As many of you recall, I've written a considerable amount about the anticipated opinion in Wal-Mart Stores, Inc. v. Dukes, No. 10-277 (U.S.). See, e.g., here, and here. Indeed, in a roundtable discussion over at Point of Law, I even included a wish list of what I wanted the Supremes to bring me from Wal-Mart.
Today, Justice Scalia delivered the opinion. And it's like an 8-year-old's Christmas morning in my office!
Dukes was an employment discrimination case in which the Ninth Circuit had affirmed certification of a class of roughly 1.5 million women who worked or had worked for Wal-Mart (in positions from management to custodian) in any of its roughly 3,400 stores across the U.S. The allegation was that despite Wal-Mart's written non-discrimination policy, its managers (including women) discriminated against women in the exercise of their roughly unfettered individual discretion of whom to promote, demote and fire, as well as how they were compensated. The class sought injunctive relief, as well as back pay for all class members. (It disclaimed consequential damages.)
The majority opinion was written by Justice Scalia. The opinion has a five-justice majority for some parts, and is unanimous in other parts. Here is what Scalia Claus brought me this morning:
1. A Unanimous Conclusion That Rule 23 Cannot Eviscerate Individual Defenses: All nine justices joined in the part of the opinion holding that certification under Rule 23(b)(2) was improper because it included individualized claims for back pay. A unanimous Supreme Court rejected a common attempt to impose statistical proof to cure the problem of individual defenses:
The Court of Appeals believed that it was possible to replace such proceedings with Trial by Formula. A sample set of the class members would be selected, as to whom liability for sex discrimination and the backpay owing as a result would be determined in depositions supervised by a master. The percentage of claims determined to be valid would then be applied to the remaining class, and the number of (presumptively) valid claims thus derived would be multiplied by the average backpay award in the sample set to arrive at the entire class recovery -- without further individualized proceedings. We disapprove that novel project. Because the Rules Enabling Act forbids interpreting Rule 23 to "abridge, enlarge, or modify any substantive right," a class cannot be certified on the premise that Wal-Mart will not be entitled to litigate its statutory defenses to individual claims.
Slip op. at 27 (emphasis added; citations omitted). This means that third-party-payor claims and consumer fraud class actions will not be able to prove causation or reliance using statistical proof like that proposed and rejected in McLaughlin v. American Tobacco Co., 522 F.3d 215 (2d Cir. 2008) in order to facilitate class certification. This is BIG NEWS!!!
2. A Unanimous Conclusion that Individualized Monetary Damages Claims Cannot Be Included in a Rule 23(b)(2) Class: The Supreme Court brushed aside the whole question of whether money damages are "incidental" to the claims or "predominate," instead instructing that if monetary damages require individualized determinations, they do not belong in a 23(b)(2) class, but instead require the opt-out and notice rights inherent in a Rule 23(b)(3) class. Slip op. at 21-23. It refused to decide "whether there are any forms of 'incidental' monetary relief that are consistent with the interpretation of Rule 23(b)(2) we have announced and that comply with the Due Process Clause." Slip op. at 26. But this holding will make it very difficult for plaintiffs to continue the practice of attempting to plead cases about money as cases for so-called "equitable relief" with incidental damages. Indeed, the court made it plain that Rule 23(b)(2) talks about injunctions and declarations, not "equitable relief." As such, attempts to couch "disgorgement" or other so-called equitable remedies involving money as 23(b)(2) classes should be rejected from this point forward.
3. Unanimous Dicta on Claim Splitting and the Potential for Issue Preclusion: In discussing why it was improper for individualized back pay claims to be included in a Rule 23(b)(2) class, the Court observed that doing so "created the possibility . . . that individual class members' compensatory-damage claims would be precluded by litigation they had no power to hold themselves apart from." Slip op. at 24. Such as if the class received a judgment that there was no discrimination. This part of the Dukes opinion will provide strong support for attacking (b)(2) classes that may impact monetary claims as lacking due process protections, and should strengthen classic adequacy-of-representation arguments based on claim-splitting.
4. A Reinvigorated Commonality Standard: Many courts had pretty much read commonality out of the Rule 23(a) analysis, concluding that if any common questions existed, the commonality standard was met. No more. The Court adopted the late Professor Richard Nagareda's characterization of commonality as the capacity of the class proceeding to generate common answers. Slip op. at 9. The Court instructed:
Commonality requires the plaintiff to demonstrate that the class members 'have suffered the same injury.' This does not mean merely that they have all suffered a violation of the same provision of law. . . . Their claims must depend upon a common contention -- for example, the assertion of discriminatory bias on the part of the same supervisor. That common contention, moreover, must be of such a nature that it is capable of classwide 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.
Id. (citation omitted).
5. A Strong "Rigorous Analysis" Standard: Stick a fork in Eisen v. Carlisle & Jacquelin. It's done! The majority once again declared that the class action proponent must actually prove each element of Rule 23, and embraced the Falcon "rigorous analysis" standard that courts must use to evaluate that proof. Moreover, the Court explained: "[f]requently that 'rigorous analysis' will entail some overlap with the merits of the plaintiff's underlying claim. That cannot be helped." Slip op. at 10. Finally, the Court interred the long-dead (but often resurrected) canard that Eisen somehow precludes a look beyond the pleadings when deciding whether certification is proper. Id. at n.6.
6. A Strong Hint That Daubert Applies at the Class Certification Stage: Plaintiffs had proffered testimony from a "corporate culture" expert who opined that there was a general policy of discrimination at Wal-Mart, although "he could not calculate whether 0.5 percent or 95 percent of [its] employment decisions . . . might be determined by stereotyped thinking." Slip op.at 13. As the Court observed, the "District Court concluded that Daubert did not apply to expert testimony at the certification stage of class-action proceedings." Slip op. at 14. The Court opined: "We doubt that this is so." But it did not need to reach the question because the testimony, even if fully credited, was "worlds away from 'significant proof' that Wal-Mart 'operated under a general policy of discrimination.'" Id. Below, the Ninth Circuit had refused to apply Daubert to expert testimony on class certification. It seems unlikely that a court can ignore Daubert principles at class certification now.
So let's see what I had listed at Point of Law prior to the issuance of the Dukes opinion. It looks like Scalia Claus brought me a majority of what was on my initial list. Everything that is in Dukes from the original list is marked with an asterisk:
*1. District courts must give rigorous scrutiny to whether the class action prerequisites are met.
*2. Rule 23 is a procedural rule that cannot alter the substantive claims or defenses.
*3. You can’t use a mandatory class to elude the prerequisites for an opt-out class.
4. Money is not an available remedy under Rule 23(b)(2).
5. The canard that the need for individualized damages determinations cannot preclude class certification should be shot.
6. Intra-class conflicts fail the adequacy of representation requirement.
*7. Expert testimony merits particularly close scrutiny at the class certification stage.
*8. Although courts should not reach to judge the merits at the class certification stage, they must decide merits issues where necessary to determine whether the class action prerequisites are met.
All in all, this was an extraordinarily useful opinion for class action defense counsel -- beyond even employment discrimination lawyers.