United States: Fourth Circuit Finds District Court Erroneously Applied Wal-Mart Stores, Inc. v. Dukes In Denying Leave to Amend Complaint in Pay Discrimination Suit

In its recent decision in Scott v. Family Dollar Stores, Inc., No. 12-1610 (4th Cir. Oct. 16, 2013), the Fourth Circuit ruled that the district court abused its discretion by refusing to allow plaintiffs asserting claims of gender-based pay discrimination leave to file an amended complaint based upon an erroneous interpretation of the Rule 23(a) commonality requirements for class certification set forth by the United States Supreme Court in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011).  In a 2-1 decision, the majority held that plaintiffs should have been permitted to amend their complaint to challenge discretionary decision making by managers on a nationwide class, reasoning that "the discretionary authority at issue was exercised by high-level managers, as distinct from the low-level type managers in Wal-Mart." As the dissent argued, this ruling is in tension with Wal-Mart and other courts that have held when discretionary management decisions are involved, the appropriate unit of analysis must be the discretionary decision maker.

Plaintiffs, fifty-one female managers at Family Dollar Stores, Inc. ("Family Dollar"), originally filed a putative class action complaint in 2008, prior to the Supreme Court's decision in Wal-Mart.  In September 2011, Family Dollar moved to dismiss or strike the class allegations citing the Wal-Mart decision, to which plaintiffs responded by requesting leave to file an amended complaint they argued "'elaborate[s]' on the original complaint's allegation of 'centralized control of compensation for store managers at the corporate level.'"  A Western District of North Carolina court granted Family Dollar's motion to dismiss and denied plaintiffs' motion for leave to amend, determining that amendment was futile because the only source of alleged discrimination in the proposed amended complaint was the "discretionary pay of managers," which the district court found was "foreclosed" under Wal-Mart.

On appeal, after determining it could properly exercise pendent appellate jurisdiction over the denial of leave to amend because that decision was "inextricably linked" to the grant of the motion to dismiss, the majority reasoned that "Wal-Mart did not set out a per se rule against class certification where subjective decision-making or discretion is alleged," but rather "directs courts to examine whether 'all managers [] exercise discretion in a common way with[] some common discretion.'"  (Quoting Wal-Mart, 131 S. Ct. at 2554.)  Further, the majority sought to limit Wal-Mart by asserting "Wal-Mart is limited to the exercise of discretion by lower-level employees, as opposed to upper-level, top-management personnel," as decisions by upper-level management impact a much larger group of employees.  Thus, the majority reasoned  "discretionary authority exercised by high-level corporate decision-makers . . . is more likely to satisfy the commonality requirement than the discretion exercised by low-level managers in Wal-Mart."

On a related point, the majority believed the amended complaint was not just challenging discretionary decision making by managers, but also the policies and practices that channeled that discretion. These policies consisted of standard ones that channel manager discretion, such as use of salary ranges making pay raises based on performance. According to the majority, the proposed amended complaint "clearly specifies" four company-wide practices that are alleged to be implemented and applied by upper levels of management, and therefore "the proposed amended complaint's allegations of uniform corporate policies and of high-level corporate decision-making are substantively different from those that the Supreme Court held sufficient in Wal-Mart."  The court remanded for the district court to consider, consistent with this opinion, whether the proposed amended complaint satisfies the Rule 23 class certification requirements.

In a lengthy dissent, Circuit Judge J. Harvie Wilkinson III argued that the majority "unloaded on the district court the prospect of a massive, nationwide class action whose administrability would in all likelihood prove impossible," and took issue with the majority's interpretation of Wal-Mart as applying "only where decisions are left to the complete discretion of low-level managers" and not where "middle managers" exercise delegated discretion.  The dissent further argued that plaintiffs' repeated assertion in the proposed amended complaint that "[d]efendant engages in centralized control of compensation for store managers at the corporate level of its operations" was an "uninformative bit of boilerplate" that "seeks to subject corporations to nationwide class actions by virtue of their mere existence," as "[p]laintiffs' reasoning in this respect would penalize a company for little more than operating on a national scale under the same corporate name."

Concluding thoughts.  As the dissent noted, Family Dollar is in tension with Wal-Mart's admonition that there is a lack of class commonality for nation-wide classes regarding discretionary decision making by managers.   First, as the dissent noted, there were almost 500 decision makers making these discretionary decisions, and determining why one acted does not answer why another did.  There are thus at least 500 answers – not one – to each of Plaintiff's discrimination claims on whether and, if so, why members within the proposed nationwide class were disfavored in the exercise of discretion.  Second, the fact that discretion was exercised within boundaries set by corporate policies does not change the analysis.  This is standard, and the same thing that occurred in Wal-Mart where, e.g., the pay ranges were set by corporate policy.  There is no claim that the salary range policy – which applies equally to men and women – is somehow illegal.  Rather, the claim challenges the managers' exercise of discretion within that policy, which as Wal-Mart notes, means the claim turns on why each manager acted.  The dissent correctly analyzed the import of Wal-Mart, but Family Dollar must now raise these arguments at the class certification stage, where they will have greater force than at the motion to dismiss stage.  The plaintiffs' desire to amend the complaint, and the liberal rules regarding pleading standards, were sufficient to defer consideration of the obvious Rule 23 defects in the claims.

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