Will Supreme Court's Wal-Mart Ruling Affect Securities Class Action?

In the wake of the U.S. Supreme Court's landmark June 20, 2011 decision in Wal-Mart Stores v. Dukes, numerous commentators have asserted that the case could have a significant impact on future class actions. For example, one law firm's memo about the case stated that the decision "should limit the number of class actions that are certified." Which inevitably leads to the question of what the impact of the Wal-Mart decision will be with respect to class certification in securities class action lawsuits.  This question seems all the more acute given the unanimous opinion the Court issued in the Erica P. John Fund, Inc. v. Halliburton case just days before it issued its opinion in the Wal-Mart case. 

First, some background. The Wal-Mart case involves an employment discrimination lawsuit brought by three female Wal-Mart employees on behalf of all female Wal-Mart employees. The plaintiffs did not allege that Wal-Mart had an express discriminatory policy against the advancement of women. (Wal-Mart in fact had a nondiscrimination policy.) Rather, the claimed that local managers' discretion over pay and promotions had an unlawful disparate impact on women, and that the company's refusal to constrain its managers' discretion amounted to disparate treatment. 

In order to satisfy Fed. R. Civ. Proc. 23(a)(2)'s class certification prerequisite that "there are common questions of law or fact common to the class," the plaintiffs argued that the discrimination to which they have been subjected is common to all female Wal-Mart employees. But the commonality of the 1.5 million class members' claims derived from the local manager's discretion. In effect, the plaintiffs were arging that the non-policy (allowing local manager discretion) was a policy.

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Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix. 

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