Today, the U.S. Supreme Court issued its long-awaited decision in Dukes v. Wal–Mart Stores, Inc., which will transform Rule 23 law and dramatically change how workplace class actions are structured and defended.
The opinion, authored by Justice Scalia – and joined by Chief Justice Roberts, Justices 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.
The Supreme Court unanimously agrees that class action certification should not have been granted in the case under Rule 23(b)(2). A majority 5 to 4 ruling holds that the plaintiffs also failed to satisfy the “common question” requirement of Rule 23(a)(2). These rulings will be significant to employers for their approach to employment discrimination litigation and human resources best practices.
The Supreme Court’s decision reverses the 6 to 5 en banc decision of the U.S. Court of Appeals for the Ninth Circuit – reported at 603 F.3d 571 (9th Cir. 2010) – which had affirmed an order certifying the largest employment discrimination class 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 diverse class – encompassing 500,000 female employees, both salaried and hourly in many different positions at 3,400 stores across the country – was united by a complex of company-wide discriminatory practices against women. The plaintiffs sought to justify class certification with a combination of expert opinions, statistical evidence, and anecdotal evidence purporting to show a corporate policy and common pattern of discrimination imposed on female employees nationwide.
Justice Ginsburg – joined by Justices Breyer, Sotomayor, and Kagan – filed an opinion concurring in part and dissenting in part. The Supreme Court was unanimous that class action certification should not have been granted under Rule 23(b)(2), but Justice Ginsburg criticized the majority for “disqualif[ying] the class at the starting gate, holding that the plaintiffs cannot cross the ‘commonality’ line set by Rule 23(a)(2).” Justice Ginsburg maintains that “[a] putative class of this type may be certifiable under Rule 23(b)(3).”
The Certification Of The Plaintiff Class Was Inconsistent With Rule 23(a)
The opinion first addresses whether plaintiffs had adequately demonstrated a common policy of discrimination. 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. 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 observed that the commonality issue overlapped with the merits issue that the employer engaged in a pattern or practice of discrimination, and stated that an inquiry into the merits in this respect is entirely permissible, although the Supreme Court’s decision in Eisen v. Carlisle & Jacquelin has been “mistakenly cited to the contrary.” Id. at 10 n.6.
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 that adversely affected the class members. In essence, Dr. Bielby’s testimony fell far short of “significant proof” that the company operated under a general policy of discrimination. Id. at 14.
The Supreme Court indicated parenthetically that Dr. Bielby’s testimony, to be admissible, must pass muster under the Daubert standard, but found that question unnecessary to reach. Id. at 13-14.
The Supreme Court opined that the only evidence of a corporate policy that plaintiffs showed was Wal-Mart’s policy of allowing discretion by local supervisors over employment decisions, which in and of itself was insufficient to raise an inference of discrimination. This showing fell short of the requisite proof necessary for Rule 23(a)(2), because showing the invalidity of one manager’s use of discretion “will do nothing to demonstrate the invalidity of anothers” such that all class members claims will “depend on the answers to common questions.” Id. at 15. The Supreme Court also addressed plaintiffs’ statistical proof (from Drs. Richard Drogin and Marc Bendick), concluding 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).
Plaintiffs’ Backpay Claims Were Improperly 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 a Rule 23(b)(2) class can seek monetary relief. The Supreme Court concluded that plaintiffs’ claims for backpay were improperly certified under Rule 23(b)(2), and that claims for monetary relief may not be certified under Rule 23(b)(2), “at least where (as here) the monetary relief is not incidental to the injunctive or declaratory relief.” Id. at 20. (This was 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 practical effect of this ruling is that plaintiffs now have a much more substantial showing to make, for Rule 23(b)(3) requires the plaintiffs to demonstrate predominance and superiority, and provides class members with the right to mandatory notice and the right to opt out.
Finally, the Supreme Court also rejected plaintiffs’ theory – and the Ninth Circuit’s conclusion below – that backpay could be determined with a “Trial by Formula.” This was 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 would violate 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 Supreme Court’s Ruling Addresses Important Class Action Issues and Supports Human Resources Best Practices
The Dukes ruling addresses several cutting-edge class action issues. These issues are of substantial importance to employment discrimination class action litigation and to employers generally because Dukes has established a roadmap for plaintiffs’ lawyers and defense counsel alike in approaching class certification briefing and hearings. The new roadmap leads one into a territory that is decidedly more friendly to employers.
Dukes also affects employers’ best practices for human resources administration, policies, and procedures. The majority describes two methods of establishing a class-wide discriminatory policy: (1) through a common evaluation mechanism or test that results in biased decision-making; and (2) through significant proof that the company operated under a general policy of discrimination. Accordingly, subjective decision-making in and of itself may help to establish that individualized decisions are not subject to classwide treatment. In addition, effective corporate equal employment opportunity policies, with consequences for managers’ adherence to their equal employment opportunity obligations, may preclude the finding of a “general policy of discrimination.”
As a result of the decision, employers should review HR practices related to all employment decisions, including hiring, pay, benefits, promotion, and layoff decisions – subjective or not – to determine whether they have an adverse impact on any protected group. Employers should review their decision-making processes and ensure that managers and decision-makers understand the relevant criteria to evaluate in making individually informed decisions with respect to applicant and employee qualifications and performance. Employers should also ensure that managers closest to performance are provided training both with respect to the Company’s equal employment opportunity obligations and best practices as well as the relevant performance criteria, applicable employee data, and consistent measurement of that data to ensure appropriate individualized decision-making based upon appropriate measurements of relevant criteria.