Recent Supreme Court Decisions That Will Shape Class Action Practice
Wal-Mart v. Dukes
In Wal-Mart Stores, Inc. v. Dukes, No. 10-277, 131 S. Ct. 2541 (June 20, 2011), the U.S. Supreme Court, in a 5–4 decision, found that allegations that Wal-Mart had a “common” policy of permitting local managers to use discretion to make employment decisions based upon subjective factors did not satisfy the commonality requirement of Federal Rule of Civil Procedure 23(a)(2). Significantly, the Court held that the commonality requirement is not met by generalized questions that do not meaningfully advance the litigation and is not met where named plaintiffs and members of the purported class have not suffered the “same injury.” Id. at 2550–52. In addition, in a unanimous decision, the Court found that claims for “individual monetary claims,” including back pay, could not be certified under Rule 23(b)(2). Id. at 2558–59.
AT&T Mobility v. Concepcion In AT&T Mobility, LLC v. Concepcion, No. 09-893, 131 S. Ct. 1740 (Apr. 27, 2011), the U.S. Supreme Court held in a 5–4 decision that the Federal Arbitration Act (FAA) prohibits states from conditioning the enforceability of consumer arbitration agreements on the availability of classwide dispute resolution procedures. Endorsing in the strongest terms the federal policy favoring arbitration embodied in the FAA, the Court seriously undermined—if not overruled—numerous decisions that have voided as unconscionable class and collective action waivers in arbitration agreements.
Smith v. Bayer Corp.
In Smith v. Bayer Corp., No. 09-1205, 131 S. Ct. 2368 (June 16, 2011), the U.S. Supreme Court ruled unanimously that a federal district court, having rejected certification of a proposed class action, could not take the additional step of enjoining a state court from addressing a motion to certify the same class under state law. In Bayer, a plaintiff sued in West Virginia state court alleging that Bayer’s pharmaceutical drug Baycol was defective. Id. at 2373. After removal to federal court, the plaintiff moved to certify the case as a class action on behalf of all West Virginia purchasers of Baycol. Id. The federal court rejected class certification and dismissed the plaintiff’s claims. Id. at 2374. A different plaintiff, who had been a putative class member in the first action and was represented by the same class counsel in the federal action, then moved to certify the same class in West Virginia state court. Id. Bayer sought an injunction from the federal court in the first case, arguing that the court’s rejection of the class bid should bar the plaintiff’s relitigation of the same class certification question in state court. Id. The district court granted the injunction, and the circuit court affirmed. Id.
The Supreme Court overturned the injunction. It observed that a federal court may, under the relitigation exception to the Anti-Injunction Act, enjoin a state court from relitigating an already-decided issue— including whether to certify a case as a class action—when two conditions are met: “First, the issue the federal court decided must be the same as the one presented in the state tribunal. And second, [the party in the later case] must have been a party to the federal suit, or else must fall within one of a few discrete exceptions to the general rule against binding nonparties.” Id. at 2376. The Court held, however, that neither condition was met in Bayer.
Erica P. John Fund v. Halliburton Co.
In Erica P. John Fund, Inc. v. Halliburton Co., No. 09-1403, 131 S.Ct. 2179 (June 6, 2011), the U.S. Supreme Court considered whether securities fraud plaintiffs must prove loss causation to obtain class certification, ruling in a unanimous opinion that such proof is not a prerequisite to obtaining class certification in a securities fraud case. The investors alleged that the company made various misrepresentations designed to inflate its stock price in violation of Section 10b of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Id. at 2183. The district court found that the suit could not proceed as a class action because the plaintiff did not show loss causation, which the Fifth Circuit required of securities fraud plaintiffs seeking class certification. Id. at 2184. The Fifth Circuit affirmed the denial of class certification, see 597 F.3d 330 (5th Cir. 2010), but the Supreme Court reversed.