United States: Ninth Circuit Rejects "Wholesale" Certification Of Class Action Against Costco

recent Ninth Circuit decision arguably demonstrates the potential impact of Wal-Mart Stores, Inc. v. Dukes, reversing class certification in an employment discrimination lawsuit that largely parallels the fact pattern in Wal-Mart. Upon closer examination, however, Wal-Mart's role in the outcome may not be great as the Ninth Circuit's opinion suggests.

In Ellis v. Costco Wholesale Corp., three current and former employees sued Costco under Title VII on behalf of all women employed by Costco in the United States who were denied promotion to management positions because of gender. The plaintiffs seek class-wide injunctive relief, lost pay, and compensatory and punitive damages.

The district court determined, prior to the Supreme Court's decision in Wal-Mart, that the plaintiffs had met all of the requirements of Rule 23(a) and had satisfied Rule 23(b)(2). The court certified a class of all current and former female Costco employees nationwide who had been denied promotion to certain management positions during the relevant time period.

Applying Wal-Mart, the Ninth Circuit reversed, holding that the plaintiffs had failed to establish commonality under Rule 23(a). The Ninth Circuit rebuked the district court for failing to conduct a "rigorous analysis" of the evidence and for establishing commonality through reliance on the plaintiffs' experts. The parties produced competing expert testimony regarding gender disparities in Costco's hiring practices. Defense experts argued that the gender disparities were confined to only two of Costco's eight regions, for example, while the plaintiffs' experts argued that female employees were promoted at a slower rate nationwide and that Costco had a pervasive culture of gender stereotyping and paternalism. Instead of merely determining whether the plaintiffs' evidence was admissible, the Ninth Circuit held that the "rigorous analysis" mandated by Wal-Mart obligated the district court to consider whether the plaintiffs' evidence was persuasive. If the weight of the evidence did not suggest that the entire class was subject to the same allegedly discriminatory practice, then there was no question common to the class.

The Ninth Circuit also vacated the district court's finding of typicality. The district court had rejected Costco's argument that each of the three named plaintiffs had individualized defenses, noting that individualized defenses do not generally defeat typicality. The Ninth Circuit, however, held that the district court was obligated to examine those defenses more closely. Costco claimed that one named plaintiff was denied a promotion because of her self-expressed desire to defer her pursuit of promotion for several years to balance her family life; a second named plaintiff allegedly misrepresented her way into Costco and had been disciplined for abusing subordinates; and a third purportedly was a poor performer. The panel remanded to the district court the question of whether defenses available against each of the named plaintiffs were so unique as to defeat plaintiffs' showing of typicality.

The Ninth Circuit also relied on Wal-Mart to overturn the district court's Rule 23(b)(2) certification. Class certification under Rule 23(b)(2) is appropriate only where the primary relief sought is declaratory or injunctive; the key to a Rule 23(b)(2) class is the indivisible nature of the injunctive or declaratory remedy sought. The district court examined the plaintiffs' subjective intent and determined that injunctive relief was the predominant form of relief sought. In Wal-Mart, however, the Supreme Court rejected this "predominance" test for determining whether monetary damages may be included in a Rule 23(b)(2) certification, holding instead that the relevant inquiry is whether monetary relief can be granted absent individualized determinations of each plaintiff's eligibility for damages. Accordingly, the Ninth Circuit vacated the district court's Rule 23(b)(2) certification for evaluation under the Wal-Mart standard. The Ninth Circuit further instructed the district court to consider whether a class may be certified under Rule 23(b)(3) to address the plaintiffs' compensatory damages and backpay claims.

The Ninth Circuit's opinion reads at times as though the district court would have been on solid ground but for the intervening Wal-Mart opinion. Indeed, this may be true with respect to the Rule 23(b)(2) certification, as Wal-Mart announced for the first time that inclusion of individualized claims for monetary damages in a Rule 23(b)(2) class is inconsistent with due process considerations. With respect to commonality, however, the real impact of Wal-Mart may be minimal. While the factual similarities between this case and Wal-Mart seemingly made reversal inevitable--both cases involve putative nationwide classes of employment discrimination victims suing retailers that have no nationwide policy at issue—the primary basis for reversal was the district court's reluctance to weigh conflicting evidence going to commonality.

A trial court's obligation to consider such evidence, even when it might overlap with determinations on the merits, did not originate with Wal-Mart. Even admissible, probative evidence of commonality can be defeated if outweighed by competing evidence to the contrary. Trial courts that limit their inquiries to the plaintiff's evidence, without looking to the defendant's evidence, can expect to be reversed.

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