On June 20, 2011, the United States Supreme Court decided Wal-Mart Stores, Inc. v. Dukes, No. 10-277, holding that 1.5 million female Wal-Mart employees around the nation could not bring discrimination claims under Title VII of the Civil Rights Act of 1964 against Wal-Mart on a classwide basis, because the requirements of Federal Rules of Civil Procedure 23(a) and 23(b)(2) were not satisfied. The decision is yet another major decision from the Court this term relating to class actions. ( See, e.g., AT&T Mobility LLC v. Concepcion, No. 09-893 (U.S. Apr. 27, 2011)). The Supreme Court's decision in Wal-Mart clarifies the "rigorous analysis" that courts must conduct under Rule 23, and reaffirms that the Rules Enabling Act, 28 U.S.C. section 2072(b), cannot be applied in a way that changes substantive rights. Wal-Mart gives antitrust defendants additional potential ammunition to defeat class certification, but it remains to be seen how courts will apply Wal-Mart to a Rule 23(b)(3) antitrust class action instead of a Rule 23(b)(2) Title VII discrimination class action.
The Wal-Mart Decision
The named plaintiffs in Wal-Mart alleged that
Wal-Mart's local store managers exercised their discretion over
pay and promotion matters in a way that disproportionately favored
men over women. Plaintiffs alleged that Wal-Mart itself was liable
under Title VII because Wal-Mart knew its managers were treating
men and women differently but refused to do anything about it.
According to plaintiffs, Wal-Mart's inaction gave rise to a
"corporate culture" of bias against women that affected
each and every female Wal-Mart employee. (Slip Op. at 4).
The District Court and Ninth Circuit both held that the
prerequisites to class certification under Federal Rule of Civil
Procedure 23(a) -- numerosity, commonality, typicality, and
adequacy -- were satisfied. The Supreme Court reversed, holding
that commonality was lacking because plaintiffs failed to prove the
existence of common "questions of law or fact."
Plaintiffs had presented three types of evidence to establish
commonality: (1) "statistical evidence about pay and promotion
disparities between men and women" at Wal-Mart; (2)
"anecdotal reports of discrimination from about 120 of
Wal-Mart's female employees"; and (3) expert testimony
from sociologist Dr. William Bielby, who conducted a "social
framework analysis" of Wal-Mart's culture and practices.
(Slip Op. at 5-6). The Court held that none of this evidence
constituted "significant proof" of a "general policy
of discrimination" at Wal-Mart, as required to establish
commonality in Title VII cases. (Slip Op. at 12-13) (the other
method of establishing commonality in a Title VII case, showing a
"biased testing procedure," had no application to the
case). The Court held that plaintiffs' anecdotal and
statistical evidence regarding disparities between men and women at
the national and regional level could not establish "the
uniform, store-by-store disparity upon which the plaintiffs'
theory of commonality depends." (Slip Op. at 16-17). Moreover,
plaintiffs' anecdotal evidence was "too weak to raise any
inference that all the individual, discretionary personnel
decisions are discriminatory," because the number of anecdotes
was simply too small. (Slip Op. at 17-18). Dr. Bielby testified,
based on his social framework analysis, that Wal-Mart had a strong
corporate culture and was vulnerable to gender bias, but this
evidence also failed to establish commonality because he could not
determine to what extent specific employment decisions were
actually guided by gender bias. (Slip Op. at 13-14).
The Supreme Court also held that plaintiffs' claims for backpay
could not be certified under Rule 23(b)(2), again reversing the
District Court and Ninth Circuit. Rule 23(b)(2) authorizes class
actions where "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
explained that "Rule 23(b)(2) applies only when a single
injunction or declaratory judgment would provide relief to each
member of the class." (Slip Op. at 20). In contrast, the Court
held that "individualized monetary claims belong in Rule
23(b)(3)," and a court must make findings regarding
predominance and superiority before such a class can be certified.
(Slip Op. at 22-23).
Wal-Mart Definitively Explains The Court's Obligation To Conduct A "Rigorous Analysis" At The Class Certification Stage
In holding that commonality was lacking under Rule 23(a), the
Court clarified the standards applicable at the class certification
stage. It reaffirmed the holding of General Telephone Co. of
Southwest v. Falcon, 457 U.S. 147, 156 (1982) that a court
must conduct a "rigorous analysis" to satisfy itself that
the prerequisites of Rule 23(a) have been satisfied. The Court held
that under the "rigorous analysis" standard, an inquiry
into the merits of plaintiff's underlying claims is necessary
to the extent merits issues overlap with class issues. (Slip Op. at
10-11). Indeed, the Court held that such overlap would occur
"frequently." (Slip Op. at 10). The Court also noted that
Rule 23 "does not set forth a mere pleading standard,"
and that a party seeking class certification "must
affirmatively demonstrate his compliance with the Rule."
(Id.).
This decision solidifies what had been an emerging trend among the
Courts of Appeal, including the First, Second, Third, Fourth,
Fifth, Seventh, Eighth, Tenth and Eleventh Circuits, and adopted by
the Ninth Circuit in Dukes v. Wal-Mart Stores, Inc., 603
F.3d 571 (9th Cir. 2010). As the Ninth Circuit noted, arguments in
favor of a less rigorous analysis at the class certification stage
were often based on a "misunderstanding" (see
Dukes, 603 F.3d at 582) of the following statement in
Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177
(1974): "We find nothing in either the language or history of
Rule 23 that gives a court any authority to conduct a preliminary
inquiry into the merits of a suit in order to determine whether it
may be maintained as a class action." The Supreme Court
agreed, and explained that Eisen was distinguishable
because the district court there had conducted a preliminary
inquiry into the merits in order to shift the cost of class notice
under Rule 23(c)(2), and "not in order to determine the
propriety of certification under Rules 23(a) and (b)." (Slip
Op. at 10 n.6). The Court then eliminated any doubts regarding
Eisen with the following statement: "To the extent
the quoted statement goes beyond the permissibility of a merits
inquiry for any other pretrial purpose, it is the purest dictum and
is contradicted by our other cases." (Id.).
The implications for antitrust cases are significant and evident
from decisions such as
In re Hydrogen Peroxide Antitrust Litig., 552
F.3d 305 (3d Cir. 2009), In re New Motor Vehicles Canadian
Export Antitrust Litig., 522 F.3d 6 (1st Cir. 2008), and
Blades v. Monsanto Co., 400 F.3d 562 (8th Cir. 2005). In
determining whether a plaintiff class should be certified, courts
cannot take the allegations in an antitrust plaintiff's
complaint at face value if defendants have presented contrary
evidence. Arguments for and against class certification in
antitrust cases are often based on expert testimony that overlaps
with the merits of plaintiff's antitrust claims, and
Wal-Mart leaves no doubt that a federal court in such a
case should consider this evidence regardless whether it comes from
a plaintiff or defendant, if it is necessary for the court to
satisfy itself that the prerequisites of Rule 23 have been met.
Wal-Mart Holds That The Rules Enabling Act "Forbids" Courts From Using Class Procedures To Change Substantive Rights
In holding that plaintiffs' claims for backpay could not be
certified under Rule 23(b)(2), the Court rejected the argument that
plaintiffs' backpay claims were merely "incidental"
to plaintiffs' claim for injunctive relief, because they were
subject to individualized defenses by Wal-Mart. (Slip Op. at
26-27). Specifically, under Title VII's "detailed remedial
scheme," if Wal-Mart could "show that it took an adverse
employment action against an employee for any reason other than
discrimination," Wal-Mart could avoid liability. (Slip Op. at
26). The Ninth Circuit had held that individualized defenses could
be avoided if the trial court implemented a trial plan based on
sampling and extrapolation. 603 F.3d at 625-27. The Supreme Court
disagreed, holding that because the Rules Enabling Act, 28 U.S.C.
section 2072(b), "forbids interpreting Rule 23 to
'abridge, enlarge or modify any substantive right,'"
the trial court had no power to certify a class "on the
premise that Wal-Mart will not be entitled to litigate its
statutory defenses to individual claims." (Slip Op. at
27).
The implications of the Court's interpretation and application
of the Rules Enabling Act has major potential consequences for
antitrust class actions, which typically seek monetary relief and
are usually certified under Rule 23(b)(3). The heart of the Rules
Enabling Act portion of the decision seems to suggest that a
federal statute containing a specific method for calculating
damages upon the finding of a violation arguably requires a
defendant to have an opportunity to see the damage calculation in
the damage statute applied one plaintiff at a time. In the
antitrust context this has particular application to the Antitrust
Criminal Penalty Enhancement and Reform Act of 2004
("ACPERA"), H.R. 1086, 108th Cong., 150 Cong.Rec. H3656,
Title II, Section 201, et seq. (recently extended until
2020 pursuant to H.R. 5330), which provides a detailed remedial
scheme applicable to cooperative civil antitrust defendants who
have successfully applied for criminal amnesty under the U.S.
Department of Justice's antitrust leniency program. ACPERA
limits the damages recoverable against such a defendant to the
actual damages caused by its own conduct, instead of the joint and
several liability and treble damages typically available in
antitrust conspiracy cases. Wal-Mart may bar antitrust
plaintiffs from obtaining class certification against an ACPERA
defendant using a common expert formula if doing so would deny an
antitrust defendant's statutory right under ACPERA to present
individualized evidence as to whether particular class members were
actually affected by that defendant's own conduct. Also, even
if an ACPERA defendant could be permitted to present individualized
evidence regarding ACPERA damages within the context of a class
action, a court would be faced with the tough question as to
whether common issues can predominate over individualized questions
under Rule 23(b)(3) if hundreds or thousands of mini-trials
regarding ACPERA damages are planned.
Wal-Mart's Rules Enabling Act analysis may have even
broader implications. If the Rules Enabling Act "forbids
interpreting Rule 23 to 'abridge, enlarge or modify any
substantive right'" (Slip Op. at 27), then applying Rule
23 to enlarge a plaintiff's antitrust claim should be just as
forbidden as applying Rule 23 to abridge an affirmative defense, as
was the case in Wal-Mart. If so, then class certification
for many antitrust lawsuits may be difficult to obtain. For
instance, state law indirect purchaser antitrust class actions,
which are often removed to federal court pursuant to the Class
Action Fairness Act, 28 U.S.C. sec. 1332(d) ("CAFA"),
would be barred to the extent that defendants are not permitted to
present individualized evidence to establish that any alleged
overcharge was not "passed on" through a specific
distribution channel to a particular plaintiff. And if defendants
are permitted to disprove pass-on, for instance, by showing that
individual retailers absorbed an alleged overcharge by offering
coupons or a sale price to consumers, and thereby prevented the
overcharge from being passed on to certain plaintiff consumers,
certifying such a class may be barred by the predominance and
superiority requirements under Rule 23(b)(3). The same problem
likely arises in many direct purchaser class actions brought under
federal antitrust law where prices are individually negotiated
between defendants and each direct purchaser. Defendants should
have the right to present individualized evidence to establish that
prices were based on factors unique to each purchaser and each
transaction.
On the other hand, oppositions to class certification based on the
Rules Enabling Act are arguably nothing new in antitrust cases.
Wal-Mart may be viewed as simply reaffirming the Supreme
Court's earlier holdings that Rule 23 must be interpreted in
conjunction with the Rules Enabling Act. See, e.g., Ortiz v.
Fibreboard Corp., 527 U.S. 815, 845 (1999); Amchem Prods.,
Inc. v. Windsor, 521 U.S. 591, 612-13, 629 (1997). If so
limited, it may provide little help to antitrust defendants.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.