U.S. Supreme Court Denies Class Certification To 1.5 Million Potential Class Members

In Wal-Mart Stores, Inc. v. Dukes

On June 20, 2011, the United States Supreme Court reversed the Ninth Circuit Court of Appeals and denied class certification to what would have been the largest class ever in an employment discrimination lawsuit.  In Wal-Mart Stores, Inc. v. Dukes, No. 10-277 (Slip Op. June 20, 2011),  the High Court ruled on two primary issues: (1) whether, under Federal Rule of Civil Procedure 23(a), the class could be certified because the class members’ claims contained common “questions of law or fact;” and (2) whether the potential class members’ claims for monetary relief—namely, backpay, could be certified under Rule 23(b)(2).  On the Rule 23(b)(2) issue, the Court ruled 9-0.  On the Rule 23(a) issue, however, the Court was divided 5-4.

The named plaintiffs in Dukes were three female current or former Wal-Mart employees working in three different locations. They each claimed they were discriminatorily denied promotions and pay increases on the basis of their sex.  The plaintiffs did not allege that Wal-Mart had any express corporate policy against the advancement of women. Rather, they contended that Wal-Mart’s practice of allowing lower-level local managers discretion over employees’ pay and promotions was exercised discriminatorily in favor of men.  The plaintiffs further argued that Wal-Mart’s refusal to curtail its lower-level managers’ authority amounted to discrimination under Title VII of the 1964 Civil Rights Act.  The plaintiffs sought to certify a nationwide class of 1.5 million female employees.  The District Court certified the class, and the Ninth Circuit Court of Appeals upheld the class certification.

The Federal Rule of Civil Procedure applicable to class cases is Rule 23.  Under Rule 23(a), the party seeking certification must satisfy four basic elements, one of which is that “there are questions of law and fact common to the class.”  Wal-Mart argued that the plaintiffs in this case failed to prove that there was anything concrete binding their claims together, and that they therefore failed this test of “commonality.”  Second, under Rule 23(b), the proposed class must satisfy one of at least three requirements.  At issue here was whether the class satisfied Rule 23(b)(2), which applies when “the party opposing the class 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.”  This has to do with the relief the class seeks and whether it can be meted out to the entire class satisfactorily.  In this case, Wal-Mart argued that the plaintiff’s claims for monetary relief in the form of backpay could not be certified for class adjudication, because the rule only refers to injunctive and declaratory relief, and because the backpay claims could not be manageably tried as a class.

Writing for the majority, Justice Scalia focused most of the opinion on the issue of “commonality.”  The majority held that just because plaintiffs at the same company have the same general complaint—sex discrimination—does not mean that their claims “can productively be litigated at once.”  The Court found that “[t]heir claims must depend upon a common contention—for example, the assertion of discriminatory bias on the part of the same supervisor. That common contention, moreover, must be of such a nature that it 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.”  The Court noted that commonality frequently depends on proof of a common pattern or practice of discrimination.

In this case, the plaintiffs failed to prove any such pattern or practice of sex discrimination that would link their claims in such a way as to form a class under Rule 23(a).  Reviewing various factors established in prior cases, the plaintiffs did not allege that Wal-Mart had a testing procedure that discriminatorily impacted women.  Further, the plaintiffs failed to present “‘significant proof’ that Wal-Mart ‘operated under a general policy of discrimination.’”  The Court found that the sociologist on whose testimony the plaintiffs relied to establish this “general policy of discrimination” completely failed to support that allegation.    The only “corporate policy” established by the plaintiffs was Wal-Mart’s “policy” of allowing individual managers discretion over their direct reports. The Court acknowledged that past cases have held that giving discretion to lower-level supervisors can result in discrimination, but found that recognition of this principle did not lead to the conclusion that every employee subjected to this discretion had a claim in common.  According to the Court, the plaintiffs did not identify a common mode of exercising this discretion that led to discriminatory decisions.  The Court also found the plaintiffs’ statistics of disparities between the workforce as a whole and the number of women managers unavailing and insufficient to establish that class certification was appropriate.

Finally, with regard to the commonality issue, the Court found the plaintiffs’ anecdotal evidence of discrimination unpersuasive for class certification.  The plaintiffs submitted approximately 120 affidavits detailing experiences of alleged discrimination, which equaled about 1 for every 12,500 class members, relating to only 235 out of Wal-Mart’s 3,400 stores.  The Court found this was simply not representative of “common” claims among potential class members.

Looking at the issue of whether the plaintiffs’ claims for backpay could be tried as a class under Rule 23(b)(2), the Court held that they could not, at least where the monetary relief is not incidental to the requested injunctive or declaratory relief.  The Court opined that “individualized monetary claims belong in Rule 23(b)(3).”  Rule 23(b)(3) provides for different procedural protections for litigants.  The Court further rejected the plaintiffs’ argument that their backpay claims were properly certified under Rule 23(b)(2)  because those claims did not “predominate” over their other requests.  Finally, the Court rejected the Ninth Circuit’s proposal of “Trial by Formula,” whereby a sample set of class members would determine the damages owed to the entire class based on a mathematical formula.  The Court preserved Wal-Mart’s ability to litigate its statutory defenses to individual claims for relief, and held that Wal-Mart was entitled to individualized determinations of each employee’s eligibility for backpay.

Justice Ginsburg wrote a concurring opinion and dissent, in which she was joined by Justices Breyer, Sotomayor, and Kagan.  Justice Ginsburg concurred in the majority’s opinion insofar as it held that Rule 23(b)(2) was the inappropriate procedural vehicle for the plaintiffs to litigate their claims for backpay.  Justice Ginsburg noted that “[w]hether the class the plaintiffs describe meets the requirements of Rule 23(b)(3) is not before the court, and I would reserve that matter for consideration and decision on remand.”  However, the dissent disagreed with the majority’s analysis of “commonality,” arguing that the majority “imports into the Rule 23(a) determination concerns properly addressed in a Rule 23(b)(3) assessment.”  The dissent would have found that the plaintiffs’ anecdotal evidence of discrimination sufficiently satisfied the commonality requirement, and that it has long been known that discretionary authority to make decisions such as those at issue, when “uncontrolled by formal standards,” leads to disparate effects.

Ultimately, this is a huge victory for large employers with nationwide workforces.  While this case does not opine on the ultimate merits of the individual plaintiffs’ cases, it highlights the principle that each discrimination claim must be proved individually in cases where there is no commonality of class members.  This decision provides excellent language for use in opposing certification of large classes of employment discrimination plaintiffs, but how it will pan out in practical effect remains to be seen. We are likely to see attempts at smaller classes seeking certification.  However, because this was a very specific set of facts, the results are likely to be varied depending on circumstances.

© 2011 Kiesewetter Wise Kaplan Prather, PLC