Federal Appellate Court Allows Sex Discrimination Class Action Encompassing Up To 1.5 Million Class Members SUMMARY On April 26, 2010, the United States Court of Appeals for the Ninth Circuit (which encompasses California and other Western states) issued a decision affirming a federal District Court s decision to certify a huge class of plaintiffs in a sex discrimination class action against Wal-Mart Stores. Dukes v. Wal-Mart Stores Inc., Nos. 04-16688, 04-16720, 2010 U.S. App. LEXIS 8576, 109 Fair Empl. Prac. Cas. (BNA) 15 (9th Cir. Apr. 26, 2010). The closely divided Court held, by a 6 to 5 majority, that the proposed class was appropriate under the Federal Rules of Civil Procedure. The majority decision, together with two spirited dissenting opinions, encompasses over 140 pages. The decision, if it were to stand, would represent a significant departure from the existing law in other Circuits, and from the recent trend in other court decisions of carefully scrutinizing at class certification, the legal and evidentiary support for the claims to be proven at trial. Wal-Mart likely will seek a stay of the decision and review by the Supreme Court. Although the odds of any particular case being reviewed by the Supreme Court are always long, in light of the facts that the majority decision explicitly disagrees with holdings of other Circuit Courts of Appeals, that the decision hinges on interpretations of prior Supreme Court class action decisions that, as the dissent points out, are controversial, and that the size and scope of the certified class is arguably unprecedented, there would seem to be a material chance that the Supreme Court will accept it for review. BACKGROUND The plaintiffs in the Dukes action allege that Wal-Mart Inc. discriminates against women in violation of Title VII of the Civil Rights Act of 1964. After briefing and hearing, the District Court certified a class encompassing all women employed by Wal-Mart in some 3,400 stores nationwide at any time after December 26, 1998. The number of individuals encompassed within that class is estimated to be on the New York Washington, D.C. Los Angeles Palo Alto London Paris Frankfurt Tokyo Hong Kong Beijing Melbourne Sydney www.sullcrom.com
order of 1.5 million. Plaintiffs allege that women employed in Wal-Mart stores are (1) paid less than men in comparable positions, and (2) discriminated against in promotions. Plaintiffs allege that Wal-Mart s centralized structure fosters or facilitates gender stereotyping and discrimination, that the policies and practices underlying the alleged discriminatory treatment are consistent throughout all Wal-Mart stores and that the alleged discrimination is common to all women who work or have worked in Wal-Mart stores. The class representatives sought to certify a class under Federal Rule of Civil Procedure 23(b)(2), which allows class actions to proceed without affording absent class members notice or an opt-out right, and is designed for cases in which plaintiffs claim that the defendant has acted or refused to act on grounds that apply generally to the class, so that injunctive or declaratory relief is appropriate with respect to the class as a whole. Classes under Rule 23(b)(2) are held to be appropriate only when the request for injunctive relief predominates over any claim for monetary relief. Plaintiffs seeking class certification must meet two sets of criteria under Rule 23. First, they must establish the four Rule 23(a) requirements of numerosity, commonality of questions of law or fact, typicality of the claims of the class representatives to those of the class, and adequacy of the representation. Second, they must establish that the proposed class would fall within one of the three types of class action defined in Rule 23(b). The plaintiffs, as noted, primarily sought certification under Rule 23(b)(2) on their equitable claims for injunctive relief and for back pay. Plaintiffs also sought certification under Rule 23(b)(3), the provision typically at issue in class actions seeking money damages (such as federal securities fraud class actions), on their claim for punitive damages. The majority decision noted that the requirements of Rule 23(b)(3) that common issues predominate and that class treatment is superior to other methods for resolving the controversy might not be met with respect to the claims for punitive damages, but it left that issue for the District Court to decide on remand. The majority and the principal dissenting opinions contain lengthy analyses of the law. 1 It is beyond the scope of this memorandum to summarize every portion of those decisions. Instead, we describe particularly interesting aspects of them. The majority purports to accept the ruling of the Second Circuit in In Re Initial Public Offering Securities Litigation, 471 F.3d 24 (2d Cir. 2006) (the IPO Litigation ) that, when considering class certification under Rule 23, district courts must perform a rigorous analysis, including by looking behind the pleadings and examining the parties proof. 2 Nevertheless, despite having accepted the IPO decision s rationale, the majority undertook a very limited review of the evidence offered by the parties, and the majority side-stepped entirely the preponderance of the evidence standard adopted in IPO and several other Circuits when determining whether the requirements of Rule 23 are met. The Court distinguished Title VII cases from securities cases, and held that experts disagreements on the merits do not provide a valid reason for denying class certification. The Court held that all that 1 The principal dissenting opinion was written by Judge Ikuta. Chief Judge Kozinksi submitted a oneparagraph dissent, joining in Judge Ikuta s dissent. 2 Sullivan & Cromwell LLP served as litigation counsel for the underwriter defendants in the IPO Litigation. Our memorandum of December 7, 2006 describes the decision in detail. -2-
a plaintiff must do to satisfy the commonality requirement of Rule 23(a)(2) is to establish common questions of law and fact. The majority held that answering those questions is not to be done at the certification stage, but rather is the purpose of the merits inquiry of trial and summary judgment. The dissent vigorously objected to this rationale, arguing that under the Supreme Court s decision in General Tel. Co. of Sw. v. Falcon, 457 U.S. 147 (1982), significant proof of commonality is necessary. The majority declined to decide whether the expert evidence offered by plaintiffs and upon which the conclusion that common questions of fact existed met the federal standards for admissibility at trial. Thus, the majority refused to consider the credibility of expert testimony concerning supposed gender stereotypes and subconscious bias, which plaintiffs offered in an attempt to establish that Wal-Mart s policy of allowing individual store managers at 3,400 stores to make employment decisions could constitute a general corporate policy of discrimination. The majority accepted as a common question of fact the question whether Wal-Mart s policy of decentralized, subjective employment decision making could operate to discriminate against female employees. The majority held that plaintiffs statistical evidence was acceptable for purposes of class certification, notwithstanding defendant s objection that the statistics were incapable of proving the legal theory advanced by the class because they were aggregated on a regional level, while decisions were made at a store level. The majority held that anecdotal declarations submitted by plaintiffs raised an inference of common discriminatory experiences. The dissent, by contrast, noted that the 120 declarations offered by plaintiffs represented a minuscule portion of the 1.5 million potential class members, both in terms of the number of individuals and the breadth of their experiences. The dissent further argued that individual stories cannot constitute significant proof of a general policy of discrimination. The majority found that plaintiffs claims were sufficiently typical of the claims of the rest of the class, notwithstanding that the class would include managers who made employment decisions affecting the other class members. The majority rejected Wal-Mart s argument that certification of a class including managers would establish a conflict of interest because the managers are both class members and potentially liable agents of Wal-Mart with respect to the alleged mistreatment of other class members. The majority, without further analysis, held that the District Court s rejection of that argument was not an abuse of discretion. In one aspect of the decision that creates a significant conflict with other Circuits, the majority ruled that under Rule 23(b)(2) the assessment of whether the appropriate final relief relates exclusively or predominantly to monetary damages does not depend on the subjective intent of the plaintiffs, as the Second Circuit has held, nor does it depend on an analysis of whether monetary damages are incidental as held by the Fifth, Six, Seventh and Eleventh Circuits. Rather, the majority cited the Merriam-Webster s Collegiate Dictionary definition of predominant and held that, for Rule 23(b)(2) certification, a class must seek only monetary damages that are not superior [in] strength, influence or authority to injunctive and to declaratory relief. The majority held that the large size of the class did not undermine plaintiffs claim that injunctive and declaratory relief predominate, and also held that back pay requests, notwithstanding their enormous potential amount, represented an equitable rather than monetary award, and that back pay could be calculated on a class-wide basis. The majority held that 23(b)(2) class certification may not be proper as to class members who were not employees as of the date of the filing of the complaint, as they would not have standing to pursue injunctive or declaratory relief. Finally, the majority held that a class of the size that the District Court certified was manageable, noting possible ways of trying the case, including a method that might include sampling and statistical review. The majority rejected without any substantial analysis Wal-Mart s argument that under Section 706(g)(2) of Title VII, it has a right to prove on an individual basis that even if there were a discriminatory policy, a particular plaintiff would be disentitled to recovery because the plaintiff engaged in conduct that would have resulted in the defendant taking the same action in the absence of discrimination. Wal-Mart cited the Rules Enabling Act for the proposition that the Federal Rules of Civil Procedure may not modify any substantive right. 28 U.S.C. 2072(b). -3-
As noted above, the dissent vigorously disagreed with substantial aspects of the majority decision. The dissent argued that the District Court s class certification decision was an abuse of discretion, both because plaintiffs had not adequately established the prerequisites of Rule 23(a) and because the District Court had ignored Wal-Mart s statutory right to raise defenses to liability, including under Section 706(g) of Title VII. The dissent cited the U.S. Supreme Court s decision in Falcon as establishing that a plaintiff must produce significant proof that an employer operated under a general policy of discrimination when challenging an alleged subjective decision-making process. The dissent took issue with the majority s acceptance of 120 declarations as an adequate basis for certification, and was critical of plaintiffs statistical proof, including the aggregation by plaintiffs statistical experts of the data by region instead of by individual store. The dissent argued that when plaintiffs evidence is subjected to the rigorous inquiry required by Falcon, it is inadequate to bridge the gap between the six plaintiffs claims of individual discrimination and a classwide claim of company-wide discrimination....[l]ike the proverbial shell game, the plaintiffs circular presentation cannot conceal the fact that they have failed to offer any significant proof of a company-wide policy of discrimination, no matter which shell is lifted. The dissent reviewed the law establishing that in a pattern and practice discrimination case, the defendant has the right to raise individualized defenses to claims for monetary relief, citing Int l. Bhd. of Teamsters v. United States, 431 U.S. 324 (1977). The dissent observed that the majority never satisfactorily answered the question of how a District Court could conduct up to 1.5 million individualized hearings during the second phase of the case that Teamsters mandates. Finally, the dissent argued that the majority s analysis of Rule 23(b)(2) ignored the Supreme Court s observation in Ortiz v. Fibreboard, 527 U.S. 815 (1999), that courts must stay close to the historical model in analyzing 23(b)(2) class certification. The dissent argued that the history and structure of Rule 23(b) compels the conclusion that the proposed class does not fit within the category of cases seeking primarily equitable relief within the reach of Rule 23(b)(2). The dissent observed that the majority has created a three-way circuit split, contrary to its own precedent that such splits should be avoided (Zimmerman v. Oregon Department of Justice, 170 F.3d 1169 (9th Cir. 1999)) and aggravating the already existing inconsistency among the circuits. The dissent observed that there is no evidence that the Advisory Committee that established the Federal Rules thought Rule 23(b)(2) was appropriate for classes seeking back pay. IMPLICATIONS The dissent concisely summed up the implications of this decision, if it were to stand: Never before has such a low bar been set for certifying such a gargantuan class. The majority s ruling provides scant limits -4-
to the types of classes that can be certified. Put simply, the door is now open to Title VII lawsuits targeting national and international companies, regardless of size and diversity, based on nothing more than general and conclusory allegations, a handful of anecdotes, and statistical disparities that bear little relation to the alleged discriminatory decisions. Given the highly contested nature of this 6-to-5 decision, the extraordinary size of the class and the acknowledged conflict between the decision and holdings in other circuits, it seems quite likely that Wal- Mart will seek a stay of the decision and will petition to the U.S. Supreme Court for review of the decision. * * * Copyright Sullivan & Cromwell LLP 2010-5-
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