October Term, 2010
June 20, 2011
Today the Supreme Court issued two decisions, described below, of interest to the business community.
Class Actions—Standard for Class Certification
Wal-Mart Stores, Inc. v. Dukes, No. 10-277 (previously discussed in the December 6, 2010 Docket Report).
In Wal-Mart Stores, Inc v. Dukes, No. 10-277, the Supreme Court today reversed the class certification of a sprawling Title VII lawsuit against Wal-Mart Stores, Inc. Although decided in the context of an employment discrimination class action, the Court’s reinvigoration of the commonality requirement of Federal Rule of Civil Procedure 23(a) makes the decision applicable to federal class-action litigation in general.
The named plaintiffs in Dukes accused Wal-Mart of discriminating against roughly 1.5 million of its female employees by fostering a corporate culture of gender stereotyping and of failing to prevent first-level managers from discriminating against female workers in pay-or-promotion decisions. They sought an injunction against the allegedly discriminatory policy accompanied by billions of dollars in backpay.
Under Rule 23, a proposed class action may not be certified unless it meets all of the requirements of Rule 23(a)—numerosity, commonality, typicality, and adequacy—and at least one of the three requirements set forth in Rule 23(b). The Ninth Circuit affirmed the certification of the class under Rule 23(b)(2), which allows certification when “final injunctive relief or declaratory relief is appropriate respecting the class as a whole.” The Supreme Court then granted certiorari to review the class certification.
In an opinion by Justice Scalia, the Court held that a class could not be certified for two reasons. The Court unanimously held that the claims for backpay were not suitable for certification under Rule 23(b)(2). That rule, the Court explained, “applies only when a single injunction or declaratory judgment would provide relief to each member of the class. It does not authorize class certification when each individual class member would be entitled to a different injunction or declaratory judgment” or “to an individualized award of monetary damages.” Slip op. 20. Claims for individualized monetary damages—such as the back pay claims sought by the Dukes plaintiffs—“belong in Rule 23(b)(3),” which provides heightened “procedural protections” for absent class members (such as the right to notice and to opt out of the class). Id. at 22.
The Court found it unnecessary to decide whether a claim for monetary damages could ever be certified under Rule 23(b)(2) consistent with due process. It made clear, however, that at a minimum claims for monetary damages could not be certified under Rule 23(b)(2) when they are merely “incidental” to a claim for injunctive relief, i.e., when the damages do not “flow directly from liability to the class as a whole, without the need for “additional hearings.” Slip op. 26 (internal quotation marks omitted). The Ninth Circuit had concluded that individual hearings on the backpay claims of the 1.5 million class members would be unnecessary because a few sample cases could be tried and the results of those sample trials could be extrapolated to the rest of the class. The Supreme Court “disapprove[d] that novel project” of “[t]rial by [f]ormula.” Id. at 27. The Court explained that Title VII gave Wal-Mart the right to raise individualized affirmative defenses against claims of discrimination, and that stripping Wal-Mart of the right to present those individualized defenses would violate the Rules Enabling Act, which “forbids interpreting Rule 23 to ‘abridge, enlarge, or modify any statutory right.’” Id.
By a 5-4 vote, the Court also held that the class had been improperly certified because the plaintiffs had failed to show the existence of a “common question” as required by Rule 23(a)(2). The Court explained that, to satisfy Rule 23(a)(2), the plaintiffs’ “claims must depend upon a common contention” that “must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” Slip op. 9 (internal quotation marks omitted). In other words, plaintiffs must demonstrate that the class action would “generate common answers apt to drive the resolution of the litigation.” Id. at 10 (internal quotation marks omitted). The Court emphasized that plaintiffs cannot merely plead that there are common questions; they must “prove that there are in fact . . . common questions of law or fact.” Id. And in analyzing the plaintiff’s showing of commonality, the district court must engage in a “rigorous analysis” that frequently “will entail some overlap with the merits of the plaintiff’s underlying claim.” Id. In this case, for example, the Court explained that the plaintiffs’ “proof of commonality necessarily overlaps” with their “merits contention that Wal-Mart engages in a pattern or practice of discrimination,” because “[w]ithout some glue holding the alleged reasons for all those [pay-or-promotion] decisions together, it will be impossible to say that examination of all the class members’ claims for relief will produce a common answer to the crucial question why was I disfavored.” Id. at 11–12.
The Court explained that the plaintiffs had failed to “bridg[e]” the “conceptual gap” between their individual and class claims for employment discrimination because they failed to show that Wal-Mart “operated under a general policy of discrimination” that “manifested itself in hiring and promotion practices in the same general fashion.” Slip op. 12. To the contrary, Wal-Mart had adopted a formal policy forbidding discrimination. The Court observed that the plaintiffs’ only evidence of a de facto general policy of discrimination was a sociologist’s expert testimony that Wal-Mart’s corporate culture led to stereotyped thinking. Wal-Mart had tried unsuccessfully to have this testimony struck under as unreliable under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). The Supreme Court expressed its “doubt” about the district court’s conclusion “that Daubert did not apply to expert testimony at the certification stage.” Slip op. 14. Moreover, even if the testimony were “properly considered,” the Court explained that such testimony would fail to support commonality because the expert conceded that his analysis could not explain “whether 0.5 percent or 95 percent” of Wal-Mart’s employment decisions were infected by stereotyping. Id.
The Court also sounded a note of caution about the certification of employment discrimination class actions that challenge the delegation of discretion to local supervisors. The Court explained that a policy “of allowing discretion by local supervisors” “is the opposite of a uniform employment practice that would provide the commonality needed for a class action; it is a policy against having uniform employment practices.” Slip op. 14. The Court noted that “an undisciplined system of subjective decisionmaking” can lead to “Title VII liability under a disparate-impact theory.” Id at 15. But the Court emphasized that this possibility does not mean that “every employee in a company using a system of discretion has such a claim in common.” Id.
Justice Ginsburg dissented from the Court’s ruling that the proposed class flunked the commonality requirement in an opinion joined by Justices Breyer, Sotomayor, and Kagan. The dissenters contended that the majority was blending the commonality requirement of Rule 23(a)(2) with Rule 23(b)(3)’s requirement that common questions predominate over individualized ones—a requirement that would not apply to the plaintiffs’ injunctive claims. The majority responded by noting that the myriad differences among the class members’ claims in fact precluded the finding of even a single common question: “Because [the plaintiffs] provide no convincing proof of a companywide discriminatory pay and promotion policy, * * * they have not established the existence of any common questions.” Slip op. 19.
Dukes is a significant development for class actions in federal court. Although the Court’s decision focused on whether and when employment discrimination claims may be certified as a class action, the Court’s analysis will be applied by lower courts in all types of class actions. Most significantly, the Court’s searching analysis of the commonality requirement should breathe new life into that limitation on class certification. Before Dukes, as one scholar put it, virtually any “competently pleaded” class action could be said to involve common questions. Moreover, the Court’s unanimous ruling that individualized damages claims cannot piggyback on a claim for injunctive relief and be certified under Rule 23(b)(2)’s more lenient certification standard likely will bring to an end attempts by the plaintiffs’ bar to evade Rule 23(b)(3)’s more stringent standard in a broad array of class actions in federal court.
Mayer Brown LLP filed an amicus brief in support of the petitioner on behalf of the Association of Global Automakers, Inc.
For more information on this decision, please join us for our upcoming webinar, “Wal-Mart v. Dukes: How It Will Affect Class Action Litigation.”
Emissions of Greenhouse Gases—Federal Common Law Nuisance Claims
American Electric Power Co. v. Connecticut, No. 10-174 (previously discussed in the December 6, 2010 Docket Report).
In Massachusetts v. EPA, 549 U.S. 497 (2007), the Supreme Court held that the Clean Air Act authorizes federal regulation of emissions of carbon dioxide and other greenhouse gases. Today, in American Electric Power Co., Inc. v. Connecticut, No. 10-174, the Court held that the Clean Air Act and EPA action authorized by the Act displace any claims for abatement of carbon-dioxide emissions under the federal common law of public nuisance.
In July 2004, two groups of plaintiffs—eight States and New York City, and three nonprofit land trusts—filed suit against five electric-power companies in the Southern District of New York, alleging that the companies “are the five largest emitters of carbon dioxide in the United States.” Slip op. 4. The plaintiffs, respondents in the Supreme Court, asserted that the defendants’ emissions violated the federal common law of interstate nuisance by creating a “substantial and unreasonable interference with public rights.” Id. In the alternative, the plaintiffs alleged a violation of state tort law. They sought an injunction requiring each of the defendants to comply with an initial cap on carbon-dioxide emissions, which would be reduced annually.
The district court dismissed the suits on the ground that they presented non-justiciable political questions, but the Second Circuit reversed. The court of appeals held that the suits were not barred by the political-question doctrine; that the plaintiffs adequately alleged Article III standing; that their complaint stated a claim under the federal common law of nuisance; and that the Clean Air Act did not displace federal common law. In finding that the Act did not preempt the common law of interstate nuisance, the Second Circuit reasoned that EPA had not yet spoken “directly” to this “particular issue” because it had not completed the rulemaking process with respect to greenhouse gases. Slip op. 6.
The Second Circuit’s exercise of jurisdiction was affirmed by an equally divided Supreme Court. On the merits, however, the Court reversed by a vote of 8 to 0. (Justice Sotomayor, who was originally a member of the Second Circuit panel that decided the case but was elevated to the Supreme Court before the panel’s decision was issued, did not participate in the case.)
In an opinion by Justice Ginsburg, the Court recognized that a “new” federal common law has emerged in the wake of the Court’s statement in Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938), that “[t]here is no federal general common law.” Slip op. 6. The Court acknowledged that this specialized federal common lawencompasses the subject of “air and water in their ambient or interstate aspects.” Id. at 7 (quoting Illinois v. Milwaukee, 406 U.S. 91, 103 (1972)). But the Court declined to decide the “academic question” whether the plaintiffs could ever state a federal common law claim of nuisance, because “[a]ny such claim would be displaced [here] by the federal legislation authorizing EPA to regulate carbon-dioxide emissions.” Id. at 9.
The Court held that the Clean Air Act and EPA’s actions under it displace any federal common-law right because the Act “speaks directly” to the question at issue—namely, the emission of carbon dioxide by the defendants. Slip op. 10. The Court explained that the Act puts in place a comprehensive regulatory program. It directs EPA to list categories of sources that contribute significantly to air pollution; requires EPA to establish standards of performance for emission of pollutants within those categories; obligates EPA to issue guidelines for existing sources within the categories; and directs States to promulgate performance standards in compliance with those guidelines. Private parties may petition for a rulemaking, and EPA’s response is reviewable in federal court. In that connection, the Court noted that EPA is currently engaged in rulemaking to set standards for greenhouse gas emissions from fossil-fuel fired power plants. As the Court explained, “[t]he Act itself thus provides a means to seek limits on emissions of carbon dioxide from domestic power plants—the same relief the plaintiffs seek by invoking federal common law.” Id. at 11.
The Court rejected the plaintiffs’ argument that federal common law is not displaced until EPA actually sets standards. That the Clean Air Act permits emissions until EPA exercises its authority is inconsequential, the Court said; “[t]he critical point is that Congress delegated to EPA the decision whether and how to regulate carbon-dioxide emissions from power plants, [and] the delegation is what displaces federal common law.” Slip op. 12 (emphasis added). As the Court put it, there is “no room for a parallel track.” Id. at 11. The Court also noted that this is an exercise of authority for which EPA is better suited as federal judges “lack the scientific, economic, and technological resources an agency can utilize in coping with issues of this order” and “lack authority to render precedential decisions binding other judges.” Id. at 14.
The Court did not reach the question whether a claim under state nuisance law was available. That question had not been resolved by the Second Circuit, and so the Court left it to be addressed on remand.
In an opinion concurring in part and concurring in the judgment, Justice Alito, joined by Justice Thomas, stated that he agreed with the Court’s displacement analysis, but only on the assumption that the Court’s prior interpretation of the Clean Air Act in Massachusetts v. EPA is correct.
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