Supreme Court Rulings on Class Actions Called Term's Highlights by Business Lawyers

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Although the U.S. Supreme Court's decisions this term have been a “mixed bag” for business interests, its ruling curtailing an employment discrimination class action and finding that the Federal Arbitration Act preempts a state law prohibiting waivers of class arbitration are major victories for employers and large firms, Robin Conrad of the National Chamber Litigation Center (NCLC) said June 22.

Moderating a panel session on the Supreme Court term from a business perspective, Conrad said that while the court handed business a defeat in its federal preemption challenge to an Arizona immigration law and continued what she called a “recurring and disappointing theme” of favoring employees in retaliation cases, it issued important victories for business in Wal-Mart Stores Inc. v. Dukes(62 BTM 193, 6/21/11) and AT&T Mobility LLC v. Concepcion(62 BTM 138, 5/3/11).

Andrew Pincus, a partner with Mayer Brown in Washington, D.C., said it is important to view the Wal-Mart case as it came to the court, with a certified class of up to 1.5 million female employees and the prospect of enormous litigation costs and potentially billions in back pay for Wal-Mart.

‘Not Your Father's Class Action'

“This was not your father's class action,” and the court's decision reflected that, as nine justices unanimously ruled that the lower courts had improperly granted certification under Rule 23(b)(2) of the Federal Rules of Civil Procedure, Pincus said.

Acknowledging that it is uncertain how the decision will play out, Pincus suggested that a sex discrimination class action covering a single Wal-Mart store or region might be a “perfectly fair” way to try such claims. Those units should be large enough to “entice some plaintiffs' lawyer to take the case” without the “potential draconian consequences” for Wal-Mart and absent class members that led the Supreme Court to reverse certification of a nationwide suit, he said.

Carter Phillips, a partner with Sidley Austin in Washington, D.C., said the court's formulation regarding commonality “is not the easiest one to figure out.” But he emphasized “this is not the end of class actions,” pointing out that Rule 23(a)'s “numerosity” rule can be satisfied with about 25 people.

Asked whether a large company facing a thousand smaller suits would incur the “massive costs” that Wal-Mart faced in litigating one huge class action, Pincus said a company facing smaller discrimination suits can more rationally decide which ones to settle and which to litigate, “based on what real people did,” rather than on sociological expert evidence or global statistics.

Pincus suggested that the closer plaintiffs get to the store level, with more anecdotes, better data, and “something that comes close” to more convincing proof of discrimination, the better they will fare on “commonality” and class certification.

An ‘Essential' Decision

Pincus, who represented AT&T Mobility before the Supreme Court in the Concepcion case, said it is “a very essential” decision that preserves corporations' rights to structure alternative dispute resolution mechanisms to keep litigation costs down while giving consumers with small claims outlets other than the clogged court system.

He remarked that AT&T had developed a consumer grievance and arbitration system that even the U.S. Court of Appeals for the Ninth Circuit conceded was consumer-friendly, but the federal appeals court felt constrained by California Supreme Court precedent to strike down the AT&T arbitration system as unconscionable solely because it included a class arbitration waiver.

Pincus said the backdrop for both the Wal-Mart and AT&T cases is a “raging” policy debate about whether class actions “make sense” given that litigation costs have “risen dramatically,” with those costs “skewed on the defendants' side” because of enormous discovery demands in large-scale class cases.

Plaintiffs' attorneys and consumer advocates argue that “the only way we can rein in businesses is to hold their feet to the fire,” Pincus said.

Impact on Immigration Laws

Phillips argued for the plaintiffs' group including the chamber in Chamber of Commerce v. Whiting, in which the Supreme Court affirmed that an Arizona statute revoking the business licenses of employers that hire undocumented aliens was not preempted by federal law (62 BTM 169, 5/31/11).

The Arizona law also requires employers to use the E-Verify system to check employees' and applicants' legal authorization to work, while the federal government makes participation in E-Verify voluntary.

Although the court reasoned that federal regulations say nothing about a state's power to require use of E-Verify, Phillips asserted that if enough states mandate employer use of the system, “it will crash and burn.”

The court said Arizona's corporate “death penalty” for businesses that knowingly use undocumented workers passes muster as a licensing provision that “follows assiduously” the requirements of federal immigration law, Phillips said. The court therefore allowed a “parallel state enforcement scheme,” but it remains to be seen how that will be implemented, he said.

Phillips predicted “continuous litigation” following Whiting as more state and localities consider “a whole raft of additional” immigration laws and lower courts wrestle with whether they are consistent with federal requirements.

The Supreme Court “certainly is not coming from the perspective that this is an area exclusively” within the federal government's power, Phillips said. “Beyond that, it is hard to read.”

Remarking that it will be interesting to see how states and localities create their “alternative enforcement measures” and predicting that local authorities will “push aggressively,” Phillips said, “We are going to see a lot of ‘shoot first, ask questions later.' ”

Plaintiff-Friendly Trend

Meanwhile, the Supreme Court continued to offer “broader and more robust” protection to employees alleging retaliation than for putative victims of discrimination, Phillips said.

He represented the employer in Kasten v. Saint-Gobain Performance Plastics Corp., a 6-2 decision in which the court held that an employee's oral complaint is sufficient to trigger the Fair Labor Standards Act's anti-retaliation provision but declined to decide whether an employee must complain to a government official to be protected (62 BTM 97, 3/29/11).

The court also unanimously ruled in Thompson v. North American Stainless LP that a male employee who alleged he was fired because his fiancee had filed a sex discrimination charge against their mutual employer could pursue a retaliation claim under Title VII of the 1964 Civil Rights Act even though the plaintiff had not personally engaged in any protected activity (62 BTM 33, 2/1/11).

Given the Supreme Court rulings favoring retaliation plaintiffs, the “best thing” an employee with “marginal skills” can do is file a discrimination complaint to secure protection and that “most employees know that,” Phillips said. He observed that employers' vulnerability to retaliation claims does not seem attributable to a “lack of training” for supervisors on their duty not to retaliate, but rather that “victims of retaliation” are a “harder class” to identify than individuals protected because of their race, sex, or age.

The retaliation decisions are a reminder that “this is a court that is not bent on ruling” for business in every case, Pincus commented. “If it takes a lot of gymnastics to rule the other way, this court is not going to do that,” he said.

By Kevin P. McGowan