Court Certifies Class in Wal-Mart Case

On April 28, 2003, the six named plaintiffs sought certification of a nationwide class under Title VII of the 1964 Civil Rights Act, consisting of '[a]ll women employed at any Wal-Mart domestic retail store at any time since Dec. 26, 1998, who have been or may be subjected to Wal-Mart's challenged pay and management track promotions, policies and practices.' Dukes v. Wal-Mart Stores, Inc., 222 FRD 137, 141-42 (N.D. Cal. 2004) ('Dukes I'). Plaintiffs sought classwide injunctive and declaratory relief, lost pay and punitive damages.

On June 21, 2004, the district court issued an 84-page order granting in part and denying in part plaintiffs' motion for class certification. The district court certified the class with respect to plaintiffs' equal pay and promotion claims, but 'decline[d] to certify a claim for lost pay with respect to the portion of Plaintiffs' promotion claim where no objective applicant data exist[ed].'

The Appeal

Wal-Mart appealed the district court's ruling, arguing that the lower court erred by: 1) concluding that commonality and typicality were satisfied; 2) altering substantive law by eliminating Wal-Mart's ability to present a defense to each individual's claims; and 3) failing to recognize that the plaintiffs' claims for monetary relief predominated over claims seeking injunctive relief. Plaintiffs cross-appealed, asserting that the district court erroneously limited back pay relief for plaintiffs' promotion claims.

The Ninth Circuit's Decision

The Ninth Circuit concluded that the district court did not abuse its discretion by certifying the class. Specifically, the court found that the plaintiffs had satisfied the commonality requirement of Rule 23(a)(2) of the Federal Rules of Civil Procedure, by demonstrating 'questions of law or fact common to the class' through evidence of companywide corporate practices and policies, including excessive subjectivity in personnel decisions, gender stereotyping, maintenance of a strong corporate culture and statistical evidence of gender disparities and anecdotal evidence of gender bias. Dukes II, 474 F3d at 1225-1231. The court also found that plaintiffs' claims were sufficiently typical and adequate under Rule 23(a)(4). Finally, the court concluded that class certification was appropriate under Rule 23(b)(2) notwithstanding plaintiffs' claims for back pay and punitive damages. Judge Andrew Kleinfeld dissented from the majority opinion on grounds that the district court's order 'violates the Rule 23 class action certification criteria and deprives Wal-Mart of due process of law.' Judge Kleinfeld cautioned that the case 'poses a considerable risk of enriching undeserving class members and counsel, but depriving thousands of women actually injured by sex discrimination of their just due' Id. at 1248.

The Ninth Circuit's decision in Dukes contains numerous conclusions of law that are highly questionable and that will likely be challenged both in that case and in cases pending around the country. What follows is an analysis of three of
the most debatable holdings: 1) whether the district court conducted a sufficiently 'rigorous analysis'; 2) whether Wal-Mart's due process rights were violated because it was denied the right to litigate individualized defenses; and 3) whether the substantial monetary relief being sought precludes the application of class-wide injunctive relief.

'Rigorous Analysis' Requirement

The Ninth Circuit adopted the district court's view that 'arguments evaluating the weight of evidence or the merits of a case are improper at the class certification stage' and, in doing so, refused to entertain a number of Wal-Mart's challenges to plaintiffs' statistical evidence. To reach its determination that challenges to plaintiffs' evidence of commonality are more properly considered at
the merits stage, the court relied on two decisions ' Caridad v. Metro-North Commuter R.R., 191 F3d 283 (2d Cir. 1999), and In re Visa Check/Mastermoney Antitrust Litig., 280 F3d 124 (2d Cir. 2001) ' for the proposition that district courts must 'avoid resolving 'the battle of the experts' at [the class certification] stage of the proceedings.' Id. at 1239.

The U.S. Court of Appeals for the Second Circuit cases upon which the court relied, however, have either been abandoned or severely limited by that same circuit in the recent IPO Securities Litigation decision. In re Initial Public Offering Sec. Litig., 471 F3d 24, 51-52 (2d Cir. 2006). In IPO, the Second Circuit comprehensively analyzed the class certification requirements under Rule 23 and clarified that a district court has an obligation to make a determination that every Rule 23 requirement is met before certifying a class.

Rule 23, therefore, requires a 'rigorous analysis' to ensure real, as opposed to presumed, compliance with the criteria for class certification. Accordingly, a district judge considering class certification must make a 'definitive assessment of Rule 23 requirements, notwithstanding their overlap with merits issues' and 'must receive enough evidence, by affidavits, documents or testimony, to be satisfied that each Rule 23 requirement has been met.' IPO, 471 F3d at 51-52. Notwithstanding the Second Circuit's analysis, the Dukes court failed to undertake a rigorous Rule 23 analysis to determine whether plaintiffs have met their burden of proving that the action is appropriate for class treatment.

Individual Hearings

Although under certain circumstances, courts have recognized the availability of class-wide injunctive relief under Title VII, a defendant should always be entitled to prove that individual class members are not entitled to monetary relief because such persons were not subjected to the discriminatory practice. See Price Waterhouse v. Hopkins, 490 US 228, 244 n.10 (1989). Under the Ninth Circuit's ruling, however, there 'will never be an adjudication, by the jury or the special master, of whether any individual woman was injured by sex discrimination.' See Dukes II, 474 F3d at 1241, 1248. Accordingly, it appears that the Ninth Circuit's decision may effectively preclude Wal-Mart from rebutting any individual class member's claim for monetary relief unless the district court should modify its apparent plan to try the case as a class action.

The Dukes decision further provides for punitive damages without consideration of actual harm to the class members. Relying on State Farm Automobile Ins. Co. v. Campbell, 538 US 408, 422 (2003), Wal-Mart argued that a 'punitive damages award in the absence of individualized hearings would violate its due process rights because it might punish legal conduct and award damages to nonvictims.' Dukes II, 474 F3d at 1242. The Ninth Circuit 'readily distinguish[ed]' State Farm on the grounds that, unlike Dukes, it 'involved an action brought on behalf of one individual under state law' and because 'there is no danger in this case that Wal-Mart will be punished for conduct that is legal where it occurred, because 'Title VII is a federal law which applies to every Wal-Mart store in the United States.' Id. The Ninth Circuit's distinction of State Farm from the circumstances in the Wal-Mart case will undoubtedly be the subject of further litigation and debate in both the Ninth Circuit and elsewhere.

Monetary v. Injunctive Relief

In addition to the requirements of Rule 23(a), the plaintiff also must demonstrate that a class action can be maintained under one of the three categories described in Rule 23(b). In Dukes, plaintiffs sought certification pursuant to Rule 23(b)(2), which requires that 'the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief ' with respect to the class as a whole.' The court reasoned that Rule 23(b)(2) class actions may include claims for money damages 'so long as such damages are not the 'predominant' relief sought, but instead are secondary to the primary claim for injunctive or declaratory relief.' Id. at 1233-34.

In Dukes, the Ninth Circuit addressed whether the action could be certified under Rule 23(b)(2), notwithstanding plaintiffs' request for monetary relief in the form of back pay and punitive damages. The Supreme Court has recognized the 'substantial possibility' that actions seeking monetary damages 'can be certified only under Rule 23(b)(3), which permits opt out, and not under Rules 23(b)(1) and (b)(2), which do not.' Ticor Title Ins. Co., v. Brown, 511 US 117, 121 (1994). Acknowledging a split among circuits on how a court determines whether monetary relief predominates in a Rule 23(b)(2) class suit, the court held that the district court acted within its discretion when it concluded that plaintiffs' claims for punitive damages do not predominate over claims for injunctive and declaratory relief because plaintiffs 'stated that their primary intention in bringing this case was to obtain injunctive and declaratory relief ' not money damages ' and Wal-Mart has failed to effectively rebut Plaintiffs' statements or cast doubt on their reliability.' Dukes II at 1236.

Conclusion

Litigation in the Wal-Mart case over this unprecedented class certification decision continues. On Feb. 20, 2007, Wal-Mart filed a petition for rehearing en banc by the entire Ninth Circuit. Whatever the outcome of that petition, it seems inevitable that one side or the other is likely to file a petition for certiorari to the U.S. Supreme Court. Thus, this case will continue to be a focus of discussion and debate in the courts for at least the immediate future, and possibly for years to come.

Jeffrey S. Klein and Nicholas J. Pappas are partners at Weil, Gotshal & Manges, New York, where they practice labor and employment law. Joanna Varon assisted in the preparation of this article.

On Feb. 6, 2007, the U.S. Court of Appeals for the Ninth Circuit, in a 2-1 decision, affirmed the district court's certification of a nationwide class of approximately 1.5 million current and former female employees who were employed at one or more of Wal-Mart's 3400 stores across the county.

The court's ruling in Dukes v. Wal-Mart Stores, Inc ., 474 F3d 1214 (9th Cir. 2007) ( 'Dukes II' ) is significant due to the 'historic' nature of the plaintiffs' motion, which sought approval of 'the largest certified class in history,' and because many of the court's findings, if they stand, undoubtedly will form part of the judicial debate in other jurisdictions as to the appropriate standards in analyzing the availability of class certification in large employment discrimination cases.

The District Court's Decision

On April 28, 2003, the six named plaintiffs sought certification of a nationwide class under Title VII of the 1964 Civil Rights Act, consisting of '[a]ll women employed at any Wal-Mart domestic retail store at any time since Dec. 26, 1998, who have been or may be subjected to Wal-Mart's challenged pay and management track promotions, policies and practices.' Dukes v. Wal-Mart Stores, Inc. , 222 FRD 137, 141-42 (N.D. Cal. 2004) ( 'Dukes I' ). Plaintiffs sought classwide injunctive and declaratory relief, lost pay and punitive damages.

On June 21, 2004, the district court issued an 84-page order granting in part and denying in part plaintiffs' motion for class certification. The district court certified the class with respect to plaintiffs' equal pay and promotion claims, but 'decline[d] to certify a claim for lost pay with respect to the portion of Plaintiffs' promotion claim where no objective applicant data exist[ed].'

The Appeal

Wal-Mart appealed the district court's ruling, arguing that the lower court erred by: 1) concluding that commonality and typicality were satisfied; 2) altering substantive law by eliminating Wal-Mart's ability to present a defense to each individual's claims; and 3) failing to recognize that the plaintiffs' claims for monetary relief predominated over claims seeking injunctive relief. Plaintiffs cross-appealed, asserting that the district court erroneously limited back pay relief for plaintiffs' promotion claims.

The Ninth Circuit's Decision

The Ninth Circuit concluded that the district court did not abuse its discretion by certifying the class. Specifically, the court found that the plaintiffs had satisfied the commonality requirement of Rule 23(a)(2) of the Federal Rules of Civil Procedure, by demonstrating 'questions of law or fact common to the class' through evidence of companywide corporate practices and policies, including excessive subjectivity in personnel decisions, gender stereotyping, maintenance of a strong corporate culture and statistical evidence of gender disparities and anecdotal evidence of gender bias. Dukes II, 474 F3d at 1225-1231. The court also found that plaintiffs' claims were sufficiently typical and adequate under Rule 23(a)(4). Finally, the court concluded that class certification was appropriate under Rule 23(b)(2) notwithstanding plaintiffs' claims for back pay and punitive damages. Judge Andrew Kleinfeld dissented from the majority opinion on grounds that the district court's order 'violates the Rule 23 class action certification criteria and deprives Wal-Mart of due process of law.' Judge Kleinfeld cautioned that the case 'poses a considerable risk of enriching undeserving class members and counsel, but depriving thousands of women actually injured by sex discrimination of their just due' Id. at 1248.

The Ninth Circuit's decision in Dukes contains numerous conclusions of law that are highly questionable and that will likely be challenged both in that case and in cases pending around the country. What follows is an analysis of three of
the most debatable holdings: 1) whether the district court conducted a sufficiently 'rigorous analysis'; 2) whether Wal-Mart's due process rights were violated because it was denied the right to litigate individualized defenses; and 3) whether the substantial monetary relief being sought precludes the application of class-wide injunctive relief.

'Rigorous Analysis' Requirement

The Ninth Circuit adopted the district court's view that 'arguments evaluating the weight of evidence or the merits of a case are improper at the class certification stage' and, in doing so, refused to entertain a number of Wal-Mart's challenges to plaintiffs' statistical evidence. To reach its determination that challenges to plaintiffs' evidence of commonality are more properly considered at
the merits stage, the court relied on two decisions ' Caridad v. Metro-North Commuter R.R. , 191 F3d 283 (2d Cir. 1999), and In re Visa Check/Mastermoney Antitrust Litig., 280 F3d 124 (2d Cir. 2001) ' for the proposition that district courts must 'avoid resolving 'the battle of the experts' at [the class certification] stage of the proceedings.' Id. at 1239.

The U.S. Court of Appeals for the Second Circuit cases upon which the court relied, however, have either been abandoned or severely limited by that same circuit in the recent IPO Securities Litigation decision. In re Initial Public Offering Sec. Litig., 471 F3d 24, 51-52 (2d Cir. 2006). In IPO, the Second Circuit comprehensively analyzed the class certification requirements under Rule 23 and clarified that a district court has an obligation to make a determination that every Rule 23 requirement is met before certifying a class.

Rule 23, therefore, requires a 'rigorous analysis' to ensure real, as opposed to presumed, compliance with the criteria for class certification. Accordingly, a district judge considering class certification must make a 'definitive assessment of Rule 23 requirements, notwithstanding their overlap with merits issues' and 'must receive enough evidence, by affidavits, documents or testimony, to be satisfied that each Rule 23 requirement has been met.' IPO, 471 F3d at 51-52. Notwithstanding the Second Circuit's analysis, the Dukes court failed to undertake a rigorous Rule 23 analysis to determine whether plaintiffs have met their burden of proving that the action is appropriate for class treatment.

Individual Hearings

Although under certain circumstances, courts have recognized the availability of class-wide injunctive relief under Title VII, a defendant should always be entitled to prove that individual class members are not entitled to monetary relief because such persons were not subjected to the discriminatory practice. See Price Waterhouse v. Hopkins , 490 US 228, 244 n.10 (1989). Under the Ninth Circuit's ruling, however, there 'will never be an adjudication, by the jury or the special master, of whether any individual woman was injured by sex discrimination.' See Dukes II, 474 F3d at 1241, 1248. Accordingly, it appears that the Ninth Circuit's decision may effectively preclude Wal-Mart from rebutting any individual class member's claim for monetary relief unless the district court should modify its apparent plan to try the case as a class action.

The Dukes decision further provides for punitive damages without consideration of actual harm to the class members. Relying on State Farm Automobile Ins. Co. v. Campbell , 538 US 408, 422 (2003), Wal-Mart argued that a 'punitive damages award in the absence of individualized hearings would violate its due process rights because it might punish legal conduct and award damages to nonvictims.' Dukes II, 474 F3d at 1242. The Ninth Circuit 'readily distinguish[ed]' State Farm on the grounds that, unlike Dukes, it 'involved an action brought on behalf of one individual under state law' and because 'there is no danger in this case that Wal-Mart will be punished for conduct that is legal where it occurred, because 'Title VII is a federal law which applies to every Wal-Mart store in the United States.' Id. The Ninth Circuit's distinction of State Farm from the circumstances in the Wal-Mart case will undoubtedly be the subject of further litigation and debate in both the Ninth Circuit and elsewhere.

Monetary v. Injunctive Relief

In addition to the requirements of Rule 23(a), the plaintiff also must demonstrate that a class action can be maintained under one of the three categories described in Rule 23(b). In Dukes, plaintiffs sought certification pursuant to Rule 23(b)(2), which requires that 'the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief ' with respect to the class as a whole.' The court reasoned that Rule 23(b)(2) class actions may include claims for money damages 'so long as such damages are not the 'predominant' relief sought, but instead are secondary to the primary claim for injunctive or declaratory relief.' Id. at 1233-34.

In Dukes, the Ninth Circuit addressed whether the action could be certified under Rule 23(b)(2), notwithstanding plaintiffs' request for monetary relief in the form of back pay and punitive damages. The Supreme Court has recognized the 'substantial possibility' that actions seeking monetary damages 'can be certified only under Rule 23(b)(3), which permits opt out, and not under Rules 23(b)(1) and (b)(2), which do not.' Ticor Title Ins. Co., v. Brown, 511 US 117, 121 (1994). Acknowledging a split among circuits on how a court determines whether monetary relief predominates in a Rule 23(b)(2) class suit, the court held that the district court acted within its discretion when it concluded that plaintiffs' claims for punitive damages do not predominate over claims for injunctive and declaratory relief because plaintiffs 'stated that their primary intention in bringing this case was to obtain injunctive and declaratory relief ' not money damages ' and Wal-Mart has failed to effectively rebut Plaintiffs' statements or cast doubt on their reliability.' Dukes II at 1236.

Conclusion

Litigation in the Wal-Mart case over this unprecedented class certification decision continues. On Feb. 20, 2007, Wal-Mart filed a petition for rehearing en banc by the entire Ninth Circuit. Whatever the outcome of that petition, it seems inevitable that one side or the other is likely to file a petition for certiorari to the U.S. Supreme Court. Thus, this case will continue to be a focus of discussion and debate in the courts for at least the immediate future, and possibly for years to come.

Jeffrey S. Klein and Nicholas J. Pappas are partners at Weil, Gotshal & Manges, New York, where they practice labor and employment law. Joanna Varon assisted in the preparation of this article.