December 19, 2013 Articles

Living in a Post-Dukes World

What is the meaning of "trial by formula"?

By Jocelyn Larkin and Della Barnett

Class action defense counsel are trying to assign a meaning to the “Trial by Formula” phrase from Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), that is not supported by the case. The expression is not, by its terms and read in context, a sweeping condemnation of the use of aggregate proof. Nor does the Dukes case assume, let alone enshrine, a constitutional due process right to litigate each class member’s claim individually.

Instead, the phrase “Trial by Formula” refers to just one highly idiosyncratic model of class proof that the Ninth Circuit described as a possible means of calculating damages in its en banc opinion in Dukes, a model that the Supreme Court repudiated. That form of proof—used in the Ferdinand Marcos class action, Hilao v. Estate of Marcos, 103 F.3d 767, 782–87 (9th Cir. 1996), and in no case since—relied on a set of sample trials to extrapolate compensatory damages for victims of torture, “disappearance,” or summary execution. Id. at 786. In Dukes, the Supreme Court merely observed that because Title VII’s unique statutory scheme mandates individual remedy hearings for back-pay claims, the Ninth Circuit’s proposal to substitute the Hilao methodology for those statutory hearings was unacceptable. 131 S. Ct. at 2550, 2561.

The Dukes Court’s reference to “Trial by Formula” should not apply to evidence based on the defendant’s own business records, proper scientific methods, admissions by its corporate executives, and representative testimony demonstrating corporate practices, when offered to show class-wide liability or damages. Courts should not accept a defendant’s claim that the “Trial by Formula” language extends beyond the very limited purpose these words served in the Dukes opinion. Moreover, Dukes does not recognize a constitutional due process right to litigate each class member’s claim individually. The Dukes Court expressly tied its criticism of “Trial by Formula” to the statutory defenses available under Title VII, not to due process. The concept of a due process right to individual proof in other contexts is at odds with historical and modern precedent and incompatible with important substantive rights that depend on aggregate proof. Courts routinely allow parties to rely on aggregate proof in many contexts without offending due process.

The “Trial by Formula” Language in Dukes Did Not Create a Due Process Right to Litigate Class Claims Individually
In Dukes, the Supreme Court’s reference to “Trial by Formula” appears at the tail end of its extended discussion of whether the claims for back pay in that case could properly be certified under Federal Rule of Civil Procedure 23(b)(2). Read in context, the limited import of the “Trial by Formula” shorthand is plain: It refers only to one trial plan adopted in an unusual case that the Court found incompatible with Title VII’s statutory scheme.

The “Trial by Formula” phrase appears after the Dukes Court concluded that claims for back pay under Title VII could not be certified under Rule 23(b)(2). The Court reasoned that back pay was an “individualized monetary claim” and that, given the history and structure of Rule 23, such claims belonged under Rule 23(b)(3), where additional protections, like notice and the right to opt out, are mandatory. 131 S. Ct. at 2558.

The Court expressly did not reach the question of whether any forms of monetary relief might be certifiable under Rule 23(b)(2). It discussed, but did not adopt, the Fifth Circuit’s formulation for determining what types of monetary relief could be certified under Rule 23(b)(2)—those “incidental to requested injunctive or declaratory relief.” Id. According to the Court, even if that formulation were correct, the back-pay claims in Dukes could not satisfy that test because the Fifth Circuit defined “incidental” monetary relief, in part, as not requiring “additional hearings to resolve the disparate merits of each individual’s case.” Id. Given that Title VII’s “detailed remedial scheme” required additional proceedings (known as Teamsters hearings) to permit the employer to present individual statutory defenses specific to Title VII, the back-pay remedy sought in Dukes could not be considered “incidental monetary relief.” Id. (The two-stage trial model first articulated in International Brotherhood of Teamsters v. United States, 431 U.S. 324 (1977), “gives effect” to Title VII’s statutory requirements. 131 S. Ct. at 2561.)

In one final paragraph following this “even if” discussion, the Dukes Court refers to “Trial by Formula.” Having concluded that Title VII’s statutory scheme requires additional individual proceedings before back pay can be awarded, the Court held that such proceedings could not be replaced with a “Trial by Formula.” Id.

There is no need to speculate what the Supreme Court meant by “Trial by Formula”; it specifically described the objectionable model:

A sample set of the class members would be selected, as to whom liability for sex discrimination and the backpay owing as a result would be determined in depositions supervised by a master. The percentage of claims determined to be valid would then be applied to the entire remaining class, and the number of (presumptively) valid claims thus derived would be multiplied by the average backpay award in the sample set to arrive at the entire class recovery—without further individualized proceedings.

Id.

The Court then cited the portion of the Ninth Circuit’s Dukes ruling that contains a lengthy exegesis of the Hilao method of proof and how it might provide a viable approach to evaluate the back-pay claims before it, one possible alternative to the district court’s own tentative trial plan. Id. (The district court’s actual tentative trial plan, entirely different from the Hilao model, was “based, in large part, on how other courts have handled similarly large and complex class action suits.” Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571, 624 (9th Cir. 2010) (en banc).) In other words, the Court’s rejection of “Trial by Formula” refers only to the Ninth Circuit’s proposal to apply the Hilao method of proof to the claims in Dukes. The Court “disapprove[d] that novel project” because it would not allow Wal-Mart to present statutory defenses to individual Title VII back-pay claims and therefore abridged a statutory right in violation of the Rules Enabling Act (not due process). 131 S. Ct. at 2561.

From this very narrow point concerning the possible frontiers of Rule 23(b)(2) as applied to Title VII back-pay claims, class action defendants have sought to conjure a constitutional right to raise individualized defenses to any claim in a class action, even ones based on common law or statutes that, unlike Title VII, do not explicitly guarantee individual defenses. But nowhere does the Dukes opinion refer to a due process right to present individualized defenses. The Court’s analysis is tied entirely to Rule 23, the Title VII statutory scheme, and the remedial scheme set forth in Teamsters.

Similarly, the Dukes opinion nowhere equates “Trial by Formula” with the use of statistical or aggregate proof in class actions or litigation generally. Indeed, the opinion strongly endorses the use of statistical evidence to demonstrate “significant proof” of a general policy of discrimination sufficient to satisfy Rule 23(a)(2) commonality. 131 S. Ct. at 2554–55. The Court held only that the specific statistical analyses offered by the Dukes plaintiffs were insufficient to meet the Rule 23(a)(2) legal standard. Id.

Properly understood, the Supreme Court’s rejection of “Trial by Formula” means no more than that the Hilao method of proof cannot be substituted for individual Teamsters remedial hearings to determine back pay under Title VII. It has no relevance where the operative statute affords no specific right to individualized proof. See Driver v. AppleIllinois, LLC, No. 06 C 6149, 2012 WL 689169, at *3 (N.D. Ill. Mar. 2, 2012) (holding that the Dukes “Trial by Formula” language did not prevent assessment of damages in wage-and-hour class action with class-wide proof). See also Kimberly Kralowec, “Dukes and Common Proof in California Class Actions,” 21 J. Antitrust & Unfair Competition Sec., State Bar of Cal., No. 2 (Summer 2012), at 9.

There Is No Due Process Rule That Curbs the Use of Aggregate Proof
Class defendants have sought to expand the “Trial by Formula” dictum into a broad limitation on aggregate proof, claiming a due process right to assert “every available defense” and to contest each class member’s claim individually. There is no such right. See Alexandra D. Lahav, “The Case for ‘Trial by Formula,’” 90 Tex. L. Rev. 571 (2012); Alexandra D. Lahav, “Due Process and the Future of Class Actions,” 44 Loy. U. Chi. L.J. 545 (2012).

As one scholar recently explained in a comprehensive historical study of this due process claim, the faulty argument derives from cases beginning with Lochner v. New York, 198 U.S. 45 (1905), whose theory of due process has long been discredited:

In effect, modern procedural due process cases and the nineteenth century tradition converge on essentials: Neither construes due process as a fixed limit on the type or quantity of evidence presented in ordinary civil proceedings. Then and now, due process leaves a great deal of room for courts to regulate parties’ opportunities to present relevant evidence in civil proceedings in the service of equity and convenience. Class action defendants’ arguments are rooted in a brief, and brief-lived, deviation from this tradition—the Lochner era. If history provides the “baseline” against which constructions of due process should be tested, class action defendants’ claims are losers.

Mark Moller, “Class Action Defendants’ New Lochnerism,” 2012 Utah L. Rev. 319, 324 & n.30 (2012) (discussing convincing historical evidence “that defendants’ due process argument is without merit”).

Due process requires the balancing of three separate interests: vindicating a plaintiff’s interest in obtaining a remedy, avoiding an erroneous deprivation of a defendant’s property, and “any ancillary interest the [Court] may have in providing the procedure or forgoing the added burden of providing greater protections.” Connecticut v. Doehr, 501 U.S. 1, 11 (1991). The Supreme Court has never recognized a constitutional right to particular forms or methods of proof. Such case management decisions lie within the discretion of the trial courts, subject to appropriate review.

Due process does not limit courts from exercising their discretion to regulate the quantum, method, or order of proof when doing so is necessary to facilitate class proceedings.

Conclusion
The “Trial by Formula” language in Dukes, not much more than a glib catchphrase, does not begin to sustain the meaning or weight that class action defendants hope to assign it.

Keywords: litigation, class actions, derivative suits, trial by formula, due process, Wal-Mart, Inc. v. Dukes, class certification, Federal Rule of Civil Procedure 23(b)(2), Rule 23(b)(3), aggregate proof, individualized defenses

Jocelyn Larkin and Della Barnett – December 19, 2013