In Wal-Mart, the Supreme Court significantly tightens the requirements for demonstrating "commonality" under Rule 23(a) and precludes backpay claims under Rule 23(b)(2)

The U.S. Supreme Court on Monday held that a nationwide sex discrimination lawsuit against Wal-Mart could not proceed as a class action. In holding that the existence of a company-wide policy that allegedly facilitated gender bias did not create a "question[] of law or fact common to the class," the Court's 5-4 decision in Wal-Mart Stores v. Dukes makes clear that there is a higher bar for establishing commonality in a federal class action than some lower courts had previously found. The Court also went on to hold unanimously that monetary claims for backpay cannot be pursued under Rule 23(b)(2), but must instead proceed under the more stringent rubric of Rule 23(b)(3). And in reaching these holdings, the Court confirmed that district courts will often need to consider merits questions at the class certification stage where they overlap with the district court's analysis of class certification requirements, and it strongly suggested that expert testimony submitted in connection with class certification may be subject to the standard of Daubert v. Merrell Dow Pharmaceuticals. The breadth of the Court's opinion ensures that the impact of the decision will extend to all class actions, not just employment discrimination cases.

Background

The plaintiffs filed a class action lawsuit on behalf of all women who worked at Wal-Mart retail stores. Their core claim was that Wal-Mart's policy of granting local supervisors broad discretion over personnel matters had led to systemic biases against women in pay and promotion decisions. As a remedy for the alleged discrimination, the plaintiffs sought injunctive and declaratory relief, punitive damages, and backpay.

The district court certified a class of approximately 1.5 million current and former female Wal-Mart employees under Federal Rule of Civil Procedure 23(b)(2), which is reserved principally for suits seeking injunctive or declaratory relief, not monetary awards. Among other things, the district court considered statistical evidence of gender disparities in pay and promotion at Wal-Mart, anecdotal reports of discrimination, and expert testimony suggesting that Wal-Mart's culture and personnel practices left it vulnerable to gender discrimination. That evidence, the court held, was sufficient to demonstrate that there were "questions of law or fact common to the class"—a prerequisite to class treatment.

The Ninth Circuit, sitting en banc, largely affirmed the district court's class certification order on appeal. The court of appeals agreed that the plaintiffs' evidence raised a common question for purposes of class certification: whether the class members suffered discrimination as a result of Wal-Mart's corporate policies. It also held that the plaintiffs' backpay claims were suitable for class treatment under Rule 23(b)(2). Even though it acknowledged that backpay claims are inherently unique to each individual, the Ninth Circuit held that the total amount of backpay could be determined by referring a randomly selected sample of claims to a special master for determination, and then extrapolating from those results to the entire class.

The Supreme Court's decision

The Supreme Court reversed. In the first of two significant holdings, a 5-4 majority held that the plaintiffs' evidence did not satisfy Rule 23's commonality requirement. In the majority opinion by Justice Scalia (joined in full by Chief Justice Roberts and Justices Kennedy, Thomas, and Alito), the Court declared that it is not enough that a case "literally raises common 'questions.'" To illustrate, the Court listed "questions" common to the Wal-Mart class that it viewed as immaterial to the commonality analysis, including whether the plaintiffs actually work for Wal-Mart, whether Wal-Mart's local supervisors have discretion over employee pay, and whether it is unlawful for the supervisors to have so much discretion. In the Court's view, a plaintiff seeking class certification must do more than simply identify some common questions; the relevant inquiry instead is whether the class members' claims "depend upon a common contention" that 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."

Applying that exacting definition of commonality, the Court found there were no questions common to the Wal-Mart class. To be sure, the Court noted, Wal-Mart's policy of vesting local supervisors with discretion over employment matters affected every member of the class. But the policy itself did not violate Title VII, and the plaintiffs did not identify a company-wide "mode of exercising discretion" that might establish a common discriminatory link among the millions of employment decisions at issue. The Court found the plaintiffs' statistical and anecdotal evidence to be deficient in that regard because "merely proving that the discretionary system has produced a racial or sexual disparity is not enough" to make out a discrimination claim. Rather, because the "crux" of the Title VII inquiry is "the reason for a particular employment decision," a plaintiff seeking class certification must be able to show that "examination of all the class members' claims for relief will produce a common answer to the crucial question why was I disfavored." The plaintiffs did not make that showing, and the Court therefore held that class certification was unwarranted.

The Court's second key holding—a unanimous one—confirmed that Rule 23(b)(2) is not an appropriate vehicle for classwide resolution of backpay claims. That Rule, the Court held, is reserved for claims seeking an injunction or a declaratory judgment that will apply uniformly to all members of the class. But backpay determinations are inherently idiosyncratic; different salary levels and different lengths of service will produce different awards for different plaintiffs. The Court therefore declared that Rule 23(b)(2) "does not authorize class certification when each class member would be entitled to an individualized award of monetary damages." (The Court left open the possibility, embraced by several courts of appeals, that Rule 23(b)(2) permits the certification of monetary relief that is merely "incidental" to the requested injunctive or declaratory relief.)

Nor could the Ninth Circuit's "random sample" procedure serve as a substitute for individual backpay determinations. Not only did the Supreme Court squarely reject that approach, but it strongly suggested that such an approach would violate a defendant's constitutional right to due process. According to the Court, the "random sample" method of adjudication endorsed by the Ninth Circuit threatened to unfairly deprive Wal-Mart of its right to litigate its defenses to individual claims.

The dissent

Justice Ginsburg, joined by Justices Breyer, Sotomayor, and Kagan, dissented from the Court's commonality ruling. She argued that the majority had adopted an unduly restrictive understanding of the word "question," which she suggested refers simply to "a dispute, either of fact or of law, the resolution of which will advance the determination of the class members' claims." In Justice Ginsburg's view, the district court properly identified a question common to the class—whether Wal-Mart's pay and promotions policies gave rise to unlawful discrimination. The majority ignored that question, she contended, and instead focused on the dissimilarities among the class members. According to the dissent, that shift in focus impermissibly conflates the commonality inquiry with the Rule 23(b)(3) predominance inquiry, which asks whether common questions predominate over individual questions. "If courts must conduct a 'dissimilarities' analysis at the Rule 23(a)(2) stage, no mission remains for Rule 23(b)(3)." Justice Ginsburg therefore rejected the majority's mode of analysis and concluded that it was sufficient for commonality purposes to resolve the plaintiffs' claims of biased decisionmaking by examining "particular policies and practices alleged to affect, adversely and globally, women employed at Wal-Mart's stores."

Practical implications of the decision

Because the commonality requirement of Rule 23(a) applies across the board to every class action, the Wal-Mart decision will likely have a broad impact on class action law beyond the employment context. Now that the Supreme Court has carefully limited what may—and may not—qualify as a common question of law or fact, lower courts may have to reexamine the oft-recited adage that commonality is "easily satisfied." That may have been true when plaintiffs needed only to identify some questions of common application to the entire class. But under Wal-Mart that will no longer do. Defendants can now urge the district court to disregard ostensibly common "questions" because they are insufficiently "central" to the validity of the plaintiffs' claims. The result is that courts are likely to scrutinize the plaintiffs' legal theory and proof at an earlier stage in the proceedings. Moreover, the Supreme Court's treatment of the plaintiffs' statistical, anecdotal, and sociological evidence, and its disapproval of the Ninth Circuit's "random sample" procedure, may signal a more cautious attitude toward aggregate proof in class actions.

The Wal-Mart decision is also notable for three of its less visible aspects. First, the Court discarded contrary dictum from one of its previous decisions that had caused confusion in the lower courts about whether a district court could properly examine merits questions at the class-certification stage. The opinion confirms that district courts often must examine issues relating to the merits in order to assess whether there actually exist common questions of law or fact that are "central" to the claims being advanced. Second, the Court strongly suggested that expert testimony submitted in connection with class certification may be subject to the standard of Daubert v. Merrell Dow Pharmaceuticals—a point that has been subject to uncertainty in the lower courts. Finally, the Court's restrictive interpretation of Rule 23(b)(2) will make it more difficult for litigants to use that device to circumvent Rule 23(b)(3)'s exacting predominance standard, certification requirements, notice provisions, and opt-out procedures. These aspects of the decision may not receive as much attention as the core holdings of Wal-Mart, but they are likely to affect the day-to-day mechanics of class action practice.