In a controversial 5-4 decision, the United States Supreme Court recently set aside a class action lawsuit on the grounds that the plaintiffs failed to show that their theory of damages was applicable to all members of the class. The majority opinion in Comcast v. Behrend ruled that courts must conduct a rigorous analysis when certifying a case as a class action. The Supreme Court held that this analysis may include a review of the merits of the case. The ruling has caused courts to take a closer look at class action lawsuits and has provided corporate defendants with a new tactic to fend off poorly pleaded cases.
The plaintiffs in Comcast filed a class action lawsuit against the cable company alleging that it engaged in a series of unfair business practices that violated antitrust law.
The Comcast Decision
The plaintiffs in Comcast filed a class action lawsuit against the cable company alleging that it engaged in a series of unfair business practices that violated antitrust law. As a result of these alleged practices, the plaintiffs asserted that Comcast overcharged approximately two million of its customers a total of more than $875 million.
The Comcast customers alleged four theories of how they were damaged by the purported antitrust violations. The court ruled that only one of these theories had merit. The plaintiffs’ damages expert, however, arrived at the $875 million calculation by using all four of the original theories of the case.
Comcast sought review of this ruling in the Supreme Court, arguing that it was improper for the lower court to grant the customers class action status because the customers failed to show that damages could be measured on class-wide basis. Agreeing with the cable company, the Supreme Court held that a court may only certify a class after the court has performed a rigorous analysis. The Supreme Court also stated that in conducting this analysis "it may be necessary for the court to probe behind the pleadings before coming to rest on the certification questions." Probing behind the pleadings, and essentially reviewing the merits of a class action lawsuit at the class certification stage, means that only the most carefully crafted pleadings will survive the class certification process.
The Application of Comcast to Other Class Actions
The Supreme Court decided Comcast on March 27, 2013 and the case has already affected other class action lawsuits. For instance, less than a week after the Comcast decision the Supreme Court vacated a lower court's ruling in Whirlpool v. Glazer and ordered the court to review its decision in light of Comcast.
In the Whirlpool case, the plaintiffs alleged that 21 models of Whirlpool’s Duet washing machines had a design defect that caused moldy odors. Whirlpool argued that each class member would have a different amount of damages because of the numerous models of washing machines at issue in the case and because of differences in each customer’s efforts to make repairs to the machines. In addition, Whirlpool argued that over 97% of the washing machines sold did not contain any design defects and thus the class includes customers who did not suffer any damages. The case is currently pending in the lower court and it remains to be seen if the court will undue the class certification in light of the Comcast decision.
In another large class action lawsuit, a federal court in Seattle is reviewing arguments made by the Talon Group, a subsidiary of the First American Title Insurance Company, that under Comcast the court erred in certifying a class action alleging that the company charged excessive fees while serving as an escrow agent in Washington real estate transactions. The plaintiffs in this case, Tavenner v. The Talon Group, alleged that the company engaged in fraud, breach of contract and breach of fiduciary duty in overcharging its customers. Relying on the Comcast decision, the company has argued that class certification was improper because damages cannot be determined on a class-wide basis, but rather would require the court to undergo individual inquiries for each member of the class to determine the amount of damages.
Corporate defendants are also trying to use the Comcast case to thwart wage-and-hour litigation. For example, two days after the Comcast decision, a federal judge in New York ruled that a group of Applebee’s employees could not bring a class action for overtime under the Fair Labor Standards Act. The employees in this case have appealed the court's decision and are asking an appellate court to rule that Comcast does not apply to wage and hour cases.
Importantly, a federal court in New York ruled that the Comcast decision does not affect settlement agreements in class actions. The court refused to nullify a settlement agreement between an investment firm that invested money with Bernie Madoff and the firm’s clients. In rejecting arguments that the Comcast decision should invalidate the settlement, the court stated that Comcast does not address class action settlements or any issues relating to a court’s approval of settlement agreements.
Plaintiffs need to be aware of the Comcast decision and its progeny when explaining to the court why class certification is appropriate. The Supreme Court’s ruling serves as a reminder that courts apply strict scrutiny to class action lawsuits and only claims that satisfy all elements of the class certification requirements will be granted class action status.