Dukes v. Wal-Mart: Standards for Class Certification Under FRCP 23

The Ninth Circuit Court of Appeals this morning issued its decision in Dukes v. Wal-Mart, --- F.3d --- (9th Cir. (N.D. Cal) April 26, 2010). The decision affirms in part the district court's order granting certification. Here is the summary of the opinion:

Plaintiffs allege that Wal-Mart, Inc., discriminates against women in violation of Title VII of the Civil Rights Act of 1964. After detailed briefing and hearing, the district court certified a class encompassing all women employed by Wal-Mart at any time after December 26, 1998, and encompassing all Plaintiffs’ claims for injunctive relief, declaratory relief, and back pay, while creating a separate opt-out class encompassing the same employees for punitive damages. We affirm the district court’s certification of a Federal Rule of Civil Procedure 23(b)(2) class of current employees with respect to their claims for injunctive relief, declaratory relief, and back pay. With respect to the claims for punitive damages, we remand so that the district court may consider whether to certify the class under Rule 23(b)(2) or (b)(3). We also remand with respect to the claims of putative class members who no longer worked for Wal-Mart when the complaint was filed so that the district court may consider whether to certify an additional class or classes under Rule 23(b)(3).

First of all, this is a very narrow victory for the plaintiffs: Judge Michael Daly Hawkins wrote the majority opinion, joined by five others, and Judge Ikuta wrote a dissent joined by four others, so it's a six-to-five split.

The majority begins by clarifying the standards for Rule 23 certification under the Supreme Court's decision in Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160 (1982):

When considering class certification under Rule 23, district courts are not only at liberty to, but must, perform a rigorous analysis to ensure that the prerequisites of Rule 23(a) have been satisfied. See id. at 160-61. It does not mean that a district court must conduct a full-blown trial on the merits prior to certification. A district court’s analysis will often, though not always, require looking behind the pleadings, even to issues overlapping with the merits of the underlying claims.

Slip op. at 12. The Court continues:

We also agree with the Second Circuit’s recent decision in Miles v. Merrill Lynch & Co. (In re Initial Pub. Offerings Securities Litigation) (“IPO”), which explained that, to the extent lower courts have evidenced confusion regarding the Rule 23 standard after Falcon, this confusion has existed because those courts have misread a Supreme Court statement made eight years before the Court handed down Falcon. See 471 F.3d 24, 33-34 (2d Cir. 2006). Specifically, courts have misunderstood Eisen v. Carlisle & Jacquelin, in which the Supreme Court stated, “We find nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action.” 417 U.S. 156, 177 (1974). “This statement has led some courts to think that in determining whether any Rule 23 requirement is met, a judge may not consider any aspect of the merits . . . .” IPO, 471 F.3d at 33. It has “led other courts to think that a judge may not do so at least with respect to a prerequisite of Rule 23 that overlaps with an aspect of the merits of the case.” Id.

Slip op. at 13. Eisen typically is cited by the plaintiffs, so if you were plaintiffs' counsel and you hadn't already read the summary, you may be worried at this point. The Court continues:

IPO held that factual disputes concerning each of the Rule 23 factors must be analyzed and resolved. 471 F.3d at 41. This is a similar holding to our previous explanation—discussed in more detail below—that a district court must make “determinations” that the prerequisites of Rule 23(a) have been satisfied before it certifies a class, “which may require review of the same facts and the same law presented by review of the merits.” Falcon, 457 U.S. at 161; Blackie v. Barrack, 524 F.2d 891, 897 (9th Cir. 1975). IPO explained that “the obligation to make such determinations is not lessened by overlap between a Rule 23 requirement and a merits issue.” 471 F.3d at 41. IPO expressly rejected the Second Circuit’s approach inCaridad v. Metro-North Commuter Railroad, 191 F.3d 283, 291-93 (2d Cir. 1999), and Wal-Mart Stores, Inc. v. Visa U.S.A. Inc. (In re Visa Check/ MasterMoney Antitrust Litigation) (“Visa Check”), 280 F.3d 124, 135 (2d Cir. 2001), which had permitted class certification based on “some showing” that the Rule 23 factors were met, obviating the need to assess conflicting expert testimony pertinent to the Rule 23 inquiries. IPO, 471 F.3d at 40.

Slip op. at 15. The Court then clarifies that there are limits on the extent to which the Court can examine merits issues in ruling on certification:

[A]lthough "the court may not put the plaintiff to preliminary proof of his claim, it does require sufficient information to form a reasonable judgment...."

***

[A] court can never be assured that a plaintiff will prevail on a given legal theory prior to a dispositive ruling on the merits, and a full inquiry into the merits of a putative class’s legal claims is precisely what both the Supreme Court and we have cautioned is not appropriate for a Rule 23 certification inquiry.

Slip op. at 26-27, citing Blackie v. Barrack, 524 F.2d 891, 897 (9th Cir. 1975) and United Steel Workers v. ConocoPhillips Co., --- F.3d ---, 2010 WL 22701, at *5 (9th Cir. (C.D. Cal.) Jan. 6, 2010) (district court erred in basing its decision on whether the plaintiffs could prove merits rather than whether their claims implicated common questions of law or fact). (We posted on United Steel here.)

The Court then spends several pages clarifying this standard. For example, the Court distinguishes between securities fraud cases, in which plaintiffs rely heavily on anecdotal evidence, and Title VII disparate impact cases, in which plaintiffs rely on statistical evidence:

In resolving this problem and certifying the class, the district court [in Hnot v. Willis Group Holdings Ltd., 241 F.R.D. 204, 210-11 (S.D.N.Y. 2007)] noted, “[c]ontrary to defendants’ assertions, In re IPO does not stand for the proposition that the Court should, or is even authorized to, determine which of the parties’ expert reports is more persuasive. Defendants ignore the fact that In re IPO specifically rejected this interpretation of Rule 23.” Id. at 210. Instead, Judge Lynch explained, “In re IPOreiterated that ‘experts’ disagreement on the merits—whether a discriminatory impact [can] be shown—[is] not a valid basis for denying class certification.’ ” Id.(alterations in original) (quoting IPO, 471 F.3d at 35). Thus, the court could only “examine the expert reports as far as they bear on the Rule 23 determination.” Id.

Slip op. at 31. Wage and hour class actions, like Title VII disparate impact class actions, rely heavily on statistical analysis to support class certification, liability, and damage analyses. thus, in a wage and hour case, as in a disparate impact case, the district court should not attempt to "determine which of the parties’ expert reports is more persuasive." Rather, the Court should limit itself to determining "whether plaintiffs have asserted common questions of fact or law." Slip op. at 32.

The Court then reiterates the Rule 23 class certification criteria:

First, when considering class certification under Rule 23, district courts are not only at liberty to, but must, perform a rigorous analysis to ensure that the prerequisites of Rule 23 have been satisfied, and this analysis will often, though not always, require looking behind the pleadings to issues over-lapping with the merits of the underlying claims. It is important to note that the district court is not bound by these determinations as the litigation progresses. Second, district courts may not analyze any portion of the merits of a claim that do not overlap with the Rule 23 requirements. Relatedly, a district court performs this analysis for the purpose of determining that each of the Rule 23 requirements has been satisfied. Third, courts must keep in mind that different parts of Rule 23 require different inquiries. For example, what must be satisfied for the commonality inquiry under Rule 23(a)(2) is that plaintiffs establish common questions of law and fact, and answering those questions is the purpose of the merits inquiry, which can be addressed at trial and at summary judgment. Fourth, district courts retain wide discretion in class certification decisions, including the ability to cut off discovery to avoid a mini-trial on the merits at the certification stage. Fifth, different types of cases will result in diverging

frequencies with which the district court will properly invoke its discretion to abrogate discovery.

Slip op. at 34-35.

I find the Court's discussion here very interesting. The Court obviously is very interested in harmonizing its approach with both Falcon and the other circuits. This may be an effort to blunt the force of Wal-Mart's inevitable petition for review in the United States Supreme Court, where Wal-Mart undoubtedly will argue that the decision creates a conflict with Falcon and the other circuits.