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Tuesday, June 21, 2011

The Constitutional Overtones of Wal-Mart

As I mentioned earlier, I am blogging on the Supreme Court's recent class action cases.  I want to continuing writing about Wal-Mart Stores, Inc. v. Dukes, which was released yesterday.  In my last post I argued that the majority opinion conflated the "commonality" requirement of Rule 23(a)(2) with a merits determination of the plaintiffs' claim.  I think that is a mistake in light of the function of the class action, as I argue in a recent paper and will argue here soon. 

But as a bit of set-up, I want to tease out the constitutional issues that lurk in the majority opinion, particularly the discussion of Rule 23(b)(2), which all of the Justices joined.  Lyle Denniston on SCOTUSblog does a fantastic job of discussing the constitutional issues implicated by the opinion, but I want to tease out in more detail the underlying view of due process that supports the Court's interpretation of Rule 23(b)(2).  In my view, Wal-Mart is a decisive turn in favor of providing defendant's interests in the class action context greater due process protection.   

In Wal-Mart the Court addressed whether the plaintiffs could certify Title VII claims for backpay under Rule 23(b)(2), which permits a class action when "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."  The plain terms of Rule 23(b)(2) suggest that a court cannot certify a class action for monetary relief like compensatory damages under Rule 23(b)(2).  However, the accompanying notes to the Rule state that "[t]he subdivision does not extend to cases in which the appropriate final relief relates exclusively or predominantly to money damages," raising the negative implication that monetary remedies are available if they are not exclusive or predominant.  Relying on this language, a number of courts have permitted Rule 23(b)(2) class actions, mostly Title VII cases, for monetary remedies if they are an add-on or "incidental" to the injunctive relief requested.  In fact, the Court seemingly adopted the "incidental" approach used by the Fifth Circuit, which permits Rule 23(b)(2) class actions for damages where the damages would easily "flow" from the liability determinations supporting injunctive relief.  

But the Court ultimately rejected the application of Rule 23(b)(2) to the plaintiffs' backpay claims.  As an initial matter, the Court held that Rule 23(b)(2) presumptively does not apply to claims for monetary remedies, even if they are equitable in nature.  Again following the work of the late Richard Nagareda, the key distinction is whether the relief is "indivisible" to the class.   An injunction for one member is an injunction for all, but backpay requires an individualized inquiry, and thus is specific to each class member.  

The distinction between "indivisible" and "divisible" remedies matters mainly because of due process concerns.  Rule 23(b)(2) class actions are mandatory, in that they do not require a court to provide notice to the class members or an opportunity to opt out.  The premise is that if the remedy is indivisible, there is no point in a class member excluding herself from the action.  In Justice Scalia's words, notice and opt out rights are not required for indivisible remedies "presumably because it is thought (rightly or wrongly) that notice has no purpose when the class  is mandatory, and that depriving people of their right to sue in this manner complies with the Due Process Clause."  Not so for the divisible remedies.   When a remedy is divisible, such as a claim for backpay, the Court concludes that notice and an opportunity to opt-out are necessary to protect the plaintiffs' interests in their individual claims.   As in AT&T, Justice Scalia cites Philips Petroleum v. Shutts, a personal jurisdiction case, for the proposition that "[i]n the context of a class action predominantly for money damages we have held that absence of notice and opt-outviolates due process."

Now, recognition of a plaintiffs' claim as a property interest for due process purposes is nothing new.  But the Court goes further and suggests that defendants similarly have a protectable interest in defenses to claims.  This comes out most clearly when the Court considers the proposal by the Ninth Circuit to handle the backpay claims through "Trial by Formula" - essentially sampling a small number of claims and using them to extrapolate the value of the remaining claims.  The Court "disapprove[s] that novel project."  Here the Court does not cite due process, but the Rules Enabling Act, which forbids a Rule from "abridg[ing], enlarg[ing] or modify[ing] any substantive right."  The Court relies upon the statutory defenses available to defendants under Title VII, which they conclude would be "abridge[d]" if a district court employed sampling.  

Now, the Court did not invoke due process in discussing the defendant's defenses, but there is significant evidence that they would consider such "substantive right[s]" protectable interests.  In 2009, Justice Kennedy issued a statement on the denial of certiorari for DTD Enterprises, Inc. v. Wells, which was joined by Justices Sotomayor and Chief Justice Roberts.  The issue was whether a state court could order a defendant to pay for the costs of class notification.  Justice Kennedy concluded that the payment of notice costs was a deprivation of property under the Due Process Clause, which may never be recovered if the case proves to be meritless.  Thus, in Justice Kennedy's words, "there  is considerable force to the argument that a hearing in whichthe trial court does not consider the underlying merits of the class-action suit is not consistent with due process."  

Notice that the due process discussion in Wal-Mart garnered all of the Justices' votes, and that Justice Sotomayor signed on to Justice Kennedy's statement in DTD Enterprises.  Thus, there is a total consensus that defendants' rights are a matter of due process.  As Lyle Denniston notes, the Court will probably address the issue in Philip Morris USA, Inc., et al., v. Jackson (docket 10-735), where the Court will address directly whether individualized defenses are a property interest protected under the Due Process Clause.  Justice Scalia suggested as much in an order staying the state court's judgment in that case. 

A recent, excellent law review article by Mark Moller of Depaul has noted there is little historical support for viewing defenses as protected under the due process clause.  My own paper goes further, and argues that the focus on claims and defenses as the relevant property interests for due process purposes takes too blinkered a view of all of the substantive entitlements at stake.  After all, the whole point of Title VII is not to set in stone procedures for subsequent litigation, but to prevent gender discrimination.  As I will argue in subsequent posts, whether Title VII does prevent unlawful discrimination will depend a great deal on whether courts will be willing to relax other interests like a plaintiff's claim and a defendant's defenses.

Posted by Sergio Campos on June 21, 2011 at 01:39 PM | Permalink


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Another thing about the statutory right to raise defenses, which precedes reaching a constitutional issue. The Court tied the Title VII law and its interplay with Rule 23 to the Rules Enabling Act:

"Because the Rules Enabling Act forbids interpreting Rule 23 to abridge, enlarge or modify any substantive right, a class cannot be certified on the premise that Wal-Mart will not be entitled to litigate its statutory defenses to individual claims."

That line, notably, was in the unanimous part (at the end of C, at end of the main opinion), not the 5-4 part. Therefore the Ginsburg group, although not addressing in their own opinion whether the plaintiffs would have a shot under (b)(3) on remand, did sign on to the idea that Wal-mart is entitled to raise statutory defenses to every single individual claim. That same unanimous part C rejected the sampling technique that the lower courts allowed. That raises the bar on what plaintiffs would have to do to show "superior method" under (b)(3), because a million mini-trials under one roof, with all those complications, is not necessarily superior to having separate cases.

For example, what the heck do you do about a jury? Instead of 1000 juries around the country, do you have one jury have to sit through two years of mini-trials? The district court solved it with the sampling shortcut, but once Ginsburg et al. agreed to reject that, the options are slim to none.

Posted by: class action geek | Jun 21, 2011 5:40:20 PM

Before diving into the details, I want to be sure of your perspective. Do you think that Ginsburg et al. were wrong on the point they joined? Even if you put aside the "defense due process" claims, the absent plaintiffs' due process protections seem strong, unless you do revise doctrine on that. In addition, while due process is the backdrop, the basic rule-based interpretation of (b)(2) versus (b)(3) does seem to favor the defense view that has prevailed in most circuits. After all, why have all the extra steps in (b)(3) if you can just smuggle money claims into (b)(2)?

Next, if you grant that the unanimous part is right (not saying you do, but if you do), then there's a critical extra step between the two steps you describe in saying that "the majority opinion conflated the 'commonality' requirement of Rule 23(a)(2) with a merits determination of the plaintiffs' claim." Perhaps the majority did do that, and was wrong. But the right answer per Ginsburg would be to relocate the majority's mistaken (a)(2) analysis under (b)(3), so that it's still part of class certification, not ultimate merits. The question would be whether the class vehicle is a superior means of resolving the common claim. With the Fiji water, maybe yes.

But under Title VII, even putting aside defendants' due process, the defendant's statutory right is ultimately to show on the merits that the decision was based on nondiscriminatory reasons. At the class-certification stage under (b)(3), there's a fair question whether there's still room for a pre-merits preview of the merits sufficient to answer the "superior method" question. If analyzing the various individual decisions will involve a million mini-trials, then it's questionable whether the class is a superior method. The fairness hearing, and the district court's need to step up and sua sponte protect the absent class members -- who face being held to the preclusive effect of a pro-defense ruling -- is all still part of Rule 23, not a summary judgment or trial process.

I'm tentatively sold on Ginsburg's view of moving this to (b)(3), but I'm not sure how much of a chance this class would have of surviving that step on remand. If the answer is a good chance, I'm not sure of the path to get there. If the answer is a low chance, then the difference between the dissent and majority is perhaps academic in the end.

Posted by: class action geek | Jun 21, 2011 2:35:09 PM

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