Wednesday, April 30, 2014

Constitutionalizing Wal-Mart?

Seal_of_the_Supreme_Court_of_MontanaWhile we wait for word on the EEOC v. Mach Mining cert petition, those interested in systemic or class relief in employment cases will want to keep an eye on another important cert petition, Allstate v. Jacobsen. This is not an employment law case, but rather a case about alleged unfair trade practices in adjusting insurance claims for automobile injuries. Yet, it has potentially huge ramifications for employment cases, as highlighted by the Equal Employment Advisory Council’s amicus brief.

Allstate petitioned for review of a decision by the Montana Supreme Court applying Montana’s version of Federal Rule 23 for class certification. Montana’s Rule 23 is textually identical to Federal Rule 23 in all relevant respects, and Montana has in the past found federal authority under Federal Rule 23 “instructive” when interpreting its own Rule 23.

The Montana Supreme Court certified a Rule 23(b)(2) class focusing on the question whether Allstate's claims adjusting policy violated Montana's unfair trade practices law.  The potential class-wide relief included a declaratory judgment and a mandatory injunction ordering Allstate to provide notice to class members that they may re-open and re-adjust their claims.  The court recognized that this type of declaratory and injunctive relief would "set the stage for later individual trials."

The propriety of certifying this type of mandatory 23(b)(2) class to resolve certain common questions, even where a later series of individual trials for damages will naturally follow, appears to have split state courts and lower federal courts.  The Montana court relied on Judge Posner's decision in McReynolds v. Merrill Lynch, which permitted the certification under Federal Rule 23(b)(2) and 23(c)(4) of a class limited to resolving the question whether defendant's "teaming" and "account distribution" employment policies had an unlawful racially disparate impact.  There, Judge Posner recognized that should the plaintiffs prevail on the class-wide issue of disparate impact, the "next stage of the litigation" would be "hundreds of separate suits for backpay . . ."

Allstate and several amici contend that certification of the mandatory 23(b)(2) class in Jacobsen's case violates the procedural due process protections of the 14th Amendment. Montana is, of course, free to interpret its own Rule 23 in a way that diverges from Wal-Mart's interpretation of Federal Rule 23.  Indeed, the Montana court hinted that it may not follow Wal-Mart's guidance on the Rule 23(a)(2) commonality requirement in the future, but ultimately determined that it need not resolve that question in this case.  But Allstate's argument to the Court seems to be that Wal-Mart set a constitutional floor - the minimum protections allowable under the 14th Amendment.  In the unanimous portion of the Wal-Mart opinion, the Court rejected the use of 23(b)(2) for certification of class claims seeking monetary relief, "at least where . . . the monetary relief is not incidental to the injunctive or declaratory relief."  But that holding was not firmly rooted in a constitutional interpretation.  Although notice and opt out rights are constitutionally required in a class action "predominately for money damages," the Court only suggested the "serious possibility" that the same would be true for class actions in which money damages are at issue but do not predominate.  And it is not at all clear that this constitutional limitation would apply to cases like Jacobsen or McReynolds, where the class action does not resolve money damages claims, but rather only resolves certain common issues to "set the stage" for later individual trials for monetary relief.       

The petition is set to be considered at the Court's conference this Friday, and is listed on SCOTUSBlog's Petitions to Watch.


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