Expert Analysis When do money damages predominate in a class action for injunctive relief: Keeping Dukes in perspective

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1 Westlaw Journal Formerly Andrews Litigation Reporter EMPLOYMENT Litigation News and Analysis Legislation Regulation Expert Commentary VOLUME 25, ISSUE 5 / OCTOBER 5, 2010 Expert Analysis When do money damages predominate in a class action for injunctive relief: Keeping Dukes in perspective By Stephen Smerek, Esq., and Mark Smith, Esq. Winston & Strawn In Dukes v. Wal-Mart Stores, a divided en banc panel of the 9th U.S. Circuit Court of Appeals affirmed certification of a nationwide class seeking injunctive relief and back pay in a gender discrimination case under Title VII of the Civil Rights Act of As noted in a short concurring opinion by Judge Susan P. Graber this holding, in and of itself, is unremarkable. However, the majority s 50-plus-page opinion, and the lengthy dissent, address several important class-certification issues, including the standard for determining when a class action seeking both injunctive relief as well as money damages may be certified under the less strict requirements imposed by Rule 23(b)(2) of the Federal Rules of Civil Procedure. In affirming certification under Rule 23(b)(2), the majority concluded that plaintiffs request for monetary relief in the form of back pay did not predominate, even while recognizing that the aggregated claims may amount to billions of dollars. While the size of the potential damages is alarming, neither the standard articulated by the 9th Circuit, nor the specific application to a claim for back pay, expand the scope of Rule 23(b)(2). The decision focuses on the nature of claims for back pay in Title VII cases. The court also reversed certification as to putative damages, outlining multiple factors to suggest that monetary relief predominated and remanding the issue. Finally, the 9th Circuit reversed certification as to former employees under Rule 23(b) (2), holding that they were not entitled to injunctive relief, and thus their claims for monetary relief did predominate. While plaintiffs counsel will no doubt attempt to use this opinion to recast other class-action cases seeking money damages even substantial money damages in the trappings of a claim for injunctive relief, such machinations are clearly not supported under Dukes.

2 WESTLAW JOURNAL EMPLOYMENT THE 9TH CIRCUIT S NEW STANDARD FOR MONEY DAMAGES UNDER RULE 23(B)(2) To proceed with a class action, the proposed class must satisfy all of the requirements of Rule 23(a) and fall within Rule 23(b)(1), (b)(2) or (b)(3). To meet the requirements of Rule 23(b)(2), plaintiff need only show that defendant has taken action or refused to take action with respect to a class, and final injunctive relief or declaratory relief is appropriate respecting the class as a whole. 2 Both the majority opinion and the dissent address important class certification issues. However, as clarified in the advisory notes, Rule 23(b)(2) does not extend to cases in which the appropriate final relief relates exclusively or predominately to money damages. By contrast, Rule 23(b)(3) does extend to actions for money damages, but imposes additional requirements to certification, including findings that common issues of law and fact predominate over individual issues, and the class action is manageable and superior to other available alternatives. In Dukes, the District Court granted class certification under Rule 23(b)(2) based on plaintiffs claims for injunctive and declaratory relief, even though plaintiffs also sought an award of back pay in the billions of dollars. In affirming certification, the 9th Circuit formulated a new standard for resolving whether claims for monetary relief predominate, and thus bar certification under Rule 23(b)(2) s more lenient requirements. HOW OTHER CIRCUITS HAVE RULED The majority began its analysis with reference to the advisory committee notes, recognizing that Rule 23(b)(2) is not appropriate for all cases. The court then looked to the approaches taken in the other circuits. In the 2nd Circuit, the courts evaluate whether monetary relief predominates by examining, among other things, what is sometimes referred to as plaintiffs subjective intent test. It asks whether even in the absence of a possible monetary recovery, reasonable plaintiffs would bring the suit to obtain the injunctive or declaratory relief sought. 3 The 5th Circuit has held that monetary relief predominates unless it is incidental to requested injunctive or declaratory relief. 4 This approach has also been adopted by the 6th, 7th and 11th circuits. Finding that both of these approaches are essentially glosses on the text of the advisory committee s notes, the 9th Circuit considered the Merriam-Webster dictionary definition of predominate : having superior strength, influence, or authority: prevailing. Armed with this black-letter definition, the 9th Circuit rejected the incidental damages standard, stating that predominant is not synonymous with more than incidental. The court also concluded that divining plaintiff s subjective intent is a nebulous and imprecise inquiry that, at best, provides only part of the picture. The 9th Circuit then articulated a new formulation based on the dictionary definition of predominate : To be certified under Rule 23(b)(2), therefore, a class must seek only monetary damages that are not superior [in] strength, influence, or authority to injunctive and declaratory relief. 5 In rejecting both earlier approaches, the 9th Circuit adopted what it characterized as the standard that Rule 23(b)(2) s drafters straightforwardly indicated: Rule 23(b)(2) certification is not appropriate where monetary relief is predominate over injunctive or declaratory relief Thomson Reuters

3 VOLUME 25 ISSUE 5 OCTOBER 5, 2010 WHAT IS THE OBJECTIVE EFFECT OF RELIEF SOUGHT? Continuing with its own gloss on the text of the advisory committee s notes, the 9th Circuit held that a district court must consider, on a case-by-case basis, the objective effect of the relief sought on the litigation and identified the following four non-exclusive factors: Whether the monetary relief sought determines the key procedures that will be used. Whether it introduces new and significant legal and factual issues. Whether it requires individualized hearings. Whether its size and nature, as measured by recovery per class member, raise particular due process and manageability concerns. 6 Under this new gloss on the standard set forth by the advisory committee, the 9th Circuit concluded that claims for back pay in Dukes did not predominate over the requests for injunctive and declaratory relief. However, the majority determined that the District Court had abused its discretion by certifying a class for punitive damages. The 9th Circuit also reversed certification under Rule 23(b)(2) as it applied to former employees, who had no standing to seek injunctive or declaratory relief, and thus whose claims for monetary relief by definition predominated. DOES THE NEW STANDARD ARTICULATED IN DUKES INVITE BROADER APPLICATION OF RULE 23(B)(2)? At first blush, the 9th Circuit s conclusion that a claim for monetary relief in the billions of dollars does not predominate over injunctive and declaratory relief is startling. And the allure of potentially enormous money damages without the need to meet the stricter requirements imposed by Rule 23(b)(3) will certainly entice plaintiffs attorneys to seek out creative ways to argue for certification of other types of class actions with large damage components under Rule 23(b)(2). As clarified in the advisory notes, Rule 23(b)(2) does not apply to cases in which the final relief relates predominantly to money damages. However, nothing in the formulation of the standard adopted by the court, or its application in the context of a claim for back pay in a discrimination case under Title VII of the Civil Rights Act, supports extending Rule 23(b)(2) to claims for money damages in other class-action litigation. First, careful review of the 9th Circuit s analysis reveals that it is not actually so different from that adopted in practice by the other circuits. The majority s opinion instructs trial judges to consider factors that focus on whether the monetary relief will affect or require different procedures, legal and factual arguments, and individualized hearings, or implicate due process concerns by the size of the monetary relief. These are many of the same considerations prescribed under the incidental to test used in the 5th, 6th, 7th and 11th circuits, and plaintiffs subjective intent approach of the 2nd Circuit. Specifically, the approaches adopted in these circuits focus on the possibility of requiring individual hearings, new facts and arguments, and due process concerns. 7 The greatest evidence of the similarity of the tests, however, is in their application. On the issue actually before the court in Dukes whether in Title VII cases seeking injunctive relief back pay claims can also be certified under Rule 23(b)(2) application 2010 Thomson Reuters 3

4 WESTLAW JOURNAL EMPLOYMENT of the 9th Circuit s newly formulated standard yielded the same result as that reached in the other circuits. Indeed, the 9th Circuit itself expressly recognized that it is equally well accepted, even by circuits that are generally restrictive in certifying classes seeking monetary damages under Rule 23(b)(2), that a request for back pay in Title VII cases is fully compatible with certification of a Rule 23(b)(2) class. 8 The court even cited the same factors weighing in favor of certification, like the equitable nature of back pay, the lack of additional facts, law or hearings required, and Title VII s unique statutory scheme. 9 Second, application of Rule 23(b)(2) in Dukes is limited to the Title VII context in which it was decided and cannot be used to expand into other substantive areas of law. It is not simply that back pay s historical roots sound in equity and therefore make this form of monetary relief more susceptible to class treatment. The majority determined that the District Court had erred when it certified a class for punitive damages. DUKES CLAIMS FALL UNDER RULE 23(B)(2) Additionally, the discrimination claims at issue in Dukes are precisely the type contemplated in the crafting of Rule 23(b)(2). The principal category of cases certifiable under 23(b)(2) is actions in the civil rights field where a party is charged with discriminating unlawfully against a class. 10 In these cases, back pay does not predominate because it generally involves [relatively uncomplicated factual determinations and few individualized issues. 11 Back pay under Title VII claims is unique in that it is an integral component of Title VII s make whole remedial scheme. 12 Third, the 9th Circuit also reversed certification as to former employees under Rule 23(b)(2). In so doing, the court clarified that plaintiffs cannot overcome the predominance of monetary relief sought by some members of a proposed class (here, former employees) by simply lumping them together with others (current employees) who may have colorable claims for injunctive or declaratory relief. In addition, the court also affirmed prior decisions refusing to extend the application of Rule 23(b)(2) and inferred that expansion into other areas is unlikely. For example, the court reiterated its position in Williams v. Owens-Illinois Inc. that, under the facts of the case, compensatory damages were not compatible with class injunctive relief. 13 Similarly, the court said of Zinsner v. Accufix Research Institute that a class for medical monitoring could not be certified under 23(b)(2) under the facts present there. 14 SEPARATE PUNITIVE DAMAGES CLASS OVERTURNED While compensatory damages and medical monitoring were not open for re-analysis, one area was: whether punitive damages could be certified under Rule 23(b)(2). Without deciding the issue, the 9th Circuit overturned the trial court s certification of a separate punitive damages class under Rule 23(b)(2) and remanded the issue for the District Court s further analysis. In part, the lower court needed to determine whether, in the event certification were inappropriate, hybrid certification certification of a portion of the case pursuant to Rule 23(b)(2) and the requests for punitive damages under the separate class-certification standard set by Rule 23(b)(3) would alternatively be proper. The majority opinion did not hold that claims for punitive damages can never be certified, but it did suggest in its analysis that punitive damages will likely predominate the injunctive relief sought and therefore will not be certifiable under Rule 23(b)(2) Thomson Reuters

5 VOLUME 25 ISSUE 5 OCTOBER 5, 2010 Although the punitive-damages analysis is incomplete pending remand, there is simply nothing in the court s opinion to suggest that reevaluation of the 9th Circuit s existing limitations or expansion of Rule 23(b)(2) is a welcomed possibility that could find its way into the 9th Circuit s future jurisprudence. Finally, nothing in the court s opinion calls into question the existing precedent that insignificant or sham requests for injunctive relief should not provide cover for (b)(2) certification of claims that are brought essentially for monetary recovery. 15 CONCLUSION While the impact of the Dukes decision will doubtless play out for years to come, it does not support, much less stand for, expansion of Rule 23(b)(2) into new types of monetary relief or new substantive areas of law outside the Title VII context in which it was decided. In its opinion, the 9th Circuit takes the road less traveled to get back to the same place where all of the circuits have started: Rule 23(b)(2) is not appropriate for all classes and does not extend to cases in which the appropriate final relief relates exclusively or predominately to money damage. 16 NOTES 1 Dukes v. Wal-Mart Stores, 603 F.3d 571 (9th Cir. Apr. 26, 2010). 2 Fed. R. Civ. P. 23(b)(2), Advisory Committee s Note to 1966 Amends. 3 Robinson v. Metro-North Commuter R.R., 267 F.3d 147, 164 (2d Cir. 2001). 4 Allison v. Citgo Petrol. Group, 151 F.3d 402, 415 (5th Cir. 1998). 5 Dukes, at Id. at Allison, at ; Robinson, at Dukes, at 618 (citing Allison, at 415); Robinson, generally. 9 Allison, at Fed. R. Civ. P. 23(b)(2), Advisory Committee s Note to 1966 Amends. 11 Thorn v. Jefferson-Pilot Life Ins. Co., 445 F.3d 311, (4th Cir. 2006) (internal quotes omitted). 12 Allison, at Dukes, at 620, n.42, citing Williams v. Owens-Illinois Inc., 665 F.2d 918 (9th Cir. 1982). 14 Id., citing Zinsner v. Accufix Research Inst., 253 F.3d 1180 (9th Cir.), amended by 273 F.3d 1266 (9th Cir. 2001). 15 Robinson, at 164, citing In re Sch. Asbestos Litig., 789 F.2d 996, 1008 (3d Cir. 1986). 16 Dukes, at 615 (quoting Fed. R. Civ. P. 23(b)(2), Advisory Committee s Note to 1966 Amends.). The 9th Circuit s resolution of the issue yielded the same result as that reached in other circuits. Stephen Smerek (left) is a litigation partner in the Los Angeles office of Winston & Strawn, with extensive experience litigating complex commercial disputes, including consumer class actions and claims of trademark infringement. Mark Smith (right) is a litigation associate in the same office, who concentrates his practice on complex commercial litigation, including class actions, mass tort actions, consumer claims, governmental investigations and securities cases Thomson Reuters. This publication was created to provide you with accurate and authoritative information concerning the subject matter covered, however it may not necessarily have been prepared by persons licensed to practice law in a particular jurisdiction. The publisher is not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional. For subscription information, please visit Thomson Reuters 5