When “rough justice” becomes injustice

The Wall Street Journal has published a piece by my colleague Eric Dreiband about the class action sex discrimination suit against Wal-Mart. Eric, who until recently was the General Counsel of the U.S. Equal Employment Opportunity Commission, shows that the suit is poorly suited to accomplish anything other than enriching the lawyers who are bringing it.

Sometimes “rough justice” becomes injustice. Dukes v. Wal-Mart, the largest employment discrimination case in American history, is such a case. It threatens to deprive millions of women of the protections of the civil rights laws, and to deny due process both to victims of sex discrimination and to Wal-Mart. Congress should enact legislation that clarifies the standards that govern in civil rights class actions so that these injustices do not happen again. If Congress fails to act, class action cases like Dukes, will continue to enrich class action lawyers and to deny civil rights protections to millions of Americans.
The Dukes case was brought in a San Francisco federal court by six women on behalf of an estimated 1.5 to 1.7 million women who are former or current Wal-Mart employees. The plaintiffs allege that the corporation engages in a “pattern or practice” of sex discrimination in pay and promotions against women who have worked in Wal-Mart stores since 1998. In 2004, U.S. District Judge Martin Jenkins certified the case as a class action, based on the theory — really, a complete fiction — that these six individuals could speak for millions of women they do not know, have never met, and will never meet.
In the more than four years since the plaintiffs filed the case, one story after another has purported to describe how Wal-Mart engages in widespread sex discrimination against women. The plaintiffs, however, have not proven that Wal-Mart violated their civil rights or anyone else’s, and probably never will, because federal courts are divided about the standards that govern employment discrimination class actions and the law is in disarray. Accordingly, the case will almost certainly be settled before a jury hears one word of testimony, as Wal-Mart seeks to avoid the uncertainty of continued litigation.
The Civil Rights Act of 1991 permits each victim of unlawful discrimination to recover damages of up to $300,000. The plaintiffs seek punitive damages of between $450 and $510 billion (1.5 to 1.7 million women times $300,000). In order to shoehorn the case into a class action, their lawyers argue that money is “incidental” and “secondary.” In other words, the Dukes plaintiffs seek, literally, a half a trillion dollars in punitive damages alone while their lawyers contend that money is something of an afterthought.
The Civil Rights Act also authorizes compensatory damages for victims of unlawful discrimination. The plaintiffs in Dukes decided not to seek compensatory damages: To do so would render the case inappropriate as a class action because compensatory damage awards depend upon injuries suffered by individuals, not classes of individuals. Any actual victim of sex discrimination by Wal-Mart will lose her claim to compensatory damages unless she hires a lawyer to file papers in the San Francisco court and “opts out” of the case.
But how many Wal-Mart store employees in, say, Tupelo, Miss., Roanoke, Va. or Harrisburg, Pa. are going to find and retain a lawyer to represent their interests in a case pending in a court thousands of miles from where they live and work? The answer is: very few. Thus, the six plaintiffs who brought the case will have denied millions of women one of the key remedies to which they might be entitled under the law.
The question of venue also raises concerns. The plaintiffs chose to file the Dukes case in San Francisco, a location widely viewed as plaintiff-friendly by class action lawyers. The Dukes case is currently pending on appeal to the San Francisco-based Ninth Circuit, viewed as the most plaintiff-friendly of the federal appellate courts. Despite the fact that Wal-Mart’s headquarters are in Arkansas and the class members are scattered across cities and towns throughout the nation, the civil rights of millions of women are at stake in a courtroom that is located on the western edge of the continent.
The trial procedures ordered by the San Francisco court also threaten to deny real victims and Wal-Mart of due process. The district court determined that there will be a trial of the class claims first. If Wal-Mart loses in the first phase, the matter will proceed to a second phase for assessment of damages.
During this second phase, no one will testify. Instead, the court will order Wal-Mart to pay money to class members. Wal-Mart will have no ability to defend itself against individual claims by class members, nor will any class member be permitted to demonstrate that she suffered more damages than a pre-determined (and as yet undetermined) “formula” permits. Actual victims, if any, will receive less than they should, and Wal-Mart will pay persons who suffered no injury. This procedure violates the Civil Rights Act of 1964, which, the U.S. Supreme Court has written, does not authorize affirmative relief for individuals as to whom the existence of systemic discrimination had no effect.
And then, of course, there is the issue of attorneys’ fees. The lawyers who brought the case stand to make hundreds of millions of dollars, perhaps more, while each class member will receive a small amount. Consider, for example, a settlement of $2 billion. This is a staggering sum, but, given that Wal-Mart’s exposure exceeds $500 billion, a $2 billion settlement would be less than one-half of 1% of the amount sought. Each class member would, on average, receive less than $1,200.
The district court described this as “rough justice,” proclaiming that it was “better than the alternative of no remedy at all for any class member.” The better approach, however, is justice for actual victims of discrimination, not a system that requires an employer to throw trivial amounts of money at millions of individuals and hundreds of millions of dollars or more at a few lawyers. This kind of “rough justice,” under which any real victim loses her right to bring her own case for real justice while the lawyers become wealthy and move on to their next class action, makes a mockery of the civil rights laws. Congress should put a stop to this.

UPDATE: Reader Mark Arnold, who defends class action suits, extends the critique of such cases:

The primary if not exclusive purpose of every class action filed these days is to generate a fee for the plaintiff’s lawyer. The concept probably makes sense, just as a matter of judicial economy, for securities fraud class actions such as Enron; at least the class has suffered real damage.
The typical consumer fraud class action, on the other hand, rarely involves any real injury to the class. Often, the challenged practice actually benefits the consumer. I defended a class action several years ago in which the real estate mortgage broker allowed the borrowers to finance their closing costs. When the broker sold the loan to my bank, it naturally demanded payment of the closing costs. The theory of the lawsuit was that this payment was an illegal kickback.
Corporations that do not cover their costs, including the cost of defending and settling class actions, do not remain in business. So the people who ultimately pay those costs, including the payouts to the plaintiff’s lawyers, are the very consumers those lawyers purport to represent.