Supreme Court Update: Standard Fire Insurance Co. v. Knowles (11-1450), Comcast Corp v. Behrend (11-864) and Millbrook v. United States (11-10362)
Greetings, Court fans!
On to part two of this week's reporting. After handing the plaintiffs' securities class action bar a victory in Amgen just a few weeks back, the Court gave the class action defense bar a couple reasons to cheer with its decisions in Standard Fire Insurance Co. v. Knowles (11-1450) and Comcast Corp v. Behrend (11-864). This Update will tackle those decisions, as well as Millbrook v. United States (11-10362), in which the Court considered sovereign immunity under the Federal Tort Claims Act.
In Standard Fire Insurance Co. v. Knowles (11-1450), the Court unanimously held that a named plaintiff cannot defeat federal court jurisdiction under the Class Action Fairness Act ("CAFA") by purporting to limit the damages of the putative class to less than $5 million in his complaint or in a stipulation. CAFA expanded federal court jurisdiction to cover class actions involving more than 100 individuals, minimal diversity, and an amount in controversy in excess of $5 million. In determining the amount in controversy, "the claims of the individual class members shall be aggregated" and "class members" includes persons "who fall within the definition of the proposed or certified class." An individual plaintiff can avoid federal court jurisdiction by limiting his claimed damages to an amount below the federal jurisdiction threshold via a binding stipulation. In light of this general rule, plaintiffs' counsel who preferred litigating in state court attempted the same maneuver in class cases, purporting to limit damages to less than CAFA's $5 million jurisdictional threshold.
Writing for the Court, Justice Breyer explained the problem with this approach. "Stipulations must be binding," but a plaintiff "who files a proposed class action cannot legally bind members of the proposed class before the class is certified." "[H]is precertification stipulation does not bind anyone but himself." Indeed, the district court might later certify a class, but excise the damage limitation, or might find that the particular named plaintiff who signed the stipulation isn't a good class representative because he artificially attempted to limit the amount in controversy. Other class members could intervene and seek to file an amended complaint eliminating the stipulation. In sum, there is a "very real possibility that a nonbinding, amount-limiting, stipulation may not survive the class certification process." Such a stipulation should therefore be "ignored" when determining the amount in controversy under CAFA.
Next, in Comcast Corp. v. Behrend (11-864), the Court vacated the certification of a class of Comcast subscribers in the Philadelphia market who claimed that Comcast violated federal antitrust laws by engaging in a "clustering strategy" designed to enhance its market power in specific regions, including Philadelphia. It pursued this strategy by acquiring competitor cable providers in the regions and by entering into swap transactions where Comcast would swap its systems outside the regions for competitor systems in the regions. Plaintiffs claimed that this strategy allowed Comcast to increase its market share from about 23.9% to 69.5%, allowing Comcast to charge supercompetitive prices. Plaintiffs proposed four theories of antitrust impact. However, the district court found that only one theory – the "overbuilder theory" (i.e., that the clustering reduced entry by other companies that might have built competing cable networks) – was subject to common proof such that it could be certified for class treatment. The plaintiffs' damages model, however, did not disaggregate the impact of the four different potential antitrust impacts. Nevertheless, the district court certified the class, limited to the overbuilder theory of antitrust impact, and the Third Circuit affirmed.
In a 5-4 split (along typical lines), the Court reversed, with Justice Scalia taking the lead. Under Federal Rule of Civil Procedure 23(b)(3), a class action may not be certified unless "questions of law or fact common to class members predominate over any questions affecting only individual members." The district court held (and the parties did not contest here) that plaintiffs had to establish "(1) that the existence of individual injury resulting from the alleged antitrust violation (referred to as ‘antitrust impact') was ‘capable of proof at trial through evidence that was common to the class rather than individual to its members'; and (2) that the damages resulting from that injury were measurable ‘on a class-wide basis through use of a ‘common methodology.'" But plaintiffs' damages model "did not isolate damages resulting from any one theory of antitrust impact" and thus included damages from theories that could not be established with class-wide proof. The district court and court of appeals erred when they held that they could not consider the merits of the damages theory during class certification. Indeed, courts must address merits questions where they are "enmeshed" with the class determination. Here, because plaintiffs' damages theory was not consistent with the liability theory that was certified, it could not possibly establish that damages were susceptible to class-wide proof. Any other conclusion would permit plaintiffs to circumvent the requirements of Rule 23(b)(3) by putting forth "any method of measurement . . . so long as it can be applied classwide, no matter how arbitrary the measurements may be. Such a proposition would reduce Rule 23(b)(3)'s predominance requirement to a nullity."
Justice Ginsburg led the four dissenters, who thought the case "hardly fit for our consideration" and would have dismissed the writ of cert as improvidently granted. In their view, the Court did not grant cert on the actual question presented, but re-wrote the question, and then purported to answer in its decision yet a third question. Accordingly, the parties did not adequately brief or argue the question actually decided by the Court. The dissenters took pains to argue that this case did not establish that plaintiffs must always establish that damages are susceptible to classwide proof in order to obtain certification, since the Court only assumed the accuracy of the district court's formulation of the plaintiffs' burden, which was not contested on appeal.
Finally, in Millbrook v. United States (11-10362), the Court took up the case of Kim Millbrook, a federal prisoner who sued the federal government under the Federal Tort Claims Act ("FTCA"), alleging that correctional officers had forced him to perform oral sex on an officer and verbally threatened him while he was in custody. He asserted claims for negligence, assault, and battery. Although the FTCA waives the government's sovereign immunity for tort suits, the district court dismissed Millbrook's complaint and the Third Circuit affirmed, holding that, in the realm of intentional torts, the FTCA's waiver of immunity applies only to tortious conduct in the course of executing a search, seizing evidence, or making an arrest.
Late last year, the government informed the Court that it had determined that the Third Circuit was wrong and that it would file a brief urging that the decision be overturned. The Court appointed counsel to brief and argue the case in support of affirmance, but in the end the justices sided unanimously with the plaintiff and the government. Justice Thomas wrote for the Court, starting with the observation that the FTCA articulated a broad waiver of governmental immunity from tort suits. Although there is a statutory exception that preserves governmental immunity from liability for intentional torts, Congress has carved out an exception to that exception. That provision, known as the "law enforcement proviso," extends the FTCA waiver of sovereign immunity to claims of assault and battery and five other intentional torts based on the "acts or omissions of investigative or law enforcement officers" acting within the scope of their employment. Such officers are defined by statute as those "empowered by law to execute searches, to seize evidence, or to make arrests for violations of Federal law."
The Court granted cert to resolve a circuit split over what sort of intentionally tortious conduct by law enforcement officers is actionable under the FTCA. Some courts had, like the Third Circuit, held that the proviso applies only to conduct during the course of searches, seizures, and arrests. Others had determined that only conduct undertaken during the course of "investigative or law enforcement activities" could give rise to FTCA claims. But others had concluded that the law enforcement proviso waives immunity whenever an investigative or law enforcement officer commits any of the six specified intentional torts within the scope of his or her employment. The Court concluded that the plain language of the law enforcement proviso supports the latter interpretation and makes clear that a law enforcement officer's acts or omissions may give rise to an FTCA claim as long as they fall into one of the six statutorily enumerated intentional torts. Circuits that have read additional limitations into the text to narrow the scope of the proviso simply got it wrong. References, in particular, to searches, seizures, and arrests are grounded in the definition of "investigative or law enforcement officer," but that definition goes to the status of the individuals whose conduct may give rise to a FTCA claim, not to the types of actionable conduct itself. "The plain text confirms that Congress intended immunity determinations to depend on a federal officer's legal authority, not on a particular exercise of that authority."
The Court has been busy and we are still working through a couple of new cases. Rest assured that we will be back with more soon. Thanks for reading!
Kim, Jenny & Julie