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Scott et. al v. Family Dollar Stores, Inc., No. 12-1610

Decided: October 16, 2013

The Fourth Circuit Court of Appeals reversed the district court’s denial of female employees’ (“Appellants”) motion to amend their complaint, in their sex discrimination and equal pay action against Family Dollar Stores, Inc. (“Family Dollar”).

Appellants were fifty-one named plaintiffs and a putative class consisting of females who are, or have been, store managers. Appellants primarily alleged that they were paid less than male store managers who perform the same job, requiring the same skill, responsibility and effort, under similar working conditions. Appellants had to show that these disparities were caused by centralized control of compensation at the corporate level, rather than the local level, in order to establish they had suffered a “common injury” for class action.

Family Dollar filed a motion to dismiss, arguing that Appellants did not satisfy the commonality requirement for class certification. Appellants moved for leave to file an amended complaint in order to elaborate on the original complaint’s allegations of “centralized control of compensation for store managers at the corporate level.” In the proposed amended complaint, Appellants alleged and challenged four specific company-wide policies that created disparities in store manager compensation. The district court denied Appellants’ motion for leave to amend.

The Court addressed the district court’s two primary reasons for denying Appellants’ request for leave to amend their complaint: (1) the proposed amendment was foreclosed by the Wal-Mart case and (2) the amendment would be prejudicial to Family Dollar.

The Court rejected (1) and held that the Appellants’ proposed amendment was not foreclosed by Wal-Mart. In Wal-Mart, the Supreme Court held that the employees’ allegations regarding manager discretion over employee pay were insufficient to satisfy the commonality requirement for class actions. However, Wal-Mart involved the exercise of discretion by lower-level employees, as opposed to upper-level, top-management personnel. In addition, it was not the subjective discretion itself, but the fact that it was not exercised in a common way with some common direction that prevented class certification in Wal-Mart. Furthermore, Wal-Mart indicated that even where the complaint alleges discretion, if there is also an allegation of a company-wide policy of discrimination, the putative class may still satisfy the commonality requirement for certification. In this case, the Court held that while the original complaint failed the commonality standard set forth in Wal-Mart, the proposed amended complaint did not. The proposed amendment complaint clearly specified four company-wide practices regarding employee pay, which is more in line with Wal-Mart’s requirements of uniform corporate policies or high-level corporate decision-making in a “common way under some common direction.” Furthermore, the discretionary decisions set forth in the proposed amended complaint were made by high-level corporate decision-makers with authority over a broad segment of Family Dollar’s employees, not on an individual store level as in Wal-Mart. And, in any event, our policy favors liberal amendment of complaints.

The Court also rejected (2) and held that the amendment would not be unduly prejudicial to Family Dollar. Although Appellants’ filed their proposed complaint over three years after their original complaint, this delay in filing was mostly due to Family Dollar. On numerous occasions, Family Dollar moved to dismiss the complaint and that had the effect of staying discovery, thereby prolonging the litigation. Furthermore, although Appellants did not seek to amend until briefing on Family Dollar’s motion for summary judgment was almost complete, this was not outside the typical briefing schedule for motions to dismiss or summary judgment. In addition, Appellants do not allege an entirely new theory in the amended complaint, but rather elaborate on one of two allegations that were previously pled in a conclusory fashion. Even if Appellants had sought a completely new legal theory, it would not be barred by judicial estoppel, which applies to inconsistencies based on fact rather than law or legal theory. Appellants’ present factual position in the proposed amended complaint is consistent with the original complaint, and the legal theory remains the same. In any event, the Court has held that “the filing of a supplemental pleading is an appropriate mechanism for curing numerous possible defects in complaint.” And finally, because prejudice can result where a new legal theory is alleged if it would entail additional discovery and evidentiary burdens on the part of the opposing party, this usually occurs where an amendment is offered shortly before or during trial. The parties here were still in discovery, many steps removed from trial.

Full Opinion

– Sarah Bishop