What do you get when the nation's largest circuit court of appeals reviews en banc a super-sized class certified against the country's largest discounter? One hundred thirty-eight pages of opinions that reach a conclusion by the narrowest of margins. Never shy about dancing to the beat of its own drum, in a sharply split 6-5 en banc decision, the United States Court of Appeals for the Ninth Circuit affirmed the certification of one of the largest classes in history. This opinion is important for any company defending a class action in the wild west, including consumer fraud cases and those brought under California’s UCL.
The case is Dukes v. Wal-Mart Stores, Inc. The claim is sex discrimination in violation of Title VII of the Civil Rights Act of 1964. The class the court approved is breathtaking and unprecedented: it consists of every woman working in Wal-Mart’s retail stores, encompassing up to 1.5 million employees at 3,400 stores spread over all 50 states, ranging from hourly workers all the way up the ladder to store managers. Although the class was certified under Rule 23(b)(2) (the section intended to address injunctive relief classes), the plaintiffs also seek monetary awards of back pay and punitive damages -- awards that could easily climb into the billions of dollars. (In one of Wal-Mart’s few victories, the court remanded the certification of the punitive damages claims with instructions to reconsider the certification -- but hinted that certification of these claims might well be appropriate).
This gargantuan class engendered an equivalent set of opinions. A thorough evaluation of the opinions is beyond the scope of this blog (and, in any event, there will be no shortage of such discussions in other media outlets). Suffice it to say that from an employment law perspective it was not a good day for business. As the scathing dissent, authored by Judge Sandra Ikuta (and joined by Chief Judge Alex Kozinski), put it, “the door is now open to Title VII lawsuits targeting national and international companies, regardless of size and diversity, based on nothing more than general and conclusory allegations, a handful of anecdotes, and statistical disparities that bear little relation to the alleged discriminatory decisions.”
Whether the court was correct in certifying this sprawling leviathan of a class is already being hotly debated, and may well be decided by the Supreme Court (Wal-Mart has already announced it will seek Supreme Court review). But for advertising and consumer protection lawyers, the key take-away is this: in Dukes, the Ninth Circuit expressly instructs district courts to apply a class certification standard that conforms to the rigorous standards applied in the Second Circuit (via the landmark decision, In re IPO), as well as most other Circuits. The Dukes court described IPO as “now the leading case on the extent to which a district court must resolve Rule 23 issues that overlap with the merits of the case. IPO held that factual disputes concerning each of the Rule 23 factors must be analyzed and resolved,” a holding that Dukes repeatedly embraced as its own. As the majority opinion stated, “the IPO court explained, and we agree, that . . . [t]he district court must analyze underlying facts and legal issues going to certification questions regardless of any overlap with the merits.” In so holding the court slammed the door on the argument that courts may not consider facts relevant to whether the requirements of Rule 23 have been satisfied simply because these same facts are also relevant to the merits inquiry -- an argument, the court noted, that is based on a misreading of the Supreme Court’s 1974 decision in Eisen v. Carlisle.
The court’s opinion represents a complete about-face from the Ninth Circuit’s original panel opinion in Dukes, which had held that district courts may not weigh conflicting evidence in determining whether the Rule 23 requirements have been satisfied. It is now clear that in the Ninth Circuit, as in most of the other circuits, plaintiffs must prove that they satisfy all of the Rule 23 requirements, and can no longer rely on their pleadings or a perfunctory evidentiary showing. And, courts must examine all of the evidence bearing on certification, and must resolve factual disputes to the extent they are relevant to the certification decision.
The court’s adoption of the more rigorous standard is, from the defense perspective, a welcome development. It is no secret that certification of a class can create tremendous pressure to settle anemic or even meritless lawsuits for large sums of money. The standard announced this week in Dukes provides district courts in the Ninth Circuit with the tools they need to relieve some of this pressure. To be sure, this development provides little comfort to Wal-Mart right now. But for businesses generally, the new standard beats the old one hands down.