On June 20, 2011, addressing what it called “one of the most expansive class actions ever,” the United States Supreme Court issued its opinion in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. __, No. 10-277 (June 20, 2011), reversing the Ninth Circuit’s affirmance of certification of a class of current and former Wal-Mart employees alleging gender discrimination. The Court specifically addressed two issues of significance to class action defendants: (i) the nature of proof a named plaintiff must present to satisfy the commonality requirement of Rule 23(a)(2) of the Federal Rules of Civil Procedure, and (ii) whether class certification is inappropriate under Rule 23(b)(2) if the plaintiff seeks individualized monetary relief.
First, the Court held, by a 5-4 majority, that the named plaintiffs had not satisfied the commonality requirement because their Title VII claims did not “depend upon a common contention” that was “of such a nature that it is capable of classwide resolution.” The Court reached that conclusion based on the named plaintiffs’ failure to present “significant proof” that Wal-Mart “operated under a general policy of discrimination.”
Second, the Court unanimously held that class certification was inappropriate under Rule 23(b)(2) because the plaintiffs sought individualized monetary relief in the form of backpay. The plaintiffs argued that certification was warranted because the individualized monetary relief did not “predominate” over their request for injunctive relief. The Court rejected that argument, concluding that class certification is only proper under Rule 23(b)(2) when monetary relief is “incidental” to injunctive or declaratory relief.
In Dukes, the plaintiffs are current or former female Wal-Mart employees who alleged that Wal-Mart violated Title VII of the Civil Rights Act of 1964 by discriminating against them on the basis of gender. According to the plaintiffs, Wal-Mart’s policy vesting local managers with discretion over pay and promotions results in an unlawful disparate impact on women because the managers disproportionately exercise their discretion in favor of men. The plaintiffs contended that Wal-Mart was aware of this practice, which violates Wal-Mart’s stated policy prohibiting gender discrimination, but did nothing to thwart it. As a result, the plaintiffs sought to represent a class including all of Wal-Mart’s female employees nationwide – approximately 1.5 million class members. On behalf of themselves and the putative class members, the plaintiffs sought an injunction, a declaratory judgment, punitive damages and backpay.
In moving for class certification, the plaintiffs relied on three types of evidence to show that they satisfied the commonality requirement set forth in Rule 23(a): statistical evidence about pay and promotion disparities between Wal-Mart’s male and female employees; anecdotal evidence about discrimination gathered from 120 female employees; and testimony from a sociologist who conducted a “social framework analysis” and concluded that Wal-Mart was “vulnerable” to gender discrimination. In response, Wal-Mart challenged the admissibility and accuracy of the plaintiffs’ evidence and argued that the plaintiffs’ backpay claims could not be tried on a classwide basis without depriving Wal-Mart of the right to present statutory defenses. The plaintiffs also argued that the district court should certify a class under Rule 23(b)(2) because their backpay claims did not “predominate” over their requests for injunctive and declaratory relief.
The district court certified the class, and Wal-Mart appealed. A divided Ninth Circuit, sitting en banc, largely affirmed the district court’s decision. Wal-Mart petitioned for certiorari, and the Supreme Court granted the petition.
What Constitutes a “Common Question” Under Rule 23(a)?
The Court first considered whether the plaintiffs had satisfied their burden, under Rule 23(a), to show that “there are questions of law or fact common the class.” As Justice Ginsburg noted in her dissent, this “commonality” requirement has typically been far less demanding on plaintiffs than the “predominance” requirement set forth in Rule 23(b)(3). But in Dukes, a five-justice majority, comprised of Chief Justice Roberts and Justices Scalia, Kennedy, Thomas, and Alito, concluded that the plaintiffs had not shown that even one common question of law or fact existed.
Justice Scalia, writing for the majority, noted that a plaintiff cannot satisfy the Rule 23(a) commonality requirement merely by “reciting” purportedly common questions. Slip op. at 9. Likewise, a plaintiff cannot show commonality merely by alleging that the putative class members “have all suffered a violation of the same provision of law.” Id. at 9. Instead, the class members’ claims “must depend upon a common contention,” and the plaintiffs must prove, not merely allege, that the “common contention” is “capable of classwide resolution.” Id.
The majority held that the plaintiffs failed to meet this standard because they did not present sufficient evidence supporting their argument that Wal-Mart “operated under a general policy of discrimination” and that “the discrimination manifested itself in hiring and promotion practices in the same general fashion.” Id. at 12-13. Wal-Mart’s official company policy prohibits discrimination on the basis of gender; the plaintiffs’ only evidence countering that official policy was the sociologist’s testimony that Wal-Mart was “vulnerable” to discrimination as a result of its “strong corporate culture.” The sociologist conceded, however, that he could not quantify what percentage of employment decisions at Wal-Mart are made on the basis of stereotyping.
Wal-Mart challenged the sociologist’s testimony as inadmissible expert testimony under Daubert v. Merrill Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). The plaintiffs argued that a district court need not evaluate expert testimony under Daubert to rely on it in deciding whether to certify a class, and the Ninth Circuit agreed. The Supreme Court expressed skepticism about that conclusion, but ultimately declined to decide the issue. Instead, the Court held that the sociologist’s testimony was insufficient to discharge the plaintiffs’ burden of proof even it was properly considered.
The Court also rejected the plaintiffs’ statistical and anecdotal evidence that purportedly supported their argument that all Wal-Mart store managers uniformly exercised their discretion to discriminate against female employees. While the Court acknowledged that delegating discretion to lower-level supervisors, such as store managers, could result in Title VII disparate-impact liability, it rejected the notion that the possibility of such liability leads to the conclusion that every lower-level supervisor exercised his or her discretion in the same discriminatory manner. In a company whose official policy prohibits gender discrimination, like Wal-Mart, “demonstrating the invalidity of one manager’s use of discretion will do nothing to demonstrate the invalidity of another’s.” Slip op. at 15. The plaintiffs’ statistical and anecdotal evidence did not, in the Court’s view, demonstrate that a common question existed in light of the myriad individual circumstances surrounding each pay or promotion decision made by the managers of Wal-Mart’s 3,400 stores.
What Effect Do Individual Money Damages Claims Have on Certification Under Rule 23(b)(2)?
The Court also unanimously held that the class should not have been certified under Rule 23(b)(2) because the plaintiffs sought individualized money damages that were not merely “incidental” to their request for injunctive and declaratory relief.
In addition to an injunction and a declaration, the plaintiffs sought to recover backpay under Title VII, which establishes a specific statutory scheme for recovery of such damages. The plaintiffs argued that their request for money damages did not preclude class certification under Rule 23(b)(2) because such damages would not “predominate” over their request for injunctive and declaratory relief. The Court rejected this argument, invoking both the plain language of Rule 23(b)(2) and the absence of procedural protections associated with Rule 23(b)(3) classes, such as the predominance and superiority requirements, mandatory notice to class members, and class members’ right to opt out. Moreover, the Court reasoned that the “predominance” test that the plaintiffs advocated would create “perverse incentives for class representatives to place at risk potentially valid claims for monetary relief.” Id. at 24.
Where Do Class Actions Go From Here?
In dissent, Justice Ginsburg (joined by Justices Breyer, Sotamayor and Kagan) criticized the majority’s holding that the plaintiffs failed to satisfy the commonality requirement in Rule 23(a) for conflating commonality with the predominance requirement in Rule 23(b)(3). In the dissenters’ view, the majority’s holding transforms commonality from a low hurdle requiring plaintiffs only to show a single common question of fact or law to an obstacle no different than proving, as is required for certification of a Rule 23(b)(3) class, that common questions predominate over individual questions.
In reality, however, the majority’s holding is both consistent with established precedent and unlikely to have any marked effect on plaintiffs’ ability to obtain class certification in class actions other than employment discrimination class actions. This is a unique case, in which a district court certified a profoundly broad class based on allegations that thousands of low-level supervisors uniformly exercised their discretion in a manner inconsistent with announced company policy. On these facts, the Court’s conclusion that no common questions exist is hardly surprising. The Court’s rejection of the “predominance” test for money damages in determining whether to certify a class under Rule 23(b)(2) is more notable, if only because it overrules Second and Ninth Circuit decisions accepting this test. But even that holding was not unexpected.
Other notable aspects of the Court’s opinion include the Court’s clarification of its long-mischaracterized opinion in Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177 (1974), to make clear that courts not only can but must delve into the merits of a case to the extent necessary to determine whether to certify a class. By doing so, the Court deprived many class action plaintiffs’ lawyers of one of their favorite sources of authority. Likewise, the Court plainly was skeptical of the notion that district courts may evaluate expert testimony at the class-certification stage without first deciding if the testimony is admissible under Daubert. This issue may well end up before the Court more directly in years to come, as a split has already developed between the Seventh and Eleventh Circuits, which require a Daubert-type analysis at class certification, and the Ninth, which has rejected such a requirement. Finally, while the Court expressly declined to decide if courts should certify classes under Rule 23(b)(2) when the plaintiffs seek money damages, it left very little room for them to do so.
In Dukes, the Court clarified important principles of federal class action jurisprudence in a way that should benefit companies that find themselves defendants in these cases. In light of this opinion and the Court’s recent opinion in Smith v. Bayer Corp., class action plaintiffs’ lawyers are likely to accelerate their existing efforts to avoid federal jurisdiction under the Class Action Fairness Act of 2005 so that they can litigate in state courts, which tend to be far friendlier. The result is that while plaintiffs may have an increasingly difficult time obtaining certification of broad nationwide classes, class actions continue to pose real threats to corporate defendants.