Ninth Circuit Court of Appeals Clarifies Class Certification Standards, Affirms in Part & Remands in Part the Certification of Nationwide Class in Dukes v. Wal-Mart

On April 26, 2010, the U.S. Court of Appeals for the Ninth Circuit – in a 6 to 5 en banc ruling – affirmed in part, and reversed and remanded in part, the class certification order in Dukes v. Wal-MartStores, Inc., 2010 U.S. App. LEXIS 8576 (9th Cir. April 26, 2010), a gender discrimination pay and promotions class action of unprecedented size brought under Title VII of the Civil Rights Act of 1964.

A three-judge panel of the Ninth Circuit had previously found that the U.S. District Court for the Northern District of California had acted within its discretion in certifying the class, which encompasses an estimated 1.5 million employees, both salaried and hourly, with a range of positions, employed at one or more of Wal-Mart’s 3,400 stores across the United States, in the largest employment discrimination class action in history.

The Ninth Circuit’s en banc ruling:

1. Affirmed the district court’s certification of a class of female employees who were employed by Wal-Mart when the lawsuit was filed in 2001 with respect to their claims for injunctive relief, declaratory relief, and back pay under Rule 23(b)(2);
2. Reversed and remanded the district court’s class certification of the employees' claims for punitive damages, instructing the district court to consider whether to certify the class under newly elucidated standards of Rule 23(b)(2) or (b)(3);
3. Reversed and remanded the claims of putative class members who no longer worked for Wal-Mart when the complaint was filed in 2001, instructing the district court to consider whether to certify an additional class or classes under Rule 23(b)(3); and,
4. Affirmed the district court’s decision not to certify promotion claims brought by class members who lacked objective evidence of their interest in promotion.

In remanding the claims of employees not employed by Wal-Mart when the complaint was filed, the en banc panel reduced the class size from about 1.5 million individuals to about 500,000. In addition, by remanding the punitive damages certification, the Ninth Circuit may have significantly reduced Wal-Mart’s potential liability, although the district court may still certify an additional class or classes for punitive damages with respect to these 1 million putative class members, under either or both Rule 23(b)(2) or (b)(3) .

The April 26 ruling addresses several cutting-edge class action issues. These issues are of substantial importance to employment discrimination litigation, particularly in the Ninth Circuit.

Rule 23 Class Certification Standards Clarified

First, the Ninth Circuit clarified the burden of proof that plaintiffs must sustain to establish the elements needed to certify a class under Rule 23. The Ninth Circuit held that district courts are required to undertake a “rigorous analysis” of any legal or factual issues necessary to determine that each requirement of Rule 23 is actually met, not merely alleged, even if those legal or factual issues also go to the merits. To avoid mini-trials on the merits at the certification stage, district courts have broad discretion to cut off discovery as necessary to prevent either party bootstrapping a trial or a summary judgment-like motion into the certification stage.

The Ninth Circuit further determined that this Rule 23 analysis may result in different outcomes, depending upon the underlying legal and factual framework of plaintiffs’ claims. In the Ninth Circuit’s opinion, disputes over which side’s statistics are more persuasive in an employment discrimination class action lawsuit are often not disputes over whether plaintiffs have raised common questions for purposes of Rule 23, but rather are arguments going to the proof of the merits. Accordingly, when plaintiffs present statistical evidence in an employment discrimination pattern or practice lawsuit, district courts must examine statistical evidence to the extent it relates to whether plaintiffs have satisfied the commonality requirement of Rule 23(a)(2) only, and leave disputes over the persuasiveness of the evidence to the later merits adjudication.

The Ninth Circuit also opined that different standards may apply with respect to demonstrating that the Rule 23(a) elements and the Rule 23(b) elements are satisfied. The differences in the text in these sub-parts of Rule 23 require plaintiffs to make different showings under different parts of the rule. The Ninth Circuit reasoned that “we would expect that cases in which parties are contesting facts underlying the Rule 23(b)(3) determination may often require more determinations by the district court than those in which Rule 23(a)(2) is the primarily contested issue…we thus should not be surprised that a district court will have to make more precise factual determinations under Rule 23(b)(3) than under Rule 23(a)(2).”

A practical result of Dukes is that any attack on the statistical presentation of a plaintiffs’ expert during the class-certification stage must focus on commonality issues under Rule 23(a)(2), rather than on merits-based arguments. Defendants seeking to resist pre-certification class-wide discovery may persuasively point to these burden of proof factors from Dukes to argue that a district court should use its discretion to limit discovery to avoid a mini-trial on the merits at the certification stage.

Impact of Expert Testimony On the Rule 23 Class Certification Process

Second, the Ninth Circuit, applying its clarified standard for the commonality requirement under Rule 23(a)(2) discussed above, examined the district court’s analysis of the expert testimony submitted by the parties. Wal-Mart challenged plaintiffs’ expert proof submitted to demonstrate the commonality among the class members because it relied on a “social framework analysis” to conclude that Wal-Mart’s personnel polices and practices make pay and promotion decisions vulnerable to gender bias - without identifying any particular policy or practice that was discriminatory. The Ninth Circuit noted that Wal-Mart did not challenge the methodologies of the plaintiffs’ expert testimony, but only whether certain inferences could be persuasively drawn from the expert data. Therefore, the Ninth Circuit rejected Wal-Mart’s contention that the district court was required to strike the expert testimony offered by plaintiffs under the Daubert standards at the class certification stage because the conclusions reached by the plaintiffs’ experts were unpersuasive absent other evidence. Instead, t he Ninth Circuit held that Wal-Mart’s objections went only to the persuasiveness of the testimony, not its admissibility under the expert testimony standard, and thus it found no error in the district court’s acceptance of the expert testimony presented by plaintiffs to support a finding of commonality.

Similarly, the Ninth Circuit found no error in the district court’s acceptance of plaintiffs’ statistical evidence of discrimination. Although Wal-Mart argued that the plaintiffs’ expert used a faulty analysis in conducting research on a regional level (rather than analyzing employment data on a store-by-store basis), the Ninth Circuit determined that the proper test of whether the workforce statistics should be viewed at the macro (regional) or micro (store) level depends largely on the similarity of the employment practices and the interchange of employees at various facilities. The Ninth Circuit concluded that the district court did not abuse its discretion because, after a rigorous analysis, the district court had reasonably decided to credit the statistical showing of plaintiffs’ expert.

The Ninth Circuit’s ruling did not decide whether Daubert has the same application for expert testimony offered at the class certification stage as it does for testimony offered at trial. Defendants in class actions remain free to argue that plaintiffs’ expert presentations are flawed, and lack a theoretical basis to qualify as sufficient proof to establish class certification requirements, but should avoid arguments over which competing expert model is the more persuasive. Additionally, defendants should consider the proper type of analysis (e.g., nationwide aggregated statistics vs. regional statistics) in terms of the proper theoretical model for challenging commonality.

A New Standard for Determining Whether Monetary or Injunctive Relief Predominate

Third, in affirming the district court’s certification under Rule 23(b)(2), which requires that the injunctive and declaratory relief predominate over any monetary relief sought, the Ninth Circuit adopted a new standard for determining whether monetary claims inappropriately predominate in a Rule 23(b)(2) class. Deepening an existing circuit split, the Ninth Circuit broke with its own previous adoption of the “subjective intent test,” rejected the “incidental damages standard” used by other circuits, and created a new multi-factored test that analyzes whether claims for monetary damages are impermissibly “superior in strength, influence, or authority” to claims for injunctive or declaratory relief. Factors to consider, according to Ninth Circuit, include whether the monetary relief sought determines the key procedures that will be used, whether it introduces new and significant legal and factual issues, whether it requires individualized hearings, and whether its size and nature – as measured by recovery per class member – raise particular due process and manageability concerns. In articulating these factors, the Ninth Circuit indicated that no single factor would be determinative.

Under this new test, the Ninth Circuit found that the district court did not abuse its discretion to certify claims for back pay under Rule 23(b)(2). Conversely, in remanding the class claims for punitive damages, the Ninth Circuit held that the district court abused its discretion by failing to analyze these factors in certifying plaintiffs’ punitive damages claims under Rule 23(b)(2). Similarly, in remanding the claims of class members not employed by Wal-Mart when the complaint was filed, the Ninth Circuit opined that because a former employee has no standing to seek injunctive relief, those claims are likely to be predominantly monetary as well. As to both punitive damages and the claims of former employees, the Ninth Circuit left to the district court the decision of whether an additional class or classes could be certified under Rule 23(b)(3) instead of Rule 23(b)(2).

Perhaps most significantly, before remanding the punitive damages question to the district court, the Ninth Circuit affirmed the finding, with little analysis, that punitive damages do not require individualized determinations of harm so long as plaintiffs have alleged that the company’s polices and practices affect all class members in a similar way. Courts have traditionally rejected the imposition of punitive damages on a class-wide basis before a showing of individual harm because the Supreme Court has determined that an award of punitive damages must be related to the monetary harm suffered by individual plaintiffs. In its ruling, the Ninth Circuit has simply determined that individual hearings are not required, but that statistical methods can be used to determine the appropriate damages on a class-wide basis.

Certification of a Punitive Damages Class

Fourth, the Ninth Circuit rejected arguments that the trial would be unmanageable because of the size of the class, and unconstitutional because the district court’s tentative trial plan would deprive Wal-Mart of its right under Title VII to defend individual pay and promotion decisions. The Ninth Circuit determined that if the company were found liable for discrimination at the merits stage of the trial, the company could defend its individual decisions in a statistical sample of “test cases” with the result of those cases being subject to a statistical analysis to provide a formula for class-wide liability. The Ninth Circuit ’s ruling dismissed many of Wal-Mart’s particular objections by refusing to express any opinion on the district court’s tentative trial plan. Instead, the Ninth Circuit held that statistical sampling, which provides the company an opportunity to raise its defenses in the “test cases,” is one method the district court could choose to use. Because at least one reasonable method exists, the Ninth Circuit reasoned, the class is manageable .

Finally, the Ninth Circuit ruled in favor of Wal-Mart and upheld the district court’s decision not certify promotion claims by class members who lacked objective evidence of interest in promotion. The Ninth Circuit recognized that absent objective evidence of interest, such as a written application for a promotion, the district court would need to conduct individualized hearings to determine, after the fact, who was interested in a particular promotion. Since the sheer volume of such hearings would be unmanageable, the Ninth Circuit concluded that the district court did not abuse its discretion in denying certification of this sub-class.

The en banc ruling provoked a sharply worded, scholarly dissent authored by Judge Sandra Ikuta, which she summarized as follows:

Never before has such a low bar been set for certifying such a gargantuan class. The majority’s ruling provides scant limits to the types of classes that can be certified. Put simply, 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.

Wal-Mart is apt to seek U.S. Supreme Court review of the Ninth Circuit’s decision. The ruling, if not overturned, heightens the risk for employers doing business in the Ninth Circuit (encompassing Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) that statistical disparities, subjective decision-making, and relatively few anecdotal claims of discrimination may give rise to company-wide class action litigation. In addition, the ruling provides precedent for a “punitive damages only” certification theory. Moreover, because the Dukes decision sampled and discussed the case law of other circuits, its holdings may be seen as persuasive authority outside of the Ninth Circuit.

For more information, contact the Seyfarth attorney with whom you work, or any Labor & Employment attorney on our website.