Supreme Court Reverses Certification of Nationwide Class of 1.5 Million Female Workers

The U.S. Supreme Court has rejected class action certification in aEURoeone of the most expansive class actions ever.aEUR? Wal-Mart Stores v. Dukes, No. 10-277 (June 20, 2011). The case involved allegations of gender discrimination in pay and promotion decisions in violation of Title VII of the Civil Rights Act of 1964 made on behalf of all current and former female employees of Wal-Mart, estimated to number as many as 1.5 million. Reversing a Ninth Circuit decision that upheld the class certification, the Supreme Court found the lower courts had misapplied the federal rules governing the circumstances in which class certification should be accorded and the availability of damages as an incident of class injunctive or declaratory relief.

The plaintiffs alleged that Wal-Mart permits local managers to use broad discretion in making decisions regarding pay and promotion, that managers employ their own subjective criteria in making those decisions disproportionately in favor of men, and that Wal-Mart was aware of these results. In essence, the plaintiffs alleged that Wal-MartaEUR(TM)s aEURoecorporate cultureaEUR? permitted bias against women to affect managersaEUR(TM) discretionary decisions regarding pay and promotion.

In a decision written by Justice Antonin Scalia, the Supreme Court disagreed with the lower courtsaEUR(TM) conclusion that the plaintiffs had satisfied the class action requirements in Rule 23(a) and Rule 23(b)(2) of the Federal Rules of Civil Procedure. Justice Scalia observed at the outset that class actions are an aEURoeexceptionaEUR? to the general rule that litigation may be maintained only by named parties. While the courtsaEUR(TM) role in keeping such actions within proper bounds may lead to class certification analyses touching the merits of the substantive claims, such overlap aEURoecannot be helped,aEUR? he said, and must not cause courts to refrain from a aEURoerigorous analysisaEUR? of whether plaintiffs have met the class certification standards.

Plaintiffs Cannot Establish Commonality under Rule 23(a)

Turning to Rule 23(a), which spells out the criteria for class certification, including aEURoecommon issues of law of factaEUR? presented by class membersaEUR(TM) claims, the Court held that aEURoe[t]he crux of this case is commonality.aEUR? The plaintiffs must show they all have suffered the same injury, not simply that there are common questions raised by the claims. Moreover, the Court continued, the alleged common injury must be capable of class-wide resolution; one specific contention or issue identified by plaintiffs must be the key to all of their claims. aEURoeWithout some glue holding the alleged reasons for all those decisions together, it will be impossible to say that examination of all the class membersaEUR(TM) claims for relief will produce a common answer to the crucial question why was I disfavored.aEUR? (Emphasis in original.) Here, where there is no allegation that Wal-Mart used a specific biased testing procedure to evaluate applicants and employees, the plaintiffsaEUR(TM) burden to show commonality requires aEURoesignificant proofaEUR? that Wal-Mart aEURoeoperates under a general policy of discrimination.aEUR?

The plaintiffs failed to meet this burden. The Court firmly rejected the lower courtsaEUR(TM) finding of commonality, despite the plaintiffsaEUR(TM) expertaEUR(TM)s statistical and social testimony, as well as anecdotal testimony from 40 employees. The expert could not determine a specific percentage or number of numerous employment decisions at Wal-Mart that were, in fact, gender-biased. This, according to the Court, were aEURoeworlds awayaEUR? from meeting the aEURoesignificant proofaEUR? standard.

The Court added that the alleged policy of permitting local managers to use their broad discretion was the opposite of a uniform policy that applied across the company, especially because plaintiffs had not identified any common way that local managers exercise their discretion. Although the plaintiffs sought to rely on statistical and anecdotal evidence to establish a common approach to employment decisions by local managers, the Court held such evidence was insufficient. Plaintiffs, most importantly, it said, had failed to identify one specific employment practice that was applicable across the entire alleged class. Showing merely that Wal-Mart managers use discretion and that pay and promotion disparities exist are not enough; the plaintiffs also must identify a specific practice, besides aEURoedelegated discretion,aEUR? that was implemented across the company. Furthermore, the anecdotal evidence adduced was very limited in relation to the overall size of the purported class and did not reach all regions or states in which the company operates.

Improper to Certify Backpay Claims Under Rule 23(b)

As to the Rule 23(b)(2) issue on the viability of classaEUR(TM) damage claims, the Court held that it was improper to certify the class under this rule, which allows for class actions where plaintiffs seek injunctive or other declaratory relief as to the entire class. Here, the plaintiffs sought backpay, more in remedy of their substantive pattern or practice claims, which necessitates different injunctions, declaratory judgments or individualized awards. These, the Court said, are inconsistent with the aEURoeindivisible natureaEUR? of the relief contemplated by Rule 23(b)(2). Without reaching the question of whether Rule 23(b)(2) could ever apply where claims for monetary relief are asserted, the Court rejected its application where claims for individualized monetary relief are involved. The Court found support for this conclusion in the structure of Rule 23(b)(2). It does not allow for class members to opt out or even to receive notice of the action, and thus, is intended only for matters where the only relief sought would necessarily be class-wide. By contrast, the Court observed, Rule 23(b)(3) aEUR" which is designed for a broader range of class actions and, specifically, cases in which common questions of law or fact predominate over individual matters and in which class treatment is a superior method of addressing the controversy aEUR" has stronger procedural protections, including notice to all class members and the opportunity to opt out. The Court concluded that claims for individualized monetary relief may be maintained only under Rule 23(b)(3), but the issue of whether the plaintiffsaEUR(TM) claims meet the Rule 23(b)(3) requirements was not before the Court.

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