U.S. Supreme Court Rejects Gender Discrimination Class Action Against Wal-Mart

On June 20, 2011, the United States Supreme Court released its widely-anticipated decision in Wal-Mart Stores, Inc. v. Dukes, et al., 564 U.S. ___ (2011) (“Wal-Mart“). In Wal-Mart, the Supreme Court reversed the Ninth Circuit Court of Appeals and held that the proposed nationwide gender discrimination class action against the retail giant could not proceed. In a decision that will come as welcome news to large employers and other frequent targets of class action lawsuits, the Supreme Court (1) arguably increased the burden that plaintiffs must satisfy to demonstrate “common questions of law or fact” in support of class certification, making class certification more difficult, especially in “disparate impact” discrimination cases; (2) held that individual claims for monetary relief cannot be certified as a class action pursuant to Federal Rule of Civil Procedure 23(b)(2), which generally permits class certification in cases involving claims for injunctive and/or declaratory relief; and (3) held that Wal-Mart was entitled to individualized determinations of each proposed class member’s eligibility for backpay, rejecting the Ninth Circuit’s attempt to replace that process with a statistical formula.

The named plaintiffs in Wal-Mart were three current and former female Wal-Mart employees. They sued Wal-Mart under Title VII of the federal Civil Rights Act of 1964, alleging that Wal-Mart’s policy of giving local managers discretion over pay and promotion decisions negatively impacted women as a group, and that Wal-Mart’s refusal to cabin its managers’ authority amounted to disparate treatment on the basis of gender. The plaintiffs sought to certify a nationwide class of 1.5 million female employees. The plaintiffs sought injunctive and declaratory relief, punitive damages, and backpay.

The trial court and Ninth Circuit had agreed that the proposed class could be certified, reasoning that there were common questions of law or fact under Federal Rule of Civil Procedure 23(a), and that class certification pursuant to Rule 23(b)(2) – which permits certification in cases where “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole” – was appropriate because the plaintiffs’ claims for backpay did not “predominate.” The Ninth Circuit had further held that the case could be manageably tried without depriving Wal-Mart of its due process rights by having the trial court select a random sample of claims, determine the validity of those claims and the average award of backpay in the valid claims, and then apply the percentage of valid claims and average backpay award across the entire class in order to determine the overall class recovery.

The Supreme Court reversed. A five-justice majority concluded that there were not common questions of law or fact across the proposed class, and hence Federal Rule of Civil Procedure 23(a)(2) was not satisfied. Clarifying earlier decisions, the majority made clear that in conducting this analysis, it was permitted to consider issues that were enmeshed with the merits of the plaintiffs’ claims. The majority then explained that merely reciting common questions is not enough to satisfy Rule 23(a). Rather, the class proceeding needs to be capable of generating “common answers” which are “apt to drive the resolution of the litigation.” The four-justice dissent criticized this holding as superimposing onto Rule 23(a) the requirement in Rule 23(b)(3) that “common issues predominate” over individualized issues. The dissent believed that the “commonality” requirement in Rule 23(a) could be established merely by identifying a single issue in dispute that applied commonly to the proposed class. Because the trial court had only considered certification under Rule 23(b)(2), the dissent would have remanded the case for the trial court to determine if a class could be certified under Rule 23(b)(3).

The majority held that the plaintiffs had not identified any common question that satisfied Rule 23(a), because they sought “to sue about literally millions of employment decisions at once.” The majority further explained that “[w]ithout some glue holding the alleged reasons for all those 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.”

Addressing the plaintiffs’ attempt to provide the required “glue”, the majority held that anecdotal affidavits from 120 class members were insufficient, because they represented only 1 out of every 12,500 class members, and only involved 235 out of Wal-Mart’s 3,400 stores nationwide. The majority also held that the plaintiffs’ statistical analysis of Wal-Mart’s workforce (which interpreted data on a regional and national level) was insufficient because it did not lead to a rational inference of discrimination at the store or district level (for example, a regional pay disparity could be explained by a very small subset of stores). Finally, the majority held that the “social framework” analysis presented by the plaintiffs’ expert was insufficient, because although the expert testified Wal-Mart had a “strong corporate culture” that made it “vulnerable” to gender discrimination, he could not determine how regularly gender stereotypes played a meaningful role in Wal-Mart’s employment decisions, e.g., he could not calculate whether 0.5 percent or 95 percent of the decisions resulted from discriminatory thinking. Importantly, the majority strongly suggested that the rigorous test for admission of expert testimony (the Daubert test) should be applied to use of expert testimony on motions for class certification.

The Court’s other holdings were unanimous. For one, the Court agreed that class certification of the backpay claim under Rule 23(b)(2) was improper because the request for backpay was “individualized” and not “incidental” to the requests for injunctive and declaratory relief. The Court declined to reach the broader question of whether a Rule 23(b)(2) class could ever recover monetary relief, nor did it specify what types of claims for monetary relief were and were not considered “individualized.” The Court made clear, however, that when plaintiffs seek to pursue class certification of individualized monetary claims (such as backpay), they cannot use Rule 23(b)(2), but must instead use Rule 23(b)(3), which requires showing that common questions predominate over individual questions, and includes procedural safeguards for class members, such as notice and an opportunity to opt-out.

Lastly, the unanimous Court agreed that Wal-Mart should be entitled to individualized determinations of each employee’s eligibility for backpay. In particular, Wal-Mart has the right to show that it took the adverse employment actions in question for reasons other than unlawful discrimination. The Court rejected the Ninth Circuit’s attempt to truncate this process by using what the Court called “Trial by Formula,” wherein a sample group would be used to determine how many claims were valid, and their average worth, for purposing of extrapolating those results onto the broader class. The Court disapproved of this “novel project” because it deprived Wal-Mart of its due process right to assert individualized defenses to each class member’s claim.

Looking forward, the Wal-Mart decision will strengthen the arguments of employers and other companies facing large class action lawsuits. In particular, the decision reaffirms that trial courts must closely scrutinize the evidence when deciding whether to certify a class action, especially in “disparate impact” discrimination cases. Statistical evidence that is based on too small a sample size, or is not well-tailored to the proposed class action, should be insufficient to support class certification. Likewise, expert testimony that is over-generalized and incapable of providing answers to the key inquiries in the case (here, whether a particular employment decision was motivated by gender discrimination) should also be insufficient to support class certification. Finally, the Court’s holding that defendants have the right to present individualized defenses as to each class member, and that this right cannot be short-circuited through statistical sampling, will provide defendants with a greater ability to defeat class certification where such individualized determinations would otherwise prove unmanageable.

Sen. McCain Blames Unauthorized Immigrants for Arizona Wildfires

Arizona's Devastating Wildfires

During a press conference Saturday, Sen. McCain blamed undocumented immigrants for the devastating wildfires sweeping through Arizona and southern states, suggesting they started fires to “divert law enforcement agents.” While a U.S. Forest Service official stated there is no evidence suggesting undocumented immigrants are to blame, Sen. McCain, like many restrictionists, took the opportunity to turn tragedy into talking points by exploiting a natural disaster for a sound bite, calling for the need for more border security.

At press conference Saturday, Sen. McCain said:

“We are concerned about, particularly, areas down on the border where there is substantial evidence that some of these fires are caused by people who have crossed our border illegally. The answer to that part of the problem is to get a secure border.

They have set fires because they want to signal others. They have set fires to keep warm and they have set fires in order to divert law enforcement agents and agencies from them.”

Clearly, as U.S. Forest Officials point out, unauthorized immigrants are not to blame for the wildfires that have scorched 4.3 million acres across seven states this year. Try prolonged droughts, high temperatures and 50 mph winds. But McCain’s comments are indicative of a larger problematic trend within the immigration debate—the anti-immigrant B-footage portrayal of undocumented immigrants as the source of all our domestic problems.

McCain, sadly, is simply borrowing a page from the immigration restrictionist handbook, “How to Fan the Flames of Fear and Blame Immigrants for Everything.” Restrictionists have blamed immigrants for everything from global warming and our mortgage crisis to the swine flu epidemic and leprosy. Why? Because it’s far easier to stir fear to advance an agenda than it is to actually engage in a civil and constructive conversation.

It may be easier to throw stones and make wild accusation about unauthorized immigrants, but calling out rhetorical flame throwers and reframing the discussion to actually address our immigration problem, while more difficult, is far more constructive. As Smokey the Bear would say, “Only YOU can prevent opportunists from blaming immigrants for FOREST FIRES!”

UPDATE 06/21/11 – Sen. McCain, in response to media backlash over his comments, said he is “puzzled over the controversy” and that he wasn’t referring to the Wallow Fire (named after the Bear Wallow Wilderness area where the fire is burning) in Springerville, Arizona, but fires in southern Arizona in general. He then promptly blamed a Forest Service briefing.

WATCH:

Download the video below, create a Youtube account, and post it on there then here.

Supreme Court Rules SPD Does Not Trump Plan Document, but Emphasizes Availability of Equitable Remedies Where Employer Misleads

The Supreme Court of the United States in the CIGNA decision confirms, in what may be hailed as a victory for plan sponsors, that information contained in a summary plan description does not itself constitute the “terms” of a benefit plan for purposes of filing claims for benefits.  However, the majority’s assertion that participants have a vast arsenal of equitable relief under ERISA section 502(a)(3) will likely invigorate both participants and plaintiffs’ attorneys.  Because the surcharge remedy is one of the few equitable remedies that provide monetary relief, a likely increase in claims alleging notice violations and seeking a surcharge to plan participants is anticipated.

On May 16, 2011, the Supreme Court of the United States issued a highly anticipated decision in CIGNA Corporation v. Amara, in which it vacated a district court order requiring CIGNA to reform its cash balance plan and pay increased benefits based on a claim under Section 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974 (ERISA).  In a unanimous opinion, the Supreme Court held that 502(a)(1)(B), which permits a participant to “recover benefits due to him under the terms of his plan,” does not authorize a court to modify plan terms on the grounds that those terms were misrepresented in the plan’s summary plan description (SPD).  The Supreme Court also signaled, however, that Section 502(a)(3) of ERISA, which authorizes a participant “to obtain other appropriate equitable relief,” might permit the district court’s reformation of the plan, and it remanded the case back to the district court to decide that issue.

Background

In 1998, CIGNA replaced its traditional defined benefit plan with a cash balance plan that provided a lump sum based on annual pay credits and interest credits.  CIGNA assured employees that the new formula entitled them to the greater of their traditional defined benefit at the time the old formula was frozen or their cash balance benefit under the new formula—a so-called “greater of A and B” benefit.  CIGNA failed to explain, however, the “wear-away” resulting from the cash balance conversion, i.e., that many participants would not experience any increase in their retirement benefit for an extended period of time, and that CIGNA’s cost of maintaining the plan would be reduced.

A group of participants filed a class action lawsuit challenging the cash balance conversion.  The district court agreed with their argument that CIGNA had violated its ERISA obligation to notify employees of any plan changes that would reduce their future benefits and to provide employees with easily understandable SPDs that accurately describe their rights under the plan.  The district court ruled that CIGNA must replace the plan’s “greater of A and B” provision with an “A plus B” provision, which guaranteed employees a retirement benefit equal to whatever benefit they had earned under the old formula through the date of the amendment, plus whatever balance they had accrued in their individual accounts under the new formula.  (Such an approach is required under the Pension Protection Act of 2006 for cash balance conversion amendments that are both adopted and take effect on or after June 29, 2005.)

Though the district court discussed the fiduciary breach provisions of Section 502(a)(3), it ultimately rested its decision on 502(a)(1)(B), which permits a participant to recover benefits “due to him under the terms of the plan.”  Implicit in the district court’s reliance on 502(a)(1)(B) was the notion that an SPD can be legally enforceable where there are discrepancies between that SPD and its underlying plan document.  The district court stated that it based its decision to rely on 502(a)(1)(B), rather than on 502(a)(3), in part on the fact that the Supreme Court had demonstrated in prior decisions what the district court perceived as an inclination to “curtail” the relief available under 502(a)(3).

Supreme Court’s Opinion

Court Holds That SPDs Do Not Constitute Plan Terms, Cannot Be Enforced Via 502(a)(1)(B)

Justice Breyer wrote on behalf of a unanimous Supreme Court in rejecting the district court’s reliance on 502(a)(1)(B) as legal authority for its reformation of the CIGNA plan.  The Supreme Court emphasized that although 502(a)(1)(B) permits a court to enforce the terms of a plan, nothing in 502(a)(1)(B) permits a court to change the terms of a plan.  The Supreme Court rejected the district court’s conclusion that an SPD can provide legally enforceable plan terms and the solicitor general’s argument that “the ‘plan’ includes the disclosures that constituted the summary plan descriptions.”  Because the district court had based its reformation of the CIGNA plan on the idea that an SPD is a plan term that can be enforced via 502(a)(1)(B), an idea that the Supreme Court ruled was erroneous, the reformation of the plan could not stand.

But When Employer Misleads, 502(a)(3) Might Permit Plan Reformation

The majority did not stop there, however.  It addressed head-on the district court’s claim that the Supreme Court was inclined to interpret 502(a)(3), which authorizes participants “to obtain other appropriate equitable relief,” narrowly and thereby limit the remedies available to participants under that section of the statute.  The prior Supreme Court decisions that the district court interpreted as indicative of a narrowing of 502(a)(3) were actually not intended to narrow the scope of equitable relief available, but rather to ensure that any relief based on that provision was indeed equitable, not legal.

The basis of equitable relief is that it requires a party to restore fairness to a situation by taking a particular action—in this case, the district court required CIGNA to restore fairness to its plan participants by reforming the terms of its plan.  Thus, according to the CIGNA majority, its action was precisely the type of relief that 502(a)(3) contemplates.  The majority did not prescribe a particular equitable remedy for the district court to grant in its reconsideration of this case, but it described at least three equitable remedies that might be appropriate:  reformation of contract, estoppel and monetary compensation against a trustee (known as a “surcharge”).

Court Notes Correct Standard of Harm Will Depend on Remedy, Remands to District Court

The majority next considered the appropriate standard of harm that the plan participants would have to prove in order to receive equitable relief under 502(a)(3).  The applicable standard would depend on which equitable remedy the district court imposed.  At the very least, however, the majority emphasized that to receive equitable relief, a participant would have to prove that he or she was actually harmed by CIGNA’s ERISA violations.  Though the majority noted that certain equitable remedies would require the participants to also prove that they had detrimentally relied on CIGNA’s misrepresentations, the Supreme Court made clear that this would not be necessary for all equitable remedies, such as surcharge.  Thus, the majority concluded that it was for the district court to identify the precise standard of harm that the participants needed to prove, once it determined whether, and which, equitable remedy it would impose.

Concurring Opinions

Justice Scalia filed a concurring opinion, which Justice Thomas joined.  Though Scalia agreed with the majority’s holding that 502(a)(1)(B) did not authorize the district court’s reformation of the CIGNA plan, he argued that the Supreme Court should have stopped there, prior to its detailed discussion of 502(a)(3) and the equitable remedies that might be available thereunder.  Because the district court had expressly declined to analyze the claim’s viability under 502(a)(3), Scalia asserted that it was legally meaningless for the majority to embark on any 502(a)(3) analysis.  Scalia contended that this portion of the majority opinion is mere dicta, bears no precedential value and merely insinuates how the Supreme Court might rule were it to grant review of the district court’s ultimate disposition of this claim on 502(a)(3) grounds.

Impact on Plan Fiduciaries and Employers

The Good News for Employers

The CIGNA decision confirms, in what may be hailed as a victory for plan sponsors, that information contained in an SPD does not itself constitute the “terms” of a benefit plan for purposes of filing claims for benefits.  Prior to CIGNA, some courts had held that SPDs were enforceable as plan terms, a position endorsed by the U.S. Department of Labor.  Those holdings are now overruled.  CIGNA establishes that employers may safely summarize their benefit plans in summary documents, so that participants can comprehend the contours of these benefit plans, without exposing themselves to 502(a)(1)(B) claims for benefits that the plans do not provide.

The Bad News for Employers

On the other hand, the majority’s assertion that there is available to participants a vast arsenal of 502(a)(3) equitable relief will likely invigorate both participants and plaintiffs’ attorneys.  Because the surcharge remedy is one of the few equitable remedies that provide monetary relief, an increase is likely in claims alleging notice violations and seeking a surcharge to plan participants under 502(a)(3).  Indeed, claims seeking not only a surcharge, but also equitable relief generally, are likely to increase in the wake of CIGNA.  The legal and business imperative to ensure meticulous communication with plan participants regarding the benefits available to them under a plan’s terms has become more compelling than ever in light of this decision.

Electronic Discovery Costs: Loser Pays (for what?)

To what extent might it be possible to recoup costs associated with electronic discovery as part of a trial judgment? Federal Rule of Civil Procedure 54(d) gives the prevailing party the right to recover costs where authorized by statute. 28 U.S.C. § 1920(4) provides that “fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case” can be assessed as costs. Working to equate “exemplification” and “making copies” with electronic discovery processes, two courts have recently reached substantially different conclusions about the scope of what may be recovered.

Mann v. Heckler & Koch Defense, Inc.[1]

In Mann, Jason Mann asserted defamation and retaliation claims against his former employer, Heckler & Koch Defense, Inc. (HKD). After succeeding in having certain claims dismissed and ultimately winning summary judgment, HKD sought to recover more than $36,000 in expenses paid to a third-party vendor for various electronic discovery services, including compiling a database, converting documents from native into image format, applying Bates numbers, and burning CDs for production. The court held that only the costs associated with burning the CDs (referred to by the court as the “production costs” of the case) qualified as “copying” for purposes of Section 1920(4).[2] Relying heavily on Fells v. Virginia Department of Transportation,[3] the court distinguished between tasks that were more appropriately described as “creating” electronic documents and those that were truly just “copying.” The court felt that searching and de-duplicating documents, metadata extraction, and other tasks associated with creating the database were more akin to creating new electronic documents. Refusing to expand the definition of “copying” in this case, the court held that the majority of the expenses paid to the third-party vendor were not reimbursable.

Race Tires America, Inc. v. Hoosier Racing Tire Corp. (Race Tires II)[4]

The defendants in Race Tires II also sought to recover their electronic discovery expenses after obtaining summary judgment in this antitrust case. Combined, the defendants accrued approximately $390,000 in electronic discovery expenses due to a particularly contentious discovery process. The parties together filed a total of 11 discovery motions and the plaintiffs aggressively pursued electronically stored information, propounding 273 discovery requests and requiring more than 442 search terms, over the objections of the defendants. To respond adequately to the plaintiffs’ demands, the defendants hired computer experts to collect hundreds of gigabytes of data from their servers, scan documents, process and index the data, extract metadata, enable documents to be searchable, and convert the documents to the required format.

The court held that the defendants were entitled to receive more than $367,000, reimbursing almost all of their electronic discovery expenses. In reaching its decision, the court focused on the difference between services that could be performed by attorneys and legal staff (i.e., the document review) and those that are more technical in nature (i.e., the document production). The court distinguished Klayman v. Freedom’s Watch, Inc.,[5] in which the district court refused to reimburse as costs the work performed by outside consultants to search for and retrieve discoverable documents, noting that in Klayman much of the work performed by the vendor was done before the discovery request was issued or after the court ruling had ended the discovery process. The Race Tires II court noted that neither of the defendants sought reimbursement for review work done by attorneys and paralegals; rather, the defendants sought reimbursement for the “highly technical” services provided by experts in actually producing the documents as requested by the plaintiffs.

Further, the court felt that because the defendants could not have anticipated prevailing in the matter, the costs incurred, though significant, were likely to be the accurate and necessary expenses and not “puffed, exorbitant, or contrived.” Finally, the court pointed out again that the costs were incurred “in significant respects at the discovery demands of Plaintiffs.” Noting that a reasonable defense to the imposition of prevailing party costs can be the actual inability to pay, the court declined to examine this further, as it was not asserted by the nonprevailing party.

Conclusion

While it is too early to say if “loser pays” will become the standard with regard to electronic discovery costs, courts may consider the idea, especially in cases where one party is responsible for driving up the costs. Parties should strive to meet and confer regarding electronic discovery issues early in the case, negotiating a Case Management Plan that focuses on minimizing these expenses and is designed to identify responsive information. This may include limiting the number of custodians and agreeing on search terms and other filtering criteria.


[1]. 2011 U.S. Dist. LEXIS 46045 (E.D. Va. Apr. 28, 2011).

[2]. It is unclear from the opinion how the court’s approval of $1,561.34 in electronic copying costs (*23) lines up with the chart of taxed costs (*24).

[3]. 605 F. Supp. 2d 740 (E.D. Va. 2009).

[4]. 2011 U.S. Dist. LEXIS 48847 (W.D. Pa. May 6, 2011).

[5]. 2008 U.S. Dist. LEXIS 98188 (S.D. Fla. Dec. 4, 2008).