Lawyers for two of the world’s largest cable and biotechnology companies urged the U.S. Supreme Court in separate cases on Monday to impose higher hurdles on federal court certification of class actions. 

The justices, offering little hint of how they may rule, heard back-to-back arguments in an antitrust class action, Comcast Corp. v. Behrend, and a securities class action, Amgen Inc. v. Connecticut Retirement Plans and Trust Funds.

Together the two cases reflect the Court’s ongoing and fairly recent interest in the requirements for certifying class actions, an interest that culminated in its major 2011 decision in Wal-Mart Stores v. Dukes. In the Wal-Mart case, a 5-4 majority held that a class of more than 1 million women, charging the corporation with sex discrimination, lacked common questions of law or fact—a requirement for class certification under the federal rules.

The justices left open in Wal-Mart the question of whether a district court, before certifying a class, must determine whether expert witness testimony that the case can be tried on a class-wide basis passes the so-called Daubert test for admissibility in the trial. The Comcast case picks up on the unanswered question with respect to whether the admissibility of expert testimony on class-wide damages must be resolved at the certification stage.

Comcast, the nation’s largest cable company, was sued by Caroline Behrend on behalf of herself and about 2 million Philadelphia-area subscribers. The suit claimed that Comcast engaged in anti-competitive behavior, including acquisition and swaps, designed to monopolize the area and to hike cable prices.

During the Comcast arguments, the company’s counsel, Miguel Estrada of Gibson, Dunn & Crutcher, faced strongly skeptical questions by justices Elena Kagan, Ruth Bader Ginsburg and Sonia Sotomayor.

Kagan gently chastised Estrada for focusing on whether the plaintiffs” expert testimony was correct or strong. “What we wanted to talk about was whether a district court at a class certification stage has to conduct a Daubert inquiry, in other words has to decide on the admissibility of expert testimony relating to class-wide damages. And it turns out that as to that legal question, your clients waived their argument that this was inadmissible evidence. So what do we do in that circumstance?”

Estrada disagreed on the waiver issue, but he emphasized that the Daubert test has three prongs, one of which is the “fit” of the expert’s methodology to the plaintiff’s theory of the case. “The damages model [used by the plaintiffs] does not fit the legal theory of the case,” he told the justices.

Barry Barnett of Susman Godfrey in Dallas, countered that Comcast never raised a Daubert challenge to the expert witness testimony. The U.S. Court of Appeals for the Third Circuit held that the plaintiffs did not have show its damages model was perfect at the certification stage, he said, only that it could evolve to become admissible evidence.

Justice Antonin Scalia said, “It doesn’t make a dime’s worth of difference whether the judge excludes it under Daubert or proceeds to find it simply unreliable. Suppose we held that? What difference would it make in the world?”

Barnett replied, “I would say what you’re doing is what I suggest the court ought to do. Everybody knows that district judges have broad discretion in a lot of different things that they do. You just made it this much bigger as a result of saying, ‘We’re not even going to bother with the Daubert thing. We’re going to trust that the district judge is not going to be persuaded by phony evidence, and we’re going to trust that if he gets it nearly close right, that he got it right.’”

In the securities case, Amgen was sued by the Connecticut Plan for allegedly artificially inflating the company’s stock by making misrepresentations about the safety of two of its drugs. The question for the justices is whether the class plaintiffs, in order to rely on the so-called fraud-on-the-market presumption, must prove the materiality of the misrepresentations—that they affected the stock price—at the certification stage as well as at the merits stage.

Amgen’s counsel, Seth Waxman of Wilmer Cutler Pickering Hale and Dorr, told the justices that materiality is “an essential predicate” of the fraud-on-the-market theory. “The real question in this case is what is the purpose of Rule 23?” he added. “If you think that the purpose of Rule 23 is to postpone to the merits everything that can be postponed without a risk of foreclosing valid individual claims, we lose. But that’s not the purpose. The purpose is for a court to determine whether all of the preconditions for forcing everyone into a class action are present before you certify.”

Noting that materiality also must be proved at the merits stage, Ginsburg asked Waxman, “What does ‘material’ mean at the trial level? What does ‘material’ mean at the certification level?’

He said it means a “substantial likelihood that the information would have been viewed by a reasonable investor as having significantly altered the total mix of information available.” And, he added to her follow-up question that it has to be established both at certification and at trial on the merits.

His opponent, David Frederick of Kellogg, Huber, Hansen, Todd, Evans & Figel, said materiality is a common question for the entire class and not one to be decided at certification. To front load it at certification, he said, “You are having a mini trial on the merits, because the materiality question here goes into what did the executives think and mean when they were making certain statements about clinical trials for their drug.

Scalia interjected, “There is a reason for deciding it earlier, and the reason is the enormous pressure to settle once the class is certified. In most cases, that’s the end of the lawsuit.” Frederick repeated that front-loading the question was “consign district court judges to having many trials on the merits” because materiality is a highly contested inquiry.

Supporting Frederick, Assistant to the Solicitor General Melissa Arbus Sherry told the justices, “the confusion here is that materiality in a fraud-on-the-market case serves two purposes: It is a predicate to the fraud-on-the-market theory, but it is also an independent, separate element. And what Petitioners would have this Court do is isolate the two inquiries when they’re really the same question.” That approach, he said, would defeat the efficiency goal of the class certification rules.

Marcia Coyle can be contacted at mcoyle@alm.com.