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Retailers beware or rejoice?

BY CSA STAFF

By Jim McNeill and Gary K. Brucker Jr., [email protected], [email protected]

On March 29, 2011, the United States Supreme Court heard oral argument in Dukes v. Wal-Mart, the largest class action in American history. But the Court was not interested in the merits of the 1.5 million sexual discrimination claims. Rather, the Court heard argument on whether the trial court and Ninth Circuit Court of Appeal were correct in allowing the case to proceed as a massive class action. At this point, it is too early to tell how the Supreme Court will rule, but one thing is clear, significant issues regarding the rules shaping class action litigation are in play.

At issue is how courts apply the rules for allowing a case to proceed as a class action, where the claims of many are pursued (or defended) by “representative(s).” The “rules” of certification are set out in Federal Rule of Civil Procedure 23. That rule contains various hurdles a case must clear to reach the certification goal. First, under Rule 23(a), the party seeking certification must show that the class is numerous, that the legal and factual issues are common class-wide, that the claims and defenses of class members are typical, and that the representative is up to the task. Next, one of three routes to certification must be established. There’s Rule 23(b)(1) for class actions where separately litigating claims would lead to inconsistent results, Rule 23(b)(2) for actions seeking injunctive relief where a party acts or refuses to act on grounds generally applicable to the class, and Rule 23(b)(3).

As it stands now, most class actions seek certification under Rule 23(b)(3), which requires that class representatives show the claims to be addressed can be litigated via facts and law that are common to all the class members, rather than by issues related to individuals in the class. Because this “predominance inquiry” is often the most difficult hurdle to clear, those opposing certification typically focus their efforts and argument on establishing that issues unique to each individual class member require separate, as opposed to collective, consideration. Historically, this argument has been especially persuasive in employment discrimination class actions, where each alleged instance of discrimination is often unique and individualized, rather than institutional in nature.

Because the predominance inquiry can be a difficult hurdle to overcome, class representatives have increasingly sought to certify actions under Rule 23(b)(2), which doesn’t require that common questions “predominate” over individual issues. The obvious question, of course, is why does anyone ever bother to pursue class actions under Rule 23(b)(3) given this easier path? The answer used to be simple: Rule 23(b)(2) is supposed to apply in cases seeking prospective injunctive relief (to stop or require some action), and not, per the Rule’s commentary, “to cases in which the appropriate final relief relates exclusively or predominantly to money damages.” Recently, however, certification seekers have begun to use Rule 23(b)(2) to not only seek injunctive relief, but to also seek money damages, characterizing them as “secondary” or “incidental” to the main injunctive relief desired.

Although Dukes brings the Supreme Court into this issue, various Circuit Courts of Appeal have reached divergent opinions on whether and when class certification under Rule 23(b)(2) is appropriate if money damages are also sought. Most notable among them being the Ninth Circuit in its Dukes opinion now under review, in which the Ninth Circuit permitted seven female employees of Wal-Mart, each claiming separate and unrelated instances of sex discrimination, to represent 1.5 million other employees under Rule 23(b)(2). This should trigger alarm, considering that the Ninth Circuit’s ruling effectively allows the Plaintiffs to pursue what could be billions of dollars in back pay under a Rule 23(b)(2) rubric that denies Wal-Mart any ability to prove that many, if not most, of the 1.5 million class members never suffered discrimination.

Based on the justices’ questions during oral argument, most observers agree the Court is likely to reverse in a split decision. In so doing, the Court is may clarify and limit the extent to which money damages can be sought as relief under Rule 23(b)(2). If this prediction proves correct, employers should rejoice the receding wave of Rule 23(b)(2) class actions. Conversely, should the Court affirm the certification ruling, or decline to rule on the Rule 23(b)(2) issue, employers stand to suffer an increased swell of new filings.

In addition to the critical Rule 23(b)(2) issue, the Court may also clarify the state of the law on two related procedural issues. First is to what extent the merits of an action, i.e., the validity of the claims or defenses, may be considered during the class certification process. The majority of courts ruling on this issue believe merits-based inquiry is inappropriate at the class certification stage. But in Dukes, the Ninth Circuit held that courts can and should weigh the merits of an action to a limited extent when assessing class certification. The implications of this decision are significant, as allowing merits inquiries will expand the scope of pre-class certification discovery to merits-based issues, increase litigation costs, and convert class certification into a mini-trial on the merits of an action.

The second issue the Court may clarify is the extent to which the requirement of common legal and factual questions can be satisfied through the use of statistics and anecdotal evidence. Again, the Ninth Circuit agreed with the certification decision notwithstanding the fact that it meant seven employees represent 1.5 million others at trial. Such a monumental class would seem impossible to litigate without eviscerating Wal-Mart’s right to defend against individual discrimination claims. But the Dukes plaintiffs were successful in arguing that statistical analysis of Wal-Mart’s records, when coupled with anecdotal evidence of discrimination experienced by 120 employees, could overcome the drawbacks of attempting to try 1.5 million claims together. The result: Unless the Supreme Court curtails this far-reaching use of statistical and anecdotal evidence, one or two instances of discrimination may just snowball into a class action on behalf of half of an employer’s work force.

In summary, no matter how the Supreme Court rules in Dukes, it is sure to be a landmark decision and employers are wise to monitor the decision closely.

Jim McNeill (mckennalong.com/professionals-129.html) is an attorney with McKenna Long & Aldridge and a member of the firm’s Litigation Group. He can be reached at [email protected].

Gary K. Brucker Jr. (mckennalong.com/professionals-955.html) is an associate with McKenna Long & Aldridge in the firm’s Litigation Group. He can be reached at [email protected].

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Urban Outfitters changes Leifsdottir strategy

BY CSA STAFF

PHILADELPHIA— Urban Outfitters announced that its Leifsdottir brand will now besold exclusively at Anthropologie stores and through its direct-to-consumer business, and will no longer be available for wholesale distribution with the conclusion of spring deliveries. Johanna Uurasjarvi, creative director Leifsdottir, will return to the Anthropologie brand as executive creative director Anthropologie product design.

"We believe this change gives us the best opportunity to maximize the brand equity of the Leifsdottir label, and we are excited to welcome Johanna back to the Anthropologie business," said Glen Senk, CEO.

The company said it expects to record one-time costs of approximately $2.7 million in the first quarter of the current fiscal year for the disposal of certain Leifsdottir assets, disposition of inventory and other related costs.

Urban Outfitters currently operates 176 Urban Outfitters stores in the United States, Canada, and Europe, catalogs and four web sites; 153 Anthropologie stores in the United States, Canada and Europe, catalogs and two websites; Free People wholesale, which sells its product to approximately 1,400 specialty stores and select department stores; 42 Free People stores, catalogs and a web site; Leifsdottir wholesale, which sells its product to approximately 65 specialty stores and select department stores and through a web site; 1 Terrain garden center and website; and BHLDN, which sells its product through a web site as of Jan. 31.

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Winn-Dixie sells off last of non-core operations

BY CSA STAFF

JACKSONVILLE, Fla. — Winn-Dixie Stores announced that, with the sale of its Deep South beverage manufacturing facility, it has completed itsprogram to sell all non-core manufacturing operations.

Polar Beverages of Worcester, Mass., will own the Fitzgerald, Ga.-base facility effective April 29.

“In 2005, Winn-Dixie announced a strategy that would allow the company to focus on its core business: operating grocery stores that provide our guests with superior service, great selection and variety. Part of this mission included Winn-Dixie exiting our manufacturing operations,” said Bennett Nussbaum, Winn-Dixie’s SVP and CFO.

Polar will continue operation of this facility, and Winn-Dixie has negotiated a five-year agreement with Polar Beverages as the exclusive supplier of its market-leading Chek brand carbonated soft drinks.

Polar said it intends to operate the facility as it is today, with minimal change to existing employees or their wages and benefits. Upon completion of the sale, employees of this facility will become employees of Polar Beverages.

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