On June 20, 2011, the U.S. Supreme Court issued an opinion that will alter how certain class actions are defined and litigated in the lower federal courts. Specifically, the Court:
- Rejected the notion that Wal-Mart’s alleged policy of giving local managers discretion regarding pay and promotion decisions presented common issues of law or fact best addressed in a Rule 23(a)(2) class action.
- Held that class action claims for monetary relief may not be certified under Rule 23(b)(2) where the monetary relief (such as back pay) “is not incidental to the injunctive or declaratory relief” demanded by the plaintiffs.
- Held that a party seeking class certification must prove in fact that Rule 23 requirements are satisfied, even if the issues overlap the merits and must be proven again at trial.
- Held that claims for individual monetary relief cannot be replaced with “Trial by Formula,” where damages are determined by a formula derived from a sample of cases.
Rule 23(a)(2) “Commonality” – The Glue that Binds
In Wal-Mart Stores, Inc. v. Dukes, the Supreme Court rejected the lower court’s decision to allow certification of a class of 1.5 million current and former female employees in 3,400 Wal-Mart stores throughout the U.S. for alleged Title VII employment discrimination claims. Writing for the 5-4 majority, Justice Antonin Scalia stated that the “crux of the case is commonality” which “requires the plaintiff to demonstrate that the class members ‘have suffered the same injury.’” Plaintiffs’ “claims must depend upon a common contention – for example, the assertion of discriminatory bias on the part of the same supervisor.” Furthermore, that “common contention . . . must be of such a nature that it 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 one of the claims in one stroke.”
Noting that the plaintiffs “wish to sue about literally millions of employment decisions at once,” the Court stated that “[w]ithout some glue holding the alleged reasons for all of 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 I was disfavored.” Without the answer to that question, the Court held that class wide treatment is inappropriate.
Back Pay Claims Cannot Be Certified Under Rule 23(b)(2) as Incidental Relief
The unanimous Court held that back pay claims cannot be certified under Rule 23(b)(2) as incidental to injunctive relief if such claims require case-specific inquiry. The Court was skeptical that any monetary claim could be certified under Rule 23(b)(2), but declined to rule out purely incidental monetary claims, saying “[w]e need not decide whether there are any forms of ‘incidental’ monetary relief that are consistent with the interpretation of Rule 23(b)(2) that we have announced and that comply with the Due Process Clause.” The Court concluded that “Wal-Mart is entitled to individualized determinations of each employee’s eligibility for back pay.”
Until this ruling, back pay was one of the classic examples of incidental relief. Consequently, this holding considerably narrows Rule 23(b)(2)’s application to injunction claims with any monetary component and places in question whether any form of monetary relief can be sought under 23(b)(2).
Plaintiffs Must Prove that Rule 23 Requirements are Satisfied
The Court held that the proponent of class certification must prove in fact that the elements of Rule 23 are satisfied. The Court further held that in so doing, the trial court may decide class certification issues that overlap the merits, with those issues to be proved again at trial. The Court did not address the proponent’s burden on proving issues of fact, a standard on which the circuits differ. The Court also did not decide whether expert opinion evidence submitted in support of class certification must meet Daubert standards of admissibility, although it expressed skepticism that Daubert did not apply to the certification stage.
Damages May Not be Determined by “Trial by Formula”
The Court also ruled that the requirement for individual adjudication of damages cannot be replaced with what the Court called “Trial by Formula.” In the earlier federal appeals court ruling, the Ninth Circuit approved replacing individual adjudication with a formula developed from a sample of cases. The Court ruled that this approach violated the Rules Enabling Act by using a procedural mechanism to alter substantive rights, stating “[w]e disapprove that novel project.” Thus, the Court held that the need to assess damages individually prevented back pay claims from being incidental to injunctive relief, “... even assuming, arguendo, that ‘incidental’ monetary relief can be awarded to a (b)(2) class.”
Skepticism Regarding the Plaintiffs' Proof
The Supreme Court also was very skeptical of the sociological and statistical evidence offered by the plaintiffs, which is likely to have a significant impact on how lower courts view the evidence plaintiffs often proffer in support of their class action allegations. For example, in Wal-Mart, the plaintiffs proffered the testimony of an alleged sociological expert who opined that Wal-Mart has a “‘strong corporate culture,’ that makes it ‘vulnerable’ to ‘gender bias.’” He could not specify, however, “how regularly stereotypes play a meaningful role in employment decisions at Wal-Mart.” In fact, his analysis was so indeterminate that he had to concede at his deposition “that he could not calculate whether 0.5 percent or 95 percent of the employment decisions at Wal-Mart might be determined by stereotyped thinking.”
The Supreme Court disregarded this expert’s testimony and was skeptical that his opinions were even admissible. The Court also was not persuaded by the 120 affidavits offered by the plaintiffs, which represented only 1 out of every 12,500 potential class members and related to only a tiny fraction of Wal-Mart’s 3,400 stores.
Implications of the Court’s Decision
The most immediate impact of the Court’s decision is that it negates the largest employment class action ever certified in any U.S. court. To certify and sustain a class action, plaintiffs must now define the common question which leads to the common answer – that is, the “glue” that holds together the alleged reasons for all of the challenged employment decisions.
In addition, the Court’s decision will be felt beyond the Title VII gender discrimination context. The Court’s holding and reasoning, both the unanimous Rule 23(b)(2) ruling and the 5-4 Rule 23(a)(2) ruling, apply equally to other employment statutes, and by implication, may have a profound impact on the way classes are defined in wage and hour and consumer protection litigation.