Supreme Court’s Wal-Mart Decision Holds Title VII Class Not Certifiable for Lack of Commonality and Rejects Rule 23(b)(2) Certification

In Wal-Mart Stores, Inc. v. Dukes, 564 U.S. __, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011), the Supreme Court held that a Title VII discrimination claim could not be determined on a casewide basis where employment decisions were made locally with no corporate direction. The Court also determined that claims for backpay could not certified for classwide treatment under Federal Rule of Civil Procedure 23(b)(2) because individualized monetary claims belong instead in Rule 23(b)(3).

Plaintiffs brought one of the most expansive class actions ever on behalf of 1.5 million current and former female employees of Defendant Wal-Mart, alleging discrimination in violation of Title VII of the Civil Rights Act of 1964.  Wal-Mart’s gave wide discretion on employment matters to local supervisors.  Plaintiffs argued that the local managers exercised this authority over pay and promotions disproportionately in favor of men, which had an unlawful disparate impact on the female employees who comprised the class.  Plaintiffs moved for class certification under Federal Rule of Civil Procedure 23.  The district court granted this motion, finding the class met Rule 23(a)’s commonality requirement and Rule 23(b)(2)’s requirement that Defendant “acted or refused to act on grounds that apply generally to the class.”  The Ninth Circuit affirmed the district court’s holdings on certification, finding that the class’s backpay claims could be determined by class action because they did not predominate over requests for declaratory and injunctive relief.  The Ninth Circuit also determined that compensatory damages could be determined by litigating randomly selected sample cases and extrapolating to the class as a whole.  In an opinion authored by Justice Scalia, the Supreme Court reversed, finding certification inconsistent with both Rule 23(a) and Rule 23(b)(2).

Rule 23(a) requires that a class have “common questions of law or fact” that can be resolved in one action.  In a Title VII claim, Plaintiffs must prove the reason for a particular employment decision.  Because the employment decisions alleged to be discriminatory were made at the local level, the Supreme Court held that the reasons behind those decisions could not be litigated on a classwide basis.  Because Wal-Mart’s only corporate employment policy at issue was to give discretion to local managers, and because it is unlikely that the managers would all exercise their discretion in a common manner absent common direction, there did not exist commonality as to satisfy Rule 23(a).  A recent Seventh Circuit decision, McReynolds v. Merrill Lynch, No. 11-3639 (7th Cir. Feb. 24, 2012), distinguished Wal-Mart because, in McReynolds, plaintiffs were able to allege specific corporate policies that had a disparate impact.

The Supreme Court also found certification of Plaintiffs’ backpay claims to be inappropriate under Rule 23(b)(2).  Rule 23(b)(2) applies where a single remedy would apply to each class member whereas claims for backpay are individualized and are properly considered under Rule 23(b)(3), which carries significant procedural protections of predominance, superiority, mantaory notice, and the right to opt out.  The Court rejected Plaintiffs’ argument that the backpay claims did not predominate over claims for injunctive relief because predominance of an injunctive claim “does nothing to justify elimination of Rule 23(b)(3)’s procedural protections.”  Wal-Mart is entitled to individualized damages proceedings to determine each class member’s eligibility for backpay; these proceedings, the Court held, could not be replaced by “Trial by Formula.”