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Last year, the Supreme Court ruled in Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541 (2011), that five named plaintiffs alleging nationwide sex discrimination class action claims did not satisfy Rule 23(a)’s commonality requirement and could not bring class claims for monetary relief under Rule 23(b)(2). In October of last year, the plaintiffs filed a Fourth Amended Complaint alleging narrower class claims for discrimination against female employees working in four regions of California. In response, Wal-Mart filed a Motion to Dismiss or Strike Class Allegations, relying on the fact that the Supreme Court did not remand the case for further consideration but rejected Plaintiffs’ class allegations, which is applicable even in this smaller iteration of the lawsuit.

On September 21, 2012, Judge Charles R. Breyer of the Northern District of California disagreed with Wal-Mart and found that the Supreme Court’s rejection of a nation-wide class was not a rejection of plaintiffs’ class theories altogether, but merely a rejection of the proof behind their theories. Although nothing in the prior opinions suggested any evidence plaintiffs had of a regional policy, this time, with a more narrowly tailored proposed class,  Judge Breyer reasoned that the proposed class representatives may have the proof necessary to allow the case to proceed beyond Wal-Mart’s Motion to Dismiss or Strike Class Allegations. Specifically, he ruled that these plaintiffs still have to prove that every Wal-Mart decisionmaker within the subject regions “operated under a common policy or mode of decisionmaking” resulting in discrimination, but he could not find, as a matter of law, that Plaintiffs would never be able to present such evidence at this stage of the case.

Judge Breyer also ruled that the claims of putative class members in this case continue to be tolled despite the fact that the Supreme Court reached a decision against class certification of the larger class action case. Specifically, he reasoned that where “plaintiffs are permitted to amend a complaint to address deficiencies that precluded an initial attempt at certification, and the newly proposed class is a subset of claims that defendants had notice of, the goals of avoiding multiplicitous litigation and unfair surprise continue to be served by tolling the claims of the members of the subsequent putative class.” As a result, the statute of limitations, in this case that has been pending for over a decade, will not be an issue.

There are more than a few important take-a-ways from this Order foreshadowing class action trends that companies and defense counsel should consider.  For example:

·         A rejection of class action theories for one set of proposed class representatives may not be determinative as to another set of proposed class representatives. Thus, companies should be aware that there may be more opportunities for plaintiffs to revise their proposed class definitions after motions to dismiss, motions to strike, and even after the denial of the motion for class certification. Here, even though there had been a rejection of the case, under both Rule 23(a) and (b), the plaintiffs were still allowed to creatively plead around dismissal.

·         Discovery in one stage of a case does not preclude ongoing discovery in the case. Thus, there may be more opportunities for plaintiffs to modify, develop, and even change their legal theory based on claims that future discovery will provide a basis for such theory.  Here, even though the case had been in litigation for 10 years, the court still gave plaintiffs leeway to further develop the factual basis for their theories.

·         The lines between a merits and a class action ruling continue to blur. Thus, both parties may have more flexibility in arguing what the precise impacts of prior rulings are on the current issue. As this case illustrates, this issue can arise both when a merits decision has been made prior to a class decision and when a class decision has been made before a merits decision.

·         Class action factual proof reigns supreme over class action legal theories. Thus, purely legal dispositive motions in class actions may be on the decline. Here, even though the factual proof was not actually proven, the court allowed the legal theory to survive based on the promise of proof to come.

·         Proposing an overly broad class may preclude a statute of limitations fight down the road. Thus, there may be more strategic decisions to be made when defining a proposed class at the early stages of a case. Here, a decision to define a nationwide class precluded a statute of limitations defense to a later amended regional class definition.

At bottom, it is important to remember that in this particular case, the court was ruling on a motion to dismiss, and thus gave plaintiffs every benefit of the doubt.  Such will be not the case  if or when they seek to ceritfy the narrower class, as they will bear the burden to show that a class can be certified.  Moreover, nothing in the Supreme Court's decision suggests that even the smaller proposed class could be certified, or that plaintiffs will have proof of a regional policy given the highly decentralized nature of the employment decisions as issue.

Wal-Mart Sex Discrimination Plaintiffs Get a Second Bite at a Smaller Apple