In the Fourth Circuit’s recent decision in Scott v. Family Dollar Stores, the concurrence and dissent sharply disagreed about the significance of the majority opinion.  Depending on which opinion you read, Family Dollar is either a sweeping reinterpretation of the Supreme Court’s class action decision in Wal-Mart v. Dukes or a narrow holding reiterating the rule in favor of liberal amendment of complaints.  Time will tell who is right.

In Family Dollar, a putative nationwide class of female store managers filed suit against Family Dollar under Title VII and the Equal Pay Act, claiming they were paid less than similarly situated male store managers.  Early in the case, the plaintiffs relied on the Ninth Circuit’s decision in Dukes v. Wal-Mart,arguing that the “Ninth Circuit has now affirmed certification of such a nationwide class having virtually identical claims of sex discrimination in pay to those brought in this case.”  Then, the Supreme Court overruled the Ninth Circuit.

In a 5-4 decision, the Supreme Court in Wal-Mart v. Dukes held that certification of the Wal-Mart class was not consistent with Rule 23(a)(2), which requires a party seeking certification to prove that the class has common “questions of law or fact.”  The Supreme Court concluded that for a class like the one in Wal-Mart to be certified, there must be some “glue” holding the alleged adverse employment decisions together.  According to the Supreme Court, the only company-wide policy convincingly established was Wal-Mart’s policy of allowing discretion by local supervisors over pay and promotion, but this “policy” of localized discretion did not provide a common answer to the “crucial question” of why any particular employee “was disfavored.”

After the Supreme Court’s decision in Wal-Mart, Family Dollar moved to dismiss the class allegations and the plaintiffs moved for leave to amend.  The plaintiffs argued their proposed amendment “elaborated” on the original complaint, alleging “four company-wide policies” that purportedly gave rise to discrimination in pay and promotion—including, for example, taking into account prior experience and pay, and paying more to those hired from outside the company than to those promoted from within.  The amended complaint also emphasized the involvement of regional managers and divisional vice presidents in decisions about store manager pay.

Judge Cogburn in the Western District of North Carolina denied the motion for leave to amend the complaint, holding (1) the motion was futile because the only source of alleged discrimination in the proposed complaint was “discretionary pay of managers,” which was foreclosed by Wal-Mart, and (2) it would be prejudicial to Family Dollar because the original complaint was filed over three years prior and the new complaint alleged a “new theory” only to avoid the Supreme Court’s Wal-Mart holding.

The Fourth Circuit disagreed. Writing for the majority, Judge Gregory concluded the District Court had abused its discretion by resting its decision on an erroneous understanding of Wal-Mart.  According to the majority:

• Wal-Mart did not set out a per se rule against class certification where discretion is alleged.  Instead, to satisfy commonality, a plaintiff must only “demonstrate that the exercise of discretion is tied to a specific employment practice” and that the subjective practice “affected the class in a uniform manner.”

• Wal-Mart is limited to the exercise of discretion “by lower-level employees, as opposed to upper-level, top-management personnel.”  The majority found this distinction to be “critical” because lower-level employees do not set policies for the entire company, whereas high-level personnel make decisions affecting a much larger group.

The majority withheld judgment on whether the alleged company-wide policies were sufficient for certification, but concluded it was an abuse of discretion not to permit amendment where the complaint included allegations of uniform corporate policies and high-level decision-making different from those in Wal-Mart. The majority also rejected the district court’s conclusion on prejudice, holding the delay was due to the briefing of multiple motions filed by Family Dollar and that plaintiffs should be permitted to correct the defects in their complaint in light of Wal-Mart.

In a strongly worded 40-page dissent, Judge Wilkinson accused the majority of having “drained” the Supreme Court’s decision in Wal-Mart v. Dukes of meaning. The dissent argued the majority had assumed “that nearly 500 middle managers somehow all exercise their discretion in lockstep,” and that the policies being challenged were commonplace.  According to Judge Wilkinson, “the law is punishing companies for nothing more than being companies.”  He also took the majority to task for reversing the District Court’s finding of prejudice—arguing that Family Dollar had been “severely prejudiced” by “forcing them to defend a wholly different suit three years after the original complaint was filed.”

Judge Keenan in concurrence rejected “the dissent’s dystopian view,” arguing that the majority had rendered a “straightforward and limited decision: that the plaintiffs should be permitted to amend their original complaint after a dramatic shift in the law regarding class action certification.” According to Judge Keenan, if the allegations in the amended complaint are not substantiated, the case will still fail.

So who’s right?  For now, the story is still being written as a petition for rehearing en banc has been filed.  If the majority’s decision stands, it could mean there is more latitude to assert class action claims based on discretionary decision-making when it involves “upper-level top-management personnel” — or perhaps the case will ultimately prove to be less about Rule 23’s class action requirements and more about the propriety of motions to amend.  We will follow up if the en banc petition results in any further movement by the court.