Wal-Mart Case: Another Loss for Trial Lawyers

No one will be happier to see the Supreme Court begin its summer vacation than the nation's trial lawyers. The justices received plenty of attention on June 20 when they threw out a class-action suit filed against Wal-Mart Stores (WMT) on behalf of more than a million female workers. The court ruled that the employees failed to show they were common victims of a company policy of gender discrimination. Less noticed—except within certain corners of the legal profession—was that the Wal-Mart case is only the latest in a string of decisions in which the court has smacked down lawsuit-happy trial lawyers.

The ruling follows an Apr. 27 decision involving AT&T Mobility (T) that lets companies force customers and employees to take any disputes to an arbitrator, rather than a court, without the possibility of bundling complaints into a class action. You know those ubiquitous customer and employee "agreement" forms you're often asked to sign—or click on—before you buy a product or start a new job? They often contain a tiny-type paragraph that says you agree to settle any disputes with the company individually in arbitration. The court said the company can hold you to that, even in places where state law makes class actions a required option. The decision has already sparked new interest in arbitration, says Alan S. Kaplinsky, a financial-services attorney at Ballard Spahr in Philadelphia. He says he's now hearing from pension plans, insurers, and real estate brokers who want to craft customer agreements to shield them from lawsuits.

Trial lawyers have come to expect unfavorable judgments from the high court. This month the justices barred a shareholder lawsuit against Janus Capital Group (JNS), which allegedly helped produce misleading prospectuses for Janus mutual funds. A 5-4 majority said Janus was legally distinct from the investor-owned trust responsible for issuing the documents. As with the arbitration ruling, the decision may give companies in other industries a blueprint for shielding themselves from liability.

In other recent decisions, the court has put limits on punitive damages, reducing the financial incentive for trial lawyers to bring big lawsuits. An antitrust ruling in 2007 imposed new standards for filing lawsuits, requiring greater specificity from plaintiffs. The court "has serious misgivings about mass litigation as an effective method of resolving disputes," says Carter Phillips of Sidley Austin, who has argued 71 times before the Supreme Court.

These cases don't always divide the court along the usual ideological lines. The five Republican appointees, led by Chief Justice John Roberts, formed the majority in the mutual fund and arbitration cases. In the Wal-Mart case, all nine justices voted to overturn a lower court's certification of the class action, though the four Democratic appointees would have given the workers another chance to make their case. "Class actions can serve valuable purposes, but when they are expanded beyond their intended scope they can be harmful to the rights of the parties," says Theodore J. Boutrous Jr., the Gibson Dunn & Crutcher lawyer who argued the case for Wal-Mart. "That's why you see all nine justices voting to overturn the certification."

Unsurprisingly, trial lawyers see great peril in the court's recent actions. "Taken together," says David Sanford, a plaintiff's lawyer with Sanford Wittels & Heisler in Washington, the rulings "are disastrous for individuals in the workplace and civil rights litigation generally."

Some trial lawyers are resigned that the odds will remain against them in the nation's highest court. Some of the justices have a "visceral reaction" against suits that aim for a nationwide impact, says F. Paul Bland Jr. of Public Justice, a Washington group that presses civil rights, environmental, and consumer suits. "They think lawsuits should be narrow things about small disputes, but shouldn't be used in a way that affects broader outcomes," he says.

Plaintiff's attorneys say the rulings will only slow them down, not stop them. Lawyers for the Wal-Mart workers have vowed to hit the country's largest private employer with thousands of individual suits, and perhaps some smaller class actions. The ruling "will be dire for Wal-Mart," says Joseph M. Sellers of Cohen Milstein Sellers & Toll, the lawyer who argued the case for the workers. "Instead of one case, this case will be splintered into many pieces."

The bottom line: The Wal-Mart ruling is part of a years-long effort by the court to curb attorneys seeking big damage awards from corporations.

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