June 21, 2011

U.S. Supreme Court reverses class certification in Wal-Mart v. Dukes

We’ve been tracking the Wal-Mart v. Dukes case for its possible impact on the availability of punitive damages in class actions.

Yesterday, the U.S. Supreme Court reversed the Ninth Circuit’s decision approving the certification of a class action in Wal-Mart. The court did so for two reasons, one of which may make it more difficult for courts to certify punitive damages claims for class treatment.

First, a five-justice majority of the court held that the plaintiffs could not satisfy Federal Rule of Civil Procedure 23(a)’s commonality requirement, which is a threshold requirement for certifying any class action under Rule 23. Other blogs will likely cover that aspect of the opinion, but it’s beyond the scope of our focus here.

Second, the Supreme Court unanimously held that the claims for backpay were improperly certified under Federal Rule of Civil Procedure 23(b)(2), which allows for class treatment only 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 court determined that Rule 23(b)(2) does not authorize class certification where, as with the backpay claims in Wal-Mart, each class member would be entitled to an individualized award of monetary damages.

The Supreme Court’s interpretation of Rule 23(b)(2) may lead courts to conclude that claims for punitive damages, like claims for backpay, cannot be certified under Rule 23(b)(2). The Supreme Court has previously held that any punitive damages award must be tied to the harm suffered by a plaintiff. (See, e.g., State Farm Mutual Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, 422-423.) Thus, courts may well conclude that claims for punitive damages, like claims for backpay, are claims for an individualized award of monetary damages that cannot be certified under Rule 23(b)(2).

Although plaintiffs might still move to certify claims for individualized monetary relief under Rule 23(b)(3), federal courts could decline to certify claims for punitive damages under this provision if they conclude these claims cannot satisfy Rule 23(b)(3)’s predominance requirement, which requires a plaintiff to show that the questions of law or fact common to class members predominate over any questions affecting only individual class members. While some courts have certified class actions where the plaintiffs seek punitive damages, several federal courts have held declined to certify punitive damages claims under Rule 23(b)(3) because the necessity of assessing an award of punitive damages in light of the defendant’s conduct toward a particular plaintiff, and in light of the compensatory damages awarded to a particular plaintiff, requires individualized inquiries that prevent a plaintiff from satisfying Rule 23(b)(3)’s predominance requirement. (See, e.g., Allison v. CITGO Petroleum Corp. (5th Cir. 1998) 151 F.3d 402, 418-420 [finding no abuse of discretion where district court refused to certify claims for punitive damages for class treatment under Rule 23(b)(3) in Title VII action because these claims “require[] individualized and independent proof of injury to, and the means by which discrimination was inflicted upon, each class member,” the claims “must therefore focus almost entirely on facts and issues specific to individuals rather than the class as a whole,” and such a class action would thus improperly “‘degenerate into multiple lawsuits separately tried’”]; In re Baycol Products Litigation (D. Minn. 2003) 218 F.R.D. 197, 215-216 [“a determination of punitive damages is based on individual issues”; holding “Plaintiffs’ proposed class trial on punitive damages poses . . . due process concerns” similar to those in State Farm v. Campbell “because the conduct upon which Plaintiffs would base their punitive damages claim is not specific to a particular plaintiff[’]s[] claims”]; Reap v. Continental Cas. Co. (D.N.J. 2001) 199 F.R.D. 536, 548-550 [denying class certification under Rule 23(b)(3) in part because “individual issues would predominate over common ones during the damages phase” of trial in a case alleging violations of Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act since “calculating compensatory and punitive damages . . . for thousands of class members would prove to be quite an individualized task”].)