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Ruling raises bar for class actions

Posted On: Jun. 26, 2011 12:00 AM CST

Ruling raises bar for class actions

WASHINGTON—Employers will have an easier time battling certification of potentially costly class actions as a result of last week's U.S. Supreme Court ruling in the massive Wal-Mart Stores Inc. litigation, observers say.

Experts say the 5-4 decision in Wal-Mart Stores Inc. vs. Betty Dukes et al. by the court, which ruled against a proposed class of some 1.5 million members, is a wake-up call for lower courts to demand more substantial evidence and more consistently hew to the law before granting class certification.

The suit originally filed in 2001 involves allegations that Bentonville, Ark.-based Wal-Mart promoted and paid female employees less than men despite females' higher performance ratings and seniority. The suit, which sought injunctive and declaratory relief, lost pay and punitive damages, would have cost Wal-Mart billions if ultimately successful.

In 2007, a divided three-judge panel of the 9th U.S. Circuit Court of Appeals in San Francisco upheld a lower court's 2004 ruling that granted class action status to women who work or worked at Wal-Mart's 3,400 stores since 1998.

In its April 2010 decision, the en banc 9th Circuit ruled 6-5 to uphold most aspects of the district court's ruling in a technical opinion. It concluded that the proposed plaintiffs had enough in common to create a class despite their varying jobs and worksites.

But Supreme Court Justice Antonin Scalia disagreed in the ruling for the majority. “The crux of this case is commonality—the rule requiring a plaintiff to show that "there are common questions of law or fact common to the class,'” he said, referring to Federal Rule of Civil Procedure 23(a).

However, “respondents have not identified a common mode of exercising discretion that pervades the entire company....In a company of Wal-Mart's size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction. Respondents attempt to make that showing by means of statistical and anecdotal evidence, but their evidence falls well short,” the majority ruled.

Evidence presented by a statistician and a labor economist are “insufficient to establish that respondents' theory can be proved on a classwide basis,” the high court ruled. It also said plaintiffs' anecdotal evidence of 120 affidavits, which it said represented one of every 12,500 class members, is “too weak to raise any inference” of discriminatory personnel decisions.

The high court was unanimous on one point: that the plaintiffs did not appropriately seek back pay under the federal rules of civil procedure.

Employers can “take a deep breath,” said Gerald L. Maatman Jr., a partner with Seyfarth Shaw L.L.P. in Chicago. “The days of fearing nationwide discrimination class actions on broad, amorphous theories are over.”

“Class actions are going to be much more narrowly applied, in cases where there is a clear, overarching policy or practice,” said Jonathan T. Hyman, a partner with law firm Kohrman Jackson & Krantz P.L.L. in Cleveland.

Ricki E. Roer, a partner with law firm Wilson Elser Moskowitz Edelman & Dicker L.L.P. in New York, said the decision reiterates “that class actions are the exception, not the rule; that our legal system is generally set up to allow a single plaintiff to adjudicate” claims; and that “there are only very limited and stringent requirements for class actions to proceed,” which have “gotten a bit tougher” as a result of this decision.

Anthony J. Oncidi, a partner with Proskauer Rose L.L.P. in Los Angeles, said, “Basically, the Supreme Court has thrown a cold bucket of water in the face of courts throughout the land that have gotten ridiculously sloppy when it comes to the commonality question.”

Observers say particularly significant is the court's criticism of evidence presented by the plaintiffs.

Jonathan F. Cohn, a partner with Sidley Austin L.L.P. in Washington, said the court “applied a rigorous analysis and requires significant proof, and wouldn't let the plaintiffs get away with some ad hoc statistics, some amorphous testimony of sociological data and a handful of anecdotes.”

Archis A. Parasharami, a partner with Mayer Brown L.L.P. in Washington, said the key item in the ruling is that to try a case on a classwide basis, “the plaintiff has to actually show that it's realistic to do so and consistent with due process.”

Sean P. Wajert, a partner with Dechert L.L.P. in Philadelphia, said it is significant the court was critical of the “trial by formula,” advocated by the appeals court, in which a sample set of class members would be used to determine liability and back pay owed to the entire class, because it abridges Wal-Mart's rights.

Kevin M. McGinty a member of Boston-based Mintz, Levin, Cohn, Ferris, Glovsky & Popeo P.C., said he doubts that fewer proposed class actions will be filed as a result of the ruling.

It is just that fewer will succeed, “and appropriately so,” he said.