On June 20, 2011, the United States Supreme Court released its widely-anticipated decision in Wal-Mart Stores, Inc. v. Dukes, et al., 564 U.S. ___ (2011) ("Wal-Mart"). In Wal-Mart, the Supreme Court reversed the Ninth Circuit Court of Appeals and held that the proposed nationwide gender discrimination class action against the retail giant could not proceed. In a decision that will come as welcome news to large employers and other frequent targets of class action lawsuits, the Supreme Court (1) arguably increased the burden that plaintiffs must satisfy to demonstrate "common questions of law or fact" in support of class certification, making class certification more difficult, especially in "disparate impact" discrimination cases; (2) held that individual claims for monetary relief cannot be certified as a class action pursuant to Federal Rule of Civil Procedure 23(b)(2), which generally permits class certification in cases involving claims for injunctive and/or declaratory relief; and (3) held that Wal-Mart was entitled to individualized determinations of each proposed class member's eligibility for backpay, rejecting the Ninth Circuit's attempt to replace that process with a statistical formula.
The named plaintiffs in Wal-Mart were three current and
former female Wal-Mart employees. They sued Wal-Mart under Title
VII of the federal Civil Rights Act of 1964, alleging that
Wal-Mart's policy of giving local managers discretion over pay
and promotion decisions negatively impacted women as a group, and
that Wal-Mart's refusal to cabin its managers' authority
amounted to disparate treatment on the basis of gender. The
plaintiffs sought to certify a nationwide class of 1.5 million
female employees. The plaintiffs sought injunctive and declaratory
relief, punitive damages, and backpay.
The trial court and Ninth Circuit had agreed that the proposed
class could be certified, reasoning that there were common
questions of law or fact under Federal Rule of Civil Procedure
23(a), and that class certification pursuant to Rule 23(b)(2)
– which permits certification in cases where "the
party opposing the class has acted or refused to act on grounds
that apply generally to the class, so that final injunctive relief
or corresponding declaratory relief is appropriate respecting the
class as a whole" – was appropriate because the
plaintiffs' claims for backpay did not "predominate."
The Ninth Circuit had further held that the case could be
manageably tried without depriving Wal-Mart of its due process
rights by having the trial court select a random sample of claims,
determine the validity of those claims and the average award of
backpay in the valid claims, and then apply the percentage of valid
claims and average backpay award across the entire class in order
to determine the overall class recovery.
The Supreme Court reversed. A five-justice majority concluded that
there were not common questions of law or fact across the proposed
class, and hence Federal Rule of Civil Procedure 23(a)(2) was not
satisfied. Clarifying earlier decisions, the majority made clear
that in conducting this analysis, it was permitted to consider
issues that were enmeshed with the merits of the plaintiffs'
claims. The majority then explained that merely reciting common
questions is not enough to satisfy Rule 23(a). Rather, the class
proceeding needs to be capable of generating "common
answers" which are "apt to drive the resolution of the
litigation." The four-justice dissent criticized this holding
as superimposing onto Rule 23(a) the requirement in Rule 23(b)(3)
that "common issues predominate" over individualized
issues. The dissent believed that the "commonality"
requirement in Rule 23(a) could be established merely by
identifying a single issue in dispute that applied commonly to the
proposed class. Because the trial court had only considered
certification under Rule 23(b)(2), the dissent would have remanded
the case for the trial court to determine if a class could be
certified under Rule 23(b)(3).
The majority held that the plaintiffs had not identified any common
question that satisfied Rule 23(a), because they sought "to
sue about literally millions of employment decisions at once."
The majority further explained that "[w]ithout some glue
holding the alleged reasons for all those decisions
together, it will be impossible to say that examination of all the
class members' claims for relief will produce a common answer
to the crucial question why was I disfavored."
Addressing the plaintiffs' attempt to provide the required
"glue", the majority held that anecdotal affidavits from
120 class members were insufficient, because they represented only
1 out of every 12,500 class members, and only involved 235 out of
Wal-Mart's 3,400 stores nationwide. The majority also held that
the plaintiffs' statistical analysis of Wal-Mart's
workforce (which interpreted data on a regional and national level)
was insufficient because it did not lead to a rational inference of
discrimination at the store or district level (for example, a
regional pay disparity could be explained by a very small subset of
stores). Finally, the majority held that the "social
framework" analysis presented by the plaintiffs' expert
was insufficient, because although the expert testified Wal-Mart
had a "strong corporate culture" that made it
"vulnerable" to gender discrimination, he could not
determine how regularly gender stereotypes played a meaningful role
in Wal-Mart's employment decisions, e.g., he could not
calculate whether 0.5 percent or 95 percent of the decisions
resulted from discriminatory thinking. Importantly, the majority
strongly suggested that the rigorous test for admission of expert
testimony (the Daubert test) should be applied to use of
expert testimony on motions for class certification.
The Court's other holdings were unanimous. For one, the Court
agreed that class certification of the backpay claim under Rule
23(b)(2) was improper because the request for backpay was
"individualized" and not "incidental" to the
requests for injunctive and declaratory relief. The Court declined
to reach the broader question of whether a Rule 23(b)(2) class
could ever recover monetary relief, nor did it specify what types
of claims for monetary relief were and were not considered
"individualized." The Court made clear, however, that
when plaintiffs seek to pursue class certification of
individualized monetary claims (such as backpay), they cannot use
Rule 23(b)(2), but must instead use Rule 23(b)(3), which requires
showing that common questions predominate over individual
questions, and includes procedural safeguards for class members,
such as notice and an opportunity to opt-out.
Lastly, the unanimous Court agreed that Wal-Mart should be entitled
to individualized determinations of each employee's eligibility
for backpay. In particular, Wal-Mart has the right to show that it
took the adverse employment actions in question for reasons other
than unlawful discrimination. The Court rejected the Ninth
Circuit's attempt to truncate this process by using what the
Court called "Trial by Formula," wherein a sample group
would be used to determine how many claims were valid, and their
average worth, for purposing of extrapolating those results onto
the broader class. The Court disapproved of this "novel
project" because it deprived Wal-Mart of its due process right
to assert individualized defenses to each class member's
claim.
Looking forward, the Wal-Mart decision will strengthen the
arguments of employers and other companies facing large class
action lawsuits. In particular, the decision reaffirms that trial
courts must closely scrutinize the evidence when deciding whether
to certify a class action, especially in "disparate
impact" discrimination cases. Statistical evidence that is
based on too small a sample size, or is not well-tailored to the
proposed class action, should be insufficient to support class
certification. Likewise, expert testimony that is over-generalized
and incapable of providing answers to the key inquiries in the case
(here, whether a particular employment decision was motivated by
gender discrimination) should also be insufficient to support class
certification. Finally, the Court's holding that defendants
have the right to present individualized defenses as to each class
member, and that this right cannot be short-circuited through
statistical sampling, will provide defendants with a greater
ability to defeat class certification where such individualized
determinations would otherwise prove unmanageable.
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