The U.S. Supreme Court considered appeals by Comcast Corp and Amgen Inc that could help determine what kind of evidence must be presented before companies may be the subject of class-action lawsuits.
Monday's complex arguments gave the court a new opportunity to further limit class actions, which can let large groups of plaintiffs seek larger recoveries at lower cost.
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Most recently, in June 2011 the court decertified a class of as many as 1.5 million Wal-Mart Stores Inc female workers who accused the world's largest retailer of bias in pay and promotions, saying they raised too many different claims.
In the Comcast case, subscribers led by Caroline Behrend had accused the largest U.S. cable TV company, which is also majority owner of NBC Universal, of overcharges that resulted from Comcast's effort to monopolize the market in the Philadelphia area.
The $875 million lawsuit was brought on behalf of a potential 2 million customers in Pennsylvania, New Jersey and Delaware.
Comcast said the subscribers were too different to sue as a class, but in August 2011 the 3rd U.S. Circuit Court of Appeals in Philadelphia said a trial judge could decide whether they had a common methodology to justify awarding damages to a class.
Miguel Estrada, a lawyer arguing for Comcast, called the subscribers' model for determining damages "bunk," adding that the certified class covered subscribers in 649 franchise areas facing different competitive conditions.
"If you drop a stone in the water, you're going to have ripples all the way out," he said. "That doesn't mean all the ripples are the same."
Justice Anthony Kennedy appeared sympathetic to Comcast. "The judge has to make a determination that in his view the class can be certified," he said. "And that includes some factual inquiries as to the damages alleged."
But the main issue, as framed by the justices ahead of oral arguments, had been whether the trial judge could rely on testimony from an expert witness for the subscribers before certifying a class.
The subscribers' lawyer Barry Barnett and some justices on Monday suggested that Philadelphia-based Comcast could not press that issue because it had not done so in the lower courts, and that perhaps the Supreme Court should not rule on the company's appeal.
"Usually we decide cases based on disagreements about law, and here I can't find one," Justice Elena Kagan said.
Chief Justice John Roberts suggested differently. "One option for the court, since we did reformulate the question, is to answer the question," and then ask a lower court to decide whether Comcast had waived its right to address it.
In the Amgen case, shareholders accused the Thousand Oaks California-based biotechnology company of fraudulently inflating its stock price between April 2004 and May 2007 by exaggerating the safety of its anti-anemia drugs Aranesp and Epogen.
Shareholders led by the Connecticut Retirement Plans and Trust Funds sought class certification based on the "fraud on the market" theory endorsed by the Supreme Court in a 1988 case.
This assumes that the price of a stock in an efficient market reflects all public information, and that a purchaser is presumed to have relied on the truthfulness of that information.
Amgen said the shareholders should have been forced at the class certification stage, rather than at trial, to prove that alleged misstatements materially inflated the company's stock price. But last November, the 9th U.S. Circuit Court of Appeals in Pasadena, California, let the class action proceed.
Seth Waxman, a former U.S. solicitor general arguing for Amgen, told the court the shareholders cannot raise the fraud on the market theory without showing material misstatements.
"Absent materiality, the market price cannot be presumed to reflect the statement in question," he said.
But Justice Antonin Scalia told the shareholders' lawyer David Frederick there is "good reason" to decide the question of materiality before a class is certified.
"The reason is the enormous pressure to settle once the class is certified," he said. "In most cases, that's the end of the lawsuit."
But Frederick noted that when Congress adopted a 1995 law to limit class-action lawsuits, it decided not to address the matter.
"It's not really for this court's province to be imposing policy judgments about what additional requirements ought to be put on," he said. "Congress made that judgment."
Comcast and Amgen were supported in their appeals by various business groups, including the U.S. Chamber of Commerce, as well as former commissioners and officials at the U.S. Securities and Exchange Commission.
Decisions are expected by the end of June 2013.
The cases are Comcast Corp et al v. Behrend et al, U.S. Supreme Court, No. 11-864; and Amgen Inc et al v. Connecticut Retirement Plans and Trust Funds, U.S. Supreme Court, No. 11-1085. (Reporting By Jonathan Stempel in Washington, D.C.; editing by Carol Bishopric)