Federal courts scrutinize class certification petitions

Experts note trend toward more evidentiary hearings

Beginning in 1998, Comcast Corp. undertook a strategy to increase its share of the market for cable services in the Philadelphia area. It bought out smaller competitors and then made a series of “swap” contracts with AT&T Inc., Time Warner Cable Inc. and other cable providers. The contracts allowed Comcast to consolidate its dominance in the Philadelphia area by trading cable systems it owned outside of Philadelphia for cable systems that competitors owned within the Philadelphia area. By 2002, Comcast customers accounted for more than 77 percent of cable subscribers in the Philadelphia area.

According to attorneys representing a class of approximately 2.2 million subscribers and former subscribers to Comcast cable services, those “swap” deals suppressed competition and raised prices for consumers in the Philadelphia area in violation of Sections 1 and 2 of the Sherman Act.

Both sides in Behrend v. Comcast have vigorously fought about certification of the case as a class action. The case was first certified as a class in 2007. For the past five years, the parties have fought the issue through a series of appeals that finally landed in the U.S. Supreme Court in January. Lawyers expect a decision on Comcast’s petition for certiorari by the end of the court’s term.

Whether or not the high court grants review, the case is emblematic of the changes taking place nationwide in the high-stakes world of class action litigation.

“Litigants are seeing a nuanced shift in certifications,” says Bill Moran, a shareholder at Murnane Brandt. “Federal courts are applying greater scrutiny to certification petitions.”

Twisted History

Under Federal Rule of Civil Procedure 23, the party seeking class certification has the burden to show that a class action is appropriate because common issues of fact predominate over individual inquiries about the injuries suffered by the class members. But the meaning of that requirement has been a moving target for the past several years. The 3rd Circuit’s pronouncements on the topic have gained particular significance because it hears 25 percent of the country’s antitrust class actions.

In Behrend, District Judge John Padova first certified the class in May 2007, relying on the written submissions of the parties. But in the wake of the 3rd Circuit’s watershed 2008 decision In re Hydrogen Peroxide Antitrust Litigation, which required courts to make factual findings before certifying a class action, Judge Padova partially vacated the decision. Before Hydrogen Peroxide, most courts required the party moving for class certification to simply reach a threshold showing that there was evidence to support a finding of commonality under Rule 23. The Supreme Court later affirmed the principles announced in Hydrogen Peroxide in its 2011 decision in Wal-Mart Stores Inc. v. Dukes.

Ultimately, Judge Padova recertified the class in January 2010 after conducting extensive proceedings to gather evidence. The court held a four-day evidentiary hearing in which both sides presented experts and live testimony from witnesses, including the president of Comcast. In addition, the court held oral argument on the motion for certification.

The 3rd Circuit affirmed the decision and declined en banc review. Comcast has taken the case to the Supreme Court, arguing that the district court should have gone even further in its consideration of “merits arguments” before certifying the class. Specifically, Comcast contends that the lower courts erred in refusing to consider evidence regarding whether the alleged anticompetitive practices could have a classwide impact, given that the competitors that it allegedly deterred from expanding in the Philadelphia area were not licensed in every county the court considered part of the class. The 3rd Circuit ruled that it wasn’t proper to reach those questions at this stage.

Stricter Scrutiny

Behrend is emblematic of a trend in class action litigation that has been growing in federal courts throughout the country since Congress passed the Class Action Fairness Act (CAFA) in 2005. Federal courts are applying more rigorous scrutiny to petitions for class certification, including developing an extensive evidentiary record before certifying a class.

“It was not unusual for courts to deal with the question of commonality on written submissions from the parties,” Moran says. “Now, we are increasingly seeing evidentiary hearings with expert testimony. The federal courts are trying to be more uniform in how they administer class actions.”

That uniformity is key because, although CAFA provides for expedited appellate review of certification decisions, a district judge’s decision on class certification is entitled to a great deal of deference on appeal.

Plaintiffs counsel in Behrend think certiorari is unlikely due to the deferential standard of review and the extensive evidence the district court considered.

“It’s well established that the plaintiffs’ burden is to show that common evidence is available to prove the class members’ claims at trial,” says David Woodward, an officer at Heins Mills & Olson and co-lead counsel for the Berhend class. “Judge Padova applied a rigorous analysis based on an extensive evidentiary record.”

The district court seemingly agrees that Supreme Court review isn’t imminent, and gave the parties a September trial date.

The Advantage of Certainty

The trend toward more evidentiary hearings at the class certification stage is helpful to corporate defendants in a number of ways. First, the procedures involved in certifying a class are becoming increasingly complex, time-consuming and costly, often amounting to putting on a small-scale trial. Defendants are often equipped with superior resources to fight those early battles. Plaintiffs lawyers have criticized the trend for that reason.

“The defendants want to make you try your case as many times as possible,” says Stephen Scheller, a Philadelphia class action attorney. “They want plaintiffs to put on their whole case at the certification stage. That isn’t fair.”

Second, when judges base class certification decisions on a more extensive evidentiary record, the parties have greater certainty that the decision is unlikely to change on appeal. This also allows both sides to engage in settlement discussions after ruling on the certification petition with more information. This is important because in the majority of cases, once a class is certified or rejected, settlement is the next logical step.

“Class certification is the Super Bowl,” Moran says. “What happens at that stage is most likely dispositive.”

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