Member Article

On June 20, 2011, the Supreme Court issued its opinion in Wal-Mart Stores, Inc. v. Dukes, reversing a Court of Appeals decision that had affirmed certification of a nationwide class of 1.5 million female employees in a gender discrimination suit against Wal-Mart. In a 5-4 decision, the Court held that class certification was improper because the named plaintiffs failed to satisfy the commonality requirement of Rule 23(a)(2) of the Federal Rules of Civil Procedure. In addition, a unanimous Court found that the plaintiffs’ claims for individualized monetary damages were improperly certified for class treatment under Rule 23(b)(2). In many cases—particularly in the employment context—the Wal-Mart decision will likely make it more difficult for plaintiffs to demonstrate common issues of law or fact necessary to obtain class certification. The Court’s holding, in turn, should provide employers with powerful ammunition to thwart hosts of unwarranted class action lawsuits when the named plaintiffs and their counsel seek to force large settlements.

Background

Three female employees sued Wal-Mart for allegedly violating Title VII of the Civil Rights Act of 1964 by denying them equal pay or promotions on the basis of their sex. The plaintiffs claimed that Wal-Mart’s practice of permitting local managers to exercise broad subjective discretion in making employment decisions had a disparate impact upon female employees’ ability to receive pay raises and promotions. Wal-Mart allegedly had a “corporate culture” that tolerated gender bias, and it had failed to stop its local managers from exercising their discretion in a way that disproportionately favored men. The named plaintiffs sought to represent all female Wal-Mart employees in a nationwide class action to obtain declaratory relief, punitive damages, and backpay.

Rule 23 provides that a party seeking certification must satisfy all of the requirements of Rule 23(a) and one of three requirements of Rule 23(b). To satisfy Rule 23(a)(2)’s requirement of “questions of law or fact common to the class,” the plaintiffs relied on statistical evidence, anecdotal reports, and expert testimony to support their contention that Wal-Mart systematically violated Title VII in its treatment of women. Wal-Mart challenged whether the plaintiffs’ evidence satisfied the commonality requirement.

Wal-Mart also argued that it had not “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” under Rule 23(b)(2). Wal-Mart insisted that plaintiffs cannot rely on Rule 23(b)(2) as a hook justifying class treatment because the plaintiffs sought monetary damages in the form of backpay, while Rule 23(b)(2) applies only to declaratory and injunctive relief.

The federal district court certified a class under Rule 23, and the Ninth Circuit affirmed. The appeals court reasoned that (1) plaintiffs’ evidence raised a common question of whether Wal-Mart’s female employees were subjected to a nationwide discriminatory policy, and (2) certification under Rule 23(b)(2) was appropriate because the plaintiffs’ backpay claims did not predominate over their claims for declaratory and injunctive relief. Wal-Mart appealed the Ninth Circuit’s ruling to the Supreme Court.

The Supreme Court’s Opinion

In an opinion by Justice Scalia, the Supreme Court reversed the Ninth Circuit, finding that class certification was improper for two reasons:

First, in a 5-4 decision, the Court concluded that plaintiffs had failed to satisfy Rule 23(a)(2)’s commonality requirement that there be “questions of law or fact common to the class.” Relying on its own precedent applying the commonality requirement in the employment context, the Court found that plaintiffs did not provide the required “significant proof” that Wal-Mart “operated under a general policy of discrimination.” The only evidence that plaintiffs offered to demonstrate that Wal-Mart had a company-wide discriminatory policy was a sociological expert’s testimony that Wal-Mart’s culture made it “vulnerable” to gender bias. The expert, however, was unable to say what percentage of employment decisions were influenced by gender bias. Moreover, the Court strongly suggested that the district court should have applied Daubert to determine whether the expert’s testimony was admissible at the class certification stage. The only policy that plaintiffs demonstrated successfully was that Wal-Mart empowered its local managers with considerable discretion over employment decisions. The Court explained that this kind of policy was ill-suited for class treatment because “demonstrating the invalidity of one manager’s use of discretion will do nothing to demonstrate the invalidity of another’s.” Because plaintiffs did not identify a common, company-wide method of exercising discretion, they could not satisfy the commonality requirement.

Second, the Court unanimously concluded that plaintiffs could not seek backpay in a class certified under Rule 23(b)(2). By its express terms, Rule 23(b)(2) permits class treatment in cases where class injunctive or declaratory relief is appropriate. The Court held that Rule 23(b)(2) does not authorize class certification in a situation that would involve individual awards of monetary damages. Plaintiffs had argued that they could rely on Rule 23(b)(2) because their claims for backpay did not predominate over their requests for injunctive and declaratory relief. The Court, however, rejected the plaintiffs’ argument and held that claims for individualized monetary damages should ordinarily rely on Rule 23(b)(3)—a provision allowing class treatment where common questions of law or fact predominate over questions affecting individual members—rather than Rule 23(b)(2). The Court left open whether claims for monetary relief can be certified under Rule 23(b)(2) if those claims are “incidental” to requested injunctive or declaratory relief. The Court also rejected the Court of Appeals’ suggestion that the claims for backpay could be handled through a sampling process, stressing that a case should not be certified as a class where doing so would abridge defendants’ substantive right to defend each individual plaintiff’s claim.

Implications of the Decision

The Supreme Court’s decision in Wal-Mart will make it more difficult for plaintiffs seeking to obtain class certification. The effect of Wal-Mart will likely be particularly strong in employment discrimination lawsuits and should avoid a dramatic expansion of circumstances in which class certification is appropriate in employment discrimination cases. It is insufficient for plaintiffs merely to demonstrate that class members have suffered a disparate impact without providing evidence that a specifically identified company-wide policy caused a disparate impact upon a protected class of employees.

In large companies with decentralized facilities in many states, employers are encouraged to ensure that they conduct periodic audits of their anti-discrimination policies and procedures to avoid potential employment discrimination class action lawsuits, including, without limitation, (i) hiring, pay, promotion and discharge audits; (ii) effective regional and local management and employee anti-discrimination and diversity training; and (iii) effective employee “hotlines” or other reporting mechanisms that give employees the opportunity to report to corporate human resources any alleged discrimination or harassment in the workplace.

More generally, Wal-Mart will also be useful to defendants seeking to oppose class certification in other contexts. The Court’s suggestion that Daubert applies to expert testimony offered at the class certification stage should help class action defendants persuade district court judges to evaluate the reliability of expert testimony offered in support of class certification. The Court’s unanimous holding that plaintiffs could not rely on Rule 23(b)(2) to seek individualized backpay damages should help curtail the increasingly common practice of class action plaintiffs attempting to avoid the demanding Rule 23(b)(3) predominance requirement by coupling a damages claim with a claim for injunctive relief in an effort to certify a class under Rule 23(b)(2). While the Court stopped short of holding that a case seeking damages can never be certified under Rule 23(b)(2), the opinion seems hostile to the idea.

For more information on the firm’s Class Action practice, please contact one of the attorneys listed below:

Thad Behrens 214.651.5668 [email protected]	Nicholas Even 214.651.5045 [email protected]	Carrie L. Huff 214.651.5509 [email protected]
Odean Volker 713.547.2036 [email protected]	Daniel H. Gold 214.651.5154 [email protected]	David Dodds 214.651.5566 [email protected]

For more information on the firm’s Labor and Employment practice, please contact one of the attorneys listed below:

Karen C. Denney 817.347.6616 [email protected]	Melissa M. Goodman 214.651.5628 [email protected]	Dean J. Schaner 713.547.2044 [email protected]
	William C. Strock 214.651.5623 [email protected]

 

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