On June 20, 2011, in a decision authored by Justice Scalia, the Supreme Court issued its opinion in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). In a 5–4 split, the Court rejected certification of a proposed class of 1.5 million female Wal-Mart employees from over 3,400 stores across the United States, finding that no commonality existed under Federal Rule of Civil Procedure 23(a). A unanimous Court also held that Rule 23(b)(2) relief does not extend to claims for monetary damages.
The Dukes Decision
In Dukes, three current and former Wal-Mart employees sought to represent 1.5 million female class members, alleging that Wal-Mart discriminated against them on the basis of their sex by denying them equal pay or promotions in violation of Title VII of the Civil Rights Act of 1964. Dukes, 131 S. Ct. at 2547. The employees alleged that Wal-Mart’s corporate culture permitted bias against women, and they claimed that the local store managers’ broad discretion over pay and promotions was exercised disproportionately in favor of men, resulting in disparate impact on female employees. Id. at 2547–48. The employees mainly relied on three forms of proof to support their discrimination claims:
statistical evidence about pay and promotion disparities between men and women at [Wal-Mart], anecdotal reports of discrimination from about 120 of Wal-Mart’s female employees, and the testimony of a sociologist . . . who conducted a “social framework analysis” of Wal-Mart’s “culture” and personnel practices, and concluded that the company was “vulnerable” to gender discrimination.
Id. at 2549.
The plaintiffs sought injunctive and declaratory relief, punitive damages, and back pay, but no compensatory damages. Id. at 2548.
Commonality: The Crux of Dukes
One of the prerequisites for class certification under Federal Rule of Civil Procedure 23(a) is commonality—that “there are questions of law or fact common to the class.” The Court stated that, to satisfy the commonality requirement, it is not enough for plaintiffs to merely “recite” common questions or to allege that “they have suffered a violation of the same provision of the law.” Dukes, 131 S. Ct. at 2551. Rather, plaintiffs must demonstrate that “class members have suffered the same injury” and “[t]heir claims must be based on a common contention.” Id. In reversing the circuit court’s ruling granting class certification, the Court found that the plaintiffs could not provide sufficient proof to show commonality and that Wal-Mart operated under a “general policy of discrimination” by giving its local supervisors discretion over employment matters. Id. at 2554. The Court reasoned that “merely showing that Wal-Mart’s policy of discretion produced an overall sex-based disparity” was insufficient and that the potential class must identify a “specific employment practice that it is challenging.” Id. at 2555–56.
Increased Scrutiny of Expert and Anecdotal Evidence
In finding that the plaintiffs’ proffered evidence was insufficient, the Court scrutinized the expert, statistical, and anecdotal evidence. The Court in dictarejected the Ninth Circuit’s position that Daubert did not apply to expert testimony at the certification stage, stating that it “doubt[s] that is so,” but the Court did not explain what standard should be used for admission of expert opinion testimony at this stage. This specific question, moreover, was not certified for review. Thus, although the Court’s statements on this issue are persuasive, they are not binding.
The Court disregarded the testimony of the plaintiffs’ sociological expert, who relied on a “social framework” analysis to determine that Wal-Mart had a “strong corporate culture” that made it “vulnerable” to “gender bias,” because the expert could not determine how “stereotypes regularly played a meaningful role in employment decisions at Wal-Mart.” Id. at 2553. The Court was also not persuaded by the plaintiffs’ statistical evidence, based on regional and national data, which the plaintiffs’ statistician claimed showed “significant disparities between men and women at Wal-Mart” that could only be explained by gender discrimination. Id. at 2555. The Court explained that the statistical studies were “insufficient to establish that [the plaintiffs’] theory could be proved on a classwide basis” and that evidence concerning regional and national pay disparities did not raise the inference that Wal-Mart had a company-wide policy of discrimination that was implemented by “discretionary decisions” at the local and district levels. Id. at 2555. Regarding the plaintiffs’ anecdotal evidence, the Court found it to be defective as well, reasoning that, even if it was accepted as true, it would not demonstrate that Wal-Mart operated under a general policy of discrimination. Id. at 2556.
Implications of Dukes and Emerging Issues
The effect of Dukes on class-action lawsuits is just beginning to materialize as federal and state courts analyze and apply the Dukes decision. Unsurprisingly, defendants are using Dukes to argue that there are heightened standards for class certification generally, particularly with respect to commonality, and that a more in-depth analysis of the evidence pertinent to class certification is required at the certification stage. Plaintiffs, on the other hand, have focused more on ensuring that they have provided sufficient evidence to support their allegations that common questions of law and fact exist to satisfy the commonality requirement.
Dukes also appears to break down the distinction between the procedural certification decision and the assessment of the merits of the case. This could make certification more difficult in some cases. Certainly, Dukes reinforces in many ways the certification decision as the “big event” that not only decides whether the case may proceed as a class action but also suggests that the court is favorably disposed toward the merits.
Overcoming the Commonality Requirement
Many defendants are effectively using Dukes to argue that class certification should be denied for lack of commonality. For example, in In re Countrywide Financial Mortgage Lending Practices Litigation, No. 08-MD-1974, 2011 WL 4862174 (W.D. Ky. Oct. 13, 2011), the plaintiffs, African American and Hispanic consumers who obtained home mortgage loans from Countrywide, alleged that Countrywide’s policy of allowing its loan officers and third-party mortgage brokers to exercise discretion to increase the rates for mortgage loans produced an unlawful disparate impact on minority borrowers. Citing Dukes, the district court denied the plaintiffs’ request for certification, finding that they had not identified a “common mode of exercising discretion” to support commonality. The court explained that “the idea that thousands of loan officers in hundreds of separate locations around the country would exercise their discretion in a similar discriminatory fashion as to each purported class member defies belief.” Id. at *4.
In Scott v. Family Dollar Stores, Inc., No. 3:08 CV 540, 2012 WL 113657 (W.D.N.C. Jan. 13, 2012), the district court dismissed the class allegations of 51 former and current female Family Dollar store managers. The court agreed with the defendants that the plaintiffs could not satisfy the commonality requirement because they presented “virtually identical claims” as the Dukes plaintiffs in that female store managers alleged that they were “discriminated against based on their gender as a result of subjective decisions made at the local store levels.” Id. at *4.
Plaintiffs, however, have been able to defeat motions to strike class allegations based on lack of commonality in the employment-discrimination context, if they showed that the company had specific, company-wide practices that fostered discrimination, despite the discretion given to local supervisors in making employment decisions. For instance, in Chen-Oster v. Goldman Sachs & Co., No. 10 Civ. 6950,2012 WL 205875(S.D.N.Y. Jan. 19, 2012), Goldman Sachs moved to strike all class allegations, asserting that the plaintiffs, former female Goldman Sachs employees, would not be able to demonstrate commonality because the class allegations were based on the “central thesis . . . that Goldman Sachs grants its managers unbridled discretion to make compensation, promotion, and assignment decisions.” Id. at *3. The defendants asserted that Dukes found that a policy such as its own—where a company gives local supervisors discretion over employment matters—was insufficient to show the commonality required for class certification. Id. at *4. The court ultimately denied Goldman Sachs’s motion as premature, finding that the plaintiffs identified specific employment practices by Goldman Sachs—including a “360-degree review process” and forced quartile-ranking of employees—and that they could show, with further discovery, that the employment practices, in combination with local managerial discretion, meet the commonality requirement as clarified by Dukes. Id. at *5.
Another example is McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 672 F.3d 482 (7th Cir. 2012), in which the Seventh Circuit approved class certification for African American financial advisors challenging two of Merrill Lynch’s company-wide policies that allegedly “exacerbate[ed] racial discrimination by brokers”—its “teaming” policy, which permits brokers in the same office to form teams and share clients, and its “account distribution” policy, under which brokers or teams with stronger financial performance tend to receive more transferred accounts. Id. at 488. The court explained that allowing brokers to form their own teams and “prescribing criteria for account distributions that favor the already successful” were company-wide practices, rather than practices left at the discretion of local managers. Id. at 490. The circuit court reasoned that challenging Merrill Lynch’s policies in a class action was “not forbidden by the Wal-Mart decision, rather that decision helps . . . to show on which side of the line that separates a company-wide practice from an exercise of discretion by local managers this case falls.” Id.
Thus, Dukes is not necessarily the death knell of class-action claims against large, multi-location companies. It is too early to know how Dukes will be applied by courts outside the discrimination context given that there are so few cases against large companies decided outside this context post-Dukes that address the commonality requirement. In re Ferrero Litigation, No. 11-CV-205, 2011 WL 5557407 (S.D. Cal. Nov. 15, 2011), a putative class action brought by consumers alleging misleading advertising by a food producer in which the district court granted class certification, is one of the few cases addressing commonality outside the discrimination context. What we have seen, though, is that classes can still be certified post-Dukes, even in large employment-discrimination cases.
The Use of Expert Testimony at the Class-Certification Stage
Although there can be no dispute that district courts must closely scrutinize expert evidence regardless of whether the inquiry is based on a Daubert motion, the courts post-Dukes have varying views about how extensive a review of expert evidence should be at the class-certification stage and whether a full Daubert review should be conducted. In In re Zurn Pex Plumbing Products Liability Litigation, 644 F. 3d 605 (8th Cir. 2011), the Eighth Circuit rejected the defendant’s argument that a “full and conclusive” Daubert review needed to be conducted at the class-certification stage. The circuit court instead affirmed the district court’s application of a “focused” Daubert analysis, which “scrutinized the reliability of the expert testimony in light of the criteria for class certification and the current state of the evidence.” Id. at 614. The court explained that the “main purpose of Daubert exclusion is to protect juries from being swayed by dubious scientific testimony,” which is not of concern at the class-certification stage, where the judge is the decision maker. Id. at 613.
In Behrend v. Comcast Corp., 655 F. 3d 182 (3d Cir. 2011), the Third Circuit also declined to require a full Daubert review at the class-certification stage and concluded that the district court must “evaluate whether an expert is presenting a model which could evolve to become admissible evidence”; the model does not need to be “perfect” at the certification stage. Id. at 182 n.13. The court explained that expert models should be “plausible in theory” and “susceptible to proof at trial through available evidence common to the class.” Id. The court found that the majority of Comcast’s arguments attacking the methodology of the plaintiffs’ experts were merit based and not appropriate for a class-certification inquiry and that the plaintiffs had provided a “common methodology to measure and quantify damages on a class-wide basis.” Id. at 207.
In Ellis v. Costco Wholesale Corp., 657 F.3d 970 (9th Cir. 2011), the Ninth Circuit distinguished the evaluation of expert opinion that is required to determine the admissibility of expert opinion for a motion to strike the plaintiffs’ expert testimony from the evaluation of expert testimony in determining commonality at the class-certification stage. It affirmed the district court’s application of Daubert to determine the admissibility of expert evidence in the court’s analysis of Costco’s motion to strike, but it faulted the district court for limiting its commonality analysis to the admissibility of the expert evidence. Id. at 982. The circuit court reasoned that Daubert “does not require a court to admit or exclude evidence based on persuasiveness, rather . . . based on its scientific reliability and relevance.” Id. Thus, instead of applying Daubert to the commonality determination, the district court should have conducted a “rigorous analysis” to evaluate “the persuasiveness of the evidence presented.” Id.
These cases indicate that, in light of Dukes, the law is in flux concerning the proper inquiry to apply to expert testimony at the certification stage, and parties may choose to make their arguments in the alternative to ensure that they have presented their evidence in a manner that can achieve a successful result regardless of what kind of inquiry the court decides is appropriate. But arguments should always be framed around the Rule 23 requirements. Furthermore, plaintiffs will likely need to build a stronger, more detailed case for class certification. This can include presenting experts earlier in the process as well as preparing in advance potential defenses to Daubert-like challenges.
Keywords: litigation, class actions, derivative suits, class certification, commonality, Daubert, expert evidence
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