Supreme Court May Yank Class Actions From Shelves In Wal-Mart Case

Class actions may become a scarcer commodity if Wal-Mart can convince the Supreme Court that a recent decision of the United States Court of Appeals for the Ninth Circuit applies too lenient a standard for certifying class actions.

The Ninth Circuit’s decision in Dukes v. Wal-Mart Stores, Inc., 2010 WL 1644259 (9th Cir. April 26, 2010), an employment discrimination class action under Title VII of the 1964 Civil Rights Act, may be destined for review by the Supreme Court, setting the stage for the resolution of class-action certification issues that have divided appellate courts.

In particular, the case raises the issue of the extent to which a district court should consider the merits in deciding whether to certify a proposed class.  This issue will be of particular importance in antitrust class actions, in which evidence of the violation is often in the exclusive hands of the defendants and thus unavailable to plaintiffs at the class certification stage.

The plaintiffs allege that Wal-Mart, the world’s largest private employer, discriminates against women in payment and promotion.  The district court had certified most of the claims for class action treatment.  Wal-Mart appealed, and a majority of a three-judge panel of the Ninth Circuit affirmed the district court.  Wal-Mart sought a rehearing en banc.

On April 26, 2010, in a six-to-five opinion, the en banc Ninth Circuit affirmed the district court’s order.  The majority held that a district court’s analysis under Federal Rule of Civil Procedure 23 generally must include a review of a case’s merits – but only to the extent that they overlap with the Rule 23 inquiry.  If they do not implicate Rule 23 issues, the majority held, a district court may not consider merits.  The dissent argued that even at the certification stage, a plaintiff in a putative class action must show “significant proof” that it would prevail on the merits.  Wal-Mart, arguing that serious flaws pervade the plaintiffs’ case, seeks more robust analysis of merits issues at the certification stage.

Wal-Mart is likely to petition the United States Supreme Court for certiorari.  The Court may well grant that petition.  Issues of the extent to which class certification analysis may – and must – reach the merits have sharply divided appellate courts, and such circuit splits are a leading reason for the high court’s granting certiorari.  Indeed, the en banc Ninth Circuit seemed to anticipate Supreme Court review of its opinion.  It took pains to attempt to reconcile divergent opinions of its sister circuits, apparently seeking to minimize the risk of overturning.

Should the Supreme Court review Dukes, the resulting decision would be expected to clarify class certification standards for all areas of law and in all industries.  This clarification would be particularly significant for parties to putative antitrust class actions.

In antitrust cases, particularly conspiracy actions, a plaintiff often lacks detailed evidence of the alleged violations when he files the complaint.  This is why courts generally grant plaintiffs more liberal discovery in antitrust cases.  So if the Supreme Court agrees with the circuits that require more rigorous review of merits evidence at the class certification stage than did the Ninth Circuit in Dukes, antitrust class plaintiffs nationwide will be scrambling more than ever to identify and allege such evidence.