While there were a number of significant cases in 2011, the one that is likely to have the most impact not only in the area of executive risks, but potentially on all federal class actions in the U.S is the Wal-Mart decision.
Wal-Mart Decision Will Have a Huge Impact
In this resounding win for the defendant, the U.S. Supreme Court’s decision set the bar high for federal class actions—whether employment related, as in this case, or securities, cyber or fiduciary, or products or environmental, for that matter. This decision will have a huge impact. For the U.S., the land of class actions, this is saying a lot!
With roughly 1.5 million current and former employees, this was the largest potential employment class action that the U.S.had ever seen, by several magnitudes. They were looking for injunctive and declaratory relief, punitive damages, and backpay, on behalf of a nationwide class of female employees, based on alleged discrimination against women in violation of Title VII of the Civil Rights Act of 1964. They claimed that local managers exercising discretion over pay and promotions disproportionately favored men and that company’s refusal to control its managers’ authority amounts to disparate treatment.
Does Class Action Apply?
The lower courts had certified the class, finding that respondents satisfied Federal Rule of Civil Procedure 23(a) and Rule 23(b)(2)‘s requirement of showing that “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 issue before the Court, whether or not the plaintiffs should be permitted to bring their claims as a federal class action, had itself been litigated for roughly 10 years. The question that the Court did not address here was whether or not state-based class actions might be brought on similar grounds.
Uncertain Effect on State-Based Class Actions
Sadly, tempering the victory here to some extent, the same U.S. Supreme Court, just days before handing down the decision in Wal-Mart, addressed the issue of whether dismissal of a federal class action would act as a bar against state class actions; the answer was that it did not.
So the jury is still out, so to speak on how many state-based actions might result from the denial of federal class action status. What we do know, is that many of the state procedural rules dealing with class certification are based on or similar to the federal rules; so it is possible that state courts will regard the Supreme Court’s decision as persuasive (although not controlling) and the plaintiffs might be looking at another strike out. We’ll have to stay tuned to see.