On June 20, 2011, in Wal-Mart Stores, Inc. v. Dukes, the United States Supreme Court handed down its decision holding that discrimination claims on behalf of up to 1.5 million female Wal-Mart employees at 3,400 stores across the United States could not properly be pursued as a class action. The Court’s 5-4 opinion, authored by Justice Antonin Scalia, raises the bar for class certification, holding that putative class members failed to demonstrate by “significant proof” that Wal-Mart exercised a common policy of discrimination sufficient to satisfy the commonality requirement of Federal Rule of Civil Procedure 23. The Court’s holding that all class members must have the same claim has substantial implications for antitrust class actions.
Background
The Dukes plaintiffs asserted claims against Wal-Mart for sex discrimination under Title VII of the Civil Rights Act of 1964, alleging that Wal-Mart’s corporate culture, which purportedly fosters gender stereotyping and discrimination — when combined with its policy of leaving decisions regarding pay and promotions to the discretion of local managers — caused women employed in Wal-Mart stores to be paid less, and receive fewer promotions, than their male counterparts. Plaintiffs argued that Wal-Mart’s refusal to curb its local managers’ authority, despite being aware that discretion was exercised disproportionately in favor of men, amounted to a common policy of discrimination and disparate treatment under the Act. Plaintiffs sought injunctive and declaratory relief, punitive damages and backpay. The United States District Court for the Northern District of California certified an injunctive class under Rule 23(b)(2). The U.S. Court of Appeals for the Ninth Circuit substantially affirmed, concluding that the plaintiffs met Rule 23(a)(2)’s requirement that the class raise “common questions of law or fact,” and further holding that the backpay claims could be certified as part of a 23(b)(2) class because they did not “predominate” over the requests for injunctive relief.
Decision
The Supreme Court reversed the Ninth Circuit’s decision and held that class treatment was not appropriate for two independent reasons. A 5-4 majority of the Court ruled that the plaintiffs failed to meet the minimum requirement of “commonality” for class certification under Rule 23(a). While circuit courts historically have construed the commonality requirement liberally, in Dukes the Court announced that commonality requires plaintiffs to demonstrate that the class members “have suffered the same injury,” and that their claims “depend upon a common contention … of such a nature that it is capable of classwide resolution.” Importantly, the Court held that Rule 23 “does not set forth a mere pleading standard,” and that a party seeking class certification must affirmatively demonstrate compliance in fact with the Rule 23 requirements. In this case, the Court found, commonality would have required “significant proof” that Wal-Mart operated under a general policy of discrimination. The Court found such proof “entirely absent” despite testimony by plaintiffs’ sociological expert that Wal-Mart’s corporate culture was infected by gender bias.
In so holding, the Court eliminated any doubt that courts may consider the merits of claims when they are relevant to whether the requirements of Rule 23 have been satisfied, including the application of the Daubert standard to weigh expert testimony at the certification stage of class action proceedings. The Court specifically clarified its 1974 decision in Eisen v. Carlisle, saying it should not be interpreted as prohibiting a merits inquiry to determine the propriety of certification under Rule 23.
In a separate section of the opinion, a unanimous Court held that plaintiffs’ claims for monetary damages could not be certified under Rule 23(b)(2), because claims for individualized relief — such as backpay — are not incidental to injunctive relief. The Court rejected the Ninth Circuit’s holding that the backpay claims were appropriately certified because they did not “predominate” over the requested injunction, saying that the predominance test has no basis in the text of the rules governing class actions.
Justice Ginsburg dissented in part on the basis of the Court’s Rule 23(a) commonality inquiry, reasoning that the majority improperly imported into Rule 23(a) an assessment of whether common class questions “predominate” over issues affecting individuals, a determination required only by requests for class certification under Rule 23(b)(3). According to Justice Ginsburg, the Court thereby disqualified the class “at the starting gate,” elevating the Rule 23(a)(2) inquiry “so that it is no longer ‘easily satisfied.’” Nevertheless, Ginsburg noted that she would have remanded the issue of whether predominance could be met under the circumstances of Dukes, strongly suggesting that individual differences between class members may well have prevented certification under Rule 23(b)(3). Justice Ginsburg’s dissent was joined by Justices Breyer, Sotomayor and Kagan.
Implications
Over the past several years, the circuit courts of appeal have trended towards stricter standards for class certification, uniformly establishing the rule that courts must perform a rigorous analysis to determine whether the prerequisites of Rule 23 are met, and may go beyond the pleadings to the merits of claims when necessary to make the Rule 23 determination. The appeals courts also were in agreement that claimants must make more than a threshold showing that the Rule 23 requirements were met, but disagreed as to the precise nature of the burden that class action plaintiffs must meet to prove that class treatment is appropriate.
With Dukes, it is now clear that plaintiffs can no longer rely on their pleadings or a perfunctory evidentiary showing, and that courts must examine the actual evidence bearing on certification to determine whether it raises an inference that every class member has a common claim. Moreover, the Court’s adoption of a dramatically heightened standard to meet commonality — thereby foreclosing any opportunity for the Dukes plaintiffs to try their claims together as a single Rule 23(b)(3) class — signals the Court’s proclivity to apply increasingly strict requirements for the certification of classes. The Dukes decision likely will limit the reach of plaintiffs in antitrust class actions going forward. In many antitrust cases, including potentially even in some traditional price-fixing conspiracy cases, the issue of common proof of injury could be affected by many factors, and under the standards established in Dukes, may limit the possibility of class certification or the scope of any classes that can be certified. In rejecting a broad class based on the conduct of a disparate group of lower level employees that conflicts with a company’s stated policies, the decision also underscores the importance of having a well-articulated antitrust policy, including a rigorous antitrust compliance program.
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