In the Wake of Wal-Mart Stores v. Dukes, Where Are the Districts Headed on Class Certification?

Transcription

1 In the Wake of Wal-Mart Stores v. Dukes, Where Are the Districts Headed on Class Certification? by Paul M. Smith Last Term s Wal-Mart decision of the Supreme Court had two basic holdings about why the lower courts had erred in certifying a class. First the Court held that the proposed nationwide class of female employees at Wal-Mart lacked sufficient commonality under Fed. R. Civ. P. 23(a) because decisions about pay and promotions were made by local store managers, not centrally. The Court added that a national policy of allowing these store managers to exercise a great deal of subjective judgment could not be the glue holding all of these dispersed decisions together because allowing excessive discretion could not constitute a general policy of discrimination. To the contrary, the only general policy shown to exist was an official policy barring sex discrimination. Second, the Court held that even if certification of a class were otherwise justified, the plaintiffs back pay claim was too individualized to allow it to be addressed in a class action certified under Fed. R. Civ. P. 23(b)(2). While leaving open the possibility that some forms of monetary relief might be awarded in a 23(b)(2) class action, which does not provide for individual opt outs, the Court precluded the any process in which the defendant s right to contest each individualized claim is replaced by a formulaic distribution of monetary relief. And it made clear that if there are going to be individualized hearings at some stage of the process, the only possible basis for certifying the class is Rule 23(b)(3), which requires each class member to receive notice and a right to opt out and litigate her claim separately. Under that rule, however, when individualized determinations are necessary, there are often difficult questions concerning whether the common issues continue to predominate over the individualized ones. Here s a 1

2 look at how some illustrative federal district court decisions have been applying this important case. The impact of the Supreme Court s commonality ruling has been felt primarily where you would expect to see it in employment and lending cases involving many individual dispersed decisions where the primary claim is that there is excessive discretion allowed to decision-makers, thus predictably leading to disparate outcomes. One good example is Scott v. Family Dollar Stores, Inc., 2012 U.S. Dist. LEXIS 4669 (W.D.N. C. Jan. 13, 2012). There, 51 women sued on behalf of themselves and all other female store managers employed by Family Dollar Stores, alleging that female managers had suffered discrimination in pay and other employment opportunities. After Wal-Mart, the district court dismissed the class allegations in the complaint. It ruled that there was no meaningful difference between the two cases, because the Scott plaintiffs also relied on the claim that the individual store managers making the relevant decisions at the local level exercised too much discretion. It also held that the plaintiffs could not proceed with claims for back pay, punitive damages and liquidated damages either under Rule 23(b)(2) (because Wal-Mart forbade that) or under Rule 23(b)(3) (because common issues could not be said to predominate over individual ones). Another example is Bell v. Lockheed Martin Corp., 2011 U.S. Dist. LEXIS (D.N.J. Dec. 14, 2011). There, female employees of Lockheed Martin in middle-management jobs claimed sex discrimination regarding salary and promotions. They alleged that this discrimination was the result of company-wide policies. In particular, they alleged that the minimum requirements for promotion into the next level of positions were nominal, thus leaving the decision-makers with a great deal of leeway to act in a discriminatory manner. And they alleged a centralized policy that the availability of these higher-level management positions 2

3 should not be posted. Relying on the Wal-Mart ruling, the court held that the plaintiffs had not satisfied the commonality requirement because the gravamen of their claim was excessive subjectivity allowed to decision-makers acting locally. The court rejected the plaintiffs reliance on the non-posting requirement, noting that much the same allegation had been made in Wal- Mart. It also noted that the plaintiffs statistical and anecdotal evidence mirrored that offered in Wal-Mart. A third example, this time not involving employment or excessive subjectivity in decision-making, is In re Countrywide Financial Corp. Mortgage Marketing and Sales Practices Litigation, 2011 U.S. Dist. LEXIS (S.D. Cal. Dec. 16, 2011). The proposed class involved California borrowers from Countrywide who entered into an Option Adjustable Rate Mortgage. It was claimed that the teaser interest rate offered for these loans lasted only for one month, but that this feature was not adequately disclosed in the formal documents supplied to borrowers by Countrywide. The plaintiffs relied on these uniform documents as a basis for their class claims. But the defendant argued that the omitted information was supplied orally by mortgage brokers and loan officers, and that therefore there was no uniform class. Applying Wal-Mart, the court agreed with the defendant and denied certification. It ruled that because of the central importance of the oral disclosures, the proposed class failed the commonality requirement of Rule 23(a). It also ruled that, for the same reason, common issues did not predominate over individual ones, thus precluding reliance on Rule 23(b)(3). By contrast, in a case involving of securities allegedly through the use of offering documents containing false statements and material omissions, the court certified the class after Wal-Mart. See Public Employees Retirement Sys. of Mississippi v. Merrill Lynch & Co., 277 F.R.D. 97 (S.D.N.Y. 2011). The defendants argued that there was too much variation among 3

4 proposed class members regarding the materiality of alleged omissions, loss causation, the expiration of the limitations period, and the class members knowledge of the alleged misstatements. But the district court held that in that securities context, the question whether the offering documents were false or misleading satisfied the commonality requirement, notwithstanding the Wal-Mart ruling. Moreover, the court was willing to certify the case under Rule 23(b)(3). It reasoned that the federal securities laws at issue, combined with the facts shown, did not require individual showings of reliance on the alleged misrepresentations. It further held that the facts shown did not establish that individual class members were on inquiry notice of the misrepresentations and thus did not create individual issues regarding the statute of limitations. Similarly, in the consumer context, the court in Johns v. Bayer Corp., 2012 U.S. Dist. LEXIS (S.D. Cal. Feb. 3, 2012), certified a class to pursue a claim that Bayer made unsubstantiated claims in advertising that its vitamin products promoted prostate health. The court held that the common issues presented whether the ads were misleading or false were to be judged objectively and thus were clearly common to the whole class. Moreover, under applicable law, reliance could be presumed and thus did not have to be shown individually. Finally, the court held that where classwide liability issues predominate, the possibility of individual variation of damages does not defeat certification under Rule 23(b)(3). And it suggested the possibility of developing a single formula for determining how much the value of each product purchase was inflated by the alleged false claims, thus allowing relatively easy calculation of individual damages based only on a showing by the individual of the volume of purchases made. 4

5 And interesting decision came almost immediately after Wal-Mart in United States v. City of New York, 276 F.R.D. 22 (E.D.N.Y. 2011), involving disparate-impact and disparatetreatment racial-discrimination challenges to an exam used for hiring new firefighters. The district court held that Wal-Mart did not preclude maintaining its previous certification of a (b)(2) class to litigate common liability issues. It concluded that the issues raised about the justifications for the exam, its impact on black applicants and the City s intent could properly be litigated on that basis. It also ruled, however, that noneconomic damages claims could not be litigated on a class basis, explaining that the issue of any non-monetary losses caused by applicants inability to become firefighters was too individual for a classwide remedy. Because liability had already been determined, the court also had to consider whether there still was a basis for certifying a class for distribution of monetary relief. It held that the proper procedure, where it could not be determined after the fact which of the eligible applicants would have been hired if the challenged test had not been used, was to determine the aggregate amount of monetary relief (lost back pay and lost seniority) available to the class, and then distribute it pro rata to those who could show their eligibility through individual hearings. The court held that the classwide determinations would predominate over the individual issues in this process, thus allowing the case to continue to be certified under (b)(3) for the remedial process. In a similar vein, in D.L. v. District of Columbia, 2011 U.S. Dist. LEXIS (D.D.C. Nov. 16, 2011), the court refused to decertify a class of students claiming a systematic denial of free and appropriate public educations, in violation of federal law. It ruled that the claimed denial of free and appropriate public education was a common issue, even if it occurred in different ways in different individual cases. It further held that the injunctive and declaratory relief claims were properly certified under 23(b)(2), and that claims for compensation for monies 5

6 spent to obtain needed educational services could simultaneously be certified under 23(b)(3), even though those remedial claims presumably would require some form of individualized determination. As these cases illustrate, there is considerable diversity of approach in the ways district courts have analyzed both the 23(a) commonality and the 23(b)(3) predominance issues. Some courts have applied Wal-Mart very strictly, especially in cases that resemble it on the facts, while others have worked hard to find ways to maintain a classwide approach to resolving claims that the courts felt needed such a mechanism. The process of figuring out precisely how significant Wal-Mart is will go on for years. 6