Addressing “one of the most expansive class actions ever,” the United States Supreme Court issued its opinion today in Wal-Mart Stores, Inc. v. Dukes. In the highly-anticipated opinion, the Court reversed the Ninth Circuit Court of Appeals and de-certified a class of 1.5 million female employees who claimed that Wal-Mart engaged in a pattern and practice of sex discrimination in violation of Title VII.
The plaintiffs in Dukes claimed that Wal-Mart’s policy of delegating promotion and pay decisions to the discretion of local managers was a pattern and practice of discrimination that resulted in a disparate impact on women. Plaintiffs sought declaratory and injunctive relief and back pay. The class was certified by the District Court, and the Ninth Circuit affirmed.
The Supreme Court’s reversal clarified two important points. First, the Court held that, in order to satisfy Federal Rule of Civil Procedure 23(a)’s “commonality” requirement in a pattern or practice case, the class must put forth “significant proof” that the company operated under a general policy of discrimination. The Court found that evidence to be “entirely absent” in this case. The Court emphasized that a policy permitting discretionary decision making raises no inference of discriminatory conduct on its own. Nor did statistical proof of an adverse impact on a nationwide level meet the “substantial proof” standard because it failed to consider regional differences that could account for many of the decisions, such as fewer women applying for the jobs or fewer qualified women. Because the plaintiffs did not point to any common “specific employment practice” that led to the alleged discriminatory practices against the 1.5 million women, they could not meet the commonality requirement of Rule 23(a).
Second, the Court held that a class action for backpay or other individualized monetary relief could never be certified under Rule 23(b)(2), which allows for class treatment when “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” The Court reasoned that Rule 23(b)(2) expressly applied only to declaratory and injunctive relief. Rule 23(b)(3), on the other hand, was intended to permit class treatment of monetary claims by providing further necessary procedures such as notice and an opportunity for class members to opt-out. Even if the backpay relief was “incidental” to the class claims, to permit it to be certified under Rule 23(b)(2) rather than Rule 23(b)(3) would give rise to perverse incentives to minimize the monetary claims of class individuals without giving the class members an opportunity to opt-out.
The Court’s decision in Dukes confirms that a class action cannot be certified based on a company’s discretionary policy alone. It also confirms that class actions seeking backpay and other individualized relief must be certified pursuant to Rule 23(b)(3), which requires a court to engage in an inquiry to ensure that common questions of law and fact predominate and allows an opportunity for class members to opt-out.
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