By Gerald A. Maatman, Jr. and Laura J. Maechtlen

As our loyal blog readers are aware, following their stinging defeat before the U.S. Supreme Court in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), plaintiffs’ counsel rebooted their claims in a fourth amended complaint alleging class-based gender discrimination claims with very important changes aimed to address deficiencies identified by the U.S. Supreme Court as barriers to class certification. We discussed Wal-Mart’s motion to dismiss the fourth amended complaint here and here, Wal-Mart’s request for certification of an interlocutory appeal here, and interim discovery issues here

The plaintiffs in Dukes moved again for class certification, relying on their “repackaged” theories focused on a smaller class of current and former female employees who worked in Wal-Mart regions centered in California and allegations of bias by a “discrete” group of California District and Regional Managers. However, plaintiffs did not benefit from their proverbial “second bite” at the apple. Noting that “[p]laintiffs’ proposed class suffers from the same problems identified by the Supreme Court, but on a somewhat smaller scale,” Judge Charles Breyer of the U.S. District Court for the Northern District of California denied the motion in an order issued this past Friday evening, finding that “the commonality issue is dispositive.” Dukes v. Wal-Mart Stores, Inc., No. 3:10-CV-03005-CRB, Slip Op. at 17 (N.D. Cal. Aug. 2, 2013). The Court noted that there was “no precise scope to the class” and “[r]ather than identify an employment practice and define a class around it, plaintiffs continue to challenge the discretionary decisions of hundreds of decision makers, while arbitrarily confining their proposed class to corporate regions that include stores in California, among other states.” Id

Whether this is the final chapter in the twelve year old class action remains to be seen. What is certain is that the case – once the largest employment discrimination class action ever – represents a stunning reversal  of fortune for the plaintiffs’ employment class action bar. Untold millions of dollars of fees, attorneys’ hours, and expert witness expenses were poured into the litigation, and now plaintiffs have nothing to show for it.

Plaintiffs’ Renewed Motion For Class Certification

Plaintiffs again asserted Title VII disparate treatment and disparate impact claims, alleging that Wal-Mart discriminated against women in making two types of pay decisions (hourly and salaried) and two types of promotion decisions (Management Trainee and Support Manager). Id. at 3. In their motion for class certification, they proposed to certify three regional classes of all women employed at any retail store in three of Wal-Mart and Sam’s Club California Regions at any time from December 26, 1998, to December 31, 2002, and who were subject to: a) the compensation system for hourly retail sales positions; b) the compensation system for salaried management positions up to and including Co-Manager; and c) the promotion system into Management Trainee/Assistant Manager and Support Manager/Area Manager. Id. The proposed class concerned employees from a total of 250 stores. Id. at 4.

To support the motion for class certification, plaintiffs identified five “common” questions, asking whether: (1) Wal-Mart’s “tap on the shoulder” system for making promotions into Management Trainee and Support Manager positions had an adverse impact on women; (2) a core group of high-level managers engaged in a pattern or practice of intentionally denying women equal opportunity to receive promotions into management trainee and support/area manager positions; (3) Wal-Mart’s Field Compensation Guidelines for making hourly pay decisions had an adverse impact on women; (4) Wal-Mart’s guidelines for salaried pay decisions had an adverse impact on women; and (5) the managers charged with making pay decisions for the hourly and salaried employees engaged in a pattern or practice of intentionally compensating women less than similarly situated men because of their gender. 

Disparate Treatment Claims

In analyzing the plaintiffs disparate treatment claims, the Court first noted that plaintiffs must provide “significant proof that Wal-Mart operated under a general policy of discrimination,” to show a common question underlying their disparate treatment claims. Id. at 5 (citing Dukes, 131 S. Ct. at 2554). Unfortunately, however, plaintiffs “returned with new versions of each of the types of evidence the Supreme Court found inadequate.” Id

The Court first analyzed plaintiffs “new” statistical evidence, which it found “underwhelming.” Id. Plaintiffs’ promotion statistics showed that — for Management Trainees — a majority of districts showed no statistically significant results in two regions, and in the last region, only a little over half of the districts had statistically significant disparities. Id. For Support Managers, plaintiffs’ new statistics show no statistically significant disparities in any of the three regions. Id. at 5-6. Further, for pay decisions, plaintiffs conceded that their own analysis showed no statistically significant disparity for certain positions, and for others that required use of a “complicated” regression model using the “most control variables,” there was some significant disparity that varied by year in substantial percentage. Id.

The Court recognized that, while a pattern of statistically insignificant results can still be evidence of a common question, the evidence submitted by plaintiffs failed to bridge the “worlds away” gap the Supreme Court described between plaintiffs’ previous showing and Rule 23’s requirements. Id. at 6 (citing Dukes, 131 S. Ct. at 2554). Indeed, the Court opined that “if Plaintiffs had been more circumspect in the scope of their proposed class, their statistics may have had a bigger impact.” Id. at 7.    

The Court next analyzed plaintiffs non-statistical evidence. In place of their sociology expert (which was disregarded by the U.S. Supreme Court), plaintiffs alleged “regular communications among management and shared training” to allege a common policy of discrimination. Id. at 8. They specifically identified a statement in typed notes from a 2004 meeting presided over by Wal-Mart’s then-CEO in which plaintiffs allege that the CEO expressed the view that men were better at “focus single objective [sic]” and were more “results driven,” and that Wal-Mart should select leaders based on their ability to deliver results. Id. Plaintiffs alleged this statement contributed to a “strong common culture” and shared stereotypes about women; however, Wal-Mart offered evidence suggesting that the statement was not made by the CEO, and that the actual message of the presentation was focused on creating a culture that leverages the talents of both males and females for competitive advantage.  Id. at 8-9. In the end, the Court concluded that the alleged statements added little to plaintiffs’ showing of significant proof of a general policy of intentional discrimination. Id. at 9.

Plaintiffs also identified a “core group” of biased upper-level managers who influenced all of the challenged decisions by lower-level managers. Id. at 9. However, plaintiffs’ evidence fell short on two levels for the Court. First, even the smaller group is quite large; indeed, over 450 different managers were responsible for making the contested decisions and, even if pared down to “top management,” could have included up to 56 decision makers. Id. at 10. Second,  plaintiffs’ evidence of bias among their proposed sub-group of managers remained too weak to satisfy their burden of providing “significant proof” of a general policy of discrimination. Id. While plaintiffs submitted additional declarations that accounted to one anecdote for about every 1,745 class members, according to the court, the ratio “remains quite low.” Id. at 11-12. 

Based on this analysis, the Court denied plaintiffs’ motion to certify their disparate treatment claims.

Disparate Impact Claims

As to their disparate impact claim, plaintiffs enumerated five “specific employment practices” that they alleged guided local managers’ discretion and were responsible for promotion and pay disparities: for the promotion claims, (1) a “promotion from within” policy, (2) a policy not to post job openings, (3) the use of promotion guidelines with a requirement that candidates be willing to relocate, (4) common subjective criteria used to select candidates; and, for the pay claims, (5) Wal-Mart’s Field Compensation Guidelines, which enumerated criteria that managers were to consider in making pay decisions. Id. at 13-14. However, according to the Court, each of the proposed practices suffers from one of two problems: (1) for the first three alleged practices — promotion from within, not to post and relocation — the evidence indicates that the practice did not actually apply across the proposed class for the proposed class period; and, (2) in the case of the use of alleged “common” subjective criteria and/or compensation guidelines, the practices boiled down to a “repackaged” theory of delegating discretion, which the Supreme Court held could not provide the commonality necessary to certify a class. Id. at 13-15. Accordingly, the Court also denied plaintiffs’ motion to certify the disparate impact claims.

Implications For Employers

The Court’s decision reaffirms lessons learned from the U.S. Supreme Court ruling in Dukes. Despite plaintiff’s “repackaged” class size and focus, and their asserted change of certification theories, the plaintiffs in Dukes continued to challenge different types of decisions allegedly made by hundreds of decision-makers, which proved fateful to their certification motion. In addition, while plaintiffs attempted to articulate their legal theories differently, they simply “repackaged” the same failing arguments to apply to a smaller class. For this reason, the Court decision denying class certification provides a road-map for opposing class certification motions that focus on smaller class sizes, and reaffirms the applicability of the U.S. Supreme Court’s decision to all putative class actions — large or small. 

The ruling has significant ramifications beyond the parties in the case. Dukes has been a symbol of “mega-class actions” and the enormous legal risks such litigation poses to employers. One by-product of the decision may well be a dampening in the enthusiasm for plaintiffs’ class action lawyers to make such an investment in such large scale lawsuits.