June 20, 2011

Supreme Court Decides Wal-Mart Stores, Inc. v. Dukes

On June 20, 2011, the Supreme Court decided Wal-Mart Stores, Inc. v. Dukes, No. 10-277, holding that a nationwide class of women employees failed to comply with Rule 23(a) because it did not raise a contention that could be answered in common for all class members and also failed to comply with Rule 23(b)(2) because it sought individualized monetary relief in the form of backpay. The Court therefore reversed the order certifying the class.

Wal-Mart is the nation's largest private employer, operating approximately 3,400 stores and employing more than one million people. One former and two current employees sued Wal-Mart in a putative class action, alleging that its policy of granting discretion to local managers over pay and promotions created a pattern or practice of gender discrimination in violation of Title VII, 42 U.S.C. §§ 2000e-2(a) and 2(k). The plaintiffs sought injunctive relief, back pay, and punitive damages.

At the plaintiffs' request, the district court certified a mandatory class under Federal Rule of Civil Procedure 23(b)(2) of "[a]ll women employed at any Wal-Mart domestic retail store at any time since December 26, 1998, who have been or may be subjected to Wal-Mart's challenged pay and management track promotions policies and practices." A divided en banc Ninth Circuit substantially affirmed the certification order but limited the class to women who were employed by Wal-Mart at the time the complaint was filed and remanded for the district court to consider whether claims for punitive damages should be excluded from the class.

The Supreme Court reversed, holding unanimously that the class did not comply with the requirements of Rule 23(b)(2) and holding 5-4 that it did not comply even with Rule 23(a)(2)'s minimal requirement that there be "questions of law or fact common to the class."

Rule 23(a)(2)'s "commonality" requirement is a prerequisite for every type of class, and its requirement is easy to misread, wrote the Court. What matters is not common questions, but questions that have common answers. Moreover, the answers must matter to the resolution of the case. A question is a common one for purposes of Rule 23(a)(2) if it is "of such a nature that it is capable of classwide resolution," and if "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."

Determining whether Rule 23(a)(2)'s commonality requirement is met turns on the evidence. "Rule 23 does not set forth a mere pleading standard," and hence a plaintiff "must be prepared to prove that there are in fact" common questions. That this inquiry overlaps with the merits of the plaintiff's underlying claim "cannot be helped," and to the extent the Court's earlier decision in Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177 (1974), suggested otherwise, it is rejected.

Here the alleged common question was whether Wal-Mart had engaged in a nationwide pattern or practice of discrimination. A plaintiff may prove the existence of this kind of common question either by proving a biased testing procedure or evaluation method, or by offering "significant proof" that the employer "operated under a general policy of discrimination." No such proof existed. Wal-Mart's announced policy forbids and penalizes discrimination. And the evidence from the plaintiffs' expert, who admitted he could not identify what percentage of employment decisions were influenced by discrimination, did not therefore establish a common issue. (The Court openly doubted the plaintiffs' argument that the Daubert standard governing expert testimony did not apply at the class certification stage.) Although a pattern or practice can be proved when an employer gives discretion to lower-level supervisors, it is difficult to do so, and what the plaintiffs must show is "a common mode of exercising discretion that pervades the entire company." The plaintiffs' nationwide statistical evidence did not suffice because it did not preclude the existence of regional or local variations. The plaintiffs' anecdotal evidence was likewise far too limited to prove a common, nationwide pattern of discrimination. Although a single common question is sufficient to satisfy Rule 23(a)(2), not even one existed here.

Turning to Rule 23(b)(2), the Court unanimously held that the plaintiffs' claims for backpay could not be certified for class treatment under that rule. Rule 23(b)(2) permits a class 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." Finding it unnecessary to decide whether any monetary claims may be certified under Rule 23(b)(2), the Court held that, "at a minimum, claims for individualized" monetary relief cannot be certified. The justification for certification under Rule 23(b)(2) is that the relief "must perforce affect the entire class at once," which explains why class members are not allowed to opt out. Rule 23(b)(3), by contrast, which encompasses damages claims, requires that class members be given both notice and the chance to opt out. "Given that structure, we think it clear that individualized monetary claims belong in Rule 23(b)(3)." It makes no difference, when the claim for monetary relief is individualized, whether it predominates over the injunctive relief. Regardless, it cannot be certified under Rule 23(b)(2). It also makes no difference whether the relief is considered equitable; the rule speaks of "injunctions and declaratory judgments." That is what may be certified.

Finally, the Court found it unnecessary to decide whether Rule 23(b)(2) would permit certification of a class in which monetary relief is "incidental" to the injunctive or declaratory relief, meaning it flows directly from liability to the class as a whole and does not require individual adjudications. Here, Wal-Mart is "entitled to individualized determinations of each employee's eligibility for backpay." The Court rejected plaintiffs' argument that they could adjudicate a sample of the individual claims and use them to extrapolate a backpay award for the class as a whole. Because the Rules Enabling Act forbids Rule 23 from abridging or modifying a substantive right, "a class cannot be certified on the premise that Wal-Mart will not be entitled to litigate its statutory defenses to individual claims."

Justice Scalia delivered the opinion of the Court in which Chief Justice Roberts and Justices, Kennedy, Thomas, and Alito joined, and in which Justices Ginsburg, Breyer, Sotomayor, and Kagan joined as to the parts discussing Rule 23(b)(2). Justice Ginsburg filed an opinion concurring in part and dissenting part, in which Justices Breyer, Sotomayor, and Kagan joined. 

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