9th Cir.: Vacates Class Cert Based on Wal-Mart

The Ninth Circuit, applying the Supreme Court’s decision in Wal-mart Stores Inc. v. Dukes, 131 S.Ct. 2541 (2011), overturned a district court’s grant of class certification in a gender discrimination lawsuit against Costco. Ellis v. Costco Wholesale Group, No. 07-15838, 2011 WL 4336668 (9th Cir., September 16, 2011). Judge N.R. Smith, nominated by Pres. George W. Bush, wrote the opinion of the court. The panel of judges also included Judge Ronald Gould, nominated by Pres. Bill Clinton, and Judge Richard Clifton, nominated by Pres. George W. Bush.

Women who were denied promotions to senior staff positions at Costco filed a gender discrimination lawsuit. Costco is a chain of stores that sells goods at wholesale prices. Three women, Shirley Ellis, Leah Horstman, and Elaine Sasaki, were repeatedly passed over for promotions to General Manager or Assistant General Manager positions at Costco warehouses. In October 2002, Ellis filed a complaint of gender discrimination with the Equal Employment Opportunity Commission, but the EEOC rejected the complaint. She then filed a lawsuit in federal district court and joined Horstmand and Sasaki as co-plaintiffs. The plaintiffs filed for certification as a class and they sought injuctive relief, compensatory damages, and punitive damages. The district court granted class certification, and Costco appealed to the Ninth Circuit.

The Ninth Circuit first addressed Costco’s assertion that the plaintiffs lacked standing to ask for injunctive relief. The court explained that standing would exist if at least one named plaintiff met the requirements for standing, and concluded that Sasaki met those requirements. Sasaki suffered a concrete and particularized harm when she was denied promotion to General Manager at least eight times. The plaintiffs claimed that Costco’s policies caused Sasaki to be passed over so many times. Since Costco had not changed any of its policies, there was a likelihood that Costco would fail to promote Sasaki in the future. Also, an injunction would address Sasaki’s claimed injury by barring Costco from passing over her again. The court held that Sasaki had standing to seek injunctive relief against Costco, and therefore the entire class had standing.

Turning to class certification, Costco did not challenge numerosity but disputed commonality.  The Ninth Circuit examined if “there are one or more questions of law or fact common to the class.” The court found that the district court had not applied the correct legal standard to the question and had erred by relying on declarations of experts to establish commonality. Wal-mart requires courts to deny certification “if there is no evidence that the entire class was subject to the same allegedly discriminatory practice.” To approve class certification, there must be “significant proof that [Costco] operated under a general policy of discrimination.” Here, the district court failed to engage in a “rigorous” analysis of the evidence, and the Ninth Circuit remanded the issue to the district court to apply the correct standard.

The court next considered whether the named plaintiffs had claims typical of the class. Again, the court concluded that the district court had applied the wrong legal standard. Costco had claimed that it had unique defenses to each plaintiffs’ claim (e.g. Ellis did not receive promotions because she had misrepresented herself on hiring, but Sasaki did not receive promotions because she was not an “outstanding performer”). The district court held that individualized defenses to plaintiffs’ claims could not defeat class certification. The Ninth Circuit disagreed. It held that under Hanon v. Dataproducts Corp., 976 F.2d 497 (9th Cir. 1992), class certification would be inappropriate when a plaintiffs’ unique situations would require the defendants to present defenses that were different from the defenses that could be raised against other plaintiffs. The court remanded the issue to the district court for its reconsideration of whether Costco’s defenses are typical of the class or whether they are unique to individual plaintiffs.

The final requirement for class certification under Rule 23(a) is whether the named plaintiffs can fairly represent the class. Costco argued that Ellis and Horstman, as former employees, no longer had any interest in injunctive relief and would not adequately represent the interests of the class. The court agreed that Costco may be correct, and the district court would need to consider the question on remand.

The Ninth Circuit next addressed Costco’s argument that the district court should not have granted class certification under Fed.R.Civ.P. 23(b)(2). The section allows class certification when injunctive relief is an appropriate remedy for the class. The district court had decided that damages were merely incidental to the desired injunctive relief, and therefore certification under the subsection was appropriate. The Ninth Circuit found that the Supreme Court’s Wal-mart opinion had altered the standard for deciding whether 23(b)(2) should apply. Citing Wal-mart, the court wrote that instead of inquiring whether injunctive relief “predominates,” the district court should have examined “whether monetary relief could be granted absent ‘individualized determinations of each employees’ eligibility for [monetary damages].” It remanded this issue to the district court and added instructions about other factors the district court should consider. The Ninth Circuit instructed the district court to consider whether punitive damages would be appropriate if the plaintiff class was certified under Rule 23(b)(2). Also, the circuit court instructed the district court to consider whether certification under Rule 23(b)(3) would be appropriate to address the plaintiffs claims for compensatory damages because those claims required individualized determinations. Finally, since some of the plaintiffs are no longer Costco employees, the circuit court instructed the district court to decide how to manage the class to make sure that all the plaintiffs have standing to seek the requested form of relief.

Costco had also argued that the class would be unmanageable or would violate its constitutional rights. However, the circuit explained that this issue was not yet ready for its review.

Nate Vogel, University of Pennsylvania Law School, class of 2011


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