On November 5th, the U.S. Supreme Court heard argument in two closely-watched class actions, both of which broadly deal with the level of evidence required at the class certification stage: Comcast Corp. v. Beherend, No. 11-864 and Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds, No. 1085. The cases point to a split in the Court on what needs to be shown to get a class certified. For years, courts labored under the misconception that they could not delve into the merits of a case at the class certification stage under Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974). The Supreme Court corrected this misconception in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2552 n.6 (2011), after the Second Circuit and other courts held that Eisen does not prohibit courts to look at the merits of a case as necessary at the class certification stage. The question of the evidence to be reviewed at class certification has now become a recurrent issue in class certification litigation. Enter Comcast and Amgen…
First, in Comcast, an antitrust case, the Court heard argument on the following question — a question which had been formulated by the Court itself after the case had been relisted several times: “whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.” The Court appeared divided on whether there was, indeed, a legal issue to be decided. Justice Ginsberg honed in on the damages aspect of the question presented, stating her view that “if the liability question can be adjudicated on a class basis, then the damages question may be adjudicated individually.” Justice Kagan went further, to say that the court below had actually provided a more favorable rule to Petitioner, as it called for plaintiffs to show by a preponderance of the evidence that damages could be measured classwide: “I understand that you have problems with the way in which the plaintiffs met that burden. But it seems to me that the legal standard was exactly the legal standard you wanted, that the plaintiffs had to come in and show by a preponderance that they had a class-wide way to measure damages in this case.”
Justice Kagan then told counsel for Petitioner that “it would not be crazy to surmise that we reformulated the question [presented] because … we wanted to decide a legal question, rather than a question about who was right as to this particular expert’s report and how strong it was. And it turns out that as to that legal question, your clients waived … their argument that this was inadmissible evidence. So … what do we do in that circumstance?” Indeed, as counsel for Petitioner acknowledged, Petitioner had not objected to the admissibility of plaintiffs’ expert below, but to the weight the evidence should be accorded, which, counsel argued, was part and parcel of the Daubert standard.
Justice Alito, then, commented that the divide between admissibility under the Daubert standard and a review of the weight of the evidence was a distinction without a difference in this context: “If the problem is that the model…that was used by the expert does not fit the theory of liability that remains in the case, …what is the difference in determining probative value there and determining whether it comes in under Daubert?”
As the argument concluded, Justice Roberts observed that remand may be the answer here: “…it seems to me that one option fo the Court, since we did reforumlate the question, is to answer the question and then send it back for the [district] court to determine whether or not the parties adequately preserved that … objection [to the admissibility of the expert’s evidence] or not.”
In Amgen, a similar battle in the securities context, the Court seemed divided on whether the materiality of a purported misrepresentation had to be demonstrated at the class certification stage. Justices Ginsberg, Kagan and Sotomayor pointed out that the question at the class certification stage was simply whether materiality was a question common to the class. As Justice Kagan put it: “…for materiality, the class wins or loses together. If it’s material, it’s material as to everybody. If it’s not material, it’s not material as to everybody….And where that’s the case, it seems to me that the Walmart test, which is, …when you rule on the issue, do you rule on each of the claims in one stroke? The answer to that is yes.” From Justice Kagan’s perspective, because materiality is an objective standard, it will always be a question common to the class. The materiality issue, then, as Justice Breyer and others indicated, is a merits question, that need not be decided at the class certification stage.
At the other end of the spectrum, Justice Scalia pointed out that the presumption of reliance allowed under the fraud on the market theory is a “shortcut” to getting a class certified: “You don’t have to prove it to get the class certified. You only have to prove it to get the class certified with the benefit of the fraud-on-the-market theory.”
At a minimum, a review of the arguments in these cases reveals a deep split in the Court on the burden on a plaintiff to get a class certified. InComcast, Justice Kagan pointed to the “preponderance of the evidence standard” that exists, and appeared to take a “if it ain’t broke, don’t fix it” attitude. But the question remains as to what a preponderance of the evidence means in the class certification context. These cases are likely to have an impact beyond their respective antitrust and securities contexts as they hopefully will provide much needed guidance on the evidence required for a class to be certified.