Today, the U.S. Supreme Court issued its long-awaited and much anticipated opinion in Dukes, et al. v. Wal-Mart Stores, Inc. The Supreme Court reversed, and ruled in favor of Wal-Mart.
The decision is likely to spark a transformation of Rule 23 class certification law, and the workplace class action litigation is apt to change dramatically in the future. In short, the Supreme Court’s opinion re-positions the goal posts on the playing fields of how workplace class actions are structured, defended, and litigated.
In a 5 to 4 ruling, the SCOTUS held that plaintiffs failed to demonstrate commonality under Rule 23(a)(2), and unanimously held that the back pay claims could not be properly certified under Rule 23(b)(2).
The impact of the ruling will be significant to employers for their approach to employment discrimination litigation. As such, Dukes determines how much, for purposes of Rule 23(a), class members must have in common for a class action to be certified and the extent to which claims for money damages can ever be certified under Rule 23(b)(2).
The U.S. Supreme Court’s decisions reverses the 6 to 5 en banc decision of the U.S. Court of Appeals for the Ninth Circuit in San Francisco – reported at 603 F.3d 571 (9th Cir. 2010) – which had affirmed an earlier class certification order in the largest employment discrimination class action in history. The full Ninth Circuit had ruled that the U.S. District Court for the Northern District of California did not abuse its discretion in finding that the large and diverse class – encompassing approximately 1.5 million female employees, both salaried and hourly with a range of positions, who are or were employed at one or more of the company’s 3,400 stores across the country – was united by a complex of company-wide discriminatory practices against women. Plaintiffs sought to justify class certification with a combination of expert opinions, factual evidence, statistical evidence, and anecdotal evidence purporting to show a corporate policy and common pattern of discrimination imposed on female employees nationwide.
Our blog has covered virtually every angle of the Dukes case since the SCOTUS's grant of certiorari on December 6, 2010 [see posts on the grant of certification here - on the briefs of the parties and their amicus - here, here, here, here, and here - and on the SCOTUS oral argument here].
Today's ruling confirms what we predicted - Dukes creates a new landscape for Rule 23 certification issues, and is apt to impact employment discrimination litigation for years to come.
The U.S. Supreme Court’s Decision
The opinion, authored by Justice Scalia and joined in by Justices Roberts, Kennedy, Thomas, and Alito, addresses two primary questions: (1) whether the order certifying a class conforms to the requirements of Federal Rule of Civil Procedure 23(a); and (2) whether claims for monetary relief can be certified under Federal Rule of Civil Procedure 23(b)(2) and, if so, under what circumstances.
The two issues are at the heart of most class actions, and the resolution of these questions often casts the die for success or failure in the prosecution or defense of complex discrimination lawsuits.
Holdings Focused On Rule 23(a) Commonality Issues
Today's opinion focuses on the issue of whether plaintiffs had adequately demonstrated a common policy of discrimination on the part of Wal-Mart under Rule 23(b)(2). The Supreme Court opined that "the crux of this case is commonality." Id. at 8. Plaintiffs’ theory - which had been endorsed below by the District Court and the slim majority of the Ninth Circuit - is that the common policy consisted of two elements: an alleged common corporate culture that allegedly embodies sexual stereotypes, coupled with a policy that gave local managers unfettered discretion in making personnel decisions. The Supreme Court framed the issue as whether "that common contention" is "capable of classwide resolution - which means that determination of its truth or falsity will resolve an issue that is central to the validity of each of the claims in one stroke." Id. at 9. In this respect, the commonality issue overlapped with the merits issue that the employer engaged in a pattern or practice of discrimination. The Supreme Court concluded that based on the reasons for the employment decisions at issue, "it would be impossible to say that examination of all the class members' claims for relief will produce a common answer to the critical question…" at issue in the lawsuit. Id. at 12.
The Supreme Court determined that plaintiffs had to show that the employer operated under a general policy of discrimination. It concluded that this "is entirely absent here." Id. at 13. In criticizing plaintiffs' expert showing (based on the testimony of Dr. William Bielby, which the Supreme Court viewed with extreme skepticism), the Supreme Court concluded that the testimony demonstrated no linkage between sexual-bias stereotyping and employment decisions impacting the class members. In essence, it fell far short of "significant proof" that the company operated under a general policy of discrimination. Id. at 14.
The Supreme Court opined that the only evidence of a corporate policy plaintiffs showed was Wal-Mart's policy of allowing discretion by local supervisors over employment decisions, which in and of itself was not evidence sufficient to raise an inference of discrimination. This showing fell short of the requisite proof necessary for Rule 23(a)(2). However, for class certification purposes, the Supreme Court reasoned that demonstrating the invalidity of one manager's use of discretion "will do nothing to demonstrate the invalidity of another's…" such that all class members' claims will "depend on the answers to common questions." Id. at 15. The Supreme Court also rejected plaintiffs' statistical proof (from Drs. Richard Drogin and Marc Bendick), and concluded that "even if [the expert studies] are taken at face value, these studies are insufficient to establish" plaintiffs' theory of discrimination on a classwide basis. Id. at 16. The Supreme Court also dispatched plaintiffs' anecdotal proof - 120 affidavits, representing about 1 of every 12,500 class members and relating to some 235 stores out of the 3,400 stores at issue - as insufficient to show a general policy of discrimination. Id. at 18.
For these reasons, the Supreme Court held that plaintiffs failed to demonstrate the existence of any common questions sufficient for class certification under Rule 23(a)(2).
Whether Claims For Monetary Relief Can Be Certified Under Rule 23(b)(2)
The Supreme Court's ruling also addressed the split in the federal circuits relative to the standard for determining whether monetary claims inappropriately predominate in a Rule 23(b)(2) class. The Supreme Court concluded that plaintiffs' claims for back pay were improperly certified under Rule 23(b)(2), and that claims for monetary relief may not be certified under Rule 23(b)(2) unless the monetary relief is not incidental to claims for injunctive and declaratory relief., a question the Supreme Court previously raised but did not decide in Ticor Tile Insurance v. Brown, 511 U.S. 117 (1994).
The Supreme Court opined that Rule 23(b)(2) certification is unavailable when "each class member would be entitled to an individualized award of monetary damages." Id. at 21. Instead, such claims "belong in Rule 23(b)(3)." Id. at 22. The effect, of course, is that the required showings of predominance and superiority, and the right to mandatory notice and the right to opt out, are features of Rule 23(b)(3) certification, and a much harder showing for plaintiffs to make.
Finally, the Supreme Court also rejected plaintiffs' theory - and the Ninth Circuit's conclusion below - that back pay could be determined with a "Trial by Formula" - the notion that a sample of class members could be selected, and statistical modeling could yield a result for the entire classwide recovery without further individual proceedings. Id. at 27. The Supreme Court concluded that such a device violates the Rules Enabling Act, as a class cannot be certified on the premise that an employer "will not be entitled to litigate its statutory defenses to individual claims." Id.
The Likely Impact Of The Supreme Court's Ruling On Workplace Class Actions And Human Resources Best Practices
The SCOTUS ruling in Dukes addresses several cutting-edge class action issues. These issues are of substantial importance to employment discrimination class action litigation and to employers generally because it establishes a roadmap for plaintiffs' lawyers and defense counsel alike in approaching class certification briefing and hearings. The new roadmap is decidedly more favorable to employers than before. Employers should be upbeat in terms of the Supreme Court's articulation of the required showings plaintiffs must make in the future to certify an employment discrimination class action. In short, the bar has been raised.
The impact of the Dukes case also impacts all employers’ human resources administration, policies, and procedures. As a result of the decision, employers should review HR practices related to pay and promotion decisions - subjective or not - to determine whether they are adversely impacting any classification of employee. Employers should design any subjective decision-making process and procedure carefully, by linking the process and procedure directly to each position and criteria for performance, ensuring that managers closest to performance are trained to make effective decisions, and consider an appeal process for employees considered but not selected for promotion or training opportunities. Employers should review their programs aimed at increasing diversity and preventing discrimination to ensure that they are being implemented effectively, and should not avoid implementing these programs. Further, employers should continue providing training and communications regarding company policies, including those relating to equal employment opportunities, non-discrimination, and career opportunities.