On December 6, 2010, in Wal-Mart v. Dukes, the Supreme Court agreed to conduct a limited review of a decision by the U.S. Court of Appeals for the Ninth Circuit in which the Ninth Circuit affirmed class certification in what is reported to be the world’s largest class action. Wal-Mart petitioned for review on two issues but the Court’s Order granting certiorari limited review to one of Wal-Mart’s and one of its own. Wal-Mart’s issue is “whether claims for monetary relief can be certified under Federal Rule of Civil Procedure 23(b)(2) – which by its terms is limited to injunctive or corresponding declaratory relief – and, if so, under what circumstances.” The Court’s issue is whether the class certification ordered under Rule 23(b) (2) was consistent with Rule 23(a) and its requirements of numerosity, commonality, typicality and adequate representation. The Ninth Circuit found that commonality and typicality existed on the basis of evidence of excessive subjectivity in personnel decisions as well as statistical and anecdotal evidence, which figured prominently in the opinion offered by plaintiffs’ expert, a sociologist. The case has sparked intense national interest since the Supreme Court’s ruling may determine, among other important issues, whether or in what circumstances claims for punitive damages are subject to class certification.
The case began on June 8, 2001 when six women (including both current and former Wal-Mart employees) filed suit alleging sex discrimination in pay and promotions in violation of Title VII of the 1964 Civil Rights Act. In seeking certiorari, Wal-Mart described the class as including “every woman employed for any period of time over the past decade, in any of Wal-Mart’s approximately 3,400 separately managed stores, 41 regions, and 400 districts, and who held positions in any of approximately 53 departments and 170 different job classifications.” Wal-Mart estimated the number of plaintiffs to be at least 1.5 million at the time of certification, a class larger than the active-duty personnel in the Army, Navy, Air Force, Marines and Coast Guard combined. Wal-Mart stated that “millions of class members collectively seek billions of dollars in monetary relief under Title VII.” Plaintiffs seek injunctive and declaratory relief, back pay and punitive damages but not compensatory damages.
It was no surprise that the Supreme Court granted review. The Ninth Circuit’s decision highlighted several issues on which there is disagreement among the circuit courts of appeal. Perhaps most importantly, the Ninth Circuit’s decision created a triple split among the circuits on the standard for determining when claims for monetary relief can be certified as a class action under Federal Rule of Civil Procedure 23(b) (2). Rule 23(b)(2) allows class certification if the defendant “has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” Prior to the Ninth Circuit’s decision, the Second Circuit had applied the “plaintiffs’ subjective intent” standard. In determining whether monetary relief predominates, one should examine whether, even absent a monetary recovery, reasonable plaintiffs would still bring suit. The Fifth, Sixth, Seventh and Eleventh Circuits have adopted the “incidental damages” standard, i.e., monetary relief must be incidental to the requested injunctive or declaratory relief.
The Ninth Circuit rejected both standards and adopted a third. The Ninth Circuit held that to recover monetary relief under Rule 23(b)(2) a class must seek monetary damages that are not “superior in strength, influence, or authority” to injunctive and declaratory relief. The Ninth Circuit identified several factors to be used in assessing the monetary relief sought such as whether the relief sought “determines the key procedures that will be used, whether it introduces new and significant legal and factual issues, whether it requires individualized hearings, and whether its size and nature – as measured by recovery per class member – raise particular due process and manageability concerns.” No single factor is to be determinative and the court would be free to consider any other relevant factors. The Ninth Circuit ordered the district court to apply these factors on remand in deciding whether the claim for punitives could proceed under Rule 23(b)(2).
In its brief seeking review, Wal-Mart criticized all three standards, arguing that Rule 23(b)(2) does not authorize certification of any claims for monetary relief. However, it identified the Ninth Circuit as having strayed most egregiously from the plain language of the rule. Wal-Mart emphasized that Rule 23(b)(2) is an appropriate recovery vehicle only for those cases where the prospective relief is appropriate to the class as a whole without further refinement, such as in the Brown-era desegregation cases, and should not be used as a recovery vehicle for an intentional discrimination case described as a “tort claim for unliquidated damages.” This is of utmost importance to Wal-Mart given the Ninth Circuit’s refusal to allow Wal-Mart to present individual defenses to damage claims. The Ninth Circuit held that Wal-Mart’s right to defend would be adequately served by the random selection and trial of a small number of “sample cases,” the results of which would be applied to the class according to a statistical formula.
Wal-Mart’s most persuasive argument in this regard may be that claims for monetary relief necessarily will predominate in this case under any standard since at least two-thirds of the class are former employees who lack standing to secure the injunctive or declaratory relief recoverable under Rule 23(b) (2). As Wal-Mart points out, the Ninth Circuit’s purported solution – to limit the class to those employed on or after the date of the complaint – ignores how to handle those employees who left the day after and following.
Another related issue raised by the request for review is the nature of backpay. While backpay ischaracterized as “equitable” it is inarguably “monetary.” Wal-Mart argues that claims for monetary relief – including backpay – can only proceed under Rule 23(b)(3), especially where the amount at issue is billions of dollars. The Ninth Circuit viewed the total amount at stake as immaterial.
The Supreme Court also will have the opportunity to address the headache-causing argument that excessive subjectivity exercised by individual managers is a specific discriminatory policy appropriate for class certification. The Ninth Circuit conceded the absence of a specific discriminatory policy promulgated by Wal-Mart except for the “policy” of discretionary decision-making by individual store management. The Court will have the opportunity to answer whether subjective decision-making alone is enough to support a claim of systemic discrimination. What must a plaintiff offer by way of proof to convince a court that subjectivity is tantamount to intentional sex discrimination that injures a class in the same way. The case also highlights the importance of statistics in such cases. Plaintiffs’ “excessive subjectivity” theory focuses on decisions made by individual managers at the store level. However, Plaintiffs’ expert aggregated data at the national or regional level to allege systemic discrimination. Wal-Mart argued that Plaintiffs should not be able to have it both ways. If certification turned on store-level discrimination, then the statistical analysis should also proceed store by store.
Another issue which the Supreme Court will have the opportunity to resolve is whether Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993) should have the same application at the class certification stage as it does at trial. Although Wal-Mart moved under Daubert to strike plaintiffs’ sociologists’ report, the trial court did not hold a Daubert hearing despite relying on the report in approving certification. Postponing the Daubert hearing until the merits stage is in conflict with other circuits and certainly with Wal-Mart’s position.
Oral argument in Wal-Mart v. Dukes will take place on March 29, 2011. The Court’s decision obviously will have a Wal-Mart size impact on class-action litigation for years to come.