Yesterday afternoon, an eleven-judge en banc Ninth Circuit panel heard oral argument in Dukes v. Wal-Mart, Inc., nos. 04-16688 & 04-16720. Theodore Boutrous of Gibson Dunn & Crutcher argued for Wal-Mart. Brad Seligman of the Impact Fund represented the certified class of female Wal-Mart workers.
The eleven judges sat in two rows, eight in front and three (Chief Judge Kozinski and Judges Reinhardt and Rymer) in an elevated row in back. The acoustics in the room was poor and the system of microphones was not working very well. It was sometimes hard to hear. It was also not always immediately apparent which judge was speaking. The following report should be read as a very broad-brush account of the argument and it may not be 100% accurate in every respect.
By way of background, recall that class certification was granted under Rule 23(b)(2), which applies in cases in which injunctive relief is the predominant form of relief sought, as distinct from Rule 23(b)(3), which applies in cases involving damages claims, and has a more stringent predominance requirement. The main question on appeal is whether the trial court erred by applying Rule 23(b)(2) rather than Rule 23(b)(3). Recall, further, that this case involves gender discrimination in violation of Title VII, which assertedly resulted in both unequal pay and also inequitable promotions. To facilitate certification under Rule 23(b)(3), the plaintiffs elected to waive compensatory damages, leaving injunctive relief, back pay (which is considered an equitable remedy), and punitive damages as the available remedies.
Mr. Boutrous argued first and reserved five minutes for rebuttal. He began by saying that the district court committed legal error by certifying a class under Rule 23(b)(2) instead of Rule 23(b)(3) because monetary relief predominated in the case. He said that Rule 23(b)(2) was intended to apply to injunctive relief cases, and the quoted something from the Rules Advisory Committee.
Judge Marsha Berzon broke in and said something about the claim for back pay. Boutrous responded by citing the Allison (phonetic) case. Judge Berzon said let's talk about this case, and then I couldn't catch the rest of the exchange. Boutrous said that the plaintiffs forfeited compensatory damages. Judge Michael Daly Hawkins asked if that's the same as waived, and Boutrous said it was. He then went on with the argument that punitive damages and back pay (both forms of monetary relief) clearly predominate over the injunctive relief claim.
Judge Raymond C. Fisher asked Boutrous whether he would be objecting to certification if the case were just an injunctive relief case. Boutrous said that if it were purely an injunctive relief case, Rule 23(b)(2) would apply, but then you would still have the issue of the standard for evaluating the evidence [presented at the class certification stage]. Judge Fisher said but beyond that, the issue of battle of the experts etc., would you have a problem with certification under Rule 23(b)(2)?
Boutrous began to say yes when Judge Rymer broke in and asked, How in your mind should we decide predominance? If there were fewer employees and less damages, you couldn't argue that punitive damages predominated just because they are big. Boutrous said he's not arguing that Rule 23(b)(3) should have been applied just because the punitive damages claim is big or the class is big, but rather because of the nature of the claims. He talked about the U.S. Supreme Court's opinion in the Teamsters case. He said that a punitive damages award could conceivably be made that would be fair, but here, the problem is the nature of the claims.
Chief Judge Kozinski said that plaintiffs seek injunctive relief, back pay, and punitive damages. Talk to me about the back pay; is that individualized? Boutrous said it is in this case. There would have to be a determination of whether each class member worked at a store that had discriminatory practices. Judge Kozinski asked how do class members collect back pay. Boutrous said as it's set up now, under the trial plan the district court proposed, Wal-Mart would have no participation in that determination. The presumption of Teamsters would be applied.
At this point I'm pretty sure Chief Judge Kozinski said, "Do you speak plain English?" and Boutrous said, "Yes." Tell me in plain English what would happen. Say you're a woman in Kansas City who works for Wal-Mart. Boutrous replied that a special master or someone would sit down with the payroll records and determine whether her pay was less than the national average as determined by plaintiffs' expert. Judge Kozinski said something like, so regarding the predominance of the back pay claim .... Boutrous said that cuts against it because it's monetary, individualized.
Judge Kozinski then said so your full answer is that it's not just the punitive damages, but also the back pay, that makes this case inappropriate for certification under Rule 23(b)(2). He asked would each woman have to apply to receive an award of back pay. Boutrous said that ordinarily, they would have a minimum burden to come forward, but they wouldn't have to in this case.
Judge Susan Graber asked, Are we reviewing the trial plan now? Won't it change? Aren't we reviewing certification only? Boutrous said that the trial plan goes to the question of manageability. Judge Kozinski said something to the effect of, it doesn't matter that Wal-Mart can't participate, the point is if they want money they can come and apply. I did not catch Boutrous' response to this.
Judge Hawkins asked whether it's really 1.5 million class members, a number Boutrous had previously mentioned. Boutrous said if past employees are excluded [which is what the amended three-judge opinion suggested should be done] it's fewer. Hawkins said so it's about 60% of 900,000. Boutrous said yes. Hawkins said so it's 2/3 less than 1.5 million. Boutrous said yes.
At this point, Judge Berzon had an exchange with Boutrous about the difference between the pay claim and the promotion claim. Boutrous kept emphasizing that it was the nature of the particular claims in this case that made them inappropriate for certification. Judge Berzon said that the liability stage will take care of the issue of whether the defendant had a pattern and practice of discrimination. She said you keep losing sight of that. They could lose that issue. Boutrous said yes they could lose it, but in terms of the first stage, Teamsters creates a presumption that the pattern and practice injures. He said Teamsters was not about back pay; it was about a seniority system; completely different. As a matter of due process, you can't just take phase one and say that entitles you to monetary relief.
Judge Berzon said yes, you have to identify the women, etc., but this is just a question of proof problem, how you're going to let someone prove something. Boutrous said but that's important. The defendant has a right to a defense. That pushes Rule 23(b)(2) too far and takes away rights from defendants. And here he cited an article by Professor Coffee apparently about this case. He said that to get class certification, plaintiffs gave up their mixed-motive claim, which would have been their easiest path to injunctive relief. The predominant relief sought is monetary.
Judge Berzon asked whether the problem would be solved if you had a notice and opt-out procedure as to the whole case (which is what you do under Rule 23(b)(3)). She said that's the only difference between the two rules, isn't it? Boutrous said that one of the crucial differences is the predominance requirement of Rule 23(b)(3). Engrafting an opt-out requirement on (b)(2) creates a watered-down version of (b)(3). The rule provides for discretionary notice under (b)(2) but not opt-out.
Judge Hawkins asked, so what relief does your client want from us? Boutrous said you can decertify, or you could vacate certification; and remand for the trial court to determine whether (b)(2) or (b)(3) can be appropriately applied in light of the fact that most class members are former employees, and for the principles of IPO and Hydrogen Peroxide to be applied to the evidence. He said the law has changed significantly since the original class certification order. The district court applied the rule of Caridad, but the Second Circuit has since disavowed that case.
[I will jump in with an editorial comment here. First of all, the argument that the district court should revisit class certification is significant because everyone knows that the judge who originally granted class certification is no longer sitting and Chief Judge Vaughn Walker will take up the case on remand. Second, not a single judge on the panel seemed remotely interested in the IPO or Hydrogen Peroxide cases or in revamping the way that class certification evidence is evaluated in the Ninth Circuit. As mentioned here, the three-judge panel in this case did not even mention IPO, even though the case was decided two months before the original opinion and a year before its amended opinion (which mentions the case only in a footnote).]
Judge Hawkins said, then you're not challenging the commonality or typicality elements? Boutrous said yes we are. Backing up, as a matter of law plaintiffs' expert did not apply the correct procedures. The only way to determine if discrimination is occurring is to look at each individual store. Judge Fisher asked, Why is that the case? If the plaintiff is arguing it's the culture, they'd be doing that in an individual case. In an individual case you'd look upstream and argue it's not a rogue manager. Boutrous said we're not saying plaintiffs couldn't introduce that evidence (although we'd probably oppose it).
Judge Berzon then said they don't have to prove discrimination, they only have to prove commonality. Boutrous said yes. Judge Berzon said they only have to prove the common policy. Why do they have to prove more? Boutrous said if you prove the policy that doesn't prove that it had a common effect. Judge Berzon said but why do they have to prove that now? They have to at trial; if they don't, they lose. Why do they have to prove more than that now? Boutrous said under the Hydrogen Peroxide case, they have to be prove that impact can be established by common proof. [Another editorial comment: Hydrogen Peroxide was an antitrust case; here, Boutrous is borrowing the idea of antitrust impact and applying it to Title VII.]
Judge Berzon asked, Is there any Ninth Circuit or U.S. Supreme Court authority supporting that? Boutrous said there are no published opinions in which the court has grappled with this. He mentioned a case called something like Staten (phonetic), which involved a settlement class. He said that in this case you're talking about the discretion of thousands of managers.
Judge Berzon then said why isn't it good enough just to show the policy? Boutrous replied that it shows that injunctive relief isn't the focus of this case. Plaintiffs are focused only on the disparate impact part of the case (i.e., the part of the case that supports back pay and punitive damages). Judge Berzon said but you can get back pay under a disparate impact claim. Boutrous said yes. But you would need to apply IPO and Hydrogen Peroxide and what the [Staten (phonetic)] case hinted at. He then started making conclusion-like statements such as in Amchem, the Supreme Court said that courts need to exercise caution to protect not only the class members but also the defendant and to make sure that there's a fair procedure.
Judge Hawkins said, If we affirm, the case goes back to [Chief] Judge [Vaughn] Walker, correct? Boutrous: Yes. Hawkins: Can he revisit the size of the class at that time? Boutrous: Yes. Hawkins: Could he decide whether subclasses are appropriate? Could he decide to modify the trial plan? Could he decertify the class? Boutrous answered yes to each question. But I urge the court to adopt clear procedures for doing so.
Brad Seligman began his argument by saying that the evidence accepted below showed that in all 41 of Wal-Mart's regions, women got paid less than men, by a couple of thousand dollars, even though they had better performances and seniority. Wal-Mart's argument would mean they have no remedy.The size of the damages would make it impossible to pursue these claims. Wal-Mart had a pay policy with no objective factors.
Judge Berzon jumped in here and said well they actually did. They're fairly specific (and she went on to list some of them). Seligman said there's a national policy, no question, but it doesn't say that a worker's experience level is a factor in pay. Wal-Mart has a detailed personnel management system that includes every possible objective factor that Wal-Mart says is relevant to setting pay.
Chief Judge Kozinski said how does someone in the class go about getting paid? (Same question he asked Boutrous.) Seligman said that under the trial plan, if the plaintiffs prove adverse impact or pattern and practice, the damages would be based on Wal-Mart's objective data. Kozinski said would this be true for everyone in the class? Seligman said everyone in the class is entitled under the model. Kozinski said, whatever that money is, that goes on the side of the balance for monetary relief, no injunctive relief. Seligman said I respectfully disagree. The model to determine back pay, Wal-Mart has every right to challenge it. Kozinski said I'm trying to get a picture of what's on the other side of the balance. Punitives? Seligman said that punitive damages do not always go on the monetary side. Back pay, every circuit has authority saying it's integral to the injunctive relief and fully consistent with Rule (b)(2). And on this point, he quoted language from the Rules Advisory Committee.
Judge Berzon said that's pretty simple. But the promotion claim creates problems. In this case is it correct that none of the plaintiffs will get a promotion? Seligman said we sought broad injunctive relief for both back pay and promotion. Judge Berzon said again, there will be no injunctive relief requiring a promotion? Seligman said we're seeking broad-based, not individualized, injunctive relief. (Later he explained that this includes orders requiring Wal-Mart to change its promotion practices.)
Judge Richard A. Paez asked who decides what goes into the formula for calculating back pay. Seligman said the trial judge. Judge Paez asked whether the jury would be involved. Seligman said no, it's an equitable remedy. Judge Paez said so what's the role of the jury? Seligman said they will decide punitive damages. Judge Paez said so without punitive damages, no jury? Seligman said that's correct. Judge Paez asked whether the jury would be involved in the first phase of the case (which involves deciding whether Wal-Mart had a pattern and practice of discrimination). Seligman said they would because it will be relevant to punitive damages and in fact the trial court would be bound by the jury's finding.
Judge Graber asked what is the range of options available to the court? Are you saying we just affirm everything? It seems like there are lots of ways to slice and dice this. Seligman said the court has a number of ways and he discussed several options.
Here, Judge Carlos T. Bea spoke for the first time. In a back pay case, one of the questions is always whether someone was about to be fired for other reasons. Seligman said that information on performance is included in Wal-Mart's database. Judge Bea said but what if Wal-Mart wants to argue that a particular women had higher absentee rates or something like that. Seligman said there's no evidence Wal-Mart ever considered such factors in their pay decisions.
Judge Bea also raised the punitive damages claim, saying doesn't it depend on the reprehensibility of the conduct of an individual actor? Seligman said it depends on the state of mind of the corporation. Judge Bea said wasn't the corporation's state of mind to delegate the decision to individual managers? Seligman said, respectfully, no, and cited a case involving a reckless disregard standard. Judge Bea asked is it reckless disregard to let each manager make up his own mind? Is it too much delegation that you're complaining about? Seligman said no, the question is Wal-Mart's overall state of mind.
Judge Bea asked if only 14% of district managers are women, is that evidence of discrimination against women? Seligman said it's evidence of a pattern and practice of discrimination. Judge Bea said, another example of a body in which females are underrepresented are the U.S. Senate and House of Representatives. Are you saying there's discrimination in the electorate? [I think the answer on the tip of most everyone's tongue would be yes to that question. Seligman's answer was more politic.] Seligman said no, that's not our claim.
Judge Fisher said, you've been focused on back pay. On failure to promote, how do you prove that without individualzed proof? Seligman said it's a tougher case. But what courts have recognized, when it's too hard to prove who would have been promoted, then the steps are: Is there liability? And if so, the court acts as a Chancellor of Equity .... Judge Fisher interrupted. Is Wal-Mart at the table? Seligman said yes, in determining what factors are taken into account. Fisher said, so every woman in the class will get damages? Seligman said the court will refine it by looking at various factors such as performance minimums. It's not all or nothing. The case law says that the court has the duty to work substantial justice with the information that's avaialble. The alternative, which Wal-Mart is arguing for, is no relief at all.
Judge Fisher then asked when is the determination of the amount of money made and how does it get fixed? Seligman said everybody is at the table in arguing these factors. The first question is what's the aggregate number based on the women who earned less than they should? The next question is how to distribute it.
Judge Kozinski said the claim Boutrous is making is that it's really store by store. Some may not follow the national policy. What's your response? Seligman said I have several. I'll give you my favorite. Kozinski said don't give us your favorite response, give us your best one. Seligman said I'll give you my favorite one which is also my best one. Evidence of national policy and evidence of movement from store to store ....
Judge Rymer did not allow him to finish answering Judge Kozinski's question. She said in 25 words or less, what is the claim in this case? Seligman said uniform delegation of discretion regarding pay decisions in a business with a culture of discrimination. Judge Rymer said, first of all, Seligman's statement of the claim was internally inconsistent, and then said what's the culture that implicates Title VII and is it common? Judge Berzon interrupted before Seligman could answer. What is the connection between the culture and the employment practices? It is subjective but capable of being supervised. Seligman said it's known [by Wal-Mart] at every step. Every promotion is reviewed at higher levels. They've known exactly what's been going on for years.
Judge Fisher said where does the sexism come in? Seligman said you have to separate pay from promotion. For pay, every pay decision is approved by the district level and above. The info about pay decisions includes information on gender. For promotion, those are not done at the store level. Those decisions are made by the district manager or higher.
Judge Berzon asked where does the disparate impact claim come in? Seligman said the court would have to find no impact, or a business necessity, to avoid a finding of disparate impact. Judge Berzon then asked what's wrong with an opt-out procedure? Why not broaden the opt-out procedure to cover the entire case? Seligman said we promoted that idea. It's not clear that the current order wouldn't cover back pay claims. It could be done. We don't object to it.
Judge Berzon asked how do you have a trial for back pay before the punitive damages trial? Seligman said the trial court hasn't decided yet. Nothing prevents us from putting in evidence of harm. Case law doesn't require that compensatory damages be decided prior to punitive damages. In fact, the case law doesn't require any compensatory damages award as a prerequisite to punitive damages.
Judge Paez said you mean the jury could fix an amount of punitive damages without knowing what the compensatories are? Seligman reiterated that the case law doesn't require it. Judge Paez asked when do the class members get the money? Seligman said not until after the whole case is over and all damages have been determined. Judge Bea asked, Are you saying there is no relation between compensatory damages and punitive damages, and that a punitive damages award can be made independently of the compensatories without offending State Farm [and he recited the holding of that case regarding the ratio of punitives to compensatories]? It doesn't apply? Seligman said we don't think you have to go that far because we think the ratio will be reasonable.
[Another editorial comment here. Clearly Judge Paez and Judge Bea have some problems with the punitive damages claim, but I think Seligman is correct to point out that, at this stage of the case, it's impossible to know whether the punitive damages award will offend State Farm. Until the court knows what the two awards are, the ratio cannot be calculated or its reasonableness evaluated.]
Judge Bea went back to the standard for proving punitive damages. Don't you have to show the reprehensibility of the conduct suffered by the individual? Seligman said we're not suing the individual managers. The question is whether the corporation acted in reckless disregard. Judge Bea: The state of mind of the CEO? Seligman: Of the corporation as a whole.
Judge Kozinski said you have no answer to Boutrous' point. (Not exactly a fair comment given that Seligman was interrupted before he had a chance to answer.) Seligman said that studies show that aggregated data can sometimes be more probative. Kozinski said but his point is how can you decide back pay on a national level when the discrimination occurs at the store level? Seligman said it's a pattern of discrimination, a companywide policy of discrimination. Our burden will be to show a common pattern of discrimination. Kozinski said what if a woman worked at a store where there was no discrimination? Seligman said our model proposes an individual assessment when you get to remedies. Wal-Mart could try to prove there was such a store (although I don't know how they would do it) and that's a proper factor to take into account.
On rebuttal, Boutrous said that Wal-Mart's expert did a store-by-store analysis and 90% showed no evidence of a statistically significant difference in pay. Plaintiffs' expert never analyzed store-by-store. If 90% show no disparity, there can be no classwide way to prove disparate impact. We are not saying you could never have a class action in a Title VII case.
Judge Graber asked what is your answer to the question about the range of options. Is it an all-or-nothing proposition? Affirm or decertify? Or can we differentiate among [claims or elements]? Boutrous said it's not all-or-nothing. But if the court looked at [i.e., questioned] certain parts, the proper thing is to send the whole thing back to Judge Walker to apply the proper standards. [Again, here Boutrous is urging the court to revise Ninth Circuit standards by adopting IPO or Hydrogen Peroxide, and also urging remand to a judge who may be less likely to certify any claim]
Next, Boutrous said that Seligman was wrong on punitive damages. He said the EEOC has argued that due process doesn't apply to Title VII cases. That's wrong. It's completely unmanageable to have a class action on the punitive damages and the back pay claims.
And that concluded the argument. I have to agree with the Recorder reporter that, although some of the judges made their views clear, it's difficult to say where the panel as a whole will come out. Judges Graber was very focused on whether the court could do something less than order the class decertified. One of Judge Hawkins' main points seemed to be it's pointless to pass on the propriety of a trial plan that the trial judge might completely revamp between now and judgment. Judges Reinhardt, Silverman, and Ikuta said nothing at all during the entire argument.
As I mentioned above, there may very well be significant errors or omissions in this report. If you see any mistakes in my summary, please post a comment or send me an email (email@example.com).