Is the U.S. Supreme Court Seeking to Further Limit Class Action Litigation so that it Only Exists in the Rarest of Circumstances?

Nicholas Fortuna, June 4, 2014.

The federal courts are struggling with what type of claims may be brought as a class action after the Supreme Court decisions in Comcast v. Behrand, (2013) and Wal-Mart v. Dukes, (2011). The latest battle is in the Second Circuit Court of Appeals in the matter of Jacob v. Duane Reade, Inc. regarding class certification of a wage and hour case.

Wal-Mart established a stricter standard for what constitutes the required common claims within a class by mandating that the acts and/or decisions giving rise to the claimed liability must be the same among the class members. The plaintiffs in Wal-Mart brought a class action asserting that Wal-Mart Stores, Inc. discriminated against female employees with respect to pay and job promotions. The Supreme Court decertified the class stating that the issues were not common to all class members because the resulting discrimination involved thousands of individual employment decisions by many different managers across the country. The fact that the results of the decisions had the same discriminatory impact was insufficient to support the commonality element required to litigate a case as a class action.

In Comcast, a class of cable subscribers brought an action against Comcast, alleging violations of federal antitrust law. In that case, Comcast entered an agreement with Adelphia communications to swap cable subscribers. Comcast took Adelphia’s Philadelphia area subscribers in exchange for ones Comcast had in California and Florida. The Comcast’s share of subscribers increased in the 16 counties surrounding Philadelphia to 69.5 percent. The district court certified the class on the theory of liability that Comcast’s activities reduced the level of competition from “over-builders” – companies that build competing cable networks in areas where an incumbent cable company already operates. The Supreme Court decertified the class because the damage calculation used by the plaintiffs did not connect the harmful event with the economic impact of that event. The plaintiffs presented expert testimony comparing actual cable prices with hypothetical prices that would have prevailed without anticompetitive activities. The plaintiffs’ expert admitted that his model for calculating damages did not isolate the amount of damages resulting from the reduction of “over-builders,” but rather the damages were based on the accumulation of four different theories of liability. The Court explained that when certifying a class, 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.

The lower federal courts around the country have been dealing with Comcast in three distinct ways: (1) courts distinguishing Comcast in a way to find a common formula at the class certification stage; (2) courts applying Comcast to require a heightened damage inquiry at the class certification stage, and reject class certification where no common formula exists for the determination of damages; (3) courts embracing a middle ground by maintaining class certification as to liability only, and leaving damages for a separate, individualized determination.  The courts applying the third approach rely on Federal Rule of Civil procedure 23(c)(4) which permits a class action to be maintained with respect to particular issues. Courts rejecting the third approach read Rule 23(c)(4) as only a case management tool and hold that the heightened damage analysis under Comcast is still required and cannot be avoided by separating liability from damages.

The Second Circuit Court of Appeals took argument in Duane Reade, Inc. on the issue of whether claims in a wage and hour case may be certified as a class for liability purposes, while leaving the damages analysis for individual determination. Assistant Store Managers of Duane Read Stores brought a class action claiming that they were misclassified as exempt employees and not paid overtime wages as required under federal and state law. The district court certified the class for liability purposes only relying on Rule 23(c)(4) and left damage calculations for individualized determinations. There are approximately 700 members of the class. Duane Reade appealed asserting that the district court failed to apply Comcast’s heightened damage analysis to the class as a whole and could not bifurcate liability and damages. Duane Reade argues that Rule 23(c)(4) does not authorize the court to ignore the dictates of Comcast and certify the class for liability only. The Second Circuit will decide the matter in the next several months. No matter what the outcome is there remains a split in approaches among the different circuit courts which the Supreme Court may be called on to resolve.


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