Class Action Countermeasures
At Argument, Supreme Court Struggles with Fact-Finding
On Monday, the Supreme Court heard arguments in two different class actions, united by a common problem.
The first, Comcast Corp. v. Behrend, asked whether a trial court should hold plaintiffs to the Daubert standard for expert testimony at class certification, a question that has divided federal circuits for several years. Due in part to a difficult record below (Comcast had not actually registered a Daubert objection), the Justices argued back and forth about whether there was an issue to decide at all, and, if so, what it was. At one point, Justice Kagan remakes in frustration:
I am still in search of a legal question that anybody disagrees about here.
Taking a slightly different tack, Justice Kennedy questioned whether one can even impose a standard for the admissibility of evidence like Daubert on a trial judge who will simultaneously decide admissibility (which requires looking at evidence to determine its worth) and finding facts (judging the probity of the evidence):
the judge doesn't really have a gate -- what do you call it, a gatekeeper function here. There is no--there's no jury. And if the judge admits the evidence and if it turns out that that doesn't meet the standard of reliability, then he can exclude it.
I don't--I don't see why the judge has to say: All right, now first I'm going to do Daubert, and next I'm going to do whether this is reliable. This is just a magic words approach, it seems to me.
(Emphasis added.) Meanwhile, Justice Scalia, like many lawyers, struggled with the threshold issue of how to pronounce "Daubert":
I never know how to say it. Is it [DAW-bert] or [Doe-BEAR]?
While it's usually a fool's game to determine from the arguments which way the Court is leaning, it is remarkable that a number of Justices on both sides (including Kennedy, Scalia, Alito, Sotomayor, and Kagan) questioned whether a Daubert inquiry is necessary to a judge-conducted certification hearing. In my limited experience, consensus like that at argument can imply consensus in chambers as well.
The second case, Amgen Inc. v. Connecticut Retirement Plans & Trust Funds (previously), asked whether a securities class-action plaintiff must demonstrate that the defendant's misstatements were material at the class certification stage (because the fraud-on-the-market theory many plaintiffs rely on requires a demonstration of materiality) or only at trial (where materiality is an element of the claim).
This question--when materiality is itself material to a securities class action--frustrated the Court so much that Justice Scalia suggested the solution may be to overrule the original fraud-on-the-market case, Basic Inc. v. Levinson:
If you have the same question, then maybe we shouldn't have this fraud-on-the-market theory. Because the whole purpose of it is--is to--to assume that--that the whole class was--was damaged and relied--because you can rely on an efficient market. But you can only rely on an efficient market where there has been a material misrepresentation. So maybe we should overrule Basic because it was certainly based upon a theory that--that simply collapses once you remove the materiality element.
(Emphasis added.) Despite Justice Scalia's bold proposal, I'd say it is unlikely the Court will use Amgen as grounds to overrule Basic. That said, the argument does not provide a lot of clues as to which way most of the Justices lean. Justice Scalia seemed concerned about postponing the materiality inquiry given its likely effect on settlement; Justices Kagan and Sotomayor appeared more interested in whether materiality really needs to be decided before the merits.
Despite the disparate subject matters, there is a common thread to these two cases. Each asks what facts really need to be decided before a class action may be decided. And that makes them well worth watching this Term. Taken individually, these are technical questions that each arise only in certain kinds of class actions. But taken together, the Court may well make an important statement about the role of factual inquiry for class certification. And as class-action lawyers know, that factual inquiry dictates a number of tactical issues, from the extent of discovery to settlement posture.