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Reversing a federal appeals court decision certifying a massive sex discrimination class action against Wal-Mart Stores Inc., a divided U.S. Supreme Court ruled June 20 that the female plaintiffs failed to satisfy the requirements of Rule 23(a) of the Federal Rules of Civil Procedure to show common questions of law or fact affecting the proposed class (Wal-Mart Stores Inc. v. Dukes, U.S., No. 10-277, 6/20/11).
Writing for five members of the court, Justice Antonin Scalia said the U.S. Court of Appeals for the Ninth Circuit erred in finding that the plaintiffs, who allege that Wal-Mart violates Title VII of the 1964 Civil Rights Act by discriminating against women in pay and promotions nationwide, met the criteria of Rule 23(a)(2), which requires a showing that the plaintiffs present a common issue of law or fact.
The Ninth Circuit had affirmed class certification in an April 2010 decision (28 HRR 455, 5/3/10) and the Supreme Court granted review last December (28 HRR 1324, 12/13/10). The case has attracted enormous attention as Wal-Mart faced potential liability in the billions of dollars if the Supreme Court affirmed certification of a class covering up to 1.5 million female current and former Wal-Mart employees in 3,400 stores nationwide (29 HRR 388, 4/11/11). The justices heard oral argument March 29 (29 HRR 343, 4/4/11).
Emphasizing that Rule 23(a) “does not set forth a mere pleading standard,” Scalia wrote that the plaintiffs failed to show that Wal-Mart's alleged corporate policy of giving local supervisors discretion regarding pay and promotion decisions produced common factual or legal issues best addressed in a class action rather than in individual suits.
“In a company of Wal-Mart's size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction,” Scalia wrote, in an opinion joined by Chief Justice John G. Roberts and Justices Anthony Kennedy, Clarence Thomas, and Samuel A. Alito. The plaintiffs “attempt to make that showing by means of statistical and anecdotal evidence, but their evidence falls well short,” Scalia said.
The plaintiffs' claims for potentially billions in monetary relief as back pay also were improperly certified under Rule 23(b)(2), the court decided in a 9-0 ruling. Although the court did not foreclose back pay awards in every Rule 23(b)(2) class action, it held that “where, as here, the monetary relief is not incidental to the injunctive or declaratory relief,” lower courts cannot certify such claims under Rule 23(b)(2).
In partial dissent, Justice Ruth Bader Ginsburg said she would hold that the plaintiffs satisfied Rule 23(a)'s requirement to make a preliminary showing of common questions of law or fact. Although the dissenters agreed that the lower court erred in certifying the class under Rule 23(b)(2), they would remand for further consideration of whether the plaintiffs could satisfy Rule 23(b)(3), which permits certification if common questions “predominate” over issues affecting individuals, and a class action is “superior” to other modes of adjudication.
“Whether the class the plaintiffs describe meets the specific requirements of Rule 23(b)(3) is not before the court, and I would remand that matter for consideration and decision on remand,” Ginsburg wrote. “The court, however, disqualifies the class at the starting gate, holding that the plaintiffs cannot cross the ‘commonality' line set by Rule 23(a)(2). In so ruling, the court improperly imports into the Rule 23(a) determination concerns properly addressed in a Rule 23(b)(3) assessment.”
Justices Stephen Breyer, Sonia Sotomayor, and Elena Kagan joined in Ginsburg's opinion.
Wal-Mart praised the court's decision, which it said “effectively ends” the class action. “Wal-Mart has a long history of providing employment opportunities for our female associates and will continue its efforts to build a robust pipeline of future female leaders,” said Gisel Ruiz, the company's vice president for people in Bentonville, Ark.
Theodore Boutrous Jr., who represents Wal-Mart, said he is “pleased” with the court's ruling, which he said vindicates Wal-Mart's “strong policies” prohibiting discrimination.
“Wal-Mart has had strong policies against discrimination for many years,” said Boutrous, a partner with Gibson, Dunn & Crutcher in Los Angeles. “The majority expressly notes that Wal-Mart's policies forbid discrimination and that plaintiffs' evidence was ‘worlds away' from showing a policy of discrimination. The decision establishes principles that will protect the rights of all participants in the civil justice system.”
Robin Conrad, executive vice president of the U.S. Chamber of Commerce's National Chamber Litigation Center in Washington, D.C., said the ruling “reinforces a fundamental principle of fairness” that defendants “should have the opportunity to present individualized evidence” to demonstrate their compliance with the law.
“Too often the class action device is twisted and abused to force businesses to choose between settling meritless lawsuits or potentially facing financial ruin,” Conrad said in a June 20 statement. “Our economy would be better served if businesses could spend more resources creating jobs and fewer resources fighting frivolous litigation.”
Amanda Haverstick, a management lawyer for Proskauer Rose in Newark, N.J., called the court's decision “great news” for employers, particularly “big ones.” Scalia's opinion satisfactorily resolved “almost every issue” raised by the case and provides “great dicta” that may prove useful in class litigation under the Fair Labor Standards Act and other employment laws as well as Title VII, she told BNA June 20.
“This is a very, very strong and one-sided” opinion favoring employers that will elicit strong reaction from the plaintiffs' bar, Haverstick said. She added that plaintiffs' attorneys are “very creative” and will attempt to “come up with ways around this,” perhaps by filing multiple lawsuits against one employer and then invoking Rule 19 permissive joinder rules to add related parties. It is an open question whether smaller class actions will be feasible, given the greater expenses connected with filing separate actions, Haverstick said.
Meanwhile, the attorneys representing the Wal-Mart plaintiffs expressed disappointment but emphasized they will still pursue the sex discrimination claims, either as individual suits or in smaller class actions covering Wal-Mart stores or regions.
“It's a big win for very large companies,” said Joseph M. Sellers of Cohen Milstein in Washington, D.C., who argued the case before the Supreme Court. Part of the majority's message apparently is that some companies “can be too big to be held accountable” in a single proceeding in one forum, Sellers said.
But the ruling is not “a green light” for Wal-Mart or any other employer to discriminate, Sellers said. Although the decision may mean “fewer larger cases” alleging systemic discrimination, Sellers said, in the Wal-Mart litigation, “we may be litigating the same issues in multiple forums” for “many years” to come.
The decision is a “setback for efficient adjudication of these claims” that Wal-Mart and other employers might come to regret, Sellers said in a telephone conference call June 20.
Sellers and Brad Seligman, the plaintiffs' class co-counsel with the Impact Fund in Berkeley, Calif., emphasized that the limitations period on individual sex discrimination claims was tolled until a final ruling on class certification and that individual Wal-Mart employees now are free to file Equal Employment Opportunity Commission charges or proceed directly to federal court where appropriate.
Seligman said that more than 12,000 women who are current or former Wal-Mart employees have contacted the plaintiffs' attorneys over the years and that he expects many more to do so now that the Supreme Court has ruled.
Democrats on Capitol Hill decried the court's ruling and suggested it may give added impetus to the Paycheck Fairness Act and other bills addressing equal pay and federal remedies for sex discrimination.
The decision is “a reminder that much work remains to be done in order to achieve equal pay for men and women,” said Sen. Tom Harkin (D-Iowa), chairman of the Senate Health, Education, Labor, and Pensions Committee.
Harkin, an original co-sponsor of the proposed Paycheck Fairness Act and the Fair Pay Act, vowed to “work with my colleagues to strengthen the anti-discrimination laws” and ensure that “victims have access to justice and corporations are held accountable.”
The Paycheck Fairness Act, recently reintroduced in the House and the Senate, would amend the Equal Pay Act provisions of the Fair Labor Standards Act to expand remedies for victims of sex-based wage discrimination and enhance other protections, such as prohibiting employer retaliation for discussing pay with co-workers (29 HRR 400, 4/18/11).
Scalia wrote that the “crux of this case is commonality” and in particular, whether the plaintiffs satisfied Rule 23(a)(2)'s requirement of showing “there are questions of law or fact common to the class.” Citing General Telephone Co. of Southwest v. Falcon (457 U.S. 147, 28 FEP Cases 1745 (1982)), he said a recitation of common questions is insufficient to satisfy Rule 23(a).
“Commonality requires the plaintiff to demonstrate that the class members ‘have suffered the same injury,' ” Scalia wrote. “This does not mean merely that they have suffered a violation of the same provision of law. … Quite obviously, the mere claim by employees of the same company that they have suffered a Title VII injury, or even a disparate-impact Title VII injury, gives no cause to believe that all their claims can productively be litigated at once.”
“Their claims must depend upon a common contention—for example, the assertion of discriminatory bias on the part of the same supervisor,” Scalia wrote. “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 Ninth Circuit had reasoned that the plaintiffs' combination of statistical evidence regarding pay and promotions, particular class members' anecdotal evidence of sex bias, and the plaintiffs' expert's testimony about a corporate culture rendering Wal-Mart “vulnerable” to sex discrimination satisfied the commonality requirement.
By a 5-4 margin, however, the Supreme Court found such evidence insufficient to satisfy Rule 23(a)(2). Using the “rigorous analysis” dictated by Falcon, the court said its inquiry regarding class certification necessarily overlaps somewhat with the merits of the plaintiffs' sex discrimination claims.
“[P]roof of commonality necessarily overlaps with plaintiffs' merits contention that Wal-Mart engages in a pattern or practice of discrimination,” Scalia wrote. “That is so because, in resolving an individual's Title VII claim, the crux of the inquiry is ‘the reason for a particular employment decision.' ”
“Here, respondents wish to sue about literally millions of employment decisions at once,” the court said. “Without some glue holding the alleged reasons for all those decisions together, it will be impossible to say that examination of all the class members' claims for relief will produce a common answer to the crucial question why was I disfavored.”
That “glue” is lacking in the evidence presented by the Wal-Mart plaintiffs, the court decided. Under Falcon, the plaintiffs could bridge the gulf between individual discrimination claims and class allegations by showing that Wal-Mart “operated under a general policy of discrimination,” but such evidence “is entirely absent here,” the court said.
The court discredited the plaintiffs' sociological expert's testimony that Wal-Mart has a “strong corporate culture” that rendered the company “vulnerable' to “gender bias” in supervisors' local decisionmaking. Even if the expert's testimony were properly admitted, which the Supreme Court questioned, the majority said it “does nothing to advance” the Wal-Mart employees' case. The expert had “no answer” to the crucial question of whether “0.5 percent or 95 percent” of Wal-Mart's employment decisions “might be determined” by using sexual stereotypes, the court said, adding that it therefore could “safely disregard” anything the expert had to say.
The only corporate policy the plaintiffs identified was Wal-Mart's allowing discretion by local supervisors over employment matters, the court said. But that “is just the opposite of a uniform employment practice” in that it is a “policy against having uniform practices,” Scalia wrote.
Previous Title VII decisions allowing individual claims based on an employer's alleged subjective decisionmaking, such as Watson v. Fort Worth Bank & Trust (487 U.S. 977, 47 FEP Cases 102 (1988)), do not mean that such allegedly standardless practices can satisfy the commonality requirement of Rule 23(a), the court said.
Left to their own devices, different supervisors would reach varying decisions regarding the pay and promotions of subordinates, and it is “quite unbelievable” to suggest that “all managers” at Wal-Mart exercise their discretion in a sex-discriminatory manner, the court said.
The plaintiffs' attempt to bolster their commonality argument through statistical and anecdotal evidence also falls short, the court decided. Even if the plaintiffs' regression analyses regarding pay and promotions statistics drawn from particular Wal-Mart regions or comparing Wal-Mart's numbers to those of other retailers are “taken at face value,” the court said, they do not advance the plaintiffs' commonality argument.
“There is another, fundamental respect on which the plaintiffs' statistical proof fails,” Scalia wrote. “Even if it established (as it does not) a pay or promotion pattern that differs from the nationwide figures or the regional figures in all of Wal-Mart's 3,400 stores, that would still not demonstrate that commonality of issue exists.”
Some managers would claim that the availability of qualified women in their stores' area did not mirror those in the regional or national market while “almost all” managers would claim they applied sex-neutral factors, the court pointed out.
“Other than the bare existence of delegated discretion, the [plaintiffs] have identified no ‘specific employment practice'—much less one that ties all their 1.5 million claims together,” Scalia wrote. “Merely showing that Wal-Mart's policy has produced an overall sex-based disparity does not suffice.”
The plaintiffs' anecdotal evidence “suffers from the same defects, and in addition is too weak to raise any inference that all the individual, discretionary personnel decisions are discriminatory,” the court said.
Unlike Teamsters v. United States, 431 U.S. 324, 14 FEP Cases 1514 (1977), in which the Supreme Court found significant the government's reports regarding 40 cases of individual discrimination, the court said Wal-Mart is a much larger enterprise, and the plaintiffs' 120 affidavits from purported class members alleging discrimination account for only about one of every 1,235 class members and cover only 235 of Wal-Mart's 3,400 stores nationwide.
Responding to the dissent's criticism that the majority improperly “blends” Rule 23(a)(2)'s commonality requirement with Rule 23(b)(3)'s inquiry into whether common questions “predominate” over individual ones, Scalia said, “[T]hat is not so.”
“We consider dissimilarities not in order to determine (as Rule 23(b)(3) requires) whether common questions predominate, but in order to determine (as Rule 23(a)(2) requires) whether there is ‘[e]ven a single common question,'” Scalia wrote. “And there is not here. Because respondents provide no convincing proof of a comprehensive discriminatory pay and promotion policy, we have concluded that they have not established the existence of any common question.”
Even if the plaintiffs could satisfy Rule 23(a), the court said, the class action should not have been certified under Rule 23(b)(2). The plaintiffs' pursuit of back pay in an amount greater than “incidental” to their requests for injunctive and declaratory relief takes their case outside the Rule 23(b)(2) framework, the court decided unanimously.
The court noted that it previously expressed “serious doubt” as to whether claims for monetary relief may be certified under Rule 23(b)(2). “We now hold that they may not, at least where (as here) the monetary relief is not incidental to the injunctive or declaratory relief,” Scalia wrote.
The court declined to decide the broader question of whether Rule 23(b)(2) could be interpreted as not authorizing class certification of monetary relief claims at all. Instead, the court said, “because we think that, at a minimum, claims for individualized relief (like the backpay at issue here) do not satisfy” Rule 23(b)(2), the Ninth Circuit erred by affirming class certification based on that rule.
The court said that given the structure and history of Rule 23, “we think it clear that individualized monetary claims belong in Rule 23(b)(3),” which provides enhanced requirements for plaintiffs and greater protections for defendants, including mandatory notice and the right to opt out for potential class members.
In partial dissent, Ginsburg objected that the majority improperly conflates the Rule 23(a)(2) “commonality” question with the Rule 23(b)(3) issue of whether questions common to the class “predominate” over individual claims.
Agreeing that the lower courts improperly certified the class under Rule 23(b)(2), Ginsburg said that she would remand to give the plaintiffs' class, which she said does present common questions of law or fact, a chance to meet the Rule 23(b)(3) criteria.
By Kevin P. McGowan
Text of the decision can be accessed at http://op.bna.com/dlrcases.nsf/r?Open=kmgn-8hzkpu .
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