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VOL. 35 | NO. 26 | Friday, July 1, 2011

Walmart ruling a game-changer

‘Wasn’t an appropriate case for class actions’

By Kathleen Carlson

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The U.S. Supreme Court ruling that stopped a class action sex-discrimination case against Walmart dead in its tracks will not end the big lawsuits, but it will change the game for many plaintiffs and their lawyers, area attorneys say.

The ruling will make it harder to get a court to approve or certify a class of plaintiffs who want to sue as a group, says Brian Fitzpatrick, an associate professor of law at Vanderbilt whose research includes class action litigation and federal law. Judges now have more leeway in deciding certification issues, he says, and the Walmart opinion may make some lawyers choose not to take cases they perhaps would have in the past.

Statements about the opinion spelling the death of class actions are overblown, says Reid Estes, a member of Dickinson Wright PLLP, who has represented both plaintiffs and defendants in class actions.

“At the end of the day, (it’s) just that this wasn’t an appropriate case for class actions,” Estes says.

Certifying the Walmart class was difficult and controversial from the outset, and the end result was predictable, he adds. “You can’t certify 1.5 million women for individual damages.”

There’s also a Nashville footnote: The work of Vanderbilt law professor and class action expert Richard Nagareda, who died last October at age 47, was cited in the case. As Nagareda wrote and the majority opinion quoted, class action plaintiffs not only must raise common legal questions, but also show “the capacity of the classwide proceeding to generate common answers” likely to resolve the litigation. The Walmart employees weren’t able to make that showing.

Much is at stake in class action lawsuits. In an article last year, Fitzpatrick examined nearly 700 class action lawsuits that were settled in federal court in 2006 and 2007. Each year, roughly 350 were resolved to the tune of $16 billion in damages and $2.5 billion or 15 percent to attorneys.

Securities fraud lawsuits were filed most often, about 35 percent to 40 percent of the total, with employment law cases coming in second at about 14 percent. By Fitzpatrick’s guesstimate, perhaps three or four times that many class action cases are filed each year in federal court.

Class actions also are filed in state courts, and some scholars estimate more class actions are filed there than in federal courts, Fitzpatrick says. All generally are settled if they don’t first get thrown out of court either at the certification stage or on a motion from the defendants that the plaintiffs don’t have enough proof to go to trial, he adds. If plaintiffs can overcome these hurdles, they have huge leverage over the defendants, he adds.

The Walmart case began in 2001 and eventually pitted 1.5 million female current and former employees against a retail behemoth with 3,400 stores across the country. The women used statistics to make their case, claiming that while 70 percent of Walmart hourly workers were women, only 33 percent of managers were. A sociologist concluded from his research that Walmart’s corporate culture made it vulnerable to bias against women.

Walmart denied any discrimination and fought the decision to certify all the way to the Supreme Court. Walmart said its policies prohibited illegal discrimination and gave individual store managers broad discretion on personnel decisions. That combination proved winning for the retail chain. It successfully argued that while the 1.5 million women may have raised the same legal questions on discrimination, there was no way, with so many decision-makers, for a class action to yield common answers.

“I think (the case) clarifies the law and the manner in which you can bring a class action,” says Bruce Buchanan, a member of the law firm King & Ballow, which represents management in employment cases. Plaintiffs in class actions always have had to show their common legal interests, and the case “clarified that in this situation the whole class didn’t have commonality because each store had its own discretion” on personnel decisions, he says. “How can you say ‘storewide,’ then want to put 1.5 million (people) into one class?”

The case also validates the wisdom of having and making decentralized decisions, Estes says. “That’s always an impediment to class certification.”

The Supreme Court broke new ground in two areas, Fitzpatrick says.

“The most important new tidbit – the Supreme Court has said now that it’s OK to look at the merits of the lawsuit when you’re deciding whether a class should be certified or not,” he says.

Judges certify a class at the start of a class action lawsuit, before much evidence has been gathered, he adds.

“The notion that a plaintiff now must have enough evidence early on to persuade a judge that the allegations common to the class might ultimately prevail in the suit is new,” he says.

Federal appeals courts had reached different conclusions on the issue, but the Supreme Court resolved it by giving judges discretion to look at the merits of the case when deciding whether to certify. This gives the judges a lot of power, and makes it harder for plaintiffs’ lawyers to have a class certified, he adds.

“That’s one of the troubling parts of the case,” says Dewey Branstetter, who has represented plaintiffs in class action lawsuits as a member of Branstetter, Stranch & Jennings, PLLC. “In the past courts might (have had likelihood that plaintiffs would win a case) in the back of their minds.” But for the justices to say, “ ‘Yes, we’re going to allow you to look at merits – that’s a change and not particularly a good one, I don’t think.”

Second, the court clarified the rule to follow when class action plaintiffs want both money, such as back pay, and an order or injunction from the court, such as to stop discriminating, Fitzpatrick says. There are separate procedures for seeking money and injunctions, but no procedure for both; it’s easier to meet the injunction standard, he says. Often, plaintiffs seeking both will use the injunction procedure and say the request for money is only incidental to the injunction. Some federal courts had allowed this, and that’s what the Walmart plaintiffs did, saying that money damages for the class could be determined using a random sample of female employees and extrapolating the results to the whole class, he says.

The Supreme Court didn’t agree, and found Walmart workers should have followed the more difficult rule to certify a money-damages case.

“I think the eye-popping (part of the case) was in the statistics,” Estes says. “When 70 percent of employees are female and only 33 percent of upper-tier managers are (female), that grabs your attention and I think that’s what motivated the plaintiffs’ attorneys.”

Class actions are enormously risky, Fitzpatrick says, requiring plaintiffs’ lawyers to invest huge amounts of time and money with the understanding they’ll receive no fees unless successful.

“You can count on one hand the number of class actions that go to trial” because businesses defending the lawsuits don’t want to risk the odds of an outlier jury imposing a huge judgment on them, Fitzpatrick says. Here, “the Supreme Court said we’re not going to put Walmart in that situation unless we think something’s there.”

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