The way forward after Wal-Mart.

• Author: Rutherglen, George
• Position: Class action procedure reform

The Supreme Court's decision denying certification of a class action in Wal-Mart Stores, Inc. v. Dukes (1) elicited a strong dissent from Justice Ginsburg, (2) and widespread criticism in liberal circles, (3) but in several important respects, the decision was unanimous. All the Justices agreed that a class action could not be certified under Federal Rule of Civil Procedure 23(b)(2), (4) the rule that governs class actions in which injunctive relief is "appropriate respecting the class as a whole." (5) Instead, the class could be certified (if at all) only under the more stringent provisions of Rule 23(b)(3), (6) typically reserved for damage class actions. (7) The holding that divided the Justices concerned the failure of the plaintiffs' case to meet the requirement of Rule 23(a)(2) that there were "questions of law or fact common to the class." (8) On this issue, the five Justices conventionally identified as conservative were in the majority and the liberals were in dissent. Yet even on this issue there were points of apparent agreement, and one of them was the need to inquire into the merits to determine whether the prerequisites for certification were satisfied. (9) On this point, the majority and the dissenters disagreed only over how strong the plaintiffs' evidence on the merits really was.

As that disagreement makes clear, a consideration of the merits deeply affects almost all certification decisions. If Wal-Mart had actually discriminated against women in pay and promotions, as Justice Ginsburg plainly suspected it had, (10) then the argument for certification would have been strengthened by the need to prevent future discrimination and to compensate victims of past discrimination. If, on the contrary, the evidence was too weak to support this conclusion, as Justice Scalia argued for the majority, (11) then certification should have been denied. What is true in the particular case also is true for entire categories of litigation: the more meritorious the underlying claim of class-wide liability, the stronger the arguments for certification. Part I of this article situates this commonly accepted observation in the perennial disputes over substance and procedure within the specific context of class actions, both for the Title VII claims at issue in Wal-Mart and for class actions generally.

The opinion in Wal-Mart expands upon this observation in a different direction, by disapproving a broad interpretation of the holding in Eisen v. Carlisle & Jacquelin (12) that an inquiry into the merits cannot be used to shift the cost of notice to the defendant immediately upon certification of a class action. Wal-Mart makes the merits a component of the certification process, first, by requiring the party seeking certification to "affirmatively demonstrate" that the requirements of Rule 23 have been met, and second, by recognizing that such proof usually involves an examination of the merits. (13) Prior cases and previous commentary have recognized these points, but these sources fail to articulate exactly what an inquiry into the merits entails, or how it relates to other procedural devices that involve an examination of the merits before trial, such as motions to dismiss for failure to state a claim and motions for summary judgment. (14) Part II of this article examines this issue and seeks to put certification decisions in their proper place within the structure of civil litigation, consisting of pleading, discovery, and summary judgment, followed by settlement or trial.

That inquiry, in turn, leads to the larger question of how to reform class action procedure. If "one size does not fit all," as John Coffee has previously pointed out, then it is the merits that determine which size fits in different class actions, both in quantitative terms--in determining the optimal number of class members--and in qualitative terms--in defining the scope and procedure for different class actions. (15) As Richard Marcus has recently emphasized, an examination of the merits is crucial to the gatekeeping function of federal courts in controlling aggregate litigation. (16) An inquiry into the merits hardly resolves all the pressing questions raised by class actions as we have them now, but it offers a place to start in framing solutions tailored to the need for aggregate litigation in different areas of law. Part III argues that an inquiry into the merits provides a suitable vehicle for considering changes in class action practice. Even such seemingly "trans-substantive" requirements as adequacy of representation can be implemented only by reference to substantive law. Whether there are conflicts of interest within the class, or whether the class attorney can effectively represent the class, cannot be decided without considering substantive law. Neither can the choice of whether to certify a class action be decided under the different subdivisions of Rule 23(b).

In Wal-Mart itself, the Court invoked substantive law in requiring certification of class actions for back pay under subdivision (b)(3). (17) The Court rejected "Trial by Formula" as an impermissible infringement on the defendant's right to oppose individual relief to any particular class member. (18) The Rules Enabling Act (19) and the Due Process Clause, (20) according to the Court, required the preservation of fights once conferred by substantive law and prevented certification of claims for back pay under subdivision (b)(2). Yet even accepting this conclusion, a close look at the substantive law under Title VII supports the consideration of approximate remedies in certification decisions--not because the courts can require "Trial by Formula," but because the parties often engage in "Settlement by Formula." The tendency towards this form of settlement constitutes a proper consideration in deciding whether common issues predominate over individual issues as required by subdivision (b)(3).

Looking to the merits provides a way to differentiate among class actions, both in fine-grained analysis of particular claims and in broad terms defined by different areas of law. The cases and commentary on class actions presume that class actions must be divided into conventional categories, such as mass torts, consumer class actions, civil rights claims, and securities class actions, but they provide little more than a pragmatic justification for this division. (21) A look at the merits reveals how closely procedure and substance are fused together in class action practice, and paradoxically enough, how disaggregated the treatment of class actions must be. This was tacitly accepted as the premise of most analyses of class actions before Wal-Mart. It is now the only way forward after it.

1. SOME REALISM ABOUT RESULTS: WHY THE MERITS MATTER

   Even a casual look at the opinions in Wal-Mart reveals the different attitudes of the majority and the dissent to the merits of the case. Where Justice Scalia expressed skepticism of the plaintiffs' evidence of sex discrimination, Justice Ginsburg regarded it with evident sympathy, as an example of pervasive preconceptions about gender roles. She effectively turned his skepticism on its head, transforming the entire complexion of the case and infusing the contents of Rule 23 with her view of the merits. The plaintiffs sought to represent a class of 1.5 million current and former female employees of Wal-Mart who had allegedly suffered sex discrimination in the subjective process by which Wal-Mart's managers and supervisors made decisions on pay and promotions. If the plaintiffs had presented evidence of a stark disparity--such as the complete absence of women from higher levels of management or higher levels of compensation--they would have magnified both the merits of their claim and their arguments for certification. The clearer and larger the wrong, the greater the need for aggregate litigation in order to remedy it. The "inexorable zero" of no representation of women in better paying jobs, as an early Title VII decision called it, (22) would have supported both a finding of a pattern or practice of discrimination and certification of a correspondingly broad class action.

   As the record stood in Wal-Mart, the evidence fell far short of such clarity. The existence of a disparity in the pay and promotions of women was taken for granted, both within Wal-Mart as compared to men and outside Wal-Mart as compared to the promotion of women in other stores. The district court relied on

   largely uncontested descriptive statistics which show that women working in Wal-Mart stores are paid less than men in every region, ... that the salary gap widens over time even for men and women hired into the same jobs at the same time, that women take longer to enter into management positions, and that the higher one looks in the organization the lower the percentage of women. (23) The district court also found that women constituted about sixty-five percent of hourly employees, but only thirty-three percent of management employees. (24) Connecting that disparity to the subjective decisions of Wal-Mart's many supervisors and managers presented the critical problem in the plaintiffs' case. The evidence of systemic discrimination came in three forms: anecdotal evidence of discrimination in the experience of the named plaintiffs and 120 other members of the class; a regression analysis finding national and regional disparities in the rates of pay and promotion of women at Wal-Mart; and the expert testimony of a sociologist that Wal-Mart's corporate culture made the discretionary decisions of managers and supervisors susceptible to sex discrimination. (25)

   The majority rejected the adequacy of this evidence to generate common questions of law and fact, for both empirical and doctrinal reasons. The anecdotal evidence suffered from the small number of individual cases relative to the size of the class, over 100 but still less than .01% of the entire class, and...