Petitioners’ clustering scheme, respondents contended, harmed subscribers in the Philadelphia cluster by eliminating competition and holding prices for cable services above competitive levels.
Respondents sought to certify a class under Federal Rule of Civil Procedure 23(b)(3). That provision permits certification only if “the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members.” The District Court held, and it is uncontested here, that to meet the predominance requirement respondents had to show (1) that the existence of individual injury resulting from the alleged antitrust violation (referred to as “antitrust impact”) was “capable of proof at trial through evidence that [was] common to the class rather than individual to its members”; and (2) that the damages resulting from that injury were measurable “on a class-wide basis” through use of a “common methodology.” 264 F. R. D., at 154. [ 2 ]
Respondents proposed four theories of antitrust impact: First, Comcast’s clustering made it profitable for Comcast to withhold local sports programming from its competi- tors, resulting in decreased market penetration by direct broadcast satellite providers. Second, Comcast’s activities reduced the level of competition from “overbuilders,” companies that build competing cable networks in areas where an incumbent cable company already operates. Third, Comcast reduced the level of “benchmark” competition on which cable customers rely to compare prices. Fourth, clustering increased Comcast’s bargaining power relative to content providers. Each of these forms of impact, respondents alleged, increased cable subscription rates throughout the Philadelphia DMA.
The District Court accepted the overbuilder theory of antitrust impact as capable of classwide proof and rejected the rest. Id., at 165, 174, 178, 181. Accordingly, in its certification order, the District Court limited respondents’ “proof of antitrust impact” to “the theory that Comcast engaged in anticompetitive clustering conduct, the effect of which was to deter the entry of overbuilders in the Philadelphia DMA.” App. to Pet. for Cert. 192a–193a. [ 3 ]
The District Court further found that the damages resulting from overbuilder-deterrence impact could be calculated on a classwide basis. To establish such dam- ages, respondents had relied solely on the testimony of Dr. James McClave. Dr. McClave designed a regression model comparing actual cable prices in the Philadelphia DMA with hypothetical prices that would have prevailed but for petitioners’ allegedly anticompetitive activities. The model calculated damages of $875,576,662 for the entire class. App. 1388a (sealed). As Dr. McClave acknowledged, however, the model did not isolate damages resulting from any one theory of antitrust impact. Id., at 189a–190a. The District Court nevertheless certified the class.
A divided panel of the Court of Appeals affirmed. On appeal, petitioners contended the class was improperly certified because the model, among other shortcomings, failed to attribute damages resulting from overbuilder deterrence, the only theory of injury remaining in the case. The court refused to consider the argument because, in its view, such an “attac[k] on the merits of the methodology [had] no place in the class certification inquiry.” 655 F. 3d 182, 207 (CA3 2011). The court emphasized that, “[a]t the class certification stage,” respondents were not required to “tie each theory of antitrust impact to an exact calculation of damages.” Id., at 206. According to the court, it had “not reached the stage of determining on the merits whether the methodology is a just and reasonable inference or speculative.” Ibid. Rather, the court said, respondents must “assure us that if they can prove antitrust impact, the resulting damages are capable of measurement and will not require labyrinthine individual calculations.” Ibid. In the court’s view, that burden was met because respondents’ model calculated “supra-competitive prices regardless of the type of anticompetitive conduct.” Id., at 205.
We granted certiorari. 567 U. S. ___ (2012). [ 4 ]
The class action is “an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.” Califano v. Yamasaki, 442 U. S. 682 –701 (1979). To come within the exception, a party seeking to maintain a class action “must affirmatively demonstrate his compliance” with Rule 23. Wal-Mart Stores, Inc. v. Dukes, 564 U. S. ___, ___ (2011) (slip op., at 10). The Rule “does not set forth a mere pleading standard.” Ibid. Rather, a party must not only “be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact,” typicality of claims or defenses, and adequacy of representation, as required by Rule 23(a). Ibid. The party must also satisfy through evidentiary proof at least one of the provisions of Rule 23(b). The provision at issue here is Rule 23(b)(3), which requires a court to find that “the questions of law or fact common to class members predominate over any questions affecting only individual members.”
Repeatedly, we have emphasized that it “ ‘may be necessary for the court to probe behind the pleadings before coming to rest on the certification question,’ and that certification is proper only if ‘the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied.’ ” Ibid. (quoting General Telephone Co. of Southwest v. Falcon, 457 U. S. 147 –161 (1982)). Such an analysis will frequently entail “overlap with the merits of the plaintiff’s underlying claim.” 564 U. S., at ___ (slip op., at 10). That is so because the “ ‘class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff’s cause of action.’ ” Ibid. (quoting Falcon, supra, at 160).
The same analytical principles govern Rule 23(b). If anything, Rule 23(b)(3)’s predominance criterion is even more demanding than Rule 23(a). Amchem Products, Inc. v. Windsor, 521 U. S. 591 –624 (1997). Rule 23(b)(3), as an “ ‘adventuresome innovation,’ ” is designed for situations “ ‘in which “class-action treatment is not as clearly called for.” ’ ” Wal-Mart, supra, at ___ (slip op., at 22) (quoting Amchem, 521 U. S., at 614–615). That explains Congress’s addition of procedural safeguards for (b)(3) class members beyond those provided for (b)(1) or (b)(2) class members (e.g., an opportunity to opt out), and the court’s duty to take a “ ‘close look’ ” at whether common questions predominate over individual ones. Id., at 615.
Respondents’ class action was improperly certified un- der Rule 23(b)(3). By refusing to entertain arguments against respondents’ damages model that bore on the propriety of class certification, simply because those arguments would also be pertinent to the merits determination, the Court of Appeals ran afoul of our precedents requiring precisely that inquiry. And it is clear that, under the proper standard for evaluating certification, respondents’ model 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: Questions of individual damage calculations will inevitably overwhelm questions common to the class. This case thus turns on the straightforward application of class-certification principles; it provides no occasion for the dissent’s extended discussion, post, at 5–11 (Ginsburg and Breyer, JJ., dissenting), of substantive antitrust law.
We start with an unremarkable premise. If respondents prevail on their claims, they would be entitled only to damages resulting from reduced overbuilder competition, since that is the only theory of antitrust impact accepted for class-action treatment by the District Court. It follows that a model purporting to serve as evidence of damages in this class action must measure only those damages attributable to that theory. If the model does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3). Calculations need not be exact, see Story Parchment Co. v. Paterson Parchment Paper Co., 282 U. S. 555, 563 (1931) , but at the class-certification stage (as at trial), any model supporting a “plaintiff’s damages case must be consistent with its liability case, particularly with respect to the alleged anticompetitive effect of the violation.” ABA Section of Antitrust Law, Proving Antitrust Damages: Legal and Economic Issues 57, 62 (2d ed. 2010); see, e.g., Image Tech. Servs. v. Eastman Kodak Co., 125 F. 3d 1195, 1224 (CA9 1997). And for purposes of Rule 23, courts must conduct a “ ‘rigorous analysis’ ” to determine whether that is so. Wal-Mart, supra, at ___ (slip op., at 10).
The District Court and the Court of Appeals saw no need for respondents to “tie each theory of antitrust impact” to a calculation of damages. 655 F. 3d, at 206. That, they said, would involve consideration of the “merits” having “no place in the class certification inquiry.” Id., at 206–207. That reasoning flatly contradicts our cases requiring 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 (slip op., at 10–11, and n. 6). The Court of Appeals simply concluded that respondents “provided a method to measure and quantify damages on a classwide basis,” finding it unnecessary to decide “whether the methodology [was] a just and reasonable inference or speculative.” 655 F. 3d, at 206. Under that logic, 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.
There is no question that the model failed to measure damages resulting from the particular antitrust injury on which petitioners’ liability in this action is premised. [ 5 ] The scheme devised by respondents’ expert, Dr. McClave, sought to establish a “but for” baseline—a figure that would show what the competitive prices would have been if there had been no antitrust violations. Damages would then be determined by comparing to that baseline what the actual prices were during the charged period. The “but for” figure was calculated, however, by assuming a market that contained none of the four distortions that respondents attributed to petitioners’ actions. In other words, the model assumed the validity of all four theories of antitrust impact initially advanced by respondents: decreased penetration by satellite providers, overbuilder deterrence, lack of benchmark competition, and increased bargaining power. At the evidentiary hearing, Dr. McClave expressly admitted that the model calculated damages resulting from “the alleged anticompetitive conduct as a whole” and did not attribute damages to any one particular theory of anticompetitive impact. App. 189a–190a, 208a.
This methodology might have been sound, and might have produced commonality of damages, if all four of those alleged distortions remained in the case. But as Judge Jordan’s partial dissent pointed out:
“[B]ecause the only surviving theory of antitrust impact is that clustering reduced overbuilding, for Dr. McClave’s comparison to be relevant, his benchmark counties must reflect the conditions that would have prevailed in the Philadelphia DMA but for the alleged reduction in overbuilding. In all respects unrelated to reduced overbuilding, the benchmark counties should reflect the actual conditions in the Philadelphia DMA, or else the model will identify ‘damages’ that are not the result of reduced overbuilding, or, in other words, that are not the certain result of the wrong.” 655 F. 3d, at 216 (internal quotation marks omitted).
The majority’s only response to this was that “[a]t the class certification stage we do not require that Plaintiffs tie each theory of antitrust impact to an exact calculation of damages, but instead that they assure us that if they can prove antitrust impact, the resulting damages are capable of measurement and will not require labyrinthine individual calculations.” Id., at 206. But such assurance is not provided by a methodology that identifies damages that are not the result of the wrong. For all we know, cable subscribers in Gloucester County may have been overcharged because of petitioners’ alleged elimination of satellite competition (a theory of liability that is not ca- pable of classwide proof); while subscribers in Camden County may have paid elevated prices because of petitioners’ increased bargaining power vis-à-vis content providers (another theory that is not capable of classwide proof); while yet other subscribers in Montgomery County may have paid rates produced by the combined effects of multiple forms of alleged antitrust harm; and so on. The permutations involving four theories of liability and 2 million subscribers located in 16 counties are nearly endless.
In light of the model’s inability to bridge the differences between supra-competitive prices in general and supra-competitive prices attributable to the deterrence of overbuilding, Rule 23(b)(3) cannot authorize treating subscribers within the Philadelphia cluster as members of a single class. [ 6 ] Prices whose level above what an expert deems “competitive” has been caused by factors unrelated to an accepted theory of antitrust harm are not “anticompetitive” in any sense relevant here. “The first step in a damages study is the translation of the legal theory of the harmful event into an analysis of the economic impact of that event.” Federal Judicial Center, Reference Manual on Scientific Evidence 432 (3d ed. 2011) (emphasis added). The District Court and the Court of Appeals ignored that first step entirely.
The judgment of the Court of Appeals for the Third Cir- cuit is reversed.
It is so ordered.