Supreme Court Halts Massive Class Action Against Wal-Mart

Supreme Court Update

On June 20, 2011, the Supreme Court halted a sprawling employment discrimination class action against Wal-Mart and issued a landmark ruling that tightens class-certification requirements. The proposed class comprised approximately 1.5 million current and former female Wal-Mart employees who alleged that local supervisors discriminated against women in pay and promotion decisions. The plaintiffs did not point to any express discriminatory policy but instead alleged that thousands of supervisors independently exercised discretion within a “corporate culture” of bias. The plaintiffs sought injunctive and declaratory relief, as well as individualized backpay awards. The district court certified the class under Federal Rule of Civil Procedure 23(b)(2), and the Ninth Circuit affirmed.

The Supreme Court reversed on two grounds. First, a 5-4 majority held that the proposed class did not satisfy Rule 23(a)’s requirement that class members share common claims. This holding will have broad implications for any class certification bid. Second, all nine Justices agreed that Rule 23(b)(2) did not permit individualized backpay awards, which plaintiffs have frequently sought in employment-discrimination class actions.

Importance of Commonality

Rule 23(a) provides prerequisites to any class action, one of which is that “there are questions of law or fact common to the class.” Fed. R. Civ. P. 23(a)(2) (emphasis added). Some courts and commentators had characterized commonality as a low standard, but the 5-4 majority put significant teeth into this requirement. It is not enough to identify just any common question, such as “do all the plaintiffs indeed work for Wal-Mart?” Instead, the Court explained, commonality requires that the claims may be “productively” litigated together. Slip op. at 9. A “common” question is one that is “capable of classwide resolution,” meaning 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.” Id. The Court’s example of a common contention is the assertion of discriminatory bias on the part of the same supervisor. As the Court made clear, plaintiffs will have trouble demonstrating a common contention when the proposed class members’ claims contain factual dissimilarities, which will prevent “productive” classwide resolution.

Addressing several issues that divided lower courts, the majority clarified the plaintiffs’ burden to prove a class action’s suitability. Plaintiffs cannot simply rest on their pleadings but must “affirmatively demonstrate” that the Rule 23(a) requirements are met “in fact.” Slip op. at 10 (emphasis in original). The Court went so far as to cabin a prior decision that some lower courts had read as banning any merits consideration at the class-certification stage. To the contrary, the majority acknowledged, the “rigorous analysis” required by Rule 23 will often entail considering the merits. Slip op. at 10.

Limiting Title VII Class Actions

In finding no commonality among the 1.5 million plaintiffs, the majority stressed that Title VII claims turn on the reason for individual employment decisions. To proceed as a class, there must be “some glue holding the reasons for all those decisions together”—some “significant proof” that Wal-Mart “operated under a general policy of discrimination.” Slip op. at 12. The majority rejected each of the plaintiffs’ proffers with exacting analysis that will bolster future class certification challenges.

Statistical Evidence. The plaintiffs relied heavily on an expert’s statistical analysis showing that Wal-Mart paid and promoted women less than comparable retailers in certain regions. The majority dismissed this evidence because such aggregate disparities did not show that each class member suffered from the same, common discriminatory employment practice.

Expert Testimony of Corporate Culture. The majority strongly hinted that Daubert standards for the admissibility of expert testimony should govern class certification. While stopping short of so holding, the Court closely scrutinized the plaintiffs’ expert testimony that Wal-Mart had a “culture” that was “vulnerable” to “gender bias.” Slip op. at 13. The majority’s skepticism of this soft science should embolden lower courts to reject similar testimony.

Anecdotal Evidence. The majority also set a high bar for anecdotal evidence of discrimination to be probative of a common discriminatory policy. The Court distinguished precedents involving large volumes of anecdotes, spread across the plaintiff class. Here, the majority stressed, the Wal-Mart plaintiffs produced just one affidavit for every 12,500 class members, and those were concentrated in a few states, even though the plaintiffs asserted a nationwide class. Slip op. 18.

At bottom, the numerous variations between the plaintiffs’ circumstances—different jobs, stores, lengths of employment, qualifications, supervisors, etc.—belied their claim to a common policy of discrimination. Although this case presents an extreme example, it sends a signal that lower courts must carefully consider whether factual dissimilarities among plaintiffs should preclude class certification.

Precluding Rule 23(b)(2) Classes for Individualized Relief

A unanimous Court rejected the class certification also on grounds that it did not meet Rule 23(b)(2)’s requirements. Rule 23(b)(2) allows class treatment when “final injunctive or corresponding declaratory relief is appropriate respecting the class as a whole.” Some lower courts had relied on the Advisory Committee comments to the Rule to allow (b)(2) classes that seek monetary relief, so long as the monetary relief did not “predominate” injunctive relief. The Court held that any “claims for individualized relief (like the backpay at issue here) do not satisfy the Rule.” Slip op. 20. Because (b)(2) does “not authorize class certification when each individual class member would be entitled to a different injunction or declaratory judgment,” (b)(2) cannot be used to grant each individual class member different monetary relief.

The Court left open the question whether a (b)(2) class could proceed while seeking monetary relief that was “incidental.” Slip op. 20. It is not clear what such relief would be, however, and its ruling against “individualized” relief sets a bright-line rule that should curtail the practice of certifying (b)(2) classes for backpay.

The Court notably invoked practical and constitutional considerations of fairness in reaching this result. Rule 23(b)(2) creates “mandatory” classes that bind all absent class members without requiring that they receive notice or an opportunity to opt out. Thus, the rights of absent class members to litigate their own claims for money damages are jeopardized by a (b)(2) class. In contrast, the Court stressed, Rule 23(b)(3)—which does permit claims for individualized monetary relief—requires notice and an opportunity to opt out.

Finally, the Court emphatically disapproved the district court’s “novel” solution to the obvious difficulties in determining the proper individual backpay award for each of 1.5 million class members. The district court planned to conduct statistical sampling to determine representative awards, which would necessarily overcompensate some plaintiffs and undercompensate others, while denying Wal-Mart the opportunity to raise individualized defenses to any given plaintiff’s claim. Slip op. 27. Derided as “Trial by Formula,” the Court explained that this method would violate the Rules Enabling Act, which forbids interpreting Rule 23 to modify party’s substantive rights. This warning against inventiveness in fashioning class actions may portend disapproval of several other high-stakes class action cases pending on petitions for certiorari before the Court.

Sidley Austin LLP represented DRI-Voice of the Defense Bar in filing an amicus brief in support of Wal-Mart. The decision is Wal-Stores, Inc. v. Dukes, No. 10-277.

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