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Tuesday, April 27, 2010

Dukes v. Wal-Mart: Discussion of Rule 23(b)(2) and 23(b)(3)

The Court first discussed "the appropriate standard for determining when monetary relief 'predominates' over declaratory and injunctive relief...." Slip op. at 73. The Court explained:

We have previously joined the Second Circuit in adopting a test that focuses on the plaintiffs’ subjective intent in bringing a lawsuit. See Molski v. Gleich, 318 F.3d 937, 950 (9th Cir. 2003); Robinson v. Metro-North Commuter R.R. Co., 267 F.3d 147, 164 (2d Cir. 2001). In contrast, several other circuits use the “incidental damages standard” that was first enunciated by the Fifth Circuit in Allison v. Citgo Petroleum Corp., 151 F.3d 402, 415-16 (5th Cir. 1998).... Under the Allison approach, monetary relief predominates over other forms of relief “unless it is incidental to requested injunctive or declaratory relief.” See Allison, 151 F.3d at 415.

Ibid. The Court then moved in a new, perhaps surprising direction:

We see no need to employ either approach, which are both, essentially, glosses on the text of the Advisory Committee’s Note’s statement that Rule 23(b)(2) “does not extend to cases in which the appropriate final relief relates exclusively or predominantly to money damages.” Merriam-Webster defines “predominant” as “having superior strength, influence, or authority: prevailing.” Merriam-Webster’s Collegiate Dictionary 978 (11th ed. 2004). To be certified under Rule 23(b)(2), therefore, a class must seek only monetary damages that are not “superior [in] strength, influence, or authority” to injunctive and declaratory relief.

Ibid. This leads the Court to criticize and overrule its opinion in Molski:

An analysis of a plaintiff’s subjective intent in bringing a suit, as required by the standard set forth in Molski, is, at best, an incomplete method for answering this question. By eschewing consideration of the practical impact of a request for monetary relief on the litigation itself, the sole emphasis on the plaintiff’s intent ignores important indicators of the “strength, influence, [and] authority” of a request for specific monetary relief. In short, Molski’s focus on subjective intent and its concomitant failure to consider the pragmatic impact of a request for monetary relief render it fatally flawed.

The Molski approach is troubling for the additional reason that it requires courts to engage in a nebulous and imprecise inquiry into the plaintiffs’ intent in bringing a particular suit. Only in those cases in which a request for injunctive relief is obviously a ruse will this inquiry provide a clear answer. More often than not, we suspect that the answer will be equivocal and, therefore, essentially an entirely discretionary one.

Slip op. at 73-74. But the Court was no more satisfied with the 5th Circuit's approach in Allison:

Although the standard set forth in Allison is an objective one that does consider the practical effect of a request for monetary damages, it suffers from a different deficiency. By requiring monetary relief to be no more than “incidental” to injunctive or declaratory relief, the Allison approach is in direct conflict with the text of the Advisory Committee’s Note, which forbids certification under Rule 23(b)(2) if monetary relief is the “predominant” form of relief. See 151 F.3d at 412-16. “Predominant” is not synonymous with “more than incidental.” As a result, the Allison approach would preclude the certification of some Rule 23(b)(2) classes that the drafters of the Rules intended to allow.

Ibid. The Court then announced the correct standard under Rule 23(b)(2):

In light of the inadequacy of both the Allison and Molski approaches, we adopt instead the standard that Rule 23(b)(2)’s drafters straightforwardly indicated: Rule 23(b)(2) certification is not appropriate where monetary relief is “predominant” over injunctive relief or declaratory relief. To determine whether monetary relief predominates, a district court should consider, on a case-by-case basis, the objective “effect of the relief sought” on the litigation. See Allison, 416 F.3d at 416. Factors such as 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 would all be relevant, though no single factor would be determinative.

Under this standard, as discussed more fully below, the district court’s decision to include claims for back pay in a class certified under Rule 23(b)(2) was not an abuse of its discretion. On the other hand, the district court did abuse its discretion by failing to analyze whether certifying Plaintiffs’ punitive damages claims under Rule 23(b)(2) caused monetary damages to predominate, notwithstanding its decision to require notice and an opportunity for Plaintiffs to opt-out of the punitive damages claims.

Slip op. at 75. This may be the most important point of the decision, overruling Molski.

The Court went on to hold that none of the following undermine the plaintiffs' claim that injunctive and declaratory relief predominate: Wal-Mart's statistical evidence; the large size of the class; or plaintiffs' request for back pay (one element of equitable relief available under Title VII). Slip op. at 76-80.

In contrast, the Court held that monetary relief may predominate with respect to plaintiffs' bifurcated request for punitive damages:

To decide whether certification under Rule 23(b)(2) is appropriate, per the standard described in Part II, a district court must squarely face and resolve the question of whether the monetary damages sought by the plaintiff class predominate over the injunctive and declaratory relief. If so, then the court may either deny certification under Rule 23(b)(2) or bifurcate the proceedings by certifying a Rule 23(b)(2) class for equitable relief and a separate Rule 23(b)(3) class for damages.

Slip op. at 81. Accordingly, the Court held that the district court abused its discretion by certifying the punitive damage claim without conducting this analysis and remands this issue to the district court for further review. Slip op. at 82.

On remand, the district court must determine whether certification under Rule 23(b)(2) of the punitive damages claims would cause monetary relief to predominate. As discussed above, the district court should not limit its inquiry to the former Molski factors, but should also consider any other factors relevant to whether monetary relief predominates when determining if certification under Rule 23(b)(2) is appropriate.

Slip op. at 82-82. The Court then discussed four factors "that are relevant to the question whether monetary relief predominates...." I find this part of the decision very interesting and will quote it at length:

First, the inclusion of a punitive damages request means that the key issue in this case, Wal-Mart’s liability, will be decided by a jury, rather than a judge. This significant procedural change weighs in favor of finding that monetary relief would predominate if the punitive damages claims are certified, although it is not dispositive.

Second, Plaintiffs’ request for punitive damages introduces a new and substantial factual issue. To recover punitive damages, Plaintiffs must show not only that Wal-Mart engaged in a pattern or practice of discrimination, but also that it did so “with malice or with reckless indifference to the federally protected rights of” Plaintiffs. 42 U.S.C. § 1981a(b)(1). This additional factual question will likely require the Plaintiffs to introduce significant evidence and legal argument that would not have otherwise been necessary; the need for such extra evidence and argument weighs in favor of a finding that monetary relief predominates.

Third, the size of a potential punitive damages award, measured on an individual basis, could be quite significant. Title VII permits a punitive damage award of up to $300,000 per employee. See id. § 1981a(b)(3). Such a large potential award raises due process and manageability concerns. Although the district court’s decision to provide notice and opt-out to class members alleviates some of these concerns, the size of the potential award per class member in this case militates in favor of a finding that monetary relief predominates, triggering the need for other safeguards applicable when a class is certified under Rule 23(b)(3), rather than Rule 23(b)(2).

Finally, we note that, unlike in other punitive and compensatory damages cases, this case does not require individualized punitive damages determinations. Plaintiffs’ theory of liability is a class-wide theory that is based on a company policy that allegedly affects all class members in a similar way. See Allison, 151 F.3d at 417 (leaving open the possibility that a punitive damage class could be certified under 23(b)(2) where the “plaintiffs challenge broad policies and practices” and “contend that each plaintiff was affected by th[o]se polices and practices in the same way”). While this factor counsels against a finding that punitive damages predominate, it also is not necessarily dispositive.

Slip op. at 83-84. The Court added an interesting note at this point, stating that if certification of the punitive damage claim is not appropriate under Rule 23(b)(2), it still may be appropriate under Rule Rule 23(b)(3) in a hybrid action:

Under this hybrid approach, the highly cohesive Rule 23(b)(2) phase of the proceedings, including liability, can be adjudicated without the costly class notice and opt-out process required under Rule 23(b)(3). In order to protect the due process interests of absent class members, however, notice and opt-out is required for the Rule 23(b)(3) punitive damages proceedings. See Fed. R. Civ. P. 23(c)(2), advisory committee’s note to 2003 amends. (“If a Rule 23(b)(3) class is certified in conjunction with a (b)(2) class, the (c)(2)(B) notice requirements must be satisfied as to the (b)(3) class.” (emphasis added)); Eubanks, 110 F.3d at 96 (“[Hybrid certification] effectively grant[s] (b)(3) protections . . . at the monetary relief stage.”); Diaz v. Hillsborough County Hosp. Auth., 165 F.R.D. 689, 695 (M.D. Fla. 1996) (explaining that in Stage I, the court will resolve liability using Rule 23(b)(2) procedures and, if liability is established, adjudicate damages using “opt out” procedures in Rule 23(b)(3)). This procedure retains the benefits of Rule 23(b)(2) and Rule 23(b)(3) for all parties, and “promotes both ease of administration and the underlying principles of Rule 23.” See Williams v. Local No. 19, Sheet Metal Workers Int’l Ass’n, 59 F.R.D. 49, 56 (E.D. Pa. 1973) (explaining that the liability issue will be litigated first and, if the plaintiffs are successful, notice will be given for the damages proceeding).

Slip op. at 85.

In the last section of the opinion that I'm going to address in this post, the Court held that class certification may not be proper as to class members who were not employed at Wal-Mart as of the date plaintiffs filed their complaint: "those putative class members who were no longer Wal-Mart employees at the time Plaintiffs’ complaint was filed do not have standing to pursue injunctive or declaratory relief." Slip op. at 86. The Court explained further:

However, this does not mean that former employees are ineligible to receive any form of relief. Although women who were not employed by Wal-Mart as of June 8, 2001, the date on which the complaint was filed, do not have standing to seek injunctive or declaratory relief, they may be eligible to receive back pay and punitive damages. The district court may, in its discretion, certify a separate Rule 23(b)(3) class of former employees for back pay and punitive damages.

Slip op. at 86-87. The Court concluded this section as follows:

In summary, we affirm the district court’s certification of a Rule 23(b)(2) class insofar as the class consists of current employees (as of the date the complaint was filed), with respect to claims for injunctive relief, declaratory relief, and back pay. On remand, the district court should analyze whether certification under Rule 23(b)(2) or Rule 23(b)(3) is appropriate for the punitive damages claims and whether an additional class or classes may be appropriate under Rule 23(b)(3) with respect to the claims of former employees. The court may, if appropriate, certify an additional class or classes under Rule 23(b)(3).

Slip op. at 87.

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