Co-authored by Gerald L. Maatman, Jr. and Laura Maechtlen

At 10 a.m. EST today, the U.S. Supreme Court announced its decision to accept review of Wal-Mart’s petition for certiorari in Dukes, et al. v. Wal-Mart Stores, Inc. View Opinion. The 6 to 5 en banc decision of the Ninth Circuit Court of Appeals (San Francisco) – reported at 603 F.3d 571 (9th Cir. 2010) (view ruling)–affirmed an earlier class certification order in the largest employment discrimination class action ever certified. The Ninth Circuit upheld an earlier panel decision certifying a class action gender discrimination lawsuit challenging Wal-Mart’s pay and promotions practices. The full Ninth Circuit ruled that the U.S. District Court for the Northern District of California did not abuse its discretion in finding that the large and diverse class – encompassing approximately 1.5 million female employees, both salaried and hourly with a range of positions, who are or were employed at one or more of company’s 3,400 stores across the country – was united by a complex of company-wide discriminatory practices against women where plaintiffs presented expert opinions, factual evidence, statistical evidence, and anecdotal evidence showing a corporate policy and common pattern of discrimination imposed on female employees nationwide.

This isn’t the largest class action ever certified – In Re Currency Conversion Fee Antitrust Litig., 264 F.R.D. 100, 111 (S.D.N.Y. 2010) (certifying a class of over 10 million claimants); Fresco v. Auto Data Direct, Inc., No. 03-61063-CIV, 2007 WL 2330895, at *2 (S.D. Fla. 2007) (certifying a class “estimated to include more than 200 million individuals”), were bigger – but Dukes, et al. v. Wal-Mart is the largest workplace class action ever certified. In practical terms, plaintiffs’ counsel have stated that they believe the economic value of the case is in the “billions” as a result of the Ninth Circuit’s ruling.

The Supreme Court’s decision to review Dukes is significant for employers on many levels. Given a typical schedule for briefing and argument at the Supreme Court, a ruling is likely by June of 2011. Between now and then, our readers will hear lots about the case, but this post sketches out the main themes employers should look for in the coming months.

Is The Ninth Circuit’s Dukes Decision A “Game-Changing” Ruling?

While the Ninth Circuit’s decision may not have transformed Rule 23 law, it has changed the landscape for employment class actions. The Ninth Circuit’s decision provides a roadmap for the plaintiffs’ bar to file colossal employment class actions, raising the already high stakes in this type of litigation even higher. At the case intake stage, plaintiffs lawyers, emboldened by this historic decision, are forced to ask themselves why they should file single-plaintiff cases or smaller class actions if they may have a chance at succeeding in certifying a monstrous, nationwide class with exponentially larger potential recoveries. As such, employers are likewise challenged to review and reinforce (or implement) creative policies and practices (in addition to litigation strategies) to position themselves against class certification challenging a company’s pay and promotion and other employment practices.

What Are The Stakes?

The Supreme Court’s decision to review Dukes means that employers can expect further elucidation of Rule 23 certification standards in employment discrimination class actions. The case offers a framework for the analysis required in Rule 23(b)(2) class actions seeking injunctive and declaratory relief, coupled with a demand for massive monetary recovery. The Supreme Court’s future ruling in Dukes could prove to be critical for both sides in high-stakes class actions, and depending on the ultimate outcome of the case, it also has the potential for sparking a renewed discussion about class action reform.

Look For The Supreme Court To Provide Clearer Guidance On The Standard Applied When Deciding To Certify A Class

Dukes could harmonize the Supreme Court’s decisions in Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177 (1974) (prohibiting a “preliminary inquiry into the merits of a suit to determine whether it may be maintained as a class action”) with Gen. Tel. Co. of the Sw. v. Falcon, 457 U.S. 147, 161 (1982) (requiring a “rigorous analysis” to ensure that the prerequisites of Rule 23(a) have been satisfied). The key difference between Eisen and Falcon is the purpose for which a District Court analyzes the underlying facts – whether to resolve a merits issue unnecessarily, or to determine whether, for example, plaintiffs have demonstrated questions of law or fact common to their proposed class.

For class certification, a “rigorous analysis” must confirm that common questions of law or fact exist, not the likelihood that the plaintiffs can prove the answers to those common questions. In other words, the plaintiffs’ theory of the case matters at class certification, not whether the theory will succeed on the merits.

The Issues Of Class-Wide Punitive Damages

The Ninth Circuit’s decision in Dukes remanded to the District Court the issue of whether certification under Rule 23(b)(2) or Rule 23(b)(3) is appropriate for punitive damages claims. While Dukes didn’t rule on the merits of plaintiffs’ claim for punitive damages, it provided guidance for analyzing under Rule 23(b)(2) whether punitive damages render the relief sought “predominantly” related to monetary damages. Regarding the possibility of certifying punitive damages claims under Rule 23(b)(3), Dukes noted that hybrid certification of Rule 23(b)(2) and Rule 23(b)(3) sub-classes in a single action “is worth consideration.”

The petition by Wal-Mart to the Supreme Court sought review of the following questions: (1) Whether claims for monetary relief can be certified under Federal Rule of Civil Procedure 23(b)(2) and, if so, under what circumstances; and (2) whether the order certifying a class conforms to the requirements of Title VII, the Due Process Clause, the Seventh Amendment, the Rules Enabling Act, and Federal Rule of Civil Procedure 23. In granting the petition, the Supreme Court accepted review of the first question, declined review of the second question, and directed the parties to address the issue of “whether the class certification ordered under Rule 23 (b)(2) was consistent with Rule 23 (a).” While not unprecedented, the Supreme Court’s direction to address this issue likely signals that it intends to review the underpinnings of the expansive class certified in the Dukes case and the extent to which the pursuit of punitive damages impact the certification calculus.

 This issue is far from theoretical, for it has everything to do with leverage, exposure, and tipping points for employers subject to a class action. The answer to the issue of certification of punitive damages claims in employment discrimination class actions is critical in this context.

 Due Process Rights In Class Actions And The Role Of Experts

The Ninth Circuit in Dukes noted a range of permissible means to manage a class-action trial in accordance with due process. Dukes found the trial plan in Hilao v. Estate of Marcos, 103 F.3d 767, 783-87 (9th Cir. 1996), to be particularly instructive. In Hilao, the Ninth Circuit held that representative sampling, special master-supervised depositions of sample class members, a special master’s report and recommendation for pro rata allocation after extensive review of the evidence, and a full jury trial on compensatory damages satisfied the due process rights of all parties. Other trial plans may be appropriate, including the trial plan approved by the District Court in Dukes and the “test case” procedure in In Re TMI Litigation Consolidated Proceedings, 927 F. Supp. 834, 837 & n.5 (M.D. Pa. 1996). In short, according to the Ninth Circuit in Dukes, neither Title VII nor due process mandate individual damages proceedings.

The import of such procedures eliminates individual-by-individual defenses stemming from personnel decision-making by employers, as it turns class actions into purely statistical exercises. This is also significant because the Ninth Circuit in Dukes rejected the notion that a full Daubert analysis – from Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993) – is required at class certification, suggesting that Daubert doesn’t have the same application at class certification as it does at trial.

The net effect is that plaintiffs are able to certify more cases, and gain the leverage that comes with a certification order. The Supreme Court’s disposition of this issue has enormous consequences for employers in approaching the defense and litigation of class action claims.

The Bottom Line

You’ll be hearing much more about the Dukes case in the weeks and months ahead. This may well become the most important employment discrimination class action ruling ever, and change the workplace class action landscape permanently.

For a thorough analysis of the Ninth Circuit’s decision in Dukes, please link to the following BNA article from the Class Action Reporter.  View BNA Article.