We’ve been tracking the Wal-Mart v. Dukes case for its possible impact on the availability of punitive damages in class actions.

Yesterday, the U.S. Supreme Court reversed the Ninth Circuit’s decision approving the certification of a class action in Wal-Mart. The court did so for two reasons, one of which may make it more difficult for courts to certify punitive damages claims for class treatment.

First, a five-justice majority of the court held that the plaintiffs could not satisfy Federal Rule of Civil Procedure 23(a)’s commonality requirement, which is a threshold requirement for certifying any class action under Rule 23. Other blogs will likely cover that aspect of the opinion, but it’s beyond the scope of our focus here.

Second, the Supreme Court unanimously held that the claims for backpay were improperly certified under Federal Rule of Civil Procedure 23(b)(2), which allows for class treatment only when “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” The court determined that Rule 23(b)(2) does not authorize class certification where, as with the backpay claims in Wal-Mart, each class member would be entitled to an individualized award of monetary damages.

The Supreme Court’s interpretation of Rule 23(b)(2) may lead courts to conclude that claims for punitive damages, like claims for backpay, cannot be certified under Rule 23(b)(2). The Supreme Court has previously held that any punitive damages award must be tied to the harm suffered by a plaintiff. (See, e.g., State Farm Mutual Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, 422-423.) Thus, courts may well conclude that claims for punitive damages, like claims for backpay, are claims for an individualized award of monetary damages that cannot be certified under Rule 23(b)(2).

Although plaintiffs might still move to certify claims for individualized monetary relief under Rule 23(b)(3), federal courts could decline to certify claims for punitive damages under this provision if they conclude these claims cannot satisfy Rule 23(b)(3)’s predominance requirement, which requires a plaintiff to show that the questions of law or fact common to class members predominate over any questions affecting only individual class members. While some courts have certified class actions where the plaintiffs seek punitive damages, several federal courts have held declined to certify punitive damages claims under Rule 23(b)(3) because the necessity of assessing an award of punitive damages in light of the defendant’s conduct toward a particular plaintiff, and in light of the compensatory damages awarded to a particular plaintiff, requires individualized inquiries that prevent a plaintiff from satisfying Rule 23(b)(3)’s predominance requirement. (See, e.g., Allison v. CITGO Petroleum Corp. (5th Cir. 1998) 151 F.3d 402, 418-420 [finding no abuse of discretion where district court refused to certify claims for punitive damages for class treatment under Rule 23(b)(3) in Title VII action because these claims “require[] individualized and independent proof of injury to, and the means by which discrimination was inflicted upon, each class member,” the claims “must therefore focus almost entirely on facts and issues specific to individuals rather than the class as a whole,” and such a class action would thus improperly “‘degenerate into multiple lawsuits separately tried’”]; In re Baycol Products Litigation (D. Minn. 2003) 218 F.R.D. 197, 215-216 [“a determination of punitive damages is based on individual issues”; holding “Plaintiffs’ proposed class trial on punitive damages poses . . . due process concerns” similar to those in State Farm v. Campbell “because the conduct upon which Plaintiffs would base their punitive damages claim is not specific to a particular plaintiff[’]s[] claims”]; Reap v. Continental Cas. Co. (D.N.J. 2001) 199 F.R.D. 536, 548-550 [denying class certification under Rule 23(b)(3) in part because “individual issues would predominate over common ones during the damages phase” of trial in a case alleging violations of Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act since “calculating compensatory and punitive damages . . . for thousands of class members would prove to be quite an individualized task”].)

Yesterday, the U.S. Supreme Court heard oral argument in Wal-Mart v. Dukes, which we’ve been tracking for its possible impact on the availability of punitive damages in class actions.

Based on a reading of the oral argument transcript, at least five justices appeared ready to overturn the district court’s decision to certify what is reportedly the largest class action in history. Justices Alito, Kennedy, Roberts, and Scalia seemed to signal that they agree the class does not satisfy the threshold requirements set by Federal Rule of Civil Procedure 23(a) for all federal class actions. Even several of the other justices who one might expect would be sympathetic to the plaintiffs’ argument appeared troubled by aspects of the class certification decision, although they did not necessarily agree the plaintiffs failed to satisfy Rule 23(a)’s threshold requirements.

For example, the questions Justice Ginsburg asked suggested she may yet conclude at least some portion of plaintiffs’ lawsuit cannot be certified solely under Rule 23(b)(2) even if the plaintiffs satisfied Rule 23(a). Justice Ginsburg indicated that, under the advisory committee’s note for Rule 23(b)(2), a class action cannot be certified under that rule if the monetary relief sought predominates over injunctive relief. She questioned how plaintiffs could say injunctive rather than monetary relief predominates here given that nearly half of the class members are not interested in injunctive relief but all of the members are interested in money.

Interestingly, Justice Sotomayor seemed to suggest that, where a class seeks both injunctive and monetary relief, it may be appropriate for courts to decide whether the class should be certified under Rule 23(b)(2) based on a test developed by the Fifth Circuit in Allison v. Citgo Petroleum Corp., 151 F.3d 402 (5th Cir. 1998). If the Allison test were applied to the plaintiffs’ lawsuit, the plaintiffs in Wal-Mart—and plaintiffs in future class actions—may face an uphill struggle persuading a court to certify requests for back pay and punitive damages for class treatment under Rule 23(b)(2). See Allison, 151 F.3d at 416-418 (affirming determination that class certification for claims seeking compensatory and punitive damages was inappropriate under Rule 23(b)(2) because these claims for monetary relief were not sufficiently incidental to the injunctive and declaratory relief sought).

Given the questions posed by Justices Ginsburg and Sotomayor, it will be interesting to see whether the Supreme Court reverses class certification in a close (perhaps 5 to 4) decision holding the plaintiffs failed to satisfy Rule 23(a)’s threshold requirements or whether, either in lieu of or in addition to this determination, a broader coalition of justices agrees the class fails to satisfy Rule 23(b)(2).

Related posts:

Wal-Mart v Dukes argument set for March 29

Cert. granted in Dukes v. Wal-Mart; review limited to first question plus new issue added by the Court

Wal-Mart v. Dukes cert. petition redistributed for Dec. 3 conference

Wal-Mart v. Dukes cert. petition up for consideration next week

Cert. Petition in Wal-Mart v. Dukes raises class certification issues that may impact whether punitive damages are subject to class treatment

Ninth Circuit’s Dukes v. Wal-Mart decision addresses class certification of punitive damages claims