High Court Strengthens Class Action Requirements and Eliminates Massive Nationwide Class Action
On Monday, the U.S. Supreme Court decertified the largest class action in history, thereby forcing over a million potential plaintiffs to individually pursue their discrimination claims. Arguably more important, especially for businesses and employers, the Court’s opinion likely makes it more difficult for plaintiffs to satisfy the standards for a class action, and possibly limits class treatment in discrimination cases to circumstances where there is an express company policy or identifiable employment practice that affects each class member in the same way.
Summary points of interest include:
- The Supreme Court came down on the conservative side and did not accept recent, more liberalized views of the certification analysis that many other courts have promulgated.
- The decision clarified some of the issues regarding class certification about which there had been disagreement, including: class certification requires both a common issue and a common resolution to that issue, it is no longer permissible to tack on a monetary or equitable claim, like a claim for backpay, to a Rule 23(b)(2) class action, and courts can and frequently must analyze the merits of a case while addressing class certification.
- The Dukes opinion makes it more difficult for plaintiffs to obtain certification of the class, especially in employment cases where no single employment policy, practice, or decision affects the entire class in the same way. That likely means nationwide classes alleging discrimination under Title VII or the Americans with Disabilities Act will be very difficult to certify.
- The Supreme Court’s opinion potentially makes it more difficult for plaintiffs in class actions to rely upon expert opinions by arguably requiring lower courts to consider the standards for admitting expert testimony during class certification.
On Monday, the U.S. Supreme Court decertified the largest class action in history, thereby forcing over a million potential plaintiffs to individually pursue their discrimination claims. Arguably more important, especially for businesses and employers, the Court's opinion likely makes it more difficult for plaintiffs to satisfy the standards for a class action, and possibly limits class treatment in discrimination cases to circumstances where there is an express company policy or identifiable employment practice that affects each class member in the same way.
Wal-Mart Stores, Inc. v. Dukes was a massive class action brought on behalf of all current and former female employees of Wal-Mart since 1998, who alleged sex discrimination in pay and promotions and sought injunctive relief and backpay. A federal court in California initially certified the class, and the Ninth Circuit Court of Appeals largely affirmed the decision. Altogether the class included 1.5 million women from approximately 3,400 Wal-Mart stores in all 50 states nationwide.
The plaintiffs did not allege that Wal-Mart had an express corporate policy of sex discrimination. Indeed, Wal-Mart's announced policies prohibited sex discrimination and penalized the denial of equal employment rights. Instead, the plaintiffs contended that thousands of local managers exercised their broad discretion over employment, promotion, and pay decisions disproportionately in favor of men. The plaintiffs relied primarily on statistical evidence about pay and promotion disparities between men and women, anecdotal reports of discrimination from about 120 female employees (or about 1/13,000th of the class), and expert testimony analyzing Wal-Mart's culture and employment practices and concluding Wal-Mart was "vulnerable" to sex discrimination. The plaintiffs argued that common issues of fact and law existed sufficient to satisfy the standards for certifying a class action under Rule 23 of the Federal Rules of Civil Procedure.
In overturning the certification decision, the Supreme Court re-emphasized and applied a more strict view of the concept of commonality required to certify a class action. The Court noted that it was not the mere raising of common "questions" (e.g. Were the class members employees of Wal-Mart? Did their allegations establish an unlawful employment practice?) that justified a finding of commonality. Dukes clarifies that "[w]hat matters to class certification … is not the raising of common 'questions' – even in droves – but, rather the capacity of a class wide proceeding to generate common answers apt to drive the resolution of the litigation." In doing so, the Court reiterated that a party seeking class certification must affirmatively demonstrate compliance with Rule 23 and show that there are, in fact, sufficient common questions of law and fact. Moreover, "[t]his does not mean merely that [the plaintiffs] have all suffered a violation of the same provision of law." In other words, resolution of the allegedly common issue as to one plaintiff class member must necessarily resolve the question as to every class member: "That common contention…must be of such a nature that it is capable of class wide 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."
In short, the Supreme Court required substantial proof that both a common cause and a common injury existed in order for the plaintiffs to satisfy the requirements for class certification. Proof of both was lacking in Dukes. The plaintiffs could not establish commonality because the discrimination case hinged on the reasons for "literally millions of employment decisions." The Court believed it was impossible given the scope of the class for the plaintiffs' claims to "produce a common answer to the crucial question why was I disfavored."
The plaintiffs failed to produce the requisite "significant proof that Wal-Mart operated under a general policy of discrimination." The only evidence of any such policy was expert testimony that Wal-Mart's culture made it susceptible to decisions infected by stereotypes and its decentralized decision-making produced an overall sex-biased disparity. The expert testimony was not reliable because the expert could not accurately answer what percentage, if any, of the employment decisions was the result of stereotyped thinking, which was "the essential question on which the [plaintiffs'] theory of commonality depended." The Supreme Court also noted that the decentralized decision-making inherent in the plaintiffs' claims did not lend itself to class treatment, especially in a company the size of Wal-Mart. Moreover, the plaintiffs could not prove commonality using statistical evidence of a discriminatory impact and a small fraction of anecdotal evidence (only about 235 of 3,400 stores were represented) without some "significant proof" of a common policy or practice warranting class treatment: "Other than the bare existence of delegated discretion, [plaintiffs] have identified no 'specific employment practice' – much less one that ties all their 1.5 million claims together."
Importantly, the Supreme Court in Dukes also limited its language from a prior opinion, Eisen v. Carslile & Jacquelin, that many lower courts had interpreted as prohibiting an inquiry into the case's merits during class certification proceedings. The Dukes decision clarifies that to the extent the language in Eisen "goes beyond the permissibility of a merits inquiry for any other pretrial purpose [than determining whether Rule 23 has been satisfied], it is the purest dictum and is contradicted by other cases." The Court reiterated that the lower courts must be prepared to probe behind the pleadings during class certification and that the "rigorous analysis" that is contemplated will often overlap with an examination of the merits underlying claims.
In the final part of the Supreme Court's opinion, in which all nine justices joined, the Court recognized that the monetary claims sought were simply too individualized to authorize certification under Rule 23(b)(2). Rule 23(b)(2) allows a class action to be maintained when the party opposing the class has refused to act on grounds that apply generally to the class so that final injunctive relief is appropriate. The Court noted that Rule 23(b)(2) does not authorize class certification when the class members would be entitled to differing injunctions. The Court also clearly expressed its view that individualized monetary claims, such as those involving back pay in employment discrimination litigation, belong under Rule 23(b)(3) so that its procedural protections are satisfied. According to the Court, Rule 23(b)(2) is only for those circumstances where an "indivisible injunction" is sought.
What is the overall impact of the Dukes opinion? Contrary to some of the popular press reports, the opinion does not spell the end of class action litigation. In general, the Supreme Court recognized traditional precedent involving Rule 23(a) and Rule 23(b)(2) and set outer limits for the nature and type of class examination. Clearly, in tone, the Supreme Court came down on the conservative side and did not accept recent, more liberalized views of the certification analysis that the Ninth (and other) Circuits have promulgated.
Furthermore, the Dukes opinion appears to have clarified some of the issues regarding class certification about which there had been disagreement. Under Dukes, class certification cannot be based on the mere identification of a single common issue. Instead, a court must also analyze whether the determination of that issue will, in fact, yield a common result throughout the class. In addition, it is clearly no longer permissible to tack on a monetary or equitable claim (such as one brought under the many state Consumer Protection Acts or a backpay claim in employment litigation) to a Rule 23(b)(2) certification effort and thereby avoid the protections contemplated by Rule 23(b)(3). Clearly, courts can also no longer short circuit class certification analysis by characterizing arguments as those involving merits.
Additionally, and arguably most important for employers, the Dukes opinion likely makes it more difficult for plaintiffs to obtain certification of a class of plaintiffs, especially where no single employment policy, practice, or decision affects the entire class. That likely means nationwide classes alleging discrimination under Title VII or the Americans with Disabilities Act may be very difficult to certify. However, the impact of Dukes on collective actions, such as wage and hour lawsuits under the Fair Labor Standards Act, which are subject to more lenient certification standards than the requirements of Rule 23, remains to be seen. Some of the same problems with certifying a nationwide class action (e.g., disparate decision making, myriad defenses and remedies) that the Supreme Court identified in Dukes apply to nationwide collective actions alleging off-the-clock work or misclassification of exempt workers. However, the commonality factor that must be satisfied under Rule 23 is not a part of the "similarly situated" analysis for conditionally certifying a collective action under the FLSA. Consequently, the true impact of Dukes outside of Rule 23 class actions cannot be accurately predicted for some time, after district courts have grappled with the parameters of the decision.
Finally, the Supreme Court's opinion potentially makes it more difficult for plaintiffs in class actions to support their certification arguments with so-called expert opinions. The federal district court had concluded that the standards for admitting expert testimony under the Supreme Court case of Daubert v. Merrell Dow Pharmaceuticals, Inc. did not apply during the class certification phase. The Supreme Court in Dukes expressed "doubt" that this position was correct, but did not directly address it because it rejected the expert's analysis altogether. The Supreme Court's opinion in dicta clearly signals that courts should not be free to ignore Daubert standards in examining the qualifications and opinions of experts at the class certification stage. This could lead to the exclusion of more opinions from social scientists, labor economists, forensic economists, and other purported experts during class certification proceedings.
The federal courts will now tackle the impact of Dukes and several of the concepts that may push the boundaries of the opinion. But along with the Supreme Court's recent decision concerning the validity of class action prohibitions in arbitration proceedings, the Court has issued two decisions this term that should be well received by the business community. If you have any questions, please contact Gene Droder, Steve Embry, or any other attorney in Frost Brown Todd's Tort and Insurance Defense, Labor and Employment, or Class Actions Practice Groups.