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June 2011

U.S. Supreme Court Raises the Bar on Class Certification Requirements

The United States Supreme Court in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ____ (2011) reversed the Ninth Circuit Court of Appeals' certification of a class of approximately 1.5 million current and former Wal-Mart female employees who alleged sexual discrimination in pay and promotion decisions.  The Court held that certification of the class was inconsistent with the requirements of Federal Rules of Civil Procedure ("FRCP") Rule 23 because of the insufficient commonality of claims within the class and the impropriety of individualized monetary relief sought through backpay. 

FRCP Rule 23(a) provides that a case cannot be certified as a class unless, among other things,  there are questions of law or fact common to the class.  In addition, the proponent of class certification must prove that the case falls within one of the subsections of Rule 23(b).  Plaintiffs in the Dukes case requested certification under subsection (b)(2), which allows certification where the defendant "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."   

However, the Supreme Court held that plaintiffs in the Dukes case satisfied neither subsection (a) nor subsection (b)(2) of Rule 23.  With respect to subsection (a), the Court held that the crux of the "commonality" requirement "is not the raising of common 'questions'" but instead "the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation."  (Emphasis in original.)  The Court held that Rule 23 is not a "mere pleading standard" but rather demands the party seeking class certification be able to prove "there are in fact sufficiently common questions of law or fact."  The Court further explained that it is not enough to raise common questions in a complaint; the commonality element requires the representative plaintiff to show that the class members suffered the same injury due to a common contention central to the validity of each of the members' claims.    

One of the ways that plaintiffs in Dukes attempted to meet the commonality requirement is through the testimony of an expert sociologist, who opined that Wal-Mart has a "culture" that fosters discrimination.  The high Court rejected that testimony as speculative.  Unfortunately, however, the Court did not squarely address the long-simmering question of whether the testimony of such experts must meet the Daubert standard applicable to expert testimony on merits issues – although the Court did say it "doubts" the District Court's conclusion that Daubert does not apply.

The high Court reasoned that, although there may have been isolated instances of discrimination against women at Wal-Mart, plaintiffs submitted no evidence of a uniform, company-wide policy of discriminating against women.  To the contrary, the evidence showed that Wal-Mart's policy prohibits such discrimination.  Moreover, the company allows its individual managers wide discretion in deciding pay and promotions.  Absent an over-arching policy of discrimination, plaintiffs could not meet their burden under Rule 23(a) of showing common questions of law or fact. 

The Court also held that plaintiffs failed to meet their burden under subsection b(2).  Because they sought monetary relief in the form of backpay, plaintiffs could not win certification of an injunctive relief class under subsection b(2).  Reversing a long line of intermediate appellate decisions, the Court held that it was not enough for plaintiffs to argue that their injunctive relief claim "predominated" over the monetary relief claim.    The Court reasoned that "permitting the combination of individualized and class-wide relief" is inconsistent with Rule 23(b)(2), which does not provide class members with notice or the ability to opt-out as required when monetary relief is at stake. 

The Dukes decision will be extremely helpful to defendants in class action employment discrimination matters because plaintiffs in those cases will now be required to prove a fairly explicit and uniform company-wide policy or practice of discrimination.  The decision also has important ramifications for the defense of (b)(2) classes because it prohibits plaintiffs in those cases from seeking any significant form of monetary relief in addition to injunctive relief. 

However, the decision's impact on the defense of consumer fraud and product liability class actions remains to be seen, and is likely to be much more limited.  Most consumer fraud and product liability class actions are claims for monetary relief brought pursuant to Rule 23(b)(3) and not (b)(2) – the subsection which was the focus of the Dukes decision.  The majority opinion includes an unfortunate line indicating that subsection (b)(3) "allows class certification in a much wider set of circumstances" than does (b)(2).

The admissibility of plaintiffs' expert testimony on class certification is often a key issue in consumer fraud and product liability class actions – and although the high Court expressed "doubt" about the District Court's holding that the Daubert standard does not apply in that context, the Court unfortunately did not squarely decide that issue. 

Perhaps the most important and helpful portion of the decision, for those defending against consumer fraud or product liability class actions, is the Court's discussion of the defendant's right to present individualized defenses to the claims of the various class members.  Plaintiffs in consumer fraud and product liability class actions often argue that potential problems of non-commonality or unmanageability can be overcome through statistical sampling:  A random sample of plaintiffs are selected from the class for individual litigation, and the outcome of their claims is extrapolated to the class as a whole.  But the high Court squarely rejected that contention, holding that, "Contrary to the Ninth Circuit's view, Wal-Mart is entitled to individualized determinations of each employee's eligibility for backpay," and cannot be forced to submit to "trial by formula." 

Class Action

Hazel Mae B. Pangan

Class Action
Commercial Litigation