On 29 March 2011 the Supreme Court heard oral argument in Dukes v. Wal-Mart Stores, Inc., a case that may become a landmark ruling in class action litigation. Dukes is the most important class action case to reach the Supreme Court in decades because it gives the Court an opportunity to examine — and curb — potential abuses of the class action device. The sheer size and breadth of the class certified by the District Court and upheld by the en banc Ninth Circuit — roughly 1.5 million women employed at any Wal-Mart store in the United States since 1998 — underscore the importance of the case to businesses facing possible class action litigation.
In seeking certiorari, Wal-Mart asked the Court to review whether the class claims for back pay — which could amount to more than a billion dollars — were properly certified under Rule 23(b)(2) of the Federal Rules of Civil Procedure. The Supreme Court granted review on that question, but it also posed a question of its own: Whether the class even satisfied the threshold requirements of Rule 23(a).
Rule 23(a) issue. To be certified, a class must meet the requirements of Rule 23(a), which include: (1) numerosity, i.e., that joinder of all class members would be impracticable; (2) commonality, i.e., that class members share common questions of law or fact; (3) typicality, i.e., that claims or defenses of the representative parties are typical of the claims and defenses of the class; and (4) adequacy, i.e., that the representative parties will fairly and adequately protect the interests of the class. Fed. R. Civ. P. 23(a). Each of these four conditions must be met in order for a class to go forward.
Rule 23(b)(2) issue. In addition to meeting the requirements of Rule 23(a), a class must also satisfy one of the three elements of Rule 23(b). The only element remotely applicable to this class is Rule 23(b)(2), which provides that a class may be certified only if "the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief...is appropriate respecting the class as a whole." By the Rule's express language, Rule 23(b)(2) class certification "does not extend to cases in which the appropriate final relief relates exclusively or predominately to money damages." That raises considerable problems for this class because, in addition to seeking injunctive and declaratory relief, the class also sought potentially billions of dollars in back pay. The Ninth Circuit had nevertheless affirmed the class under Rule 23(b)(2) based on its application of a new multi-factor predominance test. Under that test, a court considers several factors to determine whether monetary damages "predominate" over the injunctive relief with which Rule 23(b)(2) is traditionally concerned. This new standard created a three-way circuit split. The Fifth, Sixth, Seventh, and Eleventh Circuits apply an "incidental damages" test that prohibits certification under Rule 23(b)(2) unless the monetary relief "is incidental to requested injunctive or declaratory relief." Allison v. Citgo Petroleum Group, 151 F.3d 402, 415 (5th Cir. 1998). And the Second Circuit examines whether, "even in the absence of a possible monetary recovery, reasonable plaintiffs would bring the suit to obtain the injunctive or declaratory relief sought" for Rule 23(b) certification. Robinson v. Metro-North Commuter R.R., 267 F.3d 147, 164 (2d Cir. 2001).
Oral argument focus
Rule 23(a) requirements. In the oral argument, the Court focused on whether plaintiffs had satisfied the requirements of Rule 23(a) by sufficiently showing that a Wal-Mart policy translated to local discriminatory acts against women. Counsel for Wal-Mart, Theodore J. Boutrous, Jr., argued that plaintiffs' "incoherent" theory — that delegation of excessive discretion to managers caused a corporate policy of discrimination — cannot meet the requirements of Rule 23(a). When Justice Kagan asked Mr. Boutrous whether complete subjective discretion could be a policy in and of itself, as the Court held in Watson v. Fort Worth Bank & Trust, 487 U.S. 977 (1988), Mr. Boutrous conceded that it could. But Mr. Boutrous countered that plaintiffs' theory was not such a case because plaintiffs impossibly argue that Wal-Mart personnel decisions are both totally discretionary and informed by company values.
Joseph M. Sellers, counsel for the plaintiffs, faced harsh questioning from several justices on this very point. Justice Kennedy told Mr. Sellers that the plaintiffs' theory of the case "faces in two directions," contains an "inconsistency," and that he was "just not sure what  unlawful policy" plaintiffs' claim Wal-Mart has adopted. Justice Scalia similarly commented that he was "getting whipsawed," since on the one hand, plaintiffs argue that personnel decisions were utterly subjective, and on the other hand, argue that Wal-Mart's strong corporate culture guides decisions. Justice Scalia also noted that Wal-Mart has a written policy against sex discrimination and wondered if that had no value. Justice Roberts added to this line of questioning and doubted whether plaintiffs' examples of discrimination can establish a common policy of discrimination or whether such examples are just a few "bad apples."
Rule 23(b)(2) monetary remedy availability. Justice Sotomayor briefly questioned Mr. Boutrous about whether plaintiffs could be subdivided into a Rule 23(b)(2) class and Rule 23(b)(3) class — where damages may be awarded but certification is much harder to satisfy. Mr. Boutrous responded that plaintiffs' claims would fail under either standard but that classes should be evaluated under Rule 23(b)(3) when any monetary relief is at stake. Mr. Boutrous maintained that the "incidental damages" test is contrary to the plain language of Rule 23(b)(2).
Practical considerations. Justices Ginsburg and Sotomayor focused Mr. Sellers on the practical problems of certifying such a massive class. Justice Ginsburg questioned how a judge can possibly calculate back pay for hundreds of thousands of employees. Mr. Sellers answered that plaintiffs have developed a reliable formula based on Wal-Mart's database to evaluate monetary damages. Justice Sotomayor was skeptical of such a statistical model because such a model would prevent defendants from having an opportunity to defend themselves. In his rebuttal, Mr. Boutrous emphasized Justice Sotomayor's concern. He reiterated that the district court below had found that it would be "impossible" to hold individual hearings and that individual hearings are necessary to comport with due process requirements. Thus, Mr. Boutrous argued, a trial would inevitably violate Wal-Mart's constitutional rights.
While both Mr. Boutrous and Mr. Sellers faced tough questioning from the justices, Mr. Sellers failed to give the Court a satisfactory answer to the core question: What was Wal-Mart's uniform discriminatory policy applicable to every single store in the country that would make this case suitable for class-wide treatment? After all, it is only when there is sufficient "commonality" among the plaintiffs' claims that a class action is ever proper; otherwise, the action will devolve into a series of mini-trials to determine whether each individual plaintiff faced unlawful discrimination. The justices' questions emphasized the plaintiffs' logical quandary in simultaneously arguing that Wal-Mart managers had "no guidance whatsoever" but were influenced by "a very strong corporate culture." This line of questioning — coupled with the fact that the Court specifically asked the parties to address this question when it granted certiorari — suggests that a majority of the Court is deeply troubled with the Ninth Circuit's application of Rule 23(a).
Based on the oral argument, it seems likely the Supreme Court will modify the Ninth Circuit's decision in some way. Indeed, the questioning suggests that the Court may even be unanimous that the Ninth Circuit's decision went too far. Where the Supreme Court may fracture, however, is in articulating the correct rule to govern future class actions. Some Justices appear willing to fundamentally reformulate the test for Rule 23(a); others are likely to take a more incrementalist approach. It also remains to be seen whether the Court resolves the case on the basis of Rule 23(a) or Rule 23(b)(2), or both. The Supreme Court will likely issue its decision by June 2011.