The Supreme Court’s class action underachiever

February 11, 2015

On Tuesday, the 2nd U.S. Circuit Court of Appeals ruled that former employees of several Applebee’s restaurants in upstate New York are not barred from suing as a group over supposedly unpaid wages, even though the lost wages will eventually have to be assessed individually. The appeals court rejected the restaurant owner’s arguments that under the U.S. Supreme Court’s 2013 decision in a case called Comcast v. Behrend, plaintiffs cannot be certified to sue as a class unless they can offer a model for measuring damages that applies to everyone in the group.

The Comcast ruling “did not hold that a class cannot be certified  simply because damages cannot be measured on a classwide basis,” the 2nd Circuit opinion said. “The Supreme Court did not foreclose the possibility of class certification  in cases involving individualized damages calculations.”

The Applebee’s opinion is just the latest in a string of appellate disappointments for defendants that had hoped to use the Comcast ruling to squelch sprawling class actions. In the Comcast case, a divided Supreme Court reversed the certification of a class of Pennsylvania cable subscribers who claimed Comcast made illegal deals with other cable companies to obtain monopoly power over geographic areas. In an opinion by Justice Antonin Scalia, the Supreme Court majority said that lower-court judges should consider defendants’ challenges to damages models when they are deciding whether to certify a class. The model proposed by the Comcast subscribers, according to the opinion, didn’t match their theory of the case, so their class couldn’t be certified.

Class action opponents seized on language in the Supreme Court opinion that suggested a broader principle about damages and class certification. Justice Scalia said several times that plaintiffs suing as a class must establish “that damages are susceptible of measurement across the entire class.” In dozens of cases after Comcast, defendants argued that the Supreme Court’s phraseology precluded class actions in which damages have to be calculated individually. The Supreme Court itself seemed to be encouraging defendants to test Comcast’s boundaries when it sent two enormous consumer class actions over allegedly moldy washing machines back to federal circuit courts for reconsideration in light of Comcast.

But in case after case since 2013, federal appeals courts have declined to construe Comcast broadly. The 6th and 7th Circuits, for instance, both recertified the moldy washer consumer classes the Supreme Court had asked them to reconsider. Judge Richard Posner of the 7th Circuit wrote a characteristically lucid explanation of the court’s reasoning: “It would drive a stake through the heart of the class action device  to require that every member of the class have identical damages,” he said in Butler v. Sears. “If the issues of liability are genuinely common issues, and the damages of individual class members can be readily determined in individual hearings, in settlement negotiations, or by creation of subclasses, the fact that damages are not identical across all class members should not preclude class certification. Otherwise defendants would be able to escape liability for tortious harms of enormous aggregate magnitude but so widely distributed as not to be remediable in individual suits.” (The Supreme Court subsequently refused to grant review of the 6th and 7th Circuits’ moldy washer class certification decisions.)

The 1st, 5th, 9th and 10th Circuits have also issued decisions restricting Comcast’s impact, as the 2nd Circuit’s Applebee’s opinion points out. Judge Christopher Droney, writing for a panel that also included 2nd Circuit Judge Dennis Jacobs and U.S. District Judge Lewis Kaplan of Manhattan, sitting by designation, said the other federal circuits have read Comcast to require that class action plaintiffs link their liability and damages theories – but not to preclude class actions involving individual damages calculations.

“The circuits are developing a consensus that individualized damages are not a per se bar to class certification,” said Scott Michelman of Public Citizen, who argued the employees’ case against Applebee’s at the 2nd Circuit. Michelman said that Comcast could have killed a lot of class actions – including consumer, civil rights and employment cases – if courts had interpreted it the way defendants wanted them to. Instead, he said, “Comcast has turned out to be a lot less influential than class action opponents had hoped.”

Barry Barnett of Susman Godfrey, who argued for Comcast subscribers at the Supreme Court, said in an email that no one should be surprised at the circuits’ narrow reading of the ruling. The Supreme Court took the Comcast case, Barnett said, to decide on a standard for expert testimony on damages and had to rewrite the question the case presented when it turned out that Comcast hadn’t raised that issue in the lower courts. The ultimate opinion, according to Barnett, stands only for the very narrow conclusion that the Comcast class didn’t present evidence linking their antitrust allegations to classwide damages.

“I therefore believe that the 2nd Circuit certainly reached the right conclusion yesterday when it held just that in the Applebee’s case,” Barnett said in the email.

I also reached out to Miguel Estrada of Gibson Dunn & Crutcher, who won Comcast’s Supreme Court case, to ask for his assessment of the ruling’s impact. He didn’t respond.

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