Wal-Mart’s (WMT) Close Call

On the surface, Monday’s Supreme Court decision to block a massive law suit against Wal-Mart Stores (WMT) was a unanimous move to put the brakes on runaway class actions.

But dig a little deeper and you will find that although the court made the right call, it was a close call. Only a 5-4 majority agreed to end the case outright. The four justices appointed by Democrats all wanted to send the case back to the lower courts to see whether it could survive as a class action under a different provision of the rules.

The lawsuit, which I wrote about in January, concerned as many as 1.5 million women who have worked at Wal-Mart stores nationwide since December 26, 1998. Had it been permitted to proceed, it would have been the largest employment discrimination case in U.S. history, with claims for back pay potentially totaling billions of dollars.

But the experiences of those 1.5 million women were supposed to have been represented at trial by just three specifically identified plaintiffs. Betty Dukes started as a cashier at a Wal-Mart in California, was promoted to customer service manager, then was demoted to cashier and greeter for violations of company policy. Christine Kwapnoski, a Sam’s Club employee in Missouri and California, alleged that a male manager screamed at her and other female employees, and told her to “doll up.” Edith Arana worked at a California Wal-Mart form 1995 to 2001. She sought to enter a management training program and, when she was rebuffed, attributed the denial to her gender.

Maybe these women were victims of illegal discrimination; maybe they weren’t. The high court did not rule either way and did not bar them from bringing their own individual claims. It also did not bar them from seeking class-action status as representatives of a smaller group. Kwapnoski, for example, could conceivably sue on behalf of herself and all other female employees allegedly injured by the screaming male manager.

The court’s majority simply and logically said these three women could not claim to represent all the women who have worked at Wal-Mart for the past 13 years. The three plaintiffs did not allege that Wal-Mart had a corporate policy that encouraged or permitted discrimination; the company has explicit policies to the contrary. Within the confines of the law, the company permitted local and district managers wide discretion over who was selected for promotion and how much, within certain ranges, each employee would be paid. With a combination of anecdotal and statistical argument, lawyers for the three women argued that this was enough to let them bring a case charging Wal-Mart with systematically discriminating against all women.

In the majority opinion, Justice Antonin Scalia wrote that “The crux of the case is commonality – the rule requiring a plaintiff to show that ‘there are questions of law or fact common to the class.’” The Court could not find such commonality among the huge and diverse group of women that the three employees in this case claimed to represent.

“The only corporate policy that the plaintiffs’ evidence convincingly establishes is Wal-Mart’s ‘policy’ of allowing discretion by local supervisors over employment matters,” Scalia wrote. “On its face, of course, that is just the opposite of a uniform employment practice that would provide the commonality needed for a class action; it is a policy against having uniform employment practices. It is also a very common and presumptively reasonable way of doing business – one that we have said should itself raise no inference of discriminatory conduct.”

In her separate opinion, Justice Ruth Bader Ginsburg concurred that the lower courts’ class certification should be reversed, but she said she would have remanded the case to consider whether it still qualified as a class action under a different section of the federal court system’s rules. “The Court gives no credence to the key dispute common to the class: whether Wal-Mart’s discretionary pay and promotion policies are discriminatory,” she wrote, in an opinion joined by justices Stephen Breyer, Sonia Sotomayor and Elena Kagan.

Ginsburg’s opinion runs in a logical endless loop. Wal-Mart may have discriminated against some women in some circumstances; some women sued in response to the alleged discrimination; because they are women, they claimed to represent all women who worked at Wal-Mart, rather than all victims of Wal-Mart’s alleged discrimination.

That reasoning makes no sense. The plaintiffs did not accuse Wal-Mart of systematically discriminating against women; they accused it of having an unsystematic approach that permitted illegal discrimination. That same unsystematic approach could allow a Wal-Mart supervisor (male or female) to favor women over men for raises and promotions, which is just as illegal as favoring men over women. Why should the proposed class action plaintiffs represent the women who benefited from any such discrimination rather than the men who suffered from it?

Such a result is silly, and demonstrates why the majority reached the decision it did. Quoting from a dissenting appellate judge, Scalia noted that the women who have worked at Wal-Mart over the years and would be members of the class “have little in common but their sex and this lawsuit.”

As I noted in January, class action lawsuits generally offer far more benefit to the lawyers who orchestrate them than to the plaintiffs seeking redress. The federal judge who allowed this suit to stand summed up the theory behind all class action suits neatly: “Rough justice is better than the alternative of having no remedy at all for any class member.”

In this case, the enormous size of the class risked erring on the other end of the scale, by depriving individuals who might actually have been victims of discrimination of the ability to seek their own specific redress in favor of rough justice for all. There was no “opt-out” provision in this class action. If you were a female Wal-Mart worker or former worker, you were in; if you were male, you weren’t – regardless of whether or how you suffered discrimination.

It was, as Scalia put it, an attempt by the lower courts to experiment with “Trial by Formula,” adding, “We disapprove that novel project.”

Rightly so. Real justice is based on facts, not formulas; real plaintiffs are people who can be specifically shown to have suffered an actual injury, not merely to share similar bodily characteristics to others allegedly injured. There was no justice in this suit’s rough justice, and now the Supreme Court’s justices have said so.

About Larry M. Elkin 525 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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