Behrend v. Comcast Corp..

655 F.3d 182

2011-2 Trade Cases P 77,575

80 Fed.R.Serv.3d 394

Caroline BEHREND; Stanford Glaberson; Joan Evanchuk–Kind; Eric Brislawn

v.COMCAST CORPORATION; Comcast Holdings Corporation; Comcast Cable Communications, Inc.; Comcast Cablecommunications Holdings, Inc.; Comcast Cable Holdings, LLC, Appellants.

No. 10–2865.

United States Court of Appeals, Third Circuit.

Argued on Jan. 11, 2011.Filed: Aug. 23, 2011.

Darryl J. May, Ballard Spahr LLP, Philadelphia, PA, Michael S. Shuster [Argued], Sheron Korpus, Kasowitz, Benson, Torres & Friedman LLP, New York, NY, for Appellants.Samuel D. Heins, Vincent J. Esades, David R. Woodward, Jessica N. Servais, Heins Mills & Olson, P.L.C., Minneapolis, MN, Anthony J. Bolognese, Joshua H. Grabar, Bolognese & Associates, LLC, Philadelphia, PA, Barry C. Barnett [Argued], Daniel H. Charest, Stephen L. Shackelford, Jr., Susman Godfrey L.L.P., Dallas, TX, Joseph Goldberg, Freedman Boyd Hollander Goldberg & Ives, Albuquerque, NM, for Appellees.Before: FISHER, JORDAN and ^* ALDISERT, Circuit Judges.

OPINION OF THE COURT

ALDISERT, Circuit Judge.

In 2008 this Court handed down the seminal case of In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3d Cir.2008), which outlines the standards a district court should apply in deciding whether to certify a class. This appeal by Comcast requires us to decide if the District Court for the Eastern District of Pennsylvania properly satisfied Hydrogen's directions in determining that questions of fact or law common to class members predominate sufficiently to satisfy Rule 23(b)(3) of the Federal Rules of Civil Procedure. Appellants contend that the District Court exceeded a proper exercise of discretion and that its findings of fact were clearly erroneous. For the reasons that follow, we hold that the Court did not exceed its permissible discretion in determining that Plaintiffs established by a preponderance of evidence that they would be able to prove through common evidence (1) class-wide antitrust impact (higher cost on non-basic cable programming), and (2) a common methodology to quantify damages on a class-wide basis. Accordingly, we will affirm.

I.

A.

“For the rational study of the law the black-letter man may be the man of the present, but the man of the future is the man of statistics and the master of economics.”

Oliver Wendell Holmes, Jr., The Path of the Law, 10 Harv. L.Rev. 457, 469 (1897).

Beginning in 1998, Defendants Comcast Corporation, Comcast Holdings Corporation, Comcast Cable Communications, Inc., Comcast Cable Communications Holdings, Inc., and Comcast Cable Holdings, LLC (collectively “Comcast”) engaged in a series of transactions that increased Comcast's share of the multichannel video programming distribution services offered in the Philadelphia Designated Market Area (“Philadelphia DMA”).¹ Comcast contracted with competing cable providers to either acquire them or to “swap” cable systems it owned in areas outside the Philadelphia DMA for cable systems within the Philadelphia DMA. These transactions form the “Cable System Transactions,” involving the “Transaction parties.” ² As a result of the Cable System Transactions, Comcast's share of subscribers in the Philadelphia DMA allegedly increased from 23.9 percent in 1998 to 77.8 percent by 2002, settling at 69.5 percent in 2007. See Behrend v. Comcast Corp., 264 F.R.D. 150, 160 (E.D.Pa.2010) (setting forth Plaintiffs' expert's calculations as to Comcast's market share).

Plaintiffs, six non-basic cable television programming services customers of Comcast, brought a class action antitrust suit against Comcast in 2003. They alleged violations of section 1 of the Sherman Act, 15 U.S.C. § 1, for “imposing horizontal territory, market and customer allocations by conspiring with and entering into and implementing unlawful swap agreements, arrangements or devices,” and section 2 of the Sherman Act, 15 U.S.C. § 2, on theories of monopolization and attempted monopolization.³ App. 00232–243 (Third Am. Compl.). The Complaint alleged anticompetitive conduct in the Philadelphia area and the Chicago area. As only the alleged conduct in Philadelphia is before us, we focus on the nature of the class and the allegations in Philadelphia.

The proposed class included: “All cable television customers who subscribe or subscribed at any time since December 1, 1999, to the present to video programming services (other than solely to basic cable services) from Comcast, or any of its subsidiaries or affiliates in Comcast's Philadelphia cluster.” App. 00217; see id. (excluding from the class “governmental entities, Defendants, Defendants' subsidiaries and affiliates and this Court”). The Philadelphia cluster is composed “of the areas covered by Comcast's cable franchises, or any of its subsidiaries or affiliates, located in the following counties: Berks, Bucks, Chester, Delaware, Montgomery and Philadelphia, Pennsylvania; Kent and New Castle, Delaware; and Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Mercer and Salem, New Jersey.” See Behrend, 264 F.R.D. at 191.⁴

The Complaint alleged that Comcast had perpetrated an anticompetitive “clustering scheme.” To clarify its contentions we pause to define two key terms. “Clustering” refers to a “strategy whereby cable [Multi–System Operators (“MSOs”) ] concentrate their operations in regional geographic areas by acquiring cable systems in regions where the MSO already has a significant presence, while giving up other holdings scattered across the country. This strategy is accomplished through purchases and sales of cable systems, or by system ‘swapping’ among MSOs.” Implementation of the Cable Television Consumer Prot. & Competition Act of 1992, 22 F.C.C. Rcd. 17791, 17810 n. 134 (2007) (citation omitted). An “overbuilder” is a company that builds and offers customers a competitive alternative where a telecommunications company already operates. According to the Complaint, Comcast eliminated competition by (1) acquiring competitors in the Philadelphia market and (2) swapping with competitors cable systems and subscribers outside of the Philadelphia market for cable systems and subscribers within the Philadelphia market. The Complaint also alleged that Comcast engaged in conduct intended to exclude competition from overbuilder RCN Telecom Services, Inc. (“RCN”), by denying it access to “Comcast Sportsnet,” requiring contractors to enter non-compete agreements, and inducing potential customers to sign up for long contracts with special discounts and penalty provisions in the areas where RCN intended to overbuild. App. 00235–239.

As a result of its clustering, Comcast allegedly harmed the class by eliminating competition, raising entry barriers to potential competition, maintaining increased prices for cable services at supra-competitive levels, and depriving subscribers of the lower prices that would result from effective competition. App. 00241–242. In other words, Comcast subscribers allegedly pay too much for their non-basic video programming cable service.

B.

On May 3, 2007, after extensive motions practice, see App. 00148–172 (listing 194 docket entries prior to certification), the District Court certified the proposed class. App. 00354. It determined that Plaintiffs had met the requirements of Rule 23(a) of the Federal Rules of Civil Procedure (numerosity, commonality, typicality, and adequacy). App. 00366–372. It held also that Plaintiffs had met the predominance and superiority requirements of Rule 23(b). App. 00373–387. We denied on June 29, 2007, Comcast's 23(f) petition seeking interlocutory review.

The Court also certified the Chicago class's claims, but stayed them pending the outcome of the Philadelphia class. App. 00177, 00179.⁵

Following our decision in Hydrogen Peroxide, 552 F.3d 305, the District Court granted in part Comcast's motion to reconsider its Philadelphia certification decision (the Court denied without prejudice consideration of the Chicago class certification, again pending the outcome in Philadelphia). App. 00437–439. It vacated only the portion of the certification decision that addressed Rule 23(b)'s predominance requirement. The Court scheduled a hearing on the issue of predominance as it related to (1) antitrust impact, and (2) methodology of damages.

The District Court held an evidentiary hearing on October 13–15 and 26, 2009. During the four-day hearing, the Court heard live testimony from fact and expert witnesses, considered 32 expert reports, and examined deposition excerpts, as well as many other documents. Following the hearing, the Court issued to the parties a series of questions related to antitrust impact and damages methodology, and heard argument on November 16, 2009, to address its specific questions.

On January 7, 2010, the District Court recertified the Philadelphia class, and issued an amended class certification order on January 13, 2010. The Court reaffirmed and incorporated its May 2007 certification as to numerosity, commonality, typicality, and adequacy (Rule 23(a)), as well as superiority (Rule 23(b)(3)). App. 00029. On the disputed issue of predominance, the Court held that Plaintiffs had demonstrated by a preponderance of the evidence that: (1) questions of law and fact common to the members of the class predominated; (2) the relevant geographic market could be the Philadelphia Designated Market Area; (3) the class could establish antitrust impact on the theory that Comcast's clustering through the swaps and acquisitions deterred overbuilder competition; (4) the models and analyses of Plaintiffs' damages expert, Dr. James McClave, were common evidence available to measure and quantify damages on a class-wide basis; and (5) the class could establish antitrust impact through common evidence applicable to all class members. App. 00030. In certifying the class, however, the District Court narrowed the class's various theories of class-wide impact to a...