Wal-Mart Ruling Could Wreak Havoc on Employers

Posted April 27th, 2010.

As It Appeared On

Law360, New York (April 27, 2010, 6:32 PM EDT) — A federal appeals court’s long-awaited ruling Monday that a class of as many as 1 million female employees of Wal-Mart Stores Inc. may pursue the largest gender discrimination action in U.S. history could expose corporate employers to a proliferation of high-stakes class actions, legal experts said.

In a 6-5 ruling, an 11-judge panel in the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s certification of a class of female current Wal-Mart employees with respect to their claims for injunctive relief, declaratory relief and back pay.

The class encompasses approximately 1.5 million employees, both salaried and hourly, with a range of positions, employed at one or more of Wal-Mart’s 3,400 stores across the United States.

The sharply divided panel said the U.S. District Court for the Northern District of California was right to conclude that it would be better to handle some parts of the case as a class action instead of clogging the courts with “innumerable individual suits litigating the same issues repeatedly,” adding that although the size of the class action is large, “mere size does not render a case unmanageable.”

The development sparked immediate speculation over Wal-Mart’s next move in the case. If the retail giant takes the issue to the U.S. Supreme Court, as it has indicated it might, the potential impacts on employers could be magnified — and most bets were on Wal-Mart avoiding a settlement, those watching the case said.

Although the decision probably puts pressure on the retail giant to settle, such a move isn’t likely, said Jeremy Heisler, a partner at Sanford Wittels & Heisler LLP.

“Given the stakes involved and Wal-Mart’s aggressive defense, there is a very real possibility that, rather than settling and implementing effective equal-employment practices, Wal-Mart will try to go to the U.S. Supreme Court and challenge the class certification ruling,” Heisler said.

Robert Olson, a partner at Greines Martin Stein & Richland LLP, noted that even if the Supreme Court were to deny certiorari, a settlement at this point would be improbable because whatever the plaintiffs would demand would be “very substantial.”

“My guess is that Wal-Mart feels that it does not discriminate,” Olson said. “It likely does not want to be tarred as an anti-female employee place based on six unhappy workers out of a 500,000-person work force or even 120 or 223 asserted incidents. My guess is that if the current decision stands, this is just the opening salvo in a long litigation war.”

According to Michael Delikat, a partner at Orrick Herrington & Sutcliffe LLP, given the composition of the current Supreme Court – even allowing for a new appointment for Judge Paul Stevens, who is set to retire – Wal-Mart’s chances for reversal on high court review are very good.

“The Ninth Circuit has one of the highest rates of reversal of its decisions which are reviewed by the Supreme Court,” he noted.

Charles Sullivan, a professor at Seton Hall University School of Law who specializes in employment law, said that if the Ninth Circuit ruling were allowed to stand, the impact would be to force Wal-Mart into a settlement because the potential liability would be enormous.

“The theory the plaintiffs are arguing involves extremely broad potential liability in the billions or perhaps tens of billions of dollars,” he said. “Even if Wal-Mart thought it had a good chance — only a 10 percent chance of losing, for example — that would still add up to multiple billions of dollars in potential liability.”

In the case of a Supreme Court appeal, is there enough of a circuit court split for the high court to weigh in?

Delikat said he believed so, but noted that the more significant point was that the question of when a class is too large to be manageable and whether such a large class can truly satisfy the commonality requirement of Rule 23 is a very important issue for the Supreme Court to weigh in on.

This is especially true, he said, since the Supreme Court justices “are the gatekeepers for the federal court system and they take that obligation very seriously.”

According to Heisler, the Ninth Circuit’s decision is well within the mainstream of class action jurisprudence.

“As the majority voted, there is a broad ‘consensus’ among the First, Second, Third, Fourth, Fifth, Seventh, Eighth, Tenth and Eleventh circuits regarding the standards to be applied on class certification motions,” he pointed out.

Most critically, he added, Wal-Mart adheres to the Supreme Court’s leading decision on certifying employment discrimination class actions, a 1982 case known as General Telephone Co. of Southwest v. Falcon.

“The main novelty of Dukes v. Wal-Mart is the size of the class, 1.5 million women,” Heisler said. “But as the majority pointed out, simply invoking ‘1.5 million women’ as a mantra to oppose class certification is not persuasive because of the clear record that common issues exist on whether Wal-Mart discriminated against female employees.”

Olson said the debate between the majority and the dissent seemed less about what the ostensible standard for class certification is than how it is to be applied.

In that sense, he said, circuit split may not be the prime approach to a Supreme Court review — rather, the issue will likely be that the case presents a hugely important issue of what suffices under federal law to maintain a Title VII action.

“The plaintiff’s case in many ways is a claim of ‘corporate culture,’ a rather indefinite and amorphous standard,” he said. “The question is whether there is to be a new ‘corporate culture’ type of Title VII class action. I doubt that there is an appellate court in the nation other than the Ninth Circuit that would have recognized such a claim.”

Given the breadth of the new claim that the Ninth Circuit majority has allowed, Olson said, the Supreme Court might well decide to weigh in even without a circuit split.

The fact that Monday’s ruling was so highly fractured also reflects substantial differences of opinion, Olson noted.

“That will be a factor weighing in favor of the Supreme Court taking a hard look at this case,” he said.

According to Sullivan, in terms of other circuits, the case marks an aggressive use of class action, so it wasn’t a shock that there were lots of dissenters.

“The Ninth Circuit is widely considered one of the most liberal circuits, so it’s not surprising this went forward,” he said. “But the Supreme Court hasn’t been very receptive to large class actions of late.”

Heisler, for his part, said the split nature of the class ruling shouldn’t affect the strength of the majority’s reasoning in Wal-Mart.

“The dissent seemed to be intimidated by the size of the class, but the majority decisively refuted those concerns,” he said. “Henceforth, size should not impede class certification.”

Delikat added that should the decision withstand Supreme Court review, there was no doubt that a flood of class actions against employers would follow.

“This is particularly true given that with the passage of the Lilly Ledbetter Fair Pay Act, which resets the statute of limitation for recovering pay disparities to each time an employee receives a paycheck, the potential recovery for successful pay discrimination claims will be significant,” he said. “At the same time, the Obama administration is now pushing legislation to modify the Equal Pay Act, which will make it easier to pursue class actions for equal pay claims.”

Wal-Mart is represented by Gibson Dunn & Crutcher LLP.

The plaintiffs are represented by the Impact Fund and Cohen Milstein Sellers & Toll PLLC.

The appellate case is Betty Dukes et al. v. Wal-Mart Stores Inc., case number 04-16688, in the U.S. Court of Appeals for the Ninth Circuit.

The underlying case is Betty Dukes et al. v. Wal-Mart Stores Inc., case number 3:01-cv-02252, in the U.S. District Court for the Northern District of California.

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