Blawgletter's friend Sam Simon asked us to visit this morning with the Class Action Committee of the New York State Bar's Antitrust Section, and the chair — whom we also count as a friend — Hollis Salzman gave her okay.
You can see below the remarks we wrote out (plus a Q&A at the end to reflect some of the things that happened during the back-and-forth with CAC members):.
Good morning. You are very kind to let me talk with you about the Behrend v. Comcast case. And I thank my friends Sam Simon and your chair Hollis Salzman for granting me this privilege.
Sam asked me to cover a couple of things with you and at the same time urged me to urge all of you to make comments and ask questions any time you want. We'll get the most out of our time if we make it a back and forth, not just with me but also with your colleagues on the Class Action Committee.
I'll start with a sketch of the dynamics of the Comcast case, which we call Cable Antitrust, and of the proceedings before Judge Padova in Philadelphia and then give an overview of the Third Circuit's ruling. Again, please chime in if you have a point you'd like to make or a question you want to ask.
The dynamics of a case that is now almost eight years old have of course changed since the day in December 2003 when we filed it.
The case has always alleged that Comcast violated sections 1 and 2 of the Sherman Act by pursuing a strategy of "clustering" its cable assets in certain metropolitan areas. It executed the strategy largely by gobbling up other cable providers and systems that furnished cable service in the metropolitan areas that Comcast wanted to dominate.
The result of the decade-long process was that Comcast dominated some areas while its erstwhile competitors dominated others and that the fortresses they thus created enabled them to fend off head-to-head competition from overbuilders.
An overbuilder, as you may know, builds a cable system on top of or beside an existing system, enabling the overbuilder to compete for the incumbent's existing cable subscribers.
The Behrend lawsuit challenged Comcast's conduct in three areas — Boston, Chicago, and Philadelphia.I'll talk only about Philadelphia today. The Boston and Chicago parts of the case have been stayed pending the result of the Philadelphia piece.
The first several years involved dealing with preliminary matters, starting with a motion to compel arbitration, which led to two trips to two different courts of appeals; we ultimately won [see Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006)], and Comcast agreed to withdraw its demand for individual, case-by-case arbitration.
We also responded to a pre-Twombly motion to dismiss and then a post-Twombly motion for judgment on the pleadings. Judge Padova wrote strong opinions rejecting the motions.
We moved for class certification, and Judge Padova granted the motion in 2007. After Hydrogen Peroxide came out at the end of 2008, he partly decertified the class because he concluded he had not made express findings on two issues, both relating to predominance under Rule 23(b)(3) — antitrust impact and methodology of damages — specifically, whether the class could prove those elements using evidence common to the class.
We felt the court didn't need to conduct an evidentiary hearing, but Comcast said the opposite. As a result, Judge Padova heard live testimony over four days in the fall of 2009, culminating in a half-day of final argument.
If that isn't a mini-trial, I don't know what is. But I believe Judge Padova wanted to make sure he fully and scrupulously satisfied the Hydrogen Peroxide standard. He issued his opinion in January 2010.
Comcast asked the Third Circuit to take an appeal under Rule 23(f), and the court granted the petition in June 2010. The parties briefed the appeal and argued it in January of this year.
We had a total of five judges who for awhile at least were on our panel. Judge Rendell, who signed the order granting the 23(f) appeal, recused herself a week or two before the hearing. Judge Jordan replaced her. Judge Ambro presided at the oral argument. He recused himself a week after the argument; Senior Judge Aldisert took his spot.
The reconstituted panel did not request further oral argument. Their opinion came out on August 23, 2011, with Judge Aldisert writing the majority opinion for himself and Judge Fisher and Judge Jordan concurring in part and dissenting in part. [Behrend v. Comcast Corp., — F.3d —, 2011 WL 3678803 (3d Cir. Aug. 23, 2011)]. The court declined rehearing en banc on September 14.
In brief, the majority held that Judge Padova did not abuse his discretion or clearly err in finding and concluding that we met our burden of showing a plausible theory of antitrust injury and a plausible damages methodology and citing evidence common to the class in support of the plausible theory and plausible methodology.
On antitrust impact, the majority ruled that expert reports, government and academic studies, and Comcast's own documents and testimony supported a finding that the clustering strategy in Philadelphia enabled Comcast to stop an overbuilder, RCN, from building a system in the Philadelphia area and that the deterrence of overbuilding competition allowed Comcast to charge supra-competitive prices for cable service throughout the area, not just in the five counties where RCN announced plans to overbuild.
A lot of the discussion dealt with whether we'd shown a plausible basis for defining the relevant geographic market as the Philadelphia Designated Market Area, which roughly corresponds to the Philadelphia metropolitan area. The panel said we had made the necessary showing because the evidence indicated that cable subscribers in the DMA faced similar competitive choices — meaning that they overpaid for cable because Comcast quashed overbuilding and jacked up prices throughout the DMA.
Judge Jordan concurred with the conclusion that Judge Padova didn't err in dealing with the question of class-wide antitrust impact, but he got there by a different route. He wrote that the geographic market doesn't really matter so long as there's evidence that the members of the class all sustained antitrust impact. And he agreed with the majority that we'd presented evidence of common impact of the anticompetitive conduct across the class.
On the damages methodology, the majority rejected Comcast's criticisms of our expert's analysis. Dr. McClave used screens to create an econometric analysis of the difference between the prices that Comcast actually charged and the prices it would have charged in the absence of its anticompetitive behavior. Comcast's critique was wide-ranging but to some extent focused on the fact that Judge Padova rejected three of four theories we presented of anticompetitive conduct.
The surviving theory alleged that clustering deterred overbuilding and that the deterrence of overbuilding allowed Comcast to charge supra-competitive prices. Comcast argued that it just couldn't be so that Dr. McClave's analysis could withstand the loss of the other three grounds of liability. Judge Jordan agreed in dissent. But the majority did not. They instead ruled that Judge Padova acted within his discretion and did not clearly err in accepting Dr. McClave's explanation that his methodology isolated truly anti-competitive conduct and therefore provided an accurate estimate of what prices would have been in the more competitive but-for world.
The main significance of Behrend v. Comcast is in saying that class certification in a large antitrust case can be done, that perfection isn't the standard, that plausibility is the key. That "plausibility" thing seems to echo Twombly's plausibility test for pleading but doesn't expressly adopt it.
The panel shunned the idea of having mini-trials on class certification, and that may be true in some cases. But it's hard to imagine that in a complex antitrust case you will not have live testimony at least of experts. In the Chocolate case just yesterday, in fact, Judge Connor set a three-day evidentiary hearing in November. That, I suspect, will be the norm in antitrust cases, at least until we see the courts of appeals allow less elaborate proceedings before certification.
That is what I had prepared to say. Please let me know if you have any questions.
Qs and As:
- Do you now have to have evidentiary hearings before class certification? It depends. In some cases, maybe not. In complex cases, including most antitrust actions that involve heavy expert work, you may not be able to avoid presenting live testimony.
- What happens next in Behrend v. Comcast? Today the Third Circuit issued its mandate, which will have the effect of sending the case back to Judge Padova. Comcast may ask for Supreme Court review, but that won't stay the case in the trial court. We expect supplemental briefing on narrower summary judgment issues and a trial setting, we hope in the next six to 12 months.
- Didn't all those proceedings cost class counsel a lot? Yes. On the other hand, the process, and especially the result of the appeal, reduced the uncertainty that plaintiffs have and has gotten us ready to try the case without a great deal of additional expenditure of time and money.
- How can you manage the amount of effort you have to put into class certification? Behrend v. Comcast will likely represent the gold standard of class certification proceedings. Judge Padova prudently and scrupulously followed, met, and exceeded the requirements the Third Circuit set in Hydrogen Peroxide. The question now is, how much less can a district court do while still meeting the Hydrogen Peroxide standard? We'll need to litigate some more to get more guidance on what steps short of what we did in Behrend v. Comcast will suffice.
- Where did you get your phrase "I'm not telling the cow how to eat the cabbage" from the oral argument? The court tells you in advance who will sit on the panel, and I saw that two of the three members of the Hydrogen Peroxide panel were going to serve also on the Behrend v. Comcast panel. So I tried to think of a way to say what I thought Hydrogen Peroxide required without sounding presumptuous. And that's what occurred to me. [You can get an idea of why the phrase would bloom in the mind of a lawyer who grew up in the piney woods of East Texas here.]