Supreme Court Rules in Favor of Wal-Mart

In a widely anticipated decision, the United States Supreme Court today unanimously reversed a U.S. Court of Appeals for the Ninth Circuit ruling that allowed a class action to go forward against Wal-Mart.   And, in its majority ruling, the Court found that the action should be completely dismissed given that plaintiffs could not ultimately overcome Federal Rules of Civil Procedure requirements regarding class action certification.

In essence, the Court rejected the Court of Appeals reasoning that 1.5 million women could litigate their discrimination claims in a single action.   In rejecting the appeals court’s finding that individual backpay claims were allowable, the Court ultimately accepted Wal-Mart’s argument that the class action deprived it of its ability to defend itself.

The reoccurring theme of the Court’s decision can largely be distilled to the following:

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.  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.

As detailed in a prior post, “[a]lthough named plaintiffs in the Wal-Mart case ‘waived any claim for compensatory damages, forfeiting the rights of individual class members to recover damages authorized by Congress solely in order to facilitate class treatment’, an important commonality ruling remains likely given the Court specifically requested that the parties brief the applicability of Federal Rule of Civil Procedure 23(a).  See Petitioners Brief at 35, dated January 20, 2011.”

In rejecting the notion that Fed. R. Civ. P. 23(a)(2)’s commonality requirement was satisfied, the Court went beyond the Court of Appeals decision to provide needed clarity on this important class action requirement.  Frankly, none of this is surprising given the Supreme Court’s cert wording.  See Dukes v. Wal-Mart Stores, Inc. , 603 F.3d 571 (9th Cir. 2010), cert. granted, Wal-Mart Stores, Inc. v. Dukes, 178 L. Ed. 2d 530 (2010) (“Petition for writ of certiorari to the United States Court of Appeals for the Ninth Circuit granted limited to Question I presented by the petition.  In addition to Question I, the parties are directed to brief and argue the following question:  ‘Whether the class certification ordered under Rule 23(b)(2) was consistent with Rule 23(a).’”).

In future class actions, defendants will also look to this decision to justify using sharper substantive arguments within class action certification motions.   Although courts have previously had the ability to rely on evidentiary hearings to resolve class action motions, the Court here seems to have turned the judicial discretionary dial to a much wider setting.   Specifically, in finding there was insufficient commonality to proceed with this case, the Court  ruled:

Here respondents wish to sue about literally millions of employment decisions at once. 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.

And, in reaching this decision, the Court wholly rejected one of plaintiffs’ substantive arguments:  “The second manner of bridging the gap [to a common defense] requires ‘significant proof’ that Wal-Mart ‘operated under a general policy of discrimination.’  That is entirely absent here.”  This particular form of class action substantive adjudication — which will likely be looked upon by courts as viable in future class certification motions – was part of the majority opinion rejected by four Justices.  See also In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 318 (3d Cir. 2008) (“A contested requirement is not forfeited in favor of the party seeking class certification merely because it is similar or even identical to one normally decided by a trier of fact.”).

The Court was also coy — sometimes offering the opposite of clear guidance.  For example, the Court recognized that the District Court “concluded that Daubert [ v. Merrell Dow Pharmaceuticals, Inc., 509 U. S. 579 (1993)] did not apply to expert testimony at the certification stage of class-action proceedings. 222 F. R. D., at 191.”   Rather than adding clarity as to whether the Daubert standard for expert witness testimony actually did apply during the class action certification phase, the Court casually responds to the district court’s opinion concerning the applicability of Daubert:   “We doubt that is so, but even if properly considered, Bielby’s testimony does nothing to advance respondents’ case.”  It is interesting to read how the Court skirts the issue of whether one of its decisions would apply to a given procedural stage of a case.  How much weight such language has on future courts remains to be seen.

Finally, in a unanimous ruling that will certainly curtail the sort of tactical maneuverings done by plaintiffs’ counsel in this case, the Court offered the following clarity regarding how future courts should decide class actions involving declaratory or injunctive relief:

Rule 23(b)(2) applies only when a single injunction or declaratory judgment would provide relief to each member of the class. It does not authorize class certification when each individual class member would be entitled to a different injunction or declaratory judgment against the defendant. Similarly, it does not authorize class certification when each class member would be entitled to an individualized award of monetary damages….Contrary to the Ninth Circuit’s view, Wal-Mart is entitled to individualized determinations of each employee’s eligibility for backpay.

Although future courts may only choose to apply the Wal-Mart decision in an large employment discrimination context, there can be no denying the decision will be hailed as pro-business given it further assists large companies in avoiding class actions — whether employment based or not — brought by disparate plaintiffs with individualized claims.   As for plaintiffs’ counsel, he has vowed to take up the cause by filing potentially thousands of individual cases.  It will be interesting to see how long that hubris will last.