Workplace Class Action Litigation

By Courtney Bohl and Laura J. Maechtlen  

We previously blogged about DFEH v. Law School Admissions Council, Inc., No. 12-CV-1830, 2013 U.S. Dist. LEXIS 57431 (N.D. Cal. April 22, 2013), and the recent motion filed by the California Department of Fair Employment and Housing (“DFEH”), which asked the Court to allow the agency to proceed for “group relief” under the “pattern or practice” framework applicable to EEOC-initiated Title VII enforcement actions, rather than meeting the requirements of Rule 23 for class certification. On April 22, 2013, Judge Edward M. Chen of the U.S. District Court for the Northern District of California determined that the DFEH is not required meet the requirements of Rule 23; instead, because it is pursuing a government enforcement action, the agency is exempt from the requirements of Rule 23 when pursuing a case on behalf of a group of employees.

The ruling is novel, and vitally important for companies facing the prospects of governmental enforcement litigation with state agencies.

Factual And Procedural Background

The DFEH filed suit against the Law School Admission Council, Inc. (“LSAC”), seeking damages and injunctive relief over alleged failures of the LSAC to provide disability-related accommodations to test-takers of the Law School Admission Test (“LSAT”). The DFEH brought its action both on behalf of seventeen named individuals and as a “group or class” complaint on behalf of “all disabled individuals in the State of California who requested a reasonable accommodation for the LSAT from January 19, 2009 to the present.” Id. at 1. The DFEH alleged several forms of discrimination, including policies or procedures alleged to require test-takers to undergo psycho-educational and neuropsychological evaluations in order to be eligible for an accommodation, and a practice of placing notations on the test score if a test-taker was provided an accommodation, which is disclosed to all schools receiving the test score. Id. at 1-3.

The DFEH brought the current motion claiming that its suit, similar to government enforcement actions brought by the EEOC, is not a “class action” and thus is not subject to the requirements of Rule 23.     

The Court’s Ruling

The Court held that the DFEH’s suit against LSAC was indeed a “government enforcement action” seeking relief on behalf of a group of aggrieved individuals and did not qualify as a class action within the meaning of Rule 23. Id. at 27. 

In so ruling, the Court first analyzed the U.S. Supreme Court’s ruling in General Telephone Co., of the Nw., Inc. v. EEOC, 446 U.S. 318 (1980), which held that the EEOC could maintain a civil action for the enforcement of a statute under its jurisdiction and may seek relief for a group of individuals without first obtaining class certification under Rule 23. Id. at 10-11. The Court noted that the principle that emerged from General Telephone and post-General Telephone cases is that — where a government agency is authorized to act in the public’s interest to obtain broad relief, and the statute confers this power on the agency without referencing class certification — Rule 23 may not apply. Id. at 18.

Turning to the DFEH, the Court noted that it must examine the nature of the DFEH’s enforcement actions to decide whether or not they are subject to Rule 23’s requirements. Id. at 20. The Court closely followed the Supreme Court’s analysis in General Telephone, starting with the DFEH’s authority. The Court noted that California Fair Employment and Housing Act (“FEHA”) authorizes the DFEH to file administrative charges and to bring civil actions in court for group or class relief. Id. at 21. Additionally, the California Supreme Court has recognized the DFEH as a public prosecutor testing a public right. Id.

Next, the Court analyzed the relationship and potential conflict between Rule 23 and the FEHA. Id. at *24-30. The Court noted that applying Rule 23 to the FEHA would substantially limit the number and types of suits the DFEH could bring on behalf of a class. Id. at 24. For instance, Rule 23 would foreclose actions by the DFEH against employers with a small number of employees because the DFEH would be unable to meet Rule 23’s numerosity requirement. Id. at 28. Similarly, the DFEH’s actions would be limited to claims “typified by those of the original charging party,” even though the FEHA authorizes class claims that are “like or reasonably related to” the original charge. Id. at 28-29. Finally, under FEHA, the DFEH is authorized to proceed with an action even if some class members may appear to be disadvantaged, so long as the suit is advancing the public interest. Id. at 29. Applying Rule 23’s adequate representation requirement to the DFEH, however, would operate to foreclose an enforcement action where a conflict of interest between the DFEH and the members of the putative class existed. Id. at*29. 

The Court also evaluated the policy behind distinguishing the DFEH’s action from a Rule 23 class action. Id. at 30-31. The Court reasoned that unlike a private class action, where typicality requirement ensures absent class members are not denied due process of law when they are bound without their explicit consent, in the DFEH case, absent victims are not bound by the outcome of a DFEH suit and may bring a suit against the employer on their own. Id.

The Court finally turned to and rejected the LSAC’s objections.  LSAC argued the Court’s ruling would create an untenable conflict between FEHA and Rule 23. Id. at 31-32. The Court dismissed this argument, noting that its decision does not hold that California law trumps Rule 23. Id. at 32. Instead, its decision establishes that certain governmental enforcement actions are simply “not” class actions. Id. 

LSAC also argued the Court’s rule would allow “a state statute to prescribe the procedure for pursuing purported class claims in federal court.” Id. at 37-38. The Court rejected this argument, finding that LSAC missed the import of General Telephone. The Court reiterated its ruling that when a government agency pursues class-wide relief through a civil enforcement action, it is not prosecuting a “class action” subject to Rule 23. Id. at 38.

Implications For Employers

This ruling has significant implications for employers, and especially those with operations in California.    

While the ruling dictates the procedure by which these cases are litigated, and not the underlying substantive claims, the DFEH’s ability to file class-like litigation outside the procedural requirements of Rule 23 is a significant advantage for the agency. The agency need not prove numerosity, or other Rule 23 requirements.  Instead, to prove a pattern-or-practice of discrimination, the agency will follow a burden-shifting framework encompassing two phases of litigation: a liability phase and a remedial phase.  In the liability phase of a pattern or practice case, the agency has the initial burden of establishing a prima facie case that discrimination was the employer’s standard operating procedure — that is, the regular rather than the unusual practice. The burden then shifts to the employer to defeat the prima facie showing by demonstrating that the agency’s proof is either inaccurate or insignificant. If an employer fails to rebut the inference created by the prima facie case, the court may award prospective relief without any further evidence from the EEOC, including an injunction against continuing the discriminatory policy.   

When a government agency seeks individual relief in addition to prospective relief, a court typically conducts a second “remedial” phase of the litigation to determine the scope of individual relief. Because the court has already found liability based on the existence of a pattern-or-practice of discrimination, it will infer that all decisions were made pursuant to the discriminatory policy at issue in the first phase. Therefore, the government need only show the persons subject to the offending policy, to show that they were potential victims of the proved discrimination. Once this showing is made, the burden shifts to the defendant to demonstrate that the individual claimant was denied an opportunity for lawful reasons. If a legitimate, non-discriminatory reason for the denial of opportunity is presented, the government then has an opportunity to demonstrate that the proffered reason is merely pretext for discrimination. 

For these reasons, defense of pattern or practice claims is challenging. The cases tend to be statistically-intensive, and difficult to win on summary judgment.  Moreover, in a remedial phase, individualized issues that may not be litigated in a Rule 23 class action are often addressed through a variety and varied array of trial plans determined by federal courts. 

Clothed with authority to bring class-wide claims that are not subject to Rule 23’s requirements, the DFEH most likely will perform more expansive investigations into employer’s policies and practices, demand class-wide discovery before a lawsuit is filed, and style its class claims as pattern-or-practice claims on the heels of this important decision. Employers should be on the lookout for these strategies and expect the DFEH to bring more pattern-or-practice litigation in the near future.

By Courtney K. Bohl and Timothy F. Haley

Although concluding that Comcast Corp. v. Behrend, No. 11-864, 2013 U.S. LEXIS 2544 (U.S. Mar. 27, 2013), did not require plaintiffs to prove individual class member damages on a class-wide basis, Judge Lucy Koh of the U.S. District Court for the Northern District of California nevertheless held in In Re High-Tech Employee Antitrust Litigation, No.: 11-CV-02509, 2013 U.S. Dist. LEXIS 4978, at *69, 87-90 (N.D. Cal. Apr. 4, 2013), that plaintiffs failed to show that antitrust impact could be shown with common evidence. It therefore denied class certification.

In Re High-Tech Employee Antitrust Litigation is a highly publicized workplace antitrust case allegedly centered around present and former CEOs of some of the largest Silicon Valley employers such as Steve Jobs of Apple and Eric Schmidt of Google. We previously blogged about this case here.

In this consolidated putative class action plaintiffs allege that seven high-tech Silicon Valley employers entered into agreements not to solicit each other’s employees. They contend that these agreements violated §1 of the Sherman Act and suppressed the wages of the putative class members below competitive levels. In this decision, Judge Koh denied plaintiffs’ motion for class certification, but told the plaintiffs that they could try again with the benefit of additional evidence obtained in discovery after the class certification hearing. There is both good and bad for employers in Judge Koh’s opinion.

The Class Certification Decision

Plaintiffs sought certification of a nationwide class of all salaried persons who were employees of any of the defendants from March 2005 through December 2009. Alternatively, they moved to certify a nationwide class of salaried technical, creative, and research and development employees who worked for any of the defendants during the same time period. Id. at 14-16. Defendants conceded that the question of whether they entered into the alleged agreements was a common issue. Id. at 27-28. But they argued that whether class members were harmed by the agreements (“antitrust impact”) and the amount of damages each class member allegedly suffered could not be demonstrated with common evidence. Id. at 21.

For purposes of the class certification motion, defendants did not contest that plaintiffs had satisfied all elements of Rule 23 (a) – numerosity, commonality, typicality and adequacy of representation.  Id.  The sole battleground was Rule 23(b)(3) – whether questions of law or fact predominated over individual issues.

Plaintiffs contended that the prohibition on soliciting employees impaired information flow about compensation and job offers, resulted in fewer opportunities to move between firms and increase salaries, and deprived the employees of information that could have been used to negotiate higher wages and benefits. Plaintiffs also argued that the anti-solicitation agreements impacted not only those employees who would’ve been recruited but rather all employees corporation-wide due to principles of internal equity. Under this theory when outside opportunities put pressure for higher wages at one place in the wage structure, firms tend to maintain the overall firm wage structure thereby rewarding all employees for the improved outside opportunities of some workers. Id. 38-42.

The Court conducted a detailed analysis of the expert reports submitted by both sides in support of their respective positions. Ultimately, it was not persuaded that the plaintiffs had shown that the effects of the anti-solicitation agreements would have spread to all or almost all employees and denied plaintiffs’ motion. However, since defendants did not produce significant amounts of discovery or make key witnesses available for depositions until after the class certification hearing, the Court gave the plaintiffs leave to amend. Id. at 86-87.

Other Key Rulings

The Court adopted a narrow view of the Supreme Court’s recent decision in Comcast. It held that the plaintiffs satisfied their burden under Rule 23(b)(3) even though the plaintiffs’ damage methodology could not provide a method of estimating damages on an individual basis. Comcast was satisfied merely because the method of calculating damages was consistent with the plaintiffs’ theory of liability. Id. at 87-90.

The Court concluded that the plaintiffs’ burden of proof at the class certification stage was only to advance a plausible methodology to demonstrate that antitrust injury can be proven on a class-wide basis. Id. at 32-33. But the Court acknowledged that even under that standard it was required to conduct a rigorous analysis. Where, as here the parties presented a “battle of the experts,” the Court reasoned that it must do more than determine whether the evidence is admissible but also must judge the persuasiveness of the evidence. The Court must also resolve in any factual disputes necessary to determine whether Rule 23’s requirements have been satisfied. Id. at 35-36.

Implications

The decision in In Re High-Tech Employee Antitrust Litigation provides a mixed bag for employers in defending class certification motions. The Court conducted a rigorous analysis of the evidence and ultimately concluded that the plaintiffs had not shown that proof of antitrust impact could be demonstrated on a class-wide basis. On the other hand, the Court took a narrow reading of Comcast and characterized plaintiffs’ burden as only having to show a plausible method of proving antitrust impact on a class-wide basis.

By Rebecca Bjork and Gerald L. Maatman, Jr.

Today, the Supreme Court of the United States issued its decision in Comcast Corp. v. Behrend, --- S. Ct. ---, 569 U.S. --- (2013), an important Rule 23 decision subsequent to 2011’s landmark Wal-Mart v. Dukes decision. We have been watching this case closely as it has percolated its way up through the courts (read more here and here). On a 5-4 vote, the Supreme Court reversed the Third Circuit’s decision affirming a class certification decision under Rule 23(b)(3). You can read the decision here.

The case is incredibly important for any class action lawsuit dependent upon expert analysis to cross the class certification threshold. This is so because previously, you just knew that a plaintiff’s attorney was going to be able to convince a district judge to allow the class action to proceed to the merits, even though serious doubts about their expert analysis were present. Now, you can rest easier because today, the Supreme Court clarified that to certify a Rule 23(b)(3) class, the plaintiffs will need to establish that their expert analysis has adequately explained how the data show that a classwide determination of damages is possible.

The Supreme Court held that the Third Circuit erred in refusing to decide whether the plaintiffs’ proposed damages model could show damages on a classwide basis. This is so even though such a showing bleeds into a determination of the merits. This decision ultimately means that plaintiffs, generally speaking, will have less leverage to pressure defendants to enter into settlements in many types of class action lawsuits, including workplace class actions, that rely heavily on statistical and other kinds of expert evidence. 

The case arises out of the antitrust laws. It centers on the plaintiffs' allegation that Comcast engaged in "anticompetitive clustering" by making deals with cable competitors in Philadelphia to swap assets and allocate regional cable markets among themselves. Plaintiffs claimed that this artificially increased the prices for cable services. --- S. Ct. at 3. 

The plaintiffs initially advanced four theories of how this caused an “injury” under antitrust law. In granting class certification, the district court relied on only one: the “overbuilding” theory that Comcast’s conduct made it harder for competitors to build cable networks in areas already served by an incumbent. Notably, the court rejected the other three theories of classwide injury. Id. at 3 n.3. The court also accepted a damages model offered by plaintiffs’ expert to demonstrate damages. Id at 4. 

In a split decision, the Third Circuit affirmed the order granting class certification. In its decision, however, the Third Circuit did not address Comcast’s challenges to the viability of plaintiffs’ expert’s methodology. Instead, the court made a more sweeping statement, that “attacks on the merits of the methodology” have “no place in the class certification inquiry.” Behrend v. Comcast Corp., 655 F.3d 182, 207 (3d Cir. 2011). Upon granting certiorari, the Supreme Court reframed the question presented for review to focus specifically on the admissibility of the class-wide damages evidence. 

Today’s decision rejects the Third Circuit’s decision in striking terms, explaining that it “ran afoul of our precedents requiring precisely [the] inquiry [into the merits]” at class certification that the Supreme Court has “repeatedly . . . emphasized[.]” --- S. Ct. at 6-7. The majority also emphasized that the requirements of Rule 23(b)(3) in particular require close attention to whether a class is sustainable, describing it as an “adventuresome innovation” requiring courts to exercise their “duty” to take a “close look” at whether common questions predominate over individual ones. Id. at 6. Because the plaintiffs’ model admittedly did not even attempt to measure the damages attributable to the only theory of damages certified, the Third Circuit’s decision was reversed. Id. at 7-8.

In an unusual twist, a joint dissent was filed by Ginsburg and Breyer, joined by Sotomayor and Kagan, in which they would have dismissed the writ of certiorari as improvidently granted. (In laypersons’ terms, they believe the Supreme Court should not have taken the case after all, because some procedural defects make it unworthy of the Justices’ attention). Specifically, they argued that the reformulated question they actually granted review to consider required an analysis of the reliability of the plaintiffs’ expert report under Daubert v. Merrill Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). It turns out, as was clear in argument of this case, that Comcast never did file any challenge to the plaintiffs’ expert under Rule 702. They also argued in their dissent that the majority opinion, in their view, really breaks no new ground as a matter of class certification law. Id. at 3-5. And finally, they expressed the view that the majority relies on mistaken understandings of the facts as found below and certain precepts of antitrust law. Id. at 5-11. 

In short, as the Supreme Court has focused attention on class action law, as it will continue to do this term in the area of class arbitration, it has brought into perspective the importance of defendants’ efforts to fully engage in the “battle of the experts,” as success in the certification arena may very well depend upon it.  

By Gerald L. Maatman, Jr. and Jennifer A. Riley

On February 20, 2013, Judge Amy St. Eve of the U.S. District Court for the Northern District of Illinois granted Plaintiff’s second amended motion for class certification in The Savanna Group v. Truan, Case No. 10-CV-7995, 2013 WL 626981 (N.D. Ill. Feb. 20, 2013). In so doing, the Court found that counsel’s “slightly” unethical behavior did not prevent them from adequately representing the class for purposes of the adequacy of representation requirement of Rule 23(a)(4). Though not a workplace class action, the decision is noteworthy for employers defending against complex litigation. While courts continue to put teeth into Rule 23’s commonality requirement (read more here, here, and here), the Savanna opinion demonstrates that the threshold for adequacy of representation remains low. 

Factual Background

Plaintiff filed suit alleging that Defendant violated the Telephone Consumer Protective Act (“TCPA”) by hiring a company, Business to Business Solutions (“B2B”), to send unsolicited fax advertisements. Id. at *1. 

In response to Plaintiff’s motion for class certification, Defendant challenged the adequacy of class counsel, asserting three allegations of misconduct, including: (1)  class counsel breached a confidentiality agreement by disclosing information on a B2B hard drive and backup disks; (2) class counsel misrepresented the nature of the class action in a solicitation letter; and (3) class counsel sent a $5,000 check to B2B’s attorney, allegedly to induce the owner to provide information about B2B’s faxing operation. Id. at *2. 

On September 21, 2012, Plaintiff moved to certify a class action. The Court concluded that it lacked sufficient information regarding the circumstances of the alleged misconduct and ordered Plaintiff to submit detailed affidavits. Id. at *1. 

The Court’s Opinion

Although the Court noted that class counsel need not commit “egregious misconduct” to prove inadequate for purposes of Rule 23(a)(4), the Court rejected Defendant’s challenges and certified the class. Id. at *2.

First, Defendant showed that class counsel requested various documents from B2B in connection with four other TCPA cases and, in doing so, represented that an attached protective order would “prevent him from disclosing any of the [data] to any third-party.” Id. The Court found that, “while less than transparent,” class counsel’s conduct did not prejudice the class or rise to the level of “undermining the integrity of the proceedings.” Id. at *3.

Second, Defendant showed that, before the Court certified the class, class counsel sent a solicitation letter stating that “we have determined that you are likely to be a class member” and, if successful, “you would receive compensation (from $500 up to $1500) for each junk fax sent to you.” Id. The Court compared the conduct to a “slight” ethical breach and found that, while questionable, it did not prejudice the class. Id. at *4.

Third, Defendant showed that class counsel sent B2B’s attorney a check for $5,000 payable to him personally for “document retrieval.” Class counsel contended that he sent the check to reimburse B2B for the time and expense of retrieving documents, sitting for depositions, and to compensate them for turning over a computer. Id. at *5. The Court found, although class counsel’s explanation left “unanswered questions” and his conduct was “questionable,” the record did not demonstrate that class counsel sent the payment to induce particular testimony, particularly since B2B’s owner already had testified several times. Id. at *6. 

The Court concluded that Plaintiff satisfied its burden under Rule 23(a)(4) of demonstrating the adequacy of class counsel and granted Plaintiff’s motion for class certification.

Implications

The Court’s opinion in Savanna Group reinforces the high bar that defendants must meet to prevent certification based on the inadequacies of class counsel. Based on the Court’s approach, to use questionable or “slightly unethical” conduct to defeat certification, defendants will need to show broader impact and demonstrate that the conduct prejudices the class or compromises the proceedings before the Court.

By Gerald L. Maatman, Jr. and Jennifer A. Riley

On January 24, 2013, Judge Samuel Der-Yeghiayan of the U.S. District Court for the Northern District of Illinois entered an order in Baker v. Home Depot USA, Inc., No 11-CV-06768 (Jan. 24, 2013), striking Plaintiffs’ class allegations, and cutting off Plaintiffs’ attempts to bring a multi-state class action at the pleading stage. 

Although Plaintiffs’ claim arose outside the employment context, the decision provides favorable precedent for employers seeking to eliminate defective class claims at the outside of litigation and helps shift the balance away from decisions finding such efforts premature.

Procedural Background

Plaintiffs brought suit against Home Depot claiming that the company promoted and sold wood treated with Chromium Copper Arsenate (CCA), a carcinogenic substance, for residential use,  even though it knew or should have known of the health risks associated with the product. Id. at 1-2.

Plaintiffs claimed that they each owned a deck built with CCA-treated wood from Home Depot. Id. at 2-3. They brought suit on behalf of a multi-state class of persons who own structures made of CCA-treated wood from Home Depot who suffered property damage. Id. at 3.

Plaintiffs asserted claims for design defect, failure to warn, negligence, and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. In response, Home Depot moved to dismiss all claims and moved to strike the class allegations. 

The Court’s Opinion

The Court denied Home Depot’s motion to dismiss Plaintiffs’ strict liability and negligence claims. Id. at 6. The Court, however, granted Home Depot’s motion to dismiss Plaintiffs’ fraud claim, and it granted Home Depot’s motion to strike Plaintiffs’ class allegations. 

The Court noted that, where pleadings are facially defective and definitively establish that a class action cannot be maintained, “the court can properly grant a motion to strike class allegations at the pleading stage.” Id. at 9. 

In support of its motion to strike, Home Depot pointed to other rulings made by various courts denying class certification in materially similar cases. Id. at 10. The Court found many of the problems identified by the courts in those cases present in the instant case. Id. at 11.

Although Plaintiffs pointed to “many common issues of fact” among the proposed class members, the Court opined that they could not establish that common issues predominated over individual issues; “issues of causation, the extent of each class member’s injuries and the corresponding remedy, and the potential for individual affirmative defenses to apply to each class member’s claims all preclude the certification of a class.”  Id. at 11-12. For these reasons, the Court stuck the class claims. 

Implications For Employers

Under Judge Der-Yeghiayan’s approach, defendants can challenge class claims at the pleading stage where it is apparent from the allegations in plaintiffs’ complaint that plaintiffs’ claims cannot be certified due to the structure of the certification theories. Although Baker v. Home Depot arose outside the employment context, it provides a roadmap for employers looking to eliminate class claims at the earliest opportunity, before incurring the expense of discovery.   

By Gerald L. Maatman, Jr. and Laura J. Maechtlen

As we previously reported, on October 28, 2012, former class members in Dukes, et al. v. Wal-Mart Stores, Inc. filed a lawsuit entitled Odle, et al. v. Wal-Mart Stores, Inc., No. 3:11-CV -2954 (N.D. Tex.), a “tag-along” case to the oft-cited, and still pending, Wal-Mart class action. Plaintiff Stephanie Odle and six other named plaintiffs filed the suit on behalf of themselves and approximately 50,000 female Wal-Mart employees, alleging that they were subjected to gender discrimination as a result of specific policies and practices in Wal-Mart’s regions located in whole or in part in Texas. Specifically, Plaintiffs alleged gender discrimination by denying equal opportunities for promotion to management track positions, and denying equal pay for both hourly retail store positions and for salaried management positions. 

On October 15, 2012, U.S. District Judge O’Connor dismissed all class claims, reasoning that the lawsuit was not timely filed, and not protected by tolling principles. Notably, the Court found the named plaintiff Stephanie Odle’s individual claims, and the class claims, could not benefit from the Supreme Court’s 1974 decision in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), which can allow former class members who either intervene or file individual claims in another forum to toll otherwise time-barred claims. In his ruling, Judge O’Connor relied on the Fifth Circuit’s 1985 decision in Salazar-Calderon v. Presidio Valley Farmers Association, 765 F.2d 1334 (5th Cir. 1985), which restricted tolling to subsequent individual lawsuits and not class actions. Judge  O’Connor reasoned that he was bound by Salazar-Calderon and, alternatively, and that the cases the plaintiffs cited — including Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 130 S. Ct. 1431 (2010), and Smith v. Bayer Corp., 131 S. Ct. 2368 (2011) — were merely “illuminating.” See Odle, et al., No. 3:11-CV -2954, at 12-16 (N.D. Tex. Oct. 15, 2012). Thus, the plaintiffs’ class claims did not benefit from American Pipe tolling, and the claims filed by Odle and the class were dismissed. Plaintiffs then timely filed a motion requesting that Judge O’Connor certify his October 15 ruling for interlocutory review on the issue of tolling.   

Although Judge O’Connor acknowledged that the Fifth Circuit “disfavors” interlocutory appeals and allows certification only in “exceptional” cases, he agreed with plaintiffs in a January 7, 2013 order and certified the case for review. See Odle, et al., No. 3:11-CV -2954 (N.D. Tex. Jan. 7, 2012). The Court determined that a controlling question of law was involved, and an immediate appeal would materially advance the ultimate termination of the litigation. Id. at 4-5. The crux of the January 7 order certifying appellate review, however, centered around whether there was “substantial ground for difference of opinion” on the key issues at hand. Id. at 5. The Court determined that there was such difference of opinion, noting that “while courts do not agree what affect recent Supreme Court precedent has on successor class actions, or more specifically American Pipe tolling with successor class actions, some courts have found that these cases have an affect.” Id. at 5.

The next step is a ruling from the U.S. Court of Appeals for the Fifth Circuit on whether it will accept the issue for review.  The stakes are enormous, and we will keep our blog readers updated with further developments. 

By Anthony Califano and Lynn Kappelman

On December 4, 2012, Judge Kimba Wood of the U.S. District Court for the Southern District of New York partially decertified a class in a disparate impact race discrimination case entitled Gulino v. Bd. of Educ. of City School Dist. of City of New York, No. 96-CV-8414, 2012 U.S. Dist. LEXIS 172687 (S.D.N.Y. Dec. 4, 2012), holding that Plaintiffs’ claims for individualized monetary and injunctive relief cannot proceed on a class-wide basis under Rule 23(b)(2) following the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011).

Perhaps more interesting, however, is the Court’s decision to bifurcate the liability and damages phases of the remaining class claims in a fashion that will likely become more common in the future. As such, this is a good read for corporate counsel about the future battlegrounds for workplace class action litigation.

Background Of The Case

Purporting to represent a class of African-American and Latino teachers in the New York City public school system, Plaintiffs filed this class action in 1996. Id. at *2. Plaintiffs assert that when the Board of Education of the City School District of the City of New York (“Board”) required teachers to pass certain standardized tests in order to be licensed to teach in the school district, this had a disparate impact on them because of their race and violated Title VII. Id. Plaintiffs and putative class members had not passed the standardized licensing exams so they could not obtain permanent teaching licenses or they had their licenses revoked. Id. at *10. Plaintiffs claimed that the standardized exams had a disparate impact because Caucasian teachers passed the exams “at a statistically significant higher rate than African-American and Latino test-takers.” Id. at *11. Likewise, Plaintiffs asserted that the standardized tests were not justifiable as “job related because they did not measure whether experienced teachers such as Plaintiffs were qualified to teach.” Id. 

On behalf of themselves and the putative class, Plaintiffs sought three types of relief, including: (1) back pay; (2) a declaratory judgment as to the Board’s liability for disparate impact discrimination under Title VII; and (3) injunctive relief, ordering the Board to give them teaching licenses and seniority rights, and ordering the appointment of a monitor to ensure that the current test does not violate Title VII. Id. at *12-13. In 2001, the Court certified the case as a class action under Rule 23(b)(2). Id. at *21. After dispositive motions, an “epic bench trial,” and a trip to the Second Circuit regarding issues seemingly unrelated to class certification, the case ended up back before the Court. Id. at *8. In July 2011, while the case was pending on remand, the Board filed a motion to decertify the class based on the Supreme Court’s decision in Wal-Mart.  Judge Wood granted the Board’s motion to decertify as to Plaintiffs’ claims for individualized monetary relief and individualized injunctive relief (teaching licenses and seniority rights), but denied the motion as to Plaintiffs’ claims for a declaratory judgment as to the Board’s liability and the injunctive relief which would benefit the class as a whole. Id. at *20, 25. 

The Court’s Ruling

In the wake of Wal-Mart, the Court reasoned that it would be inappropriate to certify the class under Rule 23(b)(2) in those instances where each class member is entitled to different relief requiring individualized determinations. Id. at *25-27. “In order to obtain individualized relief, a putative class must satisfy the requirements of Rule 23(b)(3), which includes greater procedural protections, such as notice and opportunity to opt out.” Id. at *26. Because Rule 23(b)(2) lacks those procedural and due process safeguards, the Supreme Court in Wal-Mart held that it is inappropriate to certify class actions requiring individualized determinations and awards under Rule 23(b)(2). Id. In this case, Plaintiffs clearly were seeking individualized monetary relief in the form of back pay and individualized injunctive relief in the form of teaching licenses and seniority rights. However, the Court noted that Wal-Mart does not address class certification under Rule 23(c)(4)(A), which provides that “‘an action may be brought or maintained as a class action with respect to particular issues.’” Id. at *27 (quoting Fed.R.Civ.P. 23(c)(4)(A)). Here, because the Court’s determination of whether the Board’s tests had a disparate impact under Title VII did not require any individualized determination, it could be determined under either Rules 23(b)(2) or 23(c)(4)(A). Thus, the Court noted that it is appropriate to “bifurcate proceedings by first certifying an ‘injunctive’ class under (c)(4) to determine liability, and then certifying a ‘remedial’ class under (b)(3) to determine damages” if Plaintiffs establish class-wide liability. Id. at *28.

The Court then applied this framework to the three types of relief that Plaintiffs were seeking. First, the Court held that Plaintiffs’ request for a declaration regarding the Board’s liability under Title VII is appropriate for class treatment under Rule 23(b)(2) and (c)(4) at the liability stage because “resolution of the claim will not involve individualized determinations, but rather involves a claim common to the class, the resolution of which will streamline later proceedings for damages and other individual relief.” Id. at *30-31. Second, the Court held that Plaintiffs’ request for monetary relief is inappropriate for class treatment under Rule 23(b)(2), and “unquestionably may be certified only under Rule 23(b)(3).” Id. at *31. The Court went on, however, to allow bifurcation of the proceeding into two phases - a liability phase, which is appropriate for certification under Rule 23(b)(2) and (c)(4), and a later remedial phase in which Plaintiffs may seek class certification under Rule 23(b)(3) if they establish liability. Id. at *32. The Court held that “[t]he reasons for bifurcating liability from remedial issues apply with no less force now than they did prior to Wal-Mart, particularly since individual issues will arise only if the class establishes the employer’s liability.” Id. at *32-33 (internal citations and quotations omitted). Lastly, the Court held that Wal-Mart requires the Court to decertify the class as to Plaintiffs’ claims for injunctions providing teaching certificates to each class member and providing seniority rights to each class member who is still teaching but failed the test.  Id. at *33-34. The Court noted that each class member would be entitled to a different injunction, making class certification inappropriate under Rule 23(b)(2). Id. at *34. On the other hand, Plaintiffs’ request for a monitor to ensure that the current exam is non-discriminatory seeks  “an indivisible injunction benefiting all the class members at once,” and thus complies with Wal-Mart requirements for class certification under Rule 23(b)(2). Id. at *36 (internal citations and quotations omitted).

Implications For Employers

We expect that more and more Plaintiffs’ class action lawyers will begin to adapt and argue for an application of Wal-Mart to bifurcate cases in this fashion where the Plaintiffs are seeking individualized relief, but the liability issues pertain to the class as a whole. Specifically, courts will likely certify classes under Rule 23(b)(2) or (c)(4) as to the liability issues and later, if necessary, allow Plaintiffs to seek class certification at the remedial phase under Rule 23(b)(3).

By Gerald L. Maatman, Jr. and Julie G. Yap

On October 30, 2012, Judge Jeffrey T. Miller of the U.S. District Court for the Southern District of California held that an employer’s requirement that a job applicant provide his date of birth on a form creates “at least some suspicion of age discrimination,” and was a sufficiently specific practice to state claims for disparate impact in Ernst v. Bank of America, No. 12-CV-1255 (S.D. Cal. Oct. 30, 2012). Moreover, the Court held that plaintiff’s disparate impact claims were a natural extension of his disparate treatment claim in the EEOC charge, despite a total absence of any reference to disparate impact, because both claims arose from a form’s request for the applicant’s date of birth. The ruling arises from an ADEA collective action/state law class action, and is therefore of significant importance for employers.

Background Facts

This dispute arose out of plaintiff Gary Ernst’s allegations that Bank of America (“BofA”) did not hire him as a financial advisor because of his age, in violation of the ADEA and the California Fair Employment and Housing Act (“FEHA”). Ernst alleges that a BofA representative contacted him to interview for a financial advisor position, and shortly thereafter, he received an email instructing him to fully complete an employment application. The application asked for his date of birth. Ernst was 57 years old at the time he completed the form. The application did not include a disclaimer concerning the requirements of the ADEA.

After an interview in which Ernst “sensed” a negative reaction from the regional manager, he alleged he was informed that the regional manager had chosen candidates who were “a better fit.” The complaint alleged that BofA subsequently hired “significantly younger workers with inferior qualifications.”

Ernst filed a charge with the EEOC and the California Department of Fair Employment and Housing (“DFEH”), stating that he was subjected to an impermissible non-job related inquiry and denied a position because of his age.

Ernst’s complaint included class allegations for four different classes, a purported class of applicants who were not hired in violation of the ADEA, a purported class of applicants who were not hired as a financial advisor in violation of the ADEA, a purported class of applications who were not hired in violation of FEHA, and a purported class of applicants who were not hired as a financial advisor in violation of FEHA.

Ernst alleged violations based on disparate treatment and disparate impact.

BofA sought dismissal of the disparate impact age discrimination claims and the class action allegations.

The Court’s Ruling

The Court first ruled that Ernst’s failure to raise a disparate impact claim in his EEOC charge was not fatal to his claim because it concluded that investigation into the claims of intentional discrimination resulting from Ernst providing his date of birth would “naturally extend” to investigation of disparate impact. In so holding, the Court distinguished a 2010 case from the Northern District of California and the Ninth Circuit case it relied upon, both of which concluded that a discrimination claim based on disparate treatment is insufficient to exhaust a claim for disparate impact -- and vice-versa.

The Court next concluded that Ernst’s allegation that “the facially neutral requirement of providing the birth date leads to discrimination against older applicants” was sufficient to state a claim of disparate impact. The Court noted that, viewing the allegations in the light most favorable to plaintiff, the application’s request for date of birth was enough to survive a motion to dismiss.

Finally, while the Court observed that Ernst “may indeed be challenged to comply with Federal Rule of Civil Procedure 23” in light of the Supreme Court’s ruling in Wal-Mart Stores, Inc. v Dukes, 131 S. Ct. 2541 (2011), the Court declined to reach any of BofA’s arguments in support of its motion to strike the class allegation. Rather, the Court held that such arguments are better addressed after class discovery on a motion for class certification.

Implications For Employers

The Court’s decision in Ernst is a surprising indictment of a standard date of birth inquiry on employment applications. Employers should ensure that applications including such an inquiry also include a disclaimer of the ADEA’s requirements and should note that a response is optional. 

Furthermore, the Court’s interpretation of the impact of the scope of the EEOC charge is a marked departure from precedent acknowledging the difference between disparate impact and disparate treatment claims. If this trend continues, employers should keep in mind that allegations of disparate treatment could lead to exposure for disparate impact claims, and vice-versa. 

By Rebecca Bjork and Gerald L. Maatman, Jr.

A recent decision underscores how employers facing workplace class actions need to consider all avenues of attack early on to best position themselves to avoid costly discovery and class certification litigation. In Harrison v. The Progressive Corp., et al., No. 1:12 CV 625, 2012 U.S. Dist. LEXIS 136719 (N.D. Ohio Sept. 25, 2012), an argument made by the defense in a Rule 12 motion - which to many might have seemed like a technicality that would go nowhere - but ended up making all the difference in the Court’s decision to eliminate class allegations. 

In Harrison, the named Plaintiff, an African-American man over the age of 40, alleged that he worked in Progressive’s human resources department until 2011. Id. at *2, 4. His First Amended Class and Collective Action Complaint (“FAC”) – which purported to bring a nationwide Rule 23 Title VII class action and ADEA collective action – contended that Progressive “knowingly and intentionally” adopted a company-wide system for evaluating employee performance that it knows, based on internal studies, discriminates against African-Americans, other ethnic groups, and older workers. Id. at *3-4. He brought four causes of action, including disparate treatment and disparate impact discrimination under both Title VII and the ADEA. Id. at *5-7. He sought injunctive relief, in addition to back pay, front pay, compensatory damages, and punitive damages. Id. at 7.

The defendants challenged the class and collective allegations in the FAC under Rule 12, arguing that the face of that pleading itself revealed that a class and collective action had not been properly alleged. Focusing on the Rule 23 requirements, they argued that the named Plaintiff could not adequately represent absent class members due to inherent conflicts within the class; that he did not adequately plead allegations sufficient to satisfy the commonality requirement of Rule 23(a); that Rule 23(b)(2) could not provide a vehicle for his monetary claims; and that the Rule 23(b) predominance requirement could not be met even with discovery on his claims. Id. at *12, n.4. Further, they also independently argued that the class and collective action claims in the FAC were barred due to the fact that the named Plaintiff failed to exhaust his administrative remedies as to those claims by including them in his EEOC charge. Id. at *15. 

Judge Patricia A. Gaughan of the U.S. District Court for the Northern District of Ohio granted the defendants’ motion to dismiss in part. Interestingly, she entirely sidestepped the Rule 23 arguments. Instead, she rested her decision on the fact that the EEOC charge filed by the named Plaintiff, on its face, made allegations about his treatment alone, and therefore did not put Progressive on notice that he would pursue litigation on behalf of a putative class. She explained that “[t]he Sixth Circuit has made clear that class action claims under Title VII and the ADEA are barred where the plaintiff did not express any intent to file class claims in his dealings with the EEOC.” Id. at *15-17 (citing McKnight v Gates, 282 Fed. Appx. 394, 398 (6th Cir. 2008)).  She then examined – and reprinted in full – the charge Mr. Harrison filed with the EEOC,  id. at *18-19, concluding that it was “brought in plaintiffs’ name only and makes no reference whatsoever to any other Progressive employee or similarly-situated individual.” Id. at *21. To make the point crystal clear, she highlighted, in bold face type, the problems she saw with attempting to piggy-back a class action onto such a charge:  “[d]uring my employment . . . I was subject to discriminatory corporate-wide policies, practices, and treatment through which Progressive discriminated against me in all terms and conditions of my employment. . . .”  Id. at 21-22. She rejected the argument that merely by complaining to the EEOC of “discriminatory corporate-wide policies, practices, and treatment,” Harrison had reasonably put Progressive on notice of class action allegations, and/or prompted the EEOC to launch an investigation of class-wide claims of discrimination at the company.  

This ruling demonstrates how it behooves every employer facing a class or collective action lawsuit to focus not only on the adequacy of the Rule 23 allegations in the complaint, but also to pull the charging party’s personnel file and read his or her EEOC charge very, very carefully. The ruling in Harrison undoubtedly will save the employer much heartache and expense in defending the lawsuit.

By Lynn Kappelman and Chris Palamountain

The U.S. District Court for the District of Massachusetts has joined a growing chorus of courts willing to apply the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), beyond the employment class action context. In Barrett v. Option One Mort. Corp., Case No. 08-10157, 2012 WL 4076465 (D. Mass. Sept. 18, 2012),  Judge Zobel decertified a class of African-American borrowers who obtained home mortgage loans with pricing based in part on a discretionary fee component. 

Three months before the Supreme Court issued the Wal-Mart decision, Judge Zobel had certified a class of African-Americans who had obtained home mortgage loans from the defendants, collectively referred to as “Option One,” through mortgage brokers. The Option One loans were priced using a two-step process. During the first step the lenders established a “par rate” based on the borrower’s credit-worthiness. To establish that “par rate” the lender looked at such objective factors as the borrower’s credit score and the value of the property he wanted to mortgage. The discretionary component of the loan price authorized defendants’ brokers to set interest rates higher than the par rate and to charge loan origination and processing fees. Brokers thus had discretion to use higher rates and fees up to a maximum rate that Option One established. Option One paid the brokers more for loans that yielded higher rates. 

Plaintiffs’ expert, Yale Law School law-and-economics guru Ian Ayers, prepared a regression analysis comparing the annual percentage rates (“APRs”) that white and minority borrowers had paid for defendants’ loans originated between 2001 to 2007. That analysis showed that African-American borrowers had nationwide APRs 0.086% higher than those for similarly situated white borrowers. This difference was the basis for the Plaintiffs’ disparate impact claims which they pursued as a class action under the Equal Credit Opportunity Act, 42 U.S.C. §§ 1691-1691f (“ECOA”) and the Fair Housing Act, 42 U.S.C. §§ 3601-3619 (“FHA”). 

After the Supreme Court handed down the Wal-Mart decision, defendants moved to decertify the class on grounds that the Supreme Court’s commonality analysis regarding discretionary employment decisions applied with equal force to a nationwide class of borrowers whose discrimination claims rest on the lenders’ discretionary decision-making in loan pricing. In an effort to salvage their class, Plaintiffs attempted to distinguish Wal-Mart and establish commonality under Rule 23 with three arguments. First, Plaintiffs argued that plaintiffs’ claims satisfied the commonality requirement in Rule 23 because lenders had used the same two-stage process to set the class members’ mortgage rates. The Court easily disposed of this argument by pointing out that the objective element of the process was not at issue, and Plaintiffs failed to identify any common practice the brokers used in the challenged discretionary step. Second, Plaintiffs argued that because the loans terms themselves reflected the brokers’ exercise of discretion, their case presented a more manageable way to evaluate the exercise of discretion than the plaintiffs presented in Wal-Mart. The Court acknowledged that since there were written loan terms, this made the case factually different from Wal-Mart, but stated that the difference had no legal effect, because it did not raise any common questions. Finally, Plaintiffs argued that the brokers’ common profit motive could satisfy Rule 23’s commonality requirement. The Court disposed of this argument by finding that “[e]ven if driven by a common profit motive, the brokers could have made widely different decisions in pursuit of that profit motive.” Id. at *9. In light of Plaintiffs’ failure to establish commonality, the Court decertified the class.

This is yet another example of how Defendants can use the Supreme Court’s Rule 23 commonality analysis in Wal-Mart to undermine a variety of different types of class actions outside of the employment context.

By Gerald L. Maatman, Jr. and Jennifer Riley

On June 25, 2012, the U.S. Supreme Court granted Comcast’s petition for a writ of certiorari seeking review of the Third Circuit’s decision in Behrend v. Comcast Corp., 655 F.3d 182 (3d Cir. 2011). In the class action world, this grant of certorari is big news for employers.

The Supreme Court limited its review to a single issue: whether a district court may certify a class action without finding that the plaintiff has introduced admissible evidence, including expert testimony, to show that damages can be awarded on a class-wide basis.

In the Supreme Court’s landmark decision in Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2554 (2011) (discussed here), it suggested that, even at the class certification stage of class action proceedings, expert testimony must meet the standards for admission set forth in Federal Rule of Civil Procedure 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). 

Behrend gives the Supreme Court an opportunity to solidify - or distance itself from - that dicta and provide additional guidance on the type of showing or quantum of proof required for class certification. In particular, in Behrend, the Third Circuit panel members disagreed about whether plaintiffs must show a method for proving class-wide injury through common evidence – or whether plaintiffs must show that such a method yields reliable, non-speculative results.  The question that the Supreme Court selected for review suggests that it may weigh in on this key issue.  

The stakes are high for employers, as this issue continues to rear its head in virtually all workplace class actions on the make or break issue of whether a class should be certified.

Background Of Behrend v. Comcast

In Behrend, Plaintiffs, a group of cable television customers of Comcast, brought a class action antitrust suit alleging that Comcast violated sections 1 and 2 of the Sherman Act. In particular, Plaintiffs alleged that Comcast eliminated competition in the Philadelphia Designated Market Area (“Philadelphia DMA”) by acquiring competing cable providers or by “swapping” cable systems that it owned in areas outside the Philadelphia DMA for cable systems within the Philadelphia DMA. Behrend, 655 F.3d at 185-87. 

The District Court certified a class encompassing all cable television customers who subscribed to Comcast’s video programming services (other than solely to basic cable) in the most of the counties in the Philadelphia DMA at any time since December 1, 1999. Id. at 187-88. In certifying the class, the District Court narrowed the various theories of class-wide impact to a single theory – that Comcast engaged in anti-competitive clustering conduct, the effect of which was to deter the entry of overbuilders (companies that build and offer a competitive alternative where another telecom company already operates) in the Philadelphia DMA. Id. at 188. 

On January 27, 2010, Comcast filed a Rule 23(f) petition, and on June 9, 2010, the Third Circuit granted permission to appeal. On appeal, among other things, Comcast argued that the District Court abused its discretion in holding that Plaintiffs had established that the alleged damages were capable of measurement on a class-wide basis using common proof. Id. 

The Third Circuit’s Opinion In Behrend

The Third Circuit panel majority found that Plaintiffs, through their expert Dr. McClave, provided a common methodology that could be used to measure and quantify damages on a class-wide basis. Id. at 205-07.

Dr. McClave constructed a “but-for” market with prices that allegedly would have existed in the Philadelphia market absent the alleged anti-competitive conduct. He did so by selecting allegedly comparable “benchmark” counties using two criteria or “screens.” The “benchmark” counties had a Comcast subscriber penetration rate of less than 40% and an Alternative Delivery System penetration level at or higher than the national average in Comcast markets. Dr. McClave compared the “but-for” prices to the actual prices and “conservatively” estimated that Comcast overcharged the class by more than $875 million. Id. at 201.

The panel majority found that Plaintiffs met their burden by providing a method – the constructed “but-for” market – that could be used to measure the anti-competitive impact on the class members. Id. at 205-06. It held that, at the class certification stage, it needed only to address “whether Plaintiffs have provided a method to measure and quantify damages on a class-wide basis” and that it had “not reached the stage of determining on the merits whether the methodology is a just and reasonable inference or speculative.” Id. at 206. 

Judge Jordan’s Dissent

Judge Jordan dissented in part; as a result, the "issues" presented by the case positioned the ruling on cutting-edge legal issues. Judge Jordan opined that Dr. McClave’s method was incapable of identifying damages caused by reduced overbuilding in the Philadelphia DMA, and, therefore, it was irrelevant and inadmissible under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). Judge Jordan reasoned that Dr. McClave formulated his model at a time when Plaintiffs had four separate theories of antitrust impact, so he did not select his benchmark counties to isolate the alleged impact of reduced overbuilding. Behrens, 655 F.3d at 216.

Judge Jordan identified multiple ways in which Dr. McClave’s model produced damages that were not “the certain result of the wrong.” Id. at 217-221. For instance, in his report, Dr. McClave assumed that only 5 of the 18 counties would have been overbuilt in the absence of anti-competitive conduct; “[f]or the remaining counties, while there may be some uncertainty as to what exactly caused any elevated prices, this much is certain: the elevated prices identified by Dr. McClave in those thirteen counties were, according to Dr. McClave himself, the result of something other than reduced overbuilding.” Id. at 218. 

Judge Jordan also expressed doubt as to whether any expert model could calculate damages for all class members collectively. The evidence demonstrated that the Philadelphia DMA had 649 unique franchise areas, and that overbuilding, DBS penetration, and incumbent market shares varied widely from franchise area to franchise area. The dissent concluded that “[e]ven if Dr. McClave’s benchmarks were not problematic, to say that Comcast’s ‘but for’ share of the market throughout the Philadelphia DMA would be, on average, 40% is about as meaningful as saying that ‘with one foot on fire and the other on ice, I am, on average, comfortable.’” Id. at 223-24. 

Implications For Employers

The Supreme Court’s future opinion in Behrend could have wide-ranging impact on class actions, including those in the workplace arena. The Supreme Court may solidify its suggestion from Wal-Mart Stores v. Dukes that Daubert applies at the class certification stage, but more significantly, it may opine more broadly on the extent to which judges must resolve merits issues at the class certification stage and whether the need for more individualized damages calculations makes class certification inappropriate. Briefing and argument is expected later in 2012, and a ruling is likely by late 2012 or early 2013. Stay tuned. 

By Gerald L. Maatman, Jr. and Laura J. Maechtlen
 
As we previously reported in this blog, the plaintiffs' class action bar are resourceful and creative, and their threatened tactic of imposing “death by a thousand cuts” continues following the U.S. Supreme Court's decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). Plaintiffs’ counsel in Dukes announced this week that nearly 2,000 current and former employees of Wal-Mart filed charges of pay and promotion discrimination with the U.S. Equal Employment Opportunity Commission since the SCOTUS dismantled the class certification order in that litigation. 

The claimants who filed these charges were all originally members of the class of 1.5 million women that was decertified, and it appears that plaintiffs’ counsel has made good on their early-2012 promise that class members would file administrative charges with the EEOC to protect their right to sue over what they allege were discriminatory practices in pay and promotion.

By court order, January 27, 2012 was the deadline for women in Alabama, Arkansas, Georgia, Mississippi, and North Carolina to pursue administrative charges with the EEOC. Women in all other states were given until May 25, 2012 to file their EEOC claims. Now that the filing deadlines have ended, and according to a press release issued this week, 1,975 EEOC charges were filed against Wal-Mart, covering every Wal-Mart retail region in the United States. Florida leads the list of current EEOC filings with 284 claims, followed by Alabama with 142 and Georgia with 119. Except for Montana and Vermont, every state in the country saw at least one EEOC charge filed against Wal-Mart. Women with claims of recent pay and promotion discrimination also may continue to file charges against Wal-Mart if the alleged discrimination occurred within 300 days of the filing, or 180 days in Alabama, Arkansas, Georgia, Mississippi, or North Carolina.  

These numerous administrative charges join multiple regional class action lawsuits that have been amended in California and filed Texas federal courts in October 2011 on behalf of female workers at Wal-Mart stores in those regions, as well as an expanded class action lawsuit filed in Texas federal court in January 2012. Counsel for plaintiffs assert that numerous other class actions will be filed in other states throughout the year, so we expect to see additional lawsuits arise in other jurisdictions across the country, no doubt based on the thousands of administrative filings announced this week. 

Implications For Employers

"Death by a thousand cuts" - or a strategy to aggregate individual claims - appears to be a new gambit in the playbook of the plaintiffs' class action bar.

We will continue tracking future developments in this arena, including whether the EEOC will attempt to further its “strategic plan” to pursue large-scale litigation based on one or more of the charges filed by the putative class members in Dukes. As we previously noted, the EEOC need not satisfy Rule 23 requirements when pursuing large-scale pattern or practice claims because it does not act as class representative, but rather sues in its own name to redress a discriminatory practice. Likewise, so long as one employee has filed an administrative charge of discrimination, the EEOC may pursue relief on behalf of other similarly-situated workers who did not file charges of their own. Whether the plaintiffs’ bar can utilize EEOC pattern or practice lawsuits as a way to “work around” the SCOTUS ruling on Rule 23, or as elaborate leverage to facilitate settlement on behalf of classes of employees, it is clear that the plaintiffs’ bar is not walking away from Wal-Mart Stores, Inc. v. Dukes quietly. 

By Gerald L. Maatman, Jr. and Jennifer A. Riley

In the concluding chapter of a long-running class action saga, on May 1, 2012, the Seventh Circuit vacated its order enjoining putative class members in Thorogood v. Sears, Roebuck & Co., Nos. 10-2407 & 11-2133 (7th Cir. May 1, 2012) (“Thorogood IV”), from trying to certify copy-cat class actions in other courts around the country. 

In previous posts (here and here), we reviewed the complicated history that led to the Seventh Circuit’s fourth pass on class counsel’s “crusade” against the Sears stainless steel clothes dryer. On November 2, 2010, following its decision to decertify Thorogood’s proposed class, the Seventh Circuit issued an order directing the district court to enjoin all putative plaintiffs in that case from pursuing similar claims on a class basis. Thorogood v. Sears, Roebuck & Co., Case No. 10-2407 (7th Cir. Nov. 2, 2010) (“Thorogood III”). 

On May 1, 2012, in the wake of the Supreme Court’s decision in Smith v. Bayer Corp., 131 S. Ct. 2368 (2011) (previously discussed here), the Seventh Circuit reluctantly vacated its order, effectively allowing the other 500,000 members of Thorogood’s decertified class to try their luck with copycat suits in other courts.  

Thorogood IV is a case study on the circumstances in which finality can be achieved in dismissing class claims.

Background

Thorogood brought suit claiming that Sears misrepresented the “stainless steel” composition of its clothes dryer when it advertised the dryer as having a “stainless steel” drum. Thorogood IV, at 4. Thorogood claimed that he understood this to mean that Sears made the drum entirely of stainless steel, but part of the front of the drum in fact was comprised of a ceramic coated “mild” steel, which rusted and stained his cloths. Id. at 4. Judge Leinenweber of the U.S. District Court for the Northern District of Illinois certified a class, but the Seventh Circuit reversed, finding it “inconceivable that all or even many of the proposed class members had the same understanding of Sears’ advertising.” Id. at 4-5. The Seventh Circuit held that “there would be no economies from allowing his suit to be litigated as a class action because there would be no issues that could be resolved in a single, class-wide evidentiary hearing.” Id. at 6. On remand, Sears made an offer of judgment that covered Thorogood’s individual damages and mooted the case. Id.  

Subsequently, Murray filed another suit in California state court, and Sears removed the case to federal district court in California. Murray had been a member of Thorogood’s proposed class and was represented by the same counsel who had represented Thorogood. Id. at 2. Sears asked Judge Leinenweber to enjoin the California suit based on the All Writs Act, 28 U.S.C. § 1651(a), which empowers federal courts to issue commands necessary or appropriate to effectuate and prevent the frustration of their orders. Id. at 3. Although the district court denied the motion, the Seventh Circuit again reversed and ordered the district court to issue an injunction not only against Murray but also against the other members of Thorogood’s decertified class “so that additional Murrays wouldn’t start popping up, class action complaint in hand, all over the country.” Id. at 8. 

The Supreme Court granted certiorari, vacated the decision, and remanded the case for reconsideration in light of Smith v. Bayer Corp., 131 S. Ct. 2368 (2011), rendered after the Seventh Circuit’s decision in Thorogood III. In Smith, the Supreme Court considered whether a district court could enjoin a litigant from seeking class certification in state court after a federal district court had denied certification of a similar class under federal rules that differed from state class action rules. Thorogood IV, at 9. In its ruling, the Supreme Court answered the question in the negative and held that “neither a proposed class action nor a rejected class action may bind nonparties.” Id. at 10 (quoting Smith, 131 S. Ct. at 2380). 

The Seventh Circuit’s Opinion

In a ruling authored by Judge Posner, the Seventh Circuit concluded that, because it had decertified Thorogood’s class, Murray never became a party to Thorogood’s suit. Under Supreme Court precedent, being neither a party nor in privity with one, he could not be bound by the judgment. Id. at 10. Judge Posner reasoned that, had the district judge (as he should have) refused to certify the class, there would be no argument that Murray had been a party to the suit and therefore no obstacle to Murray’s filing his own class action – “and it would be odd if by virtue of a mistaken ruling by the district judge Murray is barred.” Id. at 11. Further, during the interval in which a class existed, Thorogood did not notify the class members, including Murray, of its pendency so Murray did not have the opportunity to opt out. The Seventh Circuit reasoned that as he was “[d]enied the opportunity to opt out, he was not bound by our ruling and is therefore free to file his own class action against Sears.” Id. at 11.

Judge Posner noted that the Supreme Court could have changed the rule of non-party preclusion but instead decided to stick with it and list alternatives, such as stare decisis, comity, and consolidation of overlapping suits by the Panel on Multidistrict Litigation, for parties seeking relief from copy-cat claims. Judge Posner noted that Sears would have to tread one or more of these paths to obtain relief from Murray’s and perhaps other plaintiffs’ copy-cat actions – “we can’t save it.” Id. at 12.

Implications

With the Seventh Circuit’s decision to vacate its injunction in Thorogood IV, defendants involved in class action litigation lost a powerful precedent to prevent copy-cat actions. Under Thorogood IV, putative class members, having lost motions for certification in one district, seemingly now may try their luck in other jurisdictions free of the constraints of the All Writs Act. It remains to be seen whether the other options suggested by the Seventh Circuit will gain traction, particularly if – as in Murray’s case – courts in subsequent forums have a different take on the viability of the class actions. 

By Laura Maechtlen and Brian Wong

This past week the U.S. District Court for the Northern District of California issued a decision denying class certification in Herrera et. al. v. Service Employees International Union Local 87, No. 3:10-CV-01888-RS (N.D. Cal. April 10, 2012), in which Plaintiffs alleged that their union violated Title VII and the California Fair Employment and Housing Act by discriminating on the basis of national origin. Both statutes make it an unlawful practice for a labor organization to discriminate based on national origin in membership and referral to employment, or to cause an employer to discriminate on the basis of national origin in the terms or conditions of employment. 

Local 87’s members consist mainly of janitorial employees working under contracts between the union and building maintenance companies, which contract with buildings in which the union members work. The Union is the duly certified collective bargaining representative for its members and operates a “hiring hall” that is the exclusive means of hiring for positions that the members fill.

In denying class certification, the Court's decision in Herrera provides a virtual "road map" for how Plaintiffs could have certified their class claims. In that respect, the ruling contains an interesting analysis of Rule 23 issues in the wake of Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011).

Plaintiffs' Class Certification Theories And Evidence

Plaintiffs did not allege a formal policy of discrimination by Local 87; instead, they alleged nine distinct theories of discrimination formed a perceived “pattern” of discriminatory conduct by the Union’s leadership against current and former Hispanic union members by: (1) denying employment and/or referring inferior positions; (2) advancing members of certain other ethnicities and national origins in contravention of the Union's seniority rules; (3) failing to pursue grievances against employers on behalf of Hispanic members; (4) failing to hire representatives who would defend the interests of Hispanic members; (5) denying Hispanic members certain rights of union membership, such as the right to attend meetings and to hold union positions; (6) harassing and disparaging Hispanic members in the union hall; (7) providing fewer opportunities for training and support to Hispanic members than those given to non-Hispanic members; (8) requiring Hispanic members to take positions in less preferred locations as a condition of promotion or hiring; and (9) retaliating against those Hispanic members who complained of rules violations.

To demonstrate the alleged “pattern” of discrimination, the complaint alleged a number of discriminatory comments by two union leaders, and certain illustrative acts of discrimination against the twelve individually named class representatives. In support of their motion for class certification, Plaintiffs also submitted sworn statements by some of the named Plaintiffs relating their own experiences and those of fellow union members (containing inadmissible hearsay); however, Plaintiffs did not submit additional evidence to support their motion. For example, the Court recognized that Plaintiffs' counsel did not appear to have interviewed scores of potential class members, and did not present any statistical evidence.    

Plaintiffs moved to certify a class defined as “all members of Local 87 in the period 2003 to the present who were of Hispanic national origin, also sometimes colloquially known as ‘Latinos.’” Id. at 4. The Court denied the motion for class certification without prejudice while laying out a roadmap for Plaintiffs to succeed in their next attempt.   

The Court's Conclusion As To The Rule 23(a) Elements

The Court addressed each element of Rule 23 in turn.  In evaluating whether Plaintiffs established numerosity under 23(a), the Court recognized that Plaintiffs' proposed class of over 1,600 Hispanic union members could meet numerosity. However, Plaintiffs' class definition that consisted simply of “all Hispanic members” was overbroad. The Court concluded that Plaintiffs made no effort to assess the number of Hispanic members actually exposed to or impacted by the alleged discrimination which took “many different forms.” Id. at 6. While “exact numbers” are not required, Plaintiffs mainly offered anecdotal evidence from a few named Plaintiffs who suffered discrimination under varying circumstances, which the Court found insufficient to satisfy the “rigorous analysis” necessary to establish numerosity. Id. The Court opined Plaintiffs could have shown numerosity by defining a narrower sub-class, but did not propose any, and while the Court had authority to create a sub-class, the approach was “largely foreclosed” because there was no indication in the record of how many individuals might fall within any such sub-class. Id.

In evaluating whether Plaintiffs established commonality, the Court recognized that Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011), requires “significant proof that an employer operated under a general policy of discrimination,” but that the proposed class in Herrera was “far less expansive” than Wal-Mart. Id. at 9. For example, Plaintiffs alleged many different theories of discrimination with some support in the record, and the source of the discrimination was the same - Local 87’s officers. Nevertheless, despite the fact that the class was less expansive than in other cases, Plaintiffs offered “far less substantial than the proof offered in other cases” by relying on a few declarations in a class of thousands of members. Id. at 10. While “there is no bright line requiring a particular number or ratio of anecdotes” proving discrimination, and “the inquiry is qualitative, rather than qualitative,” the Court found that the evidence did not “match the scope of the proposed class” and plaintiffs could not establish commonality. Id. (citing Wal-Mart).

The Court determined that Plaintiffs could not establish typicality for similar reasons. Plaintiffs alleged that “all members of the Class have an basically identical interest in nondiscriminatory treatment,” but Plaintiffs’ argument was “telling insofar as it drastically oversimplifies the nature of Plaintiffs’ many claims, the interests of hundreds of putative class members, and the potential injuries at issue,” and “[c]lass certification does not proceed at such a high level of generality.” Id. at 13. 

Finally, the Court held that Plaintiffs failed to establish adequacy of representation because they did not provide evidence that the claims they advanced were common and typical to the entire proposed class. At the same time, the Court found that Plaintiffs could be adequate representatives of the proposed class, or “more likely, a narrower one,” but the record reveals “so little” that Plaintiffs failed to carry their burden to demonstrate adequacy. Id. at 15.       

Roadmap To Meet Rule 23(b)

Plaintiffs relied on Rule 23(b)(2) because the Union had allegedly discriminated on grounds that applied generally to the class such that class-wide relief was appropriate, and Rule 23(b)(3) because common questions of law or fact predominated over issues and class adjudication would resolve their claims more fairly and efficiently than would separate actions.

The Court, however, found that the Plaintiffs failed to carry their burden to plead facts supporting a Rule 23(b)(3) class under any theory because the evidence was insufficient. Nevertheless, the Court laid out a roadmap for the Plaintiffs, and detailed how they should fix the allegations in any future motion for class certification. First, the Court recognized that it is possible that some of the kinds of claims they raise could support certification under Rule 23(b)(2) because they requested declaratory relief and injunctive relief , and the case could be certified as a “hybrid” action (a Rule 23(b)(2) class for equitable relief with a parallel and separate Rule 23(b)(3) class for damages). Id. at 16-17. Second, the Court recognized that individual damages calculations in post-liability proceedings were not fatal to class certification under the requirement to establish predominance under Rule 23(b)(3), and that Plaintiffs could rely on such a theory in any future motion provided they addressed why individualized damages assessments should not bar certification with much greater specificity

Implications Of Herrera

Herrera provides helpful insight for how to attack weak or insufficient allegations of class claims in opposition to a motion for class certification. It also demonstrates how claims of a “pattern” of discrimination can differ from allegations of a general policy of discrimination, and the type or extent of evidence required to establish the elements of Rule 23 when attacking class claims arising from multiple factual and legal theories. 

One issue that was not addressed in the latest order in Herrera is why Plaintiffs' motion was denied without prejudice. Certainly, in litigation of any class action, defendants are well advised to avoid multiple rounds of certification briefing under any circumstances. This can be done by developing a record early so there is no argument that plaintiffs should be given additional discovery and/or additional opportunities to file motions for class certification. It can also be done by filing a motion to deny class certification based on a well developed record pursuant to Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935 (9th Cir. 2009).  

By Chris Palamountain and Rebecca Bjork 

Popular culture is not kind to New Jersey. Whether the protagonists are hard-partying young adults or table-flipping housewives, the images flickering on the screen divert our attention from the fact that big businesses in key sectors of the economy make their home in the Garden State or do business there. For those companies, how New Jersey judges apply New Jersey law in the class action context greatly impacts their potential liability as employers. A recent decision from Judge Katharine Hayden of the U.S. District Court for the District of New Jersey provides a clear analysis of the scope of employer liability under New Jersey law, and can provide companies headquartered in New Jersey more comfort that the fact that they are headquartered there does not expose them to nationwide liability under state law.

Facts At Issue 

In Seibert v. Quest Diagnostics Inc., No. 11-CV-304 (D.N.J. Mar. 28, 2012), Plaintiff Seibert sued her former employer, Quest Diagnostics Inc., under the New Jersey Law Against Discrimination (“NJLAD”), claiming that Quest had discriminated against her because of her age. Based on the fact that Quest is headquartered in Madison, New Jersey - and alleging that key sales force retention policies were conceived of and instituted in New Jersey - Plaintiff sought to bring her state claims as a nationwide class action on behalf of other former Quest sales force employees who were forty or older at the time of their employment with Quest ended. 

After Plaintiff filed her amended complaint alleging the nationwide class, the Magistrate Judge presiding over the case directed Quest to file a motion to limit the NJLAD class to New Jersey employees. The Court then ordered Plaintiff to show cause why she should not be required to amend her complaint to reflect that the purported NJLAD class would be limited to former Quest employees that were employed in New Jersey. 

The Court's Analysis 

The statutory language of NJLAD does not expressly require that the protected employment occurred in New Jersey. Plaintiff argued that the lack of an express limitation meant that the statute conceivably applied to those individuals employed outside of New Jersey. In further support of her view that the Court should interpret the NJLAD broadly to cover persons employed outside of New Jersey, Plaintiff presented the following statutory interpretation argument - The New Jersey legislature evinced an intent to apply the NJLAD to employees outside of New Jersey because although it modeled the NJLAD after New York’s discrimination statute, it did not adopt the New York statutory language limiting the application of that statute to “the people of this state,” but instead limited protections to “inhabitants of this state.”

The Court quickly disposed of Plaintiff’s statutory interpretation argument, stating that “[i]t is disingenuous to argue that the use of the word ‘ inhabitants’ as opposed to ‘people’ somehow demonstrates the legislature’s ‘clearly expressed’ intent to give the NJLAD a broad extraterritorial application.” Id. at 5. The Court buttressed this conclusion with the fact that New Jersey state courts have consistently applied the NJLAD only to plaintiffs who worked in New Jersey. Id. 

As her fallback, Plaintiff alternatively argued that the issue of whether the NJLAD applied could not be decided at that time because the answer required a complex analysis under New Jersey’s choice of law rules. More specifically, Plaintiff argued that the “most significant relationship” test emphasized where the wrongful conduct took place, and she identified the following facts as establishing that the age discrimination at the heart of her case took place in New Jersey: (1) Quest is headquartered in New Jersey; (2) the discriminatory policies emanated from top management in New Jersey; (3) three key policy-makers worked in New Jersey; (4) high-ranking employees were required to sign non-compete agreements with a provision indicating that New Jersey law governed; and (5) Quest did not contest the choice of venue in New Jersey. 

The Court pointed out that Plaintiff’s application of the “most significant relationship” test was misguided because the New Jersey Supreme Court adopted that test in a tort, not employment action. Id. at 6. Instead, the Court found that the “governmental interest test still appears to be used in the employment context.” Id. Under the governmental interest test, the key question was whether the state had such significant state interest that the choice of its law was neither arbitrary nor unfair. 

Finally, the Court rejected Plaintiff’s argument that the many other decisions rejecting application of New Jersey law to out-of-state employees were distinguishable because none of those cases involved class action challenges to decisions made in New Jersey from companies headquartered in New Jersey, stating simply that her argument was “unavailing.” Id. at 9.

Implication For Employers 

For other companies headquartered in New Jersey with employees outside of the state, this decision provides a strong road map for limiting purported nationwide class claims based on state law, and sets the stage for an argument that employment rights created by the New Jersey legislature only apply to New Jersey employees. 

By Gerald L. Maatman, Jr. and Jennifer Riley

As we have noted in multiple posts (here and here) the plaintiffs' class action bar has been increasingly focused on re-booting their class action stratagems in the wake of Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). One of these retooled theories played out in the recent ruling of the Seventh Circuit in McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 11-3639 (7th Cir. Feb. 24, 2012). We wrote on the implications of this case previously when the district court rejected the plaintiffs' attempts to certify their claims per Wal-Mart Stores, Inc. v. Dukes.

In a new decision authored by Judge Richard Posner, a three-judge panel of the Seventh Circuit reversed the district court's decision to deny certification of a race discrimination class claim challenging the impact of two Merrill Lynch policies -- one that allowed brokers to decide to work in "teams" and one that suggested success-based criteria for distribution of departing brokers' accounts -- even though managers had discretion regarding implementation of both policies. 

In permitting such a class certification theory, the Seventh Circuit drew a fine distinction between the situation that gave rise to the Supreme Court's decision in Wal-Mart and the one before the Seventh Circuit. According to Judge Posner, the only "company-wide" policies at issue in Wal-Mart forbade discrimination and delegated employment decisions to local managers. Here, by contrast, the Seventh Circuit reasoned that "company-wide" policies permitted individuals to exercise discretion in a certain way -- a way that, according to plaintiffs, caused the alleged disparate impact on African-American employees.

Factual Background 

Plaintiffs filed a class action suit on behalf of 700 African-American brokers. Plaintiffs alleged that Merrill Lynch engaged in certain practices that had a disparate impact on the class members and therefore violated Title VII. Plaintiffs sought class certification for purposes of determining disparate impact and for purposes of awarding injunctive relief.    

Merrill Lynch employs 15,000 brokers, in 600 branch offices, supervised by 135 Complex Directors. The company permits brokers in each office to operate autonomously including, for instance, to decide for themselves whether to work individually or in teams, and if they decide to work in teams, it allows them to choose the brokers with whom they work. The company also establishes criteria for transfer of customer accounts when a broker leaves the company, which includes success factors like revenue generated and the number and investments of clients retained. The company, however, allows Complex Directors discretion to veto teams and to supplement the criteria for transfer or distribution of accounts.

The district court initially denied Plaintiffs' motion for class certification in August 2010. In July 2011, following the Supreme Court's decision in Wal-Mart, Plaintiffs filed an amended motion for class certification. The district court again denied their motion - McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 2011 U.S. Dist. LEXIS 115431 (N.D. Ill. Sept. 19, 2011) - and Plaintiffs appealed under Federal Rule of Civil Procedure 23(f). 

The Seventh Circuit's Ruling

The Seventh Circuit initially noted that, under Wal-Mart, "if employment discrimination is practiced by the employing company's local managers, exercising discretion granted them by top management . . . , rather than implementing a uniform policy established by top management to govern the local managers, a class action by more than a million current and former employees is unmanageable." Id. at 12. The Seventh Circuit held that, to the extent that Complex Directors exercise discretion regarding the compensation of the brokers who they supervise, the case "is indeed like Wal-Mart." Id. at 14. But, unlike Wal-Mart, the exercise of discretion is influenced by the two company-wide policies noted above -- authorization to brokers, rather than managers, to form and staff teams and basing account distributions on the past success of brokers who are competing for the transfers. Id.

According to Judge Posner, "permitting brokers to form their own teams and prescribing criteria for account distributions that favor the already successful . . . are practices of Merrill Lynch, rather than practices that local managers can choose or not at their whim." Id. at 17. The Seventh Circuit concluded that the "incremental causal effect" of those company-wide policies could be most efficiently determined on a class-wide basis. Id.

The Seventh Circuit opined that certification of a class with respect to the lawfulness of the challenged practices under Rule 23(c)(4) would be proper. It found, however, that while a single proceeding might result in an injunction, it could not resolve the class members' claims. The Seventh Circuit acknowledged that, as a result, hundreds of separate trials might be necessary to determine which class members were actually adversely affected by one or both of the practices and, if so, what loss he or she sustained. Id. at 18. 

Nonetheless, Judge Posner noted that, whereas the "astronomical damages potential of many class action suits" places enormous pressure on the defendant to settle even if the suit has little merit, here, Merrill Lynch "is in no danger of being destroyed by a binding class-wide determination that it has committed disparate impact discrimination against 700 brokers." Id. at 20. Whereas the next stage of the litigation might be hundreds of separate suits for damages, the stakes in each are great enough to make individual suits feasible and preclude class certification. 

Impact Of The Decision

Plaintiffs had alleged that the two corporate policies caused a disparate impact against African-American brokers that is not justified by a business need. They did not accuse Merrill Lynch of intentional discrimination but rather claimed that the policies have the consequence of excluding African-Americans in greater proportions than whites from teams and account distributions. The Seventh Circuit determined that the existence of the corporate-wide policies distinguished plaintiffs' class certification theories from Wal-Mart, even if damage issues are individualized.

As a result of the Seventh Circuit's decision, more plaintiffs' class action lawyers likely will add this re-tooled theory to their arsenal. Employers, therefore, can expect to see more plaintiffs attempting to repackage claims that attack discretionary decision-making as claims that attack a company-wide policy that allows managers and employees to exercise discretion in a certain, allegedly discriminatory, way. If plaintiffs can isolate a policy that arguably is illegal and involves only a "measure" of managerial discretion, they now may be able to certify a class affected by that policy under Rule 23(b)(2) in the Seventh Circuit, even if there are individualized issues on damages. Those individualized issues may now be decided in later, separate proceedings for each and every class member if and when class liability is found to exist.

By Gerald L. Maatman, Jr. and David Ross

Dukes issues - stemming from the U.S. Supreme Court's seminal ruling this past spring in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011)  - are twisting, turning, and morphing into all types of class actions. We anticipate that 2012 will be the year that litigants and courts alike increasing confront "second generation" issues left open by Dukes.

The Dukes litigation is undoubtedly well-known to our readers, as its meaning and implications have been the focus of intense scrutiny. In the SCOTUS case, the district court certified a class in 2004, which was seeking both injunctive relief and back pay, under Rule 23(b)(2). After a series of rulings in the Ninth Circuit, the Supreme Court accepted certiorari, and subsequently held - in a unanimous ruling - that individualized monetary relief claims such as back pay cannot be certified under Rule 23(b)(2). In the 5-4 portion of the opinion, the Supreme Court held that plaintiffs failed to satisfy the Rule 23(a) commonality requirement, which requires that plaintiffs present significant proof that an employer operated under a general policy of discrimination. The Supreme Court's majority reasoned that plaintiffs' statistical evidence was insufficient to establish that plaintiffs' theory could be proved on a class-wide basis. Plaintiffs had provided regional and national data showing pay disparities, but the majority determined that the regional disparities might be attributable to only a small set of stores, and could not by itself establish the uniform, store-by-store disparity upon which plaintiffs' theory of commonality depended.

Additional chapters in the class action playbook stemming from the Dukes litigation are now being written. One of the prime areas of development is the use of Dukes to attack the architecture of the class theories in a complaint. After all, class action litigation is expensive and participation in class litigation often entails a significant investment of management time. The sooner an employer can exit from a class action the better if the architecture of the complaint is legally defective.

In a ruling on January 13, 2012 - in Scott, et al. v. Family Dollar Stores, Inc., Case No. 08-CV-540 (W.D.N.C. Jan. 13, 2012) - Judge Max Cogburn of the U.S. District Court for the Western District of North Carolina issued a decision of significant importance in employment discrimination class action litigation. On a defense motion per Rule 12(b)(6), Judge Cogburn dismissed plaintiffs' class claims under Title VII of the Civil Rights Act of 1964 for pay discrimination, their collective action claims for unequal pay under the Equal Pay Act, and denied plaintiffs leave to amend their class theories to assert new pay discrimination class claims. In essence, the Court held that the architecture of plaintiffs' proposed class complaint was inherently defective.

Key Facts At Issue In Scott

Plaintiffs in Scott asserted nearly identical class claims as in the Dukes litigation. Plaintiffs in Scott followed the standard blueprint that the plaintiffs' class action bar has pursued over the past decade in litigating large scale, nationwide employment discrimination cases.

In Scott, 51 named plaintiffs brought suit in 2008 alleging that the company paid female store managers less than male store managers. According to plaintiffs, this discrimination was caused by subjective decision-making, which manifested itself in salary disparities between male and female store managers. Plaintiffs brought class claims under Rule 23 for equitable relief, back pay, and punitive damages under Title VII, as well as collective action claims under the Equal Pay Act ("EPA") per 29 U.S.C. § 216(b). In seeking punitive damages, plaintiffs sought class certification under either Rule 23(b)(2) as part of the relief available at Stage 1 of a bifurcated trial of their pattern or practice claim for injunctive relief, or via hybrid certification under both Rule 23(b)(2) or Rule 23(b)(3). The Court denied previous motions to dismiss and for summary judgment, and the parties subsequently engaged in substantial discovery.

Defense Motion Post-Dukes

After the SCOTUS ruling in Dukes, the defense brought a motion to dismiss and/or strike under Rule 12(b)(6). The motion attacked the architecture of plaintiffs' class theories under both Title VII and the Equal Pay Act. The defense argued that plaintiffs' class theory - that the employer's use of subjective decision-making created salary disparities between male and female store managers - should be dismissed or stricken from the complaint based on the SCOTUS decision in Dukes. Plaintiffs countered that Dukes concerned the issue of class certification based on an evidentiary record at an adversarial hearing under Rule 23, and not the dismissal of a complaint under Rule 12(b)(6).

The Court sided with the defense, granted the employer's motion, and dismissed all of the class claims under Rule 23 and all of the collective action claims under § 216(b).

Key Components Of The Court's Ruling

The Court reasoned that plaintiffs class architecture theories in Scott were identical to those in Dukes. This had four consequences, including:

(1). Plaintiffs claims for relief - seeking back pay, punitive damages (under Title VII), and liquidated damages (under the EPA) under any combination of the procedural mechanisms available under Rule 23(b)(2) - were barred due to the SCOTUS opinion in Dukes.

(2). Plaintiffs' class claims under Title VII - on their face - could never meet the commonality requirement of Rule 23(a)(4).

(3). Plaintiffs' collective action claims under the EPA - on their face - could never meet the "similarly-situated" requirement of 29 U.S.C. § 216(b).

(4). Plaintiffs' class claims could not satisfy the predominance requirement of Rule 23(b)(3).

Id. at 7-8. In so ruling, the Court allowed the individual plaintiffs to continue litigating their individual claims. Id. at 9.

Disposition Of Plaintiffs' Motion For Leave To Amend

During the briefing on the defense motion, plaintiffs also asked for leave to "re-boot" their class theories by seeking leave to file an amended complaint. Plaintiffs claimed to have discovered "new facts" about the employer's compensation system and the setting of store manager pay. They asserted that the system was both "more centralized" and "non-subjective" than may have been alleged in their original complaint, and hence not foreclosed by Dukes. Plaintiffs also asserted that the proposed amendment was not late, since it was made before the completion of class certification discovery and the deadline for filing a motion for class certification.

The Court rejected plaintiffs' 11th hour request on the grounds that it was futile "because plaintiffs' theory for class certification is simply foreclosed by Dukes." Id. at 8. The Court reasoned that the supposed "new facts" were long since known to plaintiffs' counsel, the proposed amendment was simply a recasting of the class theories to avoid dismissal under Dukes, and the core of plaintiffs' class theories remained "subjective, individualized decisions" as opposed to "any uniform company-wide policy that discriminates" against class members. Id. at 11. The Court also concluded that allowance of the proposed amendment would prejudice defendant due to the additional discovery it would impose. Id. at 12.

The Court's Rationale On The Insufficiency Of The "Re-Booted" Dukes Theory

The Court reasoned that the proposed amended complaint advanced class theories that feel into three distinct buckets. The Court found each insufficient. The three theories included:

(A). The new proposed allegations described how the employer's retail policies and store manager duties were similar for all class members. The Court explained that this showed nothing, for all employers impose budgetary restraints and uniform business controls, and such "have no bearing on gender discrimination." Id. at 12.

(B). The new proposed allegations recited statistical disparities in pay between female and male store managers. The Court also rejected this pleading strategy, as "alleged statistical disparities between men and women . . . is, standing alone, insufficient to support a Title VII claim." Id.

(C). The new proposed allegations also advanced a theory that the employer used "corporate-imposed policies and practices" as a work-around Dukes. The Court also determined this was insufficient, since the policies merely confirmed gender neutrality in making pay decisions (such as uniform parameters for pay ranges) plus use of discretion by regional managers and division vice presidents in placing store managers within the established pay ranges or by granting out-of-range exceptions, and "that this exercise of discretion results in disparities in pay based on gender." Id. at 13. (emphasis in original).

In sum, the Court opined that plaintiffs' proposed amended complaint did not assert facts that could establish that the employer had a "policy that discriminated on the basis of gender in a common manner across the proposed class." Id. at 12.

Implication For Employers

The ruling is Scott is the first in the post-Dukes era to determine that dismissal is appropriate when the architecture of the class claims cannot pass muster under the standards established in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). The Scott opinion based its analysis on the notion that "[a]ctive judicial supervision may be required to achieve the most effective balance that expedites an informed certification determination without forcing an artificial and ultimately wasteful division between 'certification discovery' and 'merits discovery.'" Id. at 9. As such, it takes Dukes to the next level. It allows an employer to attack the architecture of plaintiffs' class theories immediately out of the box via a Rule 12(b)(6) motion. It avoids months - and perhaps years - of wasteful class discovery and focuses the spotlight on an up front examination of the class claims to determine if they can pass muster under Rule 23.

By Gerald L. Maatman, Jr. and David Ross

Virtually every class action pending in federal court has undergone a re-examination based on the U.S. Supreme Court's holding in Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541 (2011). The issues arises either based on a defense motion to strike or decertify a class based on Dukes or in the parties' briefing of a motion for class certification. Defendants typically argue that the class theories are no longer viable under Dukes, and Plaintiffs often defend their class claims as being consistent with the SCOTUS ruling. Federal district court judges are left to analyze whether Dukes completely blocks, impedes in part, or green lights the Plaintiffs' class claims.

The latest ruling framing the "Dukes effect" is Easterling, et al. v. Connecticut Department of Corrections, Case No. 08-CV-826 (D. Conn. Nov. 22, 2011). Plaintiffs in Easterling - who sued on behalf of a class of rejected female corrections officer ("CO") applicants - alleged that a component of a Connecticut Department of Corrections ("DOC") physical fitness test was gender biased. The facts of the case are straight forward. Easterling applied for work with the DOC in 2004. At the time, CO candidates had to first pass a written examination and then a physical fitness test that included a 1.5 mile run that needed to be completed within the time allotted for the candidate's age/sex cohort. If a candidate passed both tests, they proceeded to the interview stage of the application process, followed by a background investigation and medical examination. The physical fitness test consisted of four parts, and failure on any one part constituted failure of the entire physical fitness test. Although Easterling passed the written exam and three of the four components of the physical fitness test, she failed to complete the 1.5 mile run within the allotted time and was not advanced to the interview stage. Id. at 2-3.She sued in 2008 under Title VII of the Civil Rights Act of 1964, asserting that the physical fitness test had a disparate impact on female CO applicants.

Earlier in the litigation, Judge Janet Hall granted class certification for plaintiffs' claims under Rule 23(b)(2). The Court found that Easterling had standing to pursue disparate impact claims against the DOC. Among other things, she found that Easterling could redress her alleged injuries resulting from the physical fitness test through remedies such as an injunction barring the DOC from hiring from applicant lists that were the product of unlawful policies, practices, or customs. Id. at 3.

In the wake of the SCOTUS ruling in Dukes, Defendants moved for decertification. On November 22, 2011, the Court held that even though the initial certification order could not stand in light of Dukes, decertification was not warranted. In effect, Judge Hall rejected the defense motion in part, but ruled that Dukes required a conversion of the class into a “hybrid class” per Rule 23(b)(3). Specifically, Judge Hall reasoned that on account of Dukes, the class claims needed to be "re-booted" -- i.e., certified under Rule 23(b)(2) for class-wide declaratory and injunctive relief, and under Rule 23(b)(3) for monetary and individualized injunctive relief.

This past May, the Court had granted summary judgment on the issue of liability to the class on the claim that the 1.5-mile run component of the physical fitness exam the DOC used for corrections officer applicants between 2004 and 2006 had a disparate impact on female candidates

The members of the class include “[a]ll female applicants for the position of Correction Officer at the State of Connecticut Department of Correction who participated in the selection process and failed only the 1.5 mile run portion of the physical fitness test at any time from June 28, 2004 and continuing to the date of final judgment in this matter.” Id. at 17.

Judge Hall determined that her original certification order under Rule 23(b)(2) could not stand in light of Dukes, which rejected the U.S. Court of Appeals for the Second Circuit's broad reading of Rule 23(b)(2) in Robinson v. Metro-North Commuter Railroad Co., 267 F. 3d 147 (2d Cir. 2001). The Court found that while Dukes overturned an en banc opinion of the U.S. Court of Appeals for the Ninth Circuit, the Ninth Circuit's predominance test was identical to that of the Second Circuit. Id. at 4. Specifically, prior to Dukes, Second Circuit precedent provided that Rule 23(b)(2) certification was proper of a class seeking both injunctive and monetary relief as long as the positive weight or value to the Plaintiffs of the injunctive or declaratory relief sought was predominant over the value or the monetary relief and class treatment would be efficient and manageable. Judge Hall opined that she had relied on Robinson's now-defunct predominance test when it initially granted Plaintiff motion for class certification. Given the ruling in Dukes, the Court reasoned that the Supreme Court's wholesale disavowal of that test qualified as a compelling reason to re-examine the earlier certification order. Id. at 4-5.

Judge Hall framed the issues as how the Court should respond to a shift in controlling law. The choices were to: (i) revoke the certification order entirely and dismiss Easterling's case; (ii) keep the order in place for Rule 23(b)(2) certification on the issues of liability and class-wide injunctive relief per Dukes, but require that all claims for monetary and individualized injunctive relief be pursued in separate, individual lawsuits by the class members; or (iii) adopt the hybrid approach suggested by Plaintiff, maintaining the Rule 23(b)(2) certification with regard to liability and class-wide injunctive relief and certifying a separate Rule 23(b)(3) class on the issues of monetary and individualized injunctive relief.

Finding that Dukes overturned Robinson on the propriety of a predominance test under Rule 23(b)(2), Judge Hall determined that Dukes did not overturn Robinson completely. She ruled that decertification was not appropriate because “Dukes did not reject … [the Second Circuit's] interpretation of Rule 23(c)(4).”  Id. at 7. Under Rule 23(c)(4), Judge Hall reasoned, federal judges are exhorted to use the class action device liberally to reduce the range of disputed issues in complex litigation and achieve judicial efficiencies.  Although Robinson was a pattern or practice disparate treatment case, the Court found that “its logic is equally applicable to disparate impact suits" because liability in both of these types of cases is established via class-wide, statistical proof. Id. at 6. Further, in both types of actions, as soon as systemic adverse treatment or impact is established, the Court may enter class-wide injunctive relief without investigating the validity or value of individual class members' claims.
 
For these reasons, Judge Hall determined that the prior Rule 23(b)(2) certification ruling could be kept in place as to the issues of liability and class-wide injunctive relief. Further, the hybrid approach suggested by Plaintiff could be adopted because certification of the claims for monetary and individualized injunctive relief was proper under Rule 23(b)(3).

To warrant certification under Rule 23(b)(3), a class must meet two requirements beyond the Rule 23(a) prerequisites of commonality, numerosity, typicality, and adequacy. Specifically, Plaintiff must establish that common questions predominate over any questions affecting only individual class members and class resolution is superior to all other available forms of adjudication. The predominance requirement is met if resolution of some of the factual or legal issues that qualify each class member's case as a genuine controversy can be achieved through generalized evidence and are more substantial than questions subject only to individualized evidence. As is usually evident in most class action contexts, certification is far more difficult to establish under Rule 23(b)(3) than Rule 23(b)(2).

Nonetheless, while the remedial stage of disparate impact litigation generally is dominated by individualized proof, Judge Hall reasoned that this was not the case here. The Court opined that the goal at the remedies stage “is to recreate ‘as nearly as possible … the conditions and relationships that would have been had there been no unlawful discrimination.' ”  Id. at 12. Although, "[i]n the present case, the Court finds that it would be impossible to determine exactly which class members would have received job offers from the DOC if a 1.5 mile run had not been part of the physical fitness test,”  the Court found that the aggregate amount of individual relief ascertainable in a 23(b)(3) proceeding (even though the precise methodology for proving the aggregate amount had not yet been determined). Id. at 14.

Based on the record, it was unsettled which class members would have passed the subsequent medical screening and criminal background check, or gotten through the interview that would have taken place had they not failed the physical fitness test. In addition, passing the medical screening, criminal background check, and interview stages still only would have resulted in a class member being certified as an applicant and placed on an eligibility list, with no assurance of being that they would have been selected from that list. Accordingly, Judge Hall indicated that rather "than resort to ‘mere guesswork,' … the Court will make an aggregate calculation of the back pay to which the class is entitled. This sum can then be distributed to eligible class members on a pro rata basis." Id. at 13.

The Court opined that “this method of assessing monetary relief ‘is a consequence of substantive Title VII law, and not a creative method of proof intended to accommodate the logistical demands of class proceedings,' ” and also is appropriate for calculating the particularized individual relief the class requests, such a “priority hiring” or front pay. Id. Although individual issues still will exist after such calculations are made, “the Court finds that these individual questions are less substantial than the issues that will be subject to generalized proof." Id. at 15.

As to superiority of class treatment under Rule 23(b)(3), Judge Hall found that “[i]t would be absurd to have more than a hundred class members separately litigate the issue of aggregate back pay, just as it would be absurd to have them separately litigate the question of class-wide liability.” Id. at 15-16. Plaintiffs asserted that there may be as many as 177 class members and the DOC acknowledged that there could be up to 125. Finally, the Court found that any difficulties likely to arise in managing this class action, "are far less daunting than the difficulties involved in litigating over a hundred separately captioned actions." Id. at 16.

Implications For Employers
This decision differs from other post-Dukes cases where defendants more typically challenge the threshold issues of commonality under Rule 23(a) because plaintiffs failed to challenge the impact of a specific employment practice and relied instead on a theory of adverse impact arising from discretionary, subjective decision-making - a theory that Dukes largely rejects in class cases.  Here, plaintiffs specifically challenged the employment practice of a uniform pre-employment test, which Dukes allowed may support a finding of commonality under Rule 23(a) and, in principle, may support a 23(b)(2) class for injunctive and declaratory relief for the class as a whole, apart from monetary damages.  Dukes , however, did not address the use of "hybrid" certifications, where damage claims might be certified under the stricter provisions of 23(b)(3), in addition to a 23(b)(2) class for injunctive relief.  Notably, the Court's analysis in Easterling finds the "hybrid" certification approach consistent with Dukes and applies a liberal interpretation to the 23(b)(3) requirement that common questions must predominate over individualized issues (and perhaps influenced by the Court's reluctance to revoke class certification at a late stage in the litigation).  Because the Court found the aggregate liability ascertainable on a class basis, it also found this common issue to be predominate in determining damages, following the Robinson scheme, even though damages in any individual case would be subject to the defense that the candidate was not otherwise qualified, would not have been hired in any event, or failed to mitigate damages.

Easterling is yet another example of how "Dukes questions" continue to spawn new Rule 23 puzzles. It is also a window into how the plaintiffs' class action bar is utilizing "re-booting" theories to find their way around some of the impediments to class certification created by Dukes.

By Rebecca S. Bjork and Chris Palamountain

The post-Dukes class certification decisions keep rolling in, and the most recent demonstrates that class allegations based on the exercise of discretion cannot satisfy Rule 23(a)’s commonality requirement. As we recently analyzed on this blog, non-employment law decisions applying Dukes can provide strong support to employers defending against discrimination class actions. Yet another example is a new decision in In Re Countrywide Financial Mortgage Lending Practices Litigation, No. 08-MD-1974 (W.D. Ky. Oct. 13, 2011). 

In this decision, Judge John G. Heyburn, II denied class certification in an MDL case where African-American and Hispanic named plaintiffs alleged that mortgage giant Countrywide Financial discriminated against them in granting mortgage loans by charging higher interest rates and imposing costs not assessed on non-minority borrowers. Id. at 1-2. The plaintiffs had alleged that a “discretionary pricing policy” allowed individual mortgage officers to make subjective decisions that had a disparate impact on minorities. The plaintiffs presented extensive expert evidence in the form of statistical regressions to support their claims. In considering class certification, Judge Heyburn issued a concise and strongly worded Memorandum Opinion and Order explaining how this theory cannot satisfy the commonality requirement post-Dukes.  In fact, the Court minced no words: “[T]he idea that thousands of loan officers in hundreds of separate locations around the country would exercise their discretion in a similar discriminatory fashion as to each purported class member defies belief.” Id. at 7.

Judge Heyburn also commented on the plaintiffs’ statistical proof of disparate impact in ways that will assist employers facing discrimination class actions. First, even though the plaintiffs’ expert based his regression model on classwide data – finding statistically significant differences between the treatment of minority borrowers and similarly-situated non-minority borrowers after controlling for “business-justified” factors – the Court declined to accept plaintiffs’ theory that this showed a common injury. Judge Heyburn explained: “the average differences between groups may well be within the range expected from the exercise of non-discriminatory discretion among thousands of loan officers and brokers working from hundreds of separate offices. More would be required to prove any individual or collective claim in these circumstances.” Id.. at 7. Second – and perhaps more important – Judge Heyburn put the damper on one particularly popular emerging strategy from the plaintiffs’ bar to evade Dukes: “Here, even accepting Plaintiffs’ statistical analysis, they have not ‘identified a common mode of exercising discretion’ to support commonality.” Id. (citing Dukes, 131 S. Ct. at 2554). 

The emerging trend in discriminatory lending cases bodes well for employers defending employment discrimination class actions premised on the theory that managers engaged in subjective decision-making to disadvantage protected minority groups. In Re Countrywide Financial Mortgage Lending Practices Litigation provides significant support for the defense position that class certification theories are no longer viable after Dukes.

By Lynn Kappelman and Reema Kapur

Case law following in the wake of Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), illustrates the twists and turns of how federal district court judges are grappling with the task of applying Dukes in a variety of employment and non-employment settings. An issue being hotly debated is just how far the holdings in Dukes can be stretched outside the workplace class action setting. 

Not surprisingly, depending on one's litigation position, Supreme Court pronouncements are often argued as dispositive, indicative, or "apples to apples" to other disputes beyond the four corners of the litigation that spawned the SCOTUS decision. Defense lawyers are increasingly citing Dukes and asserting that it either calls into question any previously certified class or impedes plaintiffs from certifying their proposed class theories. In contrast, the plaintiffs' class action bar is contending Dukes is either narrowly decided and/or inapplicable to non-workplace class actions.

Rulings applying or limiting Dukes outside of the workplace class action are instructive for corporate counsel.

The recent decision in Jermyn v. Best Buy Stores, L.P., No. 08-CIV-214, 2011 WL 4336664 (S.D.N.Y. Sept. 15, 2011), is well worth a read in this regard for employment lawyers and non-employment lawyers alike. Jermyn demonstrates that, post-Dukes, courts in both the employment and non-employment settings are receptive to motions challenging a Rule 23(b)(2) class theory that improperly combines claims for injunctive and monetary relief. In the wake of Dukes, courts are rigorously scrutinizing cases where Plaintiffs’ counsel have fashioned improper Rule 23(b)(2) classes mixing claims for injunctive relief with claims for damages to circumvent the stringent class notice requirements under Rule 23(b)(3). The Jermyn opinion also continues the debate regarding the applicability of Dukes’ commonality requirement outside of the workplace class action setting.

In Jermyn, Judge Colleen McMohan in the U.S. District Court for the Southern District of New York denied defendant’s motion to decertify a class of New York consumers who allege that defendant failed to honor its advertised price match guarantee. Plaintiffs alleged claims under various common law and statutory provisions challenging defendant’s allegedly deceptive business practices. 

The Court in Jermyn had previously certified a class of New York consumers who claimed that, in violation of its advertising campaign, defendant failed to give them a “valid” price match when they presented evidence that another store sold their item for less. It found that the class members’ claims were linked by a common question - whether the defendant maintained and communicated to its local branches a corporate policy of denying “valid” price matches, and thus could be liable for false advertising under New York laws. After the class was certified, the Supreme Court issued its landmark opinion in Dukes v. Wal-Mart. Defendant subsequently argued that the class in Jermyn should be decertified in light of Dukes. Specifically, defendant argued that Dukes was a significant intervening event warranting decertification and that (1) the class in Jermyn ran afoul of Dukes’ unanimous holding that a Rule 23(b)(2) class may not include claims for monetary relief if they are more than “incidental” to the injunctive relief, and (2) the class in Jermyn did not meet the commonality requirement under Rule 23(a)(2). 

With respect to the first issue, Judge McMohan affirmed her earlier decision to certify the class and found that plaintiffs complied with the Dukes mandate. Id. at *2, *7-8. The Court noted that the SCOTUS struck down a Rule 23(b)(2) class in Dukes because it included claims for both injunctive and monetary relief (i.e., back pay) and those claims for back pay relief were not incidental to the equitable relief Plaintiffs sought. The Court distinguished Dukes on the basis that the certified class did not include back pay claims as a separate Rule 23(b)(3) class. The Court acknowledged that the Dukes decision in this regard applied outside of the employment context, and noted that it could not have certified the class in Jermyn as a pure Rule 23(b)(2) class after Dukes. Nevertheless, the Court found that its class certification order “was entirely consistent with Dukes.” Id. at *2. Judge McMohan based her reasoning on the fact that in Jermyn she had separately certified two classes - a damages class under Rule 23(b)(3) (after finding that the additional requirements under Rule 23(b)(3) of “predominance” and “superiority” were met) and an injunction class under Rule 23(b)(2), which was seeking purely statutory relief and no damages. Id. at *8. 

With respect to the second issue on commonality, the Court found that Dukes was distinguishable and class certification was appropriate. Id. at *3-7. For example, unlike the plaintiffs in Dukes, the plaintiffs in Jermyn had identified a corporate policy which affected all of them - a corporate policy discouraging defendants’ stores from honoring the price match guarantee - and this was the “glue” that held the claims of each class member together. Id. at *1, *6. Also unlike Dukes, the plaintiffs in Jermyn “offered substantial proof that such a policy in fact existed, thereby raising a prima facie inference of broad-based, class-wide injury.” Id. at *7. Discussing the factual differences between Dukes and Jermyn, the court noted: “…what plaintiffs here allege is precisely what is missing in Dukes.” Id. at *6. Therefore, the court held that the class satisfied the commonality element under Rule 23(a). Id. at *7.

Perhaps more important, however, is that the ruling in Jermyn expressed doubt that Dukes’ commonality requirements would be so limiting outside of the workplace class action context where, as here, the claim alleged deceptive business practices. See Id. at *5.  It noted: “[d]efendant tries to import [Dukes’] Title VII pleading requirements to Plaintiffs’ claims which allege deceptive business practices under [New York law]…These additional requirements are designed for and unique to the context of employment discrimination…” Id. Jermyn reasoned that in a Title VII context, the “glue” holding all the individual class members’ claims for disfavor in pay and promotion together was the “reason why they were disfavored.” Id. at *4 (emphasis in original). Judge McMohan found that this was not so in a deceptive business practices context. Id. at *5. Unlike Title VII claims, deceptive business practices claims “do not necessarily depend on any specific motivation.” Id. (citing Spagnola v. Chubb Corp., 574 F.3d 64, 74 (2d Cir. 2009)). The Court reasoned that in the deceptive business practices context where a defendant’s motivation is not part of the liability determination, the “why” is “less relevant, if it is relevant at all.” Id. at *5. In sum, while the Court in Jermyn re-affirmed that Rule 23(a) requires that class members’ claims depend on a common contention which is capable of class-wide resolution, it opined that the Dukes requirement of “significant proof” of a “general policy of discrimination” was unique to Title VII claims. Id. 

In the wake of the SCOTUS decision in Dukes, we expect to see more and more federal courts distinguishing Dukes in order to find that plaintiffs bringing class actions outside of the workplace context have met their commonality requirement under Rule 23(a).  (To read how other federal district courts have weighed in on this issue of late, read our recent posts about In Re Wells Fargo Residential Mortgage Lending Discrimination Litigation, as well as McReynolds v. Merrill Lynch). By the same token, we expect that federal courts will be loathe to certify classes, in any context, under Rule 23(b)(2) where the plaintiffs are seeking monetary damages which are more than incidental to their claims for injunctive relief.

By Gerald L. Maatman, Jr. and Laura Maechtlen

Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), is quickly becoming one of the most often cited Supreme Court decisions in federal courts. It surely is the focus of any class certification briefing these days, and its reach goes far beyond workplace bias cases. As employment defense lawyers, we think there is much to be learned from the application of Dukes in cases outside of the workplace class action context.

A case in point is the most recent application of Dukes - by Judge Maxine M. Chesney of the U.S. District Court for the Northern District of California denying class certification in In Re Wells Fargo Residential Mortgage Lending Discrimination Litigation, No. 08-MD-01930 (N.D. Cal. Sept. 6, 2011) - in a discrimination lending practices case.

On September 6, Judge Chesney denied class certification to a group of six plaintiffs, on behalf of themselves and others similarly situated, who claimed discrimination as a result of Wells Fargo’s so-called "Discretionary Pricing Policy," one which according to Plaintiffs allows loan officers and mortgage brokers to attach points and fees to loans as they see fit - at their own discretion - resulting in alleged widespread discriminatory impact in the form of higher rates and fees for minorities applying for home mortgage loans. Plaintiffs claimed that Wells Fargo engaged in discrimination in sub-prime lending in violation of the California Fair Housing Act ("FHA") as well as the federal Equal Credit Opportunity Act ("ECOA"). Plaintiffs' motion for class certification sought recovery for a proposed class of more than 1 million African-American and Hispanic homeowners. Id. at 3. Plaintiffs relied on a statistical analysis by their expert, who opined that his regression analysis showed a disparate impact on minorities based on the bank's Discretionary Pricing Policy. Id. at 5.

In denying Plaintiffs' motion for class certification, the Court determined that Plaintiffs failed to satisfy the commonality requirement of Rule 23(a)(2) of the Federal Rules of Civil Procedure. Judge Chesney relied heavily on Dukes, and reasoned that class certification was inappropriate due to Plaintiffs’ inability to explain how numerous potential differences among prospective borrowers  -  both as to their stated goals and needs as well as their individual circumstances, such as creditworthiness  -  may bear on the lending determinations made by the many loan officers and brokers across the country. As a result, she concluded that Plaintiffs' claims could not be litigated on a class-wide basis. 

As to Plaintiffs' expert study, Judge Chesney found that relying on evidence that a "policy of discretion" produces a disparity is a non-starter.  Plaintiffs offered no evidence to show that discretion in lending practices was based on a "common mode of exercising [such] discretion." Id. at 5-6 (citing Dukes, 131 S. Ct. at 2554-55). Plaintiffs also conceded that the challenged discretion "may have been exercised differently" in each of the bank's "millions of transactions." Id. at 6.

In a snippet of extreme significance for the defense of workplace class actions, Judge Chesney asserted that "where persons who are afforded discretion exercise that discretion differently, commonality is not established."

This determination can be transposed to all sorts and varieties of personnel practices that are apt to be challenged in workplace class actions (e.g., hiring decisions, pay-setting practices, promotions, etc.). Use of precedent like In Re Wells Fargo Residential Mortgage Lending Discrimination Litigation to argue the defense points in opposition to plaintiffs' certification efforts is well worth consideration.

By Gerald L. Maatman, Jr. and Matthew Gagnon

On August 16, 2011, Judge Jack Weinstein of the U.S. District Court for the Eastern District of New York rendered a decision in Haynes v. Planet Automall, Inc., No. 09-CV-3880 (E.D.N.Y. Aug. 16, 2011), rejecting class certification of claims by purchasers of used cars alleging violations of the federal Truth in Lending Act (“TILA”). The ruling is noteworthy for two reasons: (i) Judge Weinstein has a track record of certifying class actions via "push the envelope" interpretations of Rule 23, and (ii) the rejection of the plaintiff's class certification theory in Haynes shows the power on the new commonality requirements established in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), and its application to statistical evidence presented by a plaintiff in support of a Rule 23 certification motion.

In Haynes, the named plaintiff had purchased a used car using credit provided through the dealer. She alleged that the dealer had failed to disclose that various fees charged to customers who received dealer-assisted financing were part of the finance charge for the automobile as required by TILA. She sought to certify a class of individuals who were similarly misled. The defense opposed the motion, contending that plaintiff's claims were based on different individual oral representations, rendering commonality unlikely and a class action inappropriate.

In denying plaintiff's motion for class certification the Court held that plaintiff failed to show that the critical disputed questions - whether the fees are part of the finance charge pursuant to TILA - could be answered uniformly on a class-wide basis, and had therefore failed to establish Rule 23(a)(2)’s commonality requirement. Id. at 24. Plaintiff had proposed the following set of state law questions, which she argued were subject to uniform adjudication: “whether the alleged violations of TILA constitute deceptive practices under New York General Business Law § 349; caused defendants to be unjustly enriched under New York law; constitute a constructive trust under New York law; or warrant other damages.” Id. Relying on the Supreme Court’s recent Dukes decision, Judge Weinstein held that such questions were peripheral to the certification decision. He reasoned that "[r]equired is a determination that plaintiff's claims ‘depend up on a common contention’ that is ‘of such a nature that it is capable of class-wide resolution.’ . . .  A claim is capable of class-wide resolution when the ‘determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.’” Id. at 13 (quoting Dukes, 131 S. Ct. at 2551). Because plaintiff’s proposed common questions went to remedies and would not resolve the central disputed issues, the Court concluded that those questions could not satisfy the commonality requirement. Id. at 24.

As to the disputed questions themselves, the Judge Weinstein rejected plaintiff’s attempt to use statistics as a means to resolve those issues on a uniform, class-wide basis. The critical question was whether the fees at issue were part of the finance charge. If so, then TILA requires that they be disclosed to creditors to ensure that consumers are not misled about the cost of credit. TILA defines the finance charge as “the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit.” Id. at 15 (quoting 15 U.S.C. § 1605(a)). In the Second Circuit, a charge must be incident to, or a condition of, the extension of credit in order to be considered a finance charge. Id. at 15 (citing Pechinski v. Astoria Fed. Sav. & Loan Ass’n, 345 F.3d 78, 80 (2d Cir. 2003)). The determination of whether a charge is incident to the extension of credit is “extremely fact-intensive,” and the key is to show that the extension of credit caused plaintiff to pay a particular fee or charge. Id. at 16 (quoting McAnaney v. Astoria Fin. Corp., 357 F. Supp. 2d 578, 584 (E.D.N.Y. 2005)).

Judge Weinstein applied the approach of the Seventh and Sixth Circuits to determining causation for a class. Relying on Gibson v. Bob Watson Chevrolet-Geo, Inc., 112 F.3d 283 (7th Cir. 1997), and Cornist v. B.J.T. Auto Sales, Inc., 272 F.3d 322 (6th Cir. 2001), the Court held that “[i]f plaintiffs can prove that defendants systematically charged a fee to credit customers that they did not charge to cash customers, then a factfinder could reasonably infer that he fee was ‘incident to the extension of credit.’” Haynes, at 18. Moreover, proving that a defendant systematically charged a particular fee to credit customers but not to cash customers would require plaintiff to demonstrate that the defendants applied a uniform policy to its customers that distinguished between the two. Id. Although the Court determined that such a demonstration could be made on other forms of proof, the plaintiff in Haynes had decided to try to prove her case relying on statistics alone. Id. at 19-22.

The Court concluded that plaintiff’s statistical evidence was insufficient to carry this burden. That evidence showed that 63.9% of credit customers and 4.1% of cash customers were charged certain fees during the relevant time period. Id. at 24. The Court noted that this evidence showed that the fees were not charged exclusively to credit customers, and that plaintiff had provided no explanation for why cash customers would ever be required to pay a fee that plaintiff alleged was incident to the extension of credit. Id. at 25. Second, the percentage of credit customers who were charged the fees was simply not high enough. Id. The Court found that plaintiff needed to demonstrate that the fees were systematically charged to all credit customers; while she had convincingly shown a correlation between purchasing a car on credit and being charged the challenged fees, the statistical evidence was not sufficient to show that a systematic illegal policy was in place. Id. The Court analyzed plaintiff’s statistics concerning extended warranty fees and came to the same conclusion. Id. at 25-26.

Although the opinion in Haynes focused primarily on commonality, Judge Weinstein briefly addressed the typicality and adequacy prongs of the class certification analysis. The Court held that the oral nature of negotiations for price and services, which would vary in each individual case, along with the lack of any showing of a uniform approach by salespersons, suggested that typicality could not be established. Id. at 26. Moreover, because plaintiff had demonstrated that she may have an animus towards defendants concerning events that were unrelated to her action concerning the disclosure of finance charges, she had not demonstrated that she would be able to litigate procedural and tactical questions on a wholly objective basis, independent of her own special relationship with defendants. Id. at 27.

Haynes illustrates some important lessons for litigants involved in workplace class actions. Judge Weinstein is known as a friend of the class action device, and therefore his denial of plaintiff's motion for class certification is noteworthy in and of itself. As his opinion cited his view that a "class action serves an important function in protecting consumers from abusive business practices," and that consideration given to plaintiffs' motion therefore "must be respectful and generous," Id. at 3-4, the decision is Haynes is well worth a read by corporate counsel. 

First, plaintiffs could not meet the commonality requirement simply by pointing out the fact that there exist questions of law or fact that are subject to universal class-wide determination. Rather, those questions must lie at the core of the case, in the sense that they are central to the validity of all class members’ claims. Plaintiff's attempt to describe such questions in Haynes was insufficient because her common questions each required the resolution of a more fundamental question. Any common questions concerning remedies, for example, presuppose the underlying violation that confers the right to a remedy. A common question must go to that underlying violation, rather than the remedies themselves. In Haynes, the fundamental common question was whether the fees at issue were part of the finance charge and thus had to be disclosed. Plaintiff had not met her burden of showing that that question was subject to universal, class-wide determination. Similarly, a workplace discrimination class action might involve many common questions concerning the company’s policies and practices relative to compensation, evaluations, or promotions. Unless those common questions are central to the validity of plaintiffs’ claims of discrimination, they are peripheral to the class certification analysis and not apt to be successfully certified.

Second, statistical evidence is a common form of proof in workplace class actions, especially for those alleging discrimination. Haynes shows just how strictly courts will construe statistical evidence in determining class causation issues. Although a systematic policy can be proven through the use of statistics alone, Judge Weinstein determined that those calculations must be of “an overwhelmingly convincing nature.” Id. at 19 (quoting United States v. Rioux, 97 F.3d 648, 658 (2d Cir. 1996)). In Haynes, this meant that plaintiffs had to have an explanation for why cash customers were sometimes (though rarely) charged fees that they alleged were charged only to credit customers, as well as an explanation for why those fees were not charged to credit customers closer to 100% of the time. The defense in workplace class actions should look for similar soft spots in the statistical analyses presented by plaintiffs. Haynes shows that courts will be open to the argument that plaintiffs’ statistical evidence is insufficient where plaintiffs cannot explain instances where their evidence appears to contradict their claims.

By Gerald L. Maatman, Jr. and Laura Maechtlen

Today, the U.S. Supreme Court issued its long-awaited and much anticipated opinion in Dukes, et al. v. Wal-Mart Stores, Inc. The Supreme Court reversed, and ruled in favor of Wal-Mart.

The decision is likely to spark a transformation of Rule 23 class certification law, and the workplace class action litigation is apt to change dramatically in the future. In short, the Supreme Court’s opinion re-positions the goal posts on the playing fields of how workplace class actions are structured, defended, and litigated.

In a 5 to 4 ruling, the SCOTUS held that plaintiffs failed to demonstrate commonality under Rule 23(a)(2), and unanimously held that the back pay claims could not be properly certified under Rule 23(b)(2).

The impact of the ruling will be significant to employers for their approach to employment discrimination litigation. As such, Dukes determines how much, for purposes of Rule 23(a), class members must have in common for a class action to be certified and the extent to which claims for money damages can ever be certified under Rule 23(b)(2).

The U.S. Supreme Court’s decisions reverses the 6 to 5 en banc decision of the U.S. Court of Appeals for the Ninth Circuit in San Francisco – reported at 603 F.3d 571 (9th Cir. 2010) – which had affirmed an earlier class certification order in the largest employment discrimination class action in history.  The full Ninth Circuit had ruled that the U.S. District Court for the Northern District of California did not abuse its discretion in finding that the large and diverse class – encompassing approximately 1.5 million female employees, both salaried and hourly with a range of positions, who are or were employed at one or more of the company’s 3,400 stores across the country – was united by a complex of company-wide discriminatory practices against women. Plaintiffs sought to justify class certification with a combination of expert opinions, factual evidence, statistical evidence, and anecdotal evidence purporting to show a corporate policy and common pattern of discrimination imposed on female employees nationwide.

Our blog has covered virtually every angle of the Dukes case since the SCOTUS's grant of certiorari on December 6, 2010 [see posts on the grant of certification here - on the briefs of the parties and their amicus - here, here, here, here, and here - and on the SCOTUS oral argument here].

Today's ruling confirms what we predicted - Dukes creates a new landscape for Rule 23 certification issues, and is apt to impact employment discrimination litigation for years to come.

The U.S. Supreme Court’s Decision

The opinion, authored by Justice Scalia and joined in by Justices Roberts, Kennedy, Thomas, and Alito, addresses two primary questions: (1) whether the order certifying a class conforms to the requirements of Federal Rule of Civil Procedure 23(a); and (2) whether claims for monetary relief can be certified under Federal Rule of Civil Procedure 23(b)(2) and, if so, under what circumstances.  

The two issues are at the heart of most class actions, and the resolution of these questions often casts the die for success or failure in the prosecution or defense of complex discrimination lawsuits.

Holdings Focused On Rule 23(a) Commonality Issues

Today's opinion focuses on the issue of whether plaintiffs had adequately demonstrated a common policy of discrimination on the part of Wal-Mart under Rule 23(a)(2). The Supreme Court opined that "the crux of this case is commonality." Id. at 8. Plaintiffs’ theory - which had been endorsed below by the District Court and the slim majority of the Ninth Circuit - is that the common policy consisted of two elements: an alleged common corporate culture that allegedly embodies sexual stereotypes, coupled with a policy that gave local managers unfettered discretion in making personnel decisions. The Supreme Court framed the issue as whether "that common contention" is "capable of classwide resolution - which means that determination of its truth or falsity will resolve an issue that is central to the validity of each of the claims in one stroke." Id. at 9. In this respect, the commonality issue overlapped with the merits issue that the employer engaged in a pattern or practice of discrimination. The Supreme Court concluded that based on the reasons for the employment decisions at issue, "it would be impossible to say that examination of all the class members' claims for relief will produce a common answer to the critical question…" at issue in the lawsuit. Id. at 12.

The Supreme Court determined that plaintiffs had to show that the employer operated under a general policy of discrimination. It concluded that this "is entirely absent here." Id. at 13. In criticizing plaintiffs' expert showing (based on the testimony of Dr. William Bielby, which the Supreme Court viewed with extreme skepticism), the Supreme Court concluded that the testimony demonstrated no linkage between sexual-bias stereotyping and employment decisions impacting the class members. In essence, it fell far short of "significant proof" that the company operated under a general policy of discrimination. Id. at 14.

The Supreme Court opined that the only evidence of a corporate policy plaintiffs showed was Wal-Mart's policy of allowing discretion by local supervisors over employment decisions, which in and of itself was not evidence sufficient to raise an inference of discrimination. This showing fell short of the requisite proof necessary for Rule 23(a)(2). However, for class certification purposes, the Supreme Court reasoned that demonstrating the invalidity of one manager's use of discretion "will do nothing to demonstrate the invalidity of another's…" such that all class members' claims will "depend on the answers to common questions." Id. at 15. The Supreme Court also rejected plaintiffs' statistical proof (from Drs. Richard Drogin and Marc Bendick), and concluded that "even if [the expert studies] are taken at face value, these studies are insufficient to establish" plaintiffs' theory of discrimination on a classwide basis. Id. at 16. The Supreme Court also dispatched plaintiffs' anecdotal proof - 120 affidavits, representing about 1 of every 12,500 class members and relating to some 235 stores out of the 3,400 stores at issue - as insufficient to show a general policy of discrimination. Id. at 18.

For these reasons, the Supreme Court held that plaintiffs failed to demonstrate the existence of any common questions sufficient for class certification under Rule 23(a)(2).

Whether Claims For Monetary Relief Can Be Certified Under Rule 23(b)(2)

The Supreme Court's ruling also addressed the split in the federal circuits relative to the standard for determining whether monetary claims inappropriately predominate in a Rule 23(b)(2) class.  The Supreme Court concluded that plaintiffs' claims for back pay were improperly certified under Rule 23(b)(2), and that claims for monetary relief may not be certified under Rule 23(b)(2) unless the monetary relief is not incidental to claims for injunctive and declaratory relief., a question the Supreme Court previously raised but did not decide in Ticor Tile Insurance v. Brown, 511 U.S. 117 (1994).

The Supreme Court opined that Rule 23(b)(2) certification is unavailable when "each class member would be entitled to an individualized award of monetary damages." Id. at 21. Instead, such claims "belong in Rule 23(b)(3)." Id. at 22. The effect, of course, is that the required showings of predominance and superiority, and the right to mandatory notice and the right to opt out, are features of Rule 23(b)(3) certification, and a much harder showing for plaintiffs to make.

Finally, the Supreme Court also rejected plaintiffs' theory - and the Ninth Circuit's conclusion below - that back pay could be determined with a "Trial by Formula" - the notion that a sample of class members could be selected, and statistical modeling could yield a result for the entire classwide recovery without further individual proceedings. Id. at 27. The Supreme Court concluded that such a device violates the Rules Enabling Act, as a class cannot be certified on the premise that an employer "will not be entitled to litigate its statutory defenses to individual claims." Id.

The Likely Impact Of The Supreme Court's Ruling On Workplace Class Actions And Human Resources Best Practices

The SCOTUS ruling in Dukes addresses several cutting-edge class action issues. These issues are of substantial importance to employment discrimination class action litigation and to employers generally because it establishes a roadmap for plaintiffs' lawyers and defense counsel alike in approaching class certification briefing and hearings. The new roadmap is decidedly more favorable to employers than before. Employers should be upbeat in terms of the Supreme Court's articulation of the required showings plaintiffs must make in the future to certify an employment discrimination class action. In short, the bar has been raised.

The impact of the Dukes case also impacts all employers’ human resources administration, policies, and procedures. As a result of the decision, employers should review HR practices related to pay and promotion decisions - subjective or not - to determine whether they are adversely impacting any classification of employee. Employers should design any subjective decision-making process and procedure carefully, by linking the process and procedure directly to each position and criteria for performance, ensuring that managers closest to performance are trained to make effective decisions, and consider an appeal process for employees considered but not selected for promotion or training opportunities. Employers should review their programs aimed at increasing diversity and preventing discrimination to ensure that they are being implemented effectively, and should not avoid implementing these programs. Further, employers should continue providing training and communications regarding company policies, including those relating to equal employment opportunities, non-discrimination, and career opportunities.

Upcoming Seyfarth Webinars On Dukes

Tomorrow - on June 21, 2011, at 12 ET/11 CT/9 PT, Seyfarth Shaw LLP is hosting a short, interactive webinar on the Dukes ruling, and initial thoughts regarding the impact of the ruling on employers, and what it means for the future of workplace litigation. To register, please click this link.

In July of 2011, Seyfarth Shaw LLP will be hosting two more in-depth webinars on the Dukes ruling, one that addresses the Rule 23 and class action implications of the ruling, and another tailored for human resources professionals that will focus on the practical and business-related impacts of the opinion. Information on registration will be available shortly.

Upcoming BNA Webinar And Article On Dukes

On July 9, 2011, we are presenting at the BNA webinar on the Dukes ruling sponsored by BNA's Class Action Litigation Reporter. Our loyal readers can access the webinar from our blog next week.

We are also submitting a full analysis on the SCOTUS's decision in Dukes for the next issue of BNA's Class Action Litigation Reporter, which we will post on the blog shortly.

By Daniel Klein and Michael Fleischer

On May 3, 2011, the Second Circuit issued an important opinion in Fleischman, et al. v. Albany Medical Ctr., et al., No. 10-0846 (2d Cir. May 3, 2011), denying a petition for interlocutory appeal of a district court’s denial of a motion to amend a class certification order because the petition was untimely pursuant to Rule 23(f).

In Fleischman, two named plaintiffs sought to represent a class of approximately 2,300 registered nurses who worked in hospitals in the Albany metropolitan area at any time from June 20, 2002 until the present.  The petitioners’ complaint alleged two violations: (1) the hospitals conspired to depress the compensation of registered nurses in violation of antitrust law; and (2) a conspiracy to exchange information in violation of antitrust law.  On July 28, 2009, the district court granted the petitioners’ class certification motion in part.  Subsequently, the respondents brought a motion for reconsideration to clarify whether the district court had also certified a class on the second count of the complaint.  On September 17, 2008, the district court granted the motion and certified the class in part as to both counts.

After the completion of discovery, the petitioners moved to amend the class certification order, seeking certification of “the issues of impact and damages, but solely as to a narrower class of registered nurses. . . that include[d] only the core group of Staff Registered Nurses” in the Albany hospitals. On February 16, 2010, the district court denied the motion because the petitioners had not presented any new facts, but rather a new methodology for assessing facts that were readily available to them at the time of their initial motion.  The district court held that a change in methodology “did not ‘constitute the requisite changed circumstances’ to merit amending the certification.”

The petitioners then filed a petition with the Second Circuit, pursuant to Rule 23(f), for leave to appeal the denial of their motion.  The Second Circuit noted that, under Rule 23(f), an interlocutory appeal from an order granting or denying class certification may be permitted if the petition is filed within 14 days after the order is entered.  The issue before the Second Circuit was whether the district court’s order denying the motion to amend the class certification order constituted “an order granting or denying class-action certification” under Rule 23(f).  The Second Circuit held that the denial of a motion to amend the class was not “an order granting or denying class-action certification” for Rule 23(f) purposes.

Accordingly, the Second Circuit determined that that the petition was untimely because it was not filed within the 14-day period following the district court’s initial class certification order on July 28, 2008, especially where the motion to amend was filed more than 14 days after the original class certification order.

The Second Circuit highlighted that Rule 23(f)’s 14-day filing requirement was both “rigid and ‘inflexible’,” and that it was “expressly barred from extending the time to file a petition for permission to appeal.”  The Second Circuit  reasoned that if a denial of amendment to an order granting class certification could reset Rule 23(f)’s clock for appeal, then any litigant could simply avoid the deadline in the first place by filing a motion to amend or decertify the class after the initial court order.  According to the Second Circuit, this, in essence, would provide an end-run around and “‘leave Rule 23(f)’s deadline toothless.’”

This ruling is important for employers because it imparts a valuable procedural rule when confronted with class actions.  Following an order granting or denying certification, a party wishing to file an interlocutory appeal must act quickly and file it within the strict 14-day time limit.

By Gerald L. Maatman, Jr. and David Ross

The U.S. Supreme Court ruled this morning for an AT&T in the highly anticipated case of AT&T Mobility v. Conception [link to ruling]. In a 5 to 4 vote, the Supreme Court overturned a ruling by a U.S. Court of Appeals for the Ninth Circuit that declared a class waiver ban unenforceable under California law. At issue was a provision in AT&T Mobility's customer contracts that required all disputes to be settled by arbitration and that prevented the pooling of claims in a class action lawsuit or class arbitration.

The Supreme Court's ruling is sure to have far-reaching consequences not only for class action litigation between business and consumers, but also for employers that utilize arbitration agreements with their employees.

In AT&T Mobility, LLC. v. Concepcion, the Supreme Court held that federal law preempts a California rule that banned class action waivers in arbitration agreements.  The Supreme Court overturned a previous ruling of the Ninth Circuit that had found AT&T’s arbitration agreements with its cell phone customers to be unenforceable because the agreements waived customers’ rights to bring claims in arbitration on behalf of a class.   The Ninth Circuit’s decision rested on Discover Bank v. Superior Court, 36 Cal.4th 148, 113 P.3d 1100 (2005), in which the California Supreme Court held that class action waivers in consumer arbitration agreements are unconscionable if the agreement is in an adhesion contract, disputes between the parties are likely to involve small amounts of damages, and the party with inferior bargaining power alleges a deliberate scheme to defraud.

In AT&T Mobility v. Concepcion, the Supreme Court determined that the Discover Bank rule is preempted by the Federal Arbitration Act (“FAA”) because it “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”  Justice Scalia wrote the majority opinion, joined by Chief Justice Roberts and Justices Alito, Kennedy, and Thomas (who filed a separate concurring opinion).  Justice Stephen G. Breyer dissented, and he was joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan.

The Ninth Circuit had found AT&T’s class-action waiver “unconscionable” even though the AT&T arbitration agreement was consumer friendly, cost-free (unless the arbitrator determined a claim to be frivolous), and essentially guaranteed that AT&T would make whole any aggrieved customer who filed a claim.  To the Ninth Circuit, the irredeemable vice of the arbitration agreement was that it insulated AT&T from class actions of any kind. The Ninth Circuit viewed such contract waivers as “exculpatory,” and void as a matter of California public policy because they would allow a defendant potentially to avoid liability to a large number of customers who were either unaware of their potential claims or who declined to pursue them.  The pains taken by AT&T to craft a fair and user-friendly agreement undoubtedly influenced the majority of the Supreme Court in deciding to reverse the Ninth Circuit’s decision.

The AT&T Mobility appeal has received wide attention because the question of class-action waivers has arisen frequently in the context of employment arbitration agreements as well as in commercial contracts.  This highly anticipated decision comes only a year after the Supreme Court’s ruling in Stolt-Neilsen S.A. v. Animalfeeds International, Corp., 130 S. Ct. 1758 (2010), which held that if parties to an arbitration agreement did not intend to allow class claims, arbitrators have no power to impose class-wide arbitrations under agreements that are merely “silent” on the issue.  

Enlarging on the fundamental differences between bilateral and class-wide arbitration, which formed the basis for the decision in Stolt-Nielsen, the majority in AT&T Mobility emphasized that “the switch from bilateral to class arbitration sacrifices the principal advantages of arbitration – and makes the process slower, more costly and more likely to generate a procedural morass than final judgment.”  Class arbitration also greatly increases risks to defendants, the Supreme Court noted, because arbitral errors may go uncorrected in light of the highly limited scope of judicial review of arbitral awards.

Numerous groups had filed amicus briefs with the Supreme Court in the AT&T Mobility appeal. Many on the plaintiffs' side argued that a defense victory would gut class action remedies. Indeed, in a preview of the case, Vanderbilt law professor Brian Fitzpatrick had warned that a ruling for AT&T could “end class-action litigation in America as we know it.” It is expected that similar themes may emerge in the arguments of the plaintiffs' class action bar in the near future as lower federal courts apply the decision in consumer and workplace class action litigation.

Perhaps anticipating that line of attack, Justice Scalia wrote that "The dissent claims that class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the legal system, . . .[b]ut states cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.”

In his dissent, Justice Breyer wrote: "What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim? Why is this kind of decision - weighing the pros and cons of all class proceedings alike - not California’s to make?"

This debate is likely to continue and find its way into the halls of Congress in terms of possible legislative responses to class action litigation issues.

It is expected that class arbitration waivers will continue to face assault from legislative initiatives and from a new source:   the National Labor Relations Board (“NLRB”).  Following the directive of former NLRB General Counsel Meisburg in a Memorandum issued on June 16, 2010, the NLRB has issued complaints against companies that maintain class actions waivers in pre-dispute arbitration agreements on the theory that such agreements interfere with employees statutory right to engage in concerted activity.  It is expected that other federal enforcement agencies, such as the EEOC, also will take active steps to promote collective litigation strategies against employers they deem to be violating federal law.

In light of AT&T Mobility v. Concepcion, it behooves employers with pre-dispute arbitration agreements in employment contracts to consider inserting class-action waivers if their agreements do not already contain them.  Employers without arbitration programs are likely to consider adopting them as a means to manage the risk of wage & hour and employment discrimination class actions.

By Amanda Sonneborn, Sam Schwartz-Fenwick, and Meg Troy

On March 4, 2011, Judge Rebecca Pallmeyer of the U.S. District Court for the Northern District of Illinois granted class certification in Neil, et al. v. Zell, et al, Case No. 08-CV-6833 (N.D. Ill. Mar. 4, 2011), a high profile ERISA case. The ruling is instructive to all employers facing ERISA class actions.

In Neil, the named plaintiffs, two former employees of the Tribune Company, brought suit under ERISA against GreatBanc, Sam Zell, and EGI-TRB LLC, alleging breaches of fiduciary duty stemming from the leveraged buyout of the Tribune Company by the employee stock ownership plan (the “ESOP”).  Under the leveraged buyout, the ESOP was created and then it purchased the Tribune Company.  Shortly after the purchase the company declared bankruptcy and, as a result, plaintiffs allege that the stock held by the ESOP is now worthless. 

The proposed class covered all participants and beneficiaries (except the defendants), who participated in the ESOP and who were entitled to an allocation to their ESOP account.  In deciding to certify the class, the Court concluded that the proposed class met all four criteria of Rule 23(a).  First, even though nearly 4,000 potential class members signed releases waiving all ERISA claims, the Court found that plaintiffs met the numerosity criteria, because the class contained at least 7,000 participants notwithstanding those who signed releases.  Second, the Court determined that plaintiffs satisfied the commonality requirement, because all of the allegations related to the leveraged buyout.  Third, the Court held that plaintiffs demonstrated typicality, because, unlike in Spano v. The Boeing Co., 633 F.3d 574, (7th Cir. 2011), the class members all held the same investment - the Tribune Company stock.  Moreover, the Court reasoned that because the named plaintiffs did not sign a release of claims, the releases did not defeat typicality.  Fourth, the Court concluded that the proposed class representatives were adequate.  In making this finding, the Court rejected the argument that the named plaintiffs’ animosity towards defendant Zell rendered them unsuitable.  The Court acknowledged that although a proposed representative may be inadequate when motivated by personal animus, the evidence presented did not establish sufficient animus or vindictiveness.  The Court also rejected the defense argument that one of the named plaintiffs was inadequate based on his alleged lack of knowledge about the specifics of the lawsuit.  Similarly, the Court rejected the argument that the economic interests of the named plaintiffs conflicted with those of the class, finding that a victory by the named plaintiffs would not cause another member of the class to suffer an identifiable harm.

Reviewing the Rule 23(b) standards, the Court determined that certification pursuant to Rule 23(b)(1)(A) and (B) was appropriate, because adjudicating the case in a non-class format potentially could cause inconsistent direction to ESOP fiduciaries and a victory by one plan member would necessarily be a victory for all plan members.  It also concluded that certification pursuant to Rule 23(b)(2) is appropriate because plaintiffs seek equitable relief and any incidental damages can be calculated mechanically.

Neil is a significant case for employers facing ERISA litigation.  It demonstrates that despite the Seventh’s Circuit curtailment of a party’s ability to bring a class action under ERISA announced in Spano v. The Boeing Co., 2011 WL 183974 (7th Cir. Jan. 21, 2011), district courts remain willing to certify class actions under ERISA.

Co-authored by Rebecca S. Bjork and William F. Dugan

On March 9, 2011, the Eleventh Circuit took a position in the ongoing debate over just how far District Courts should go in reviewing and evaluating expert evidence when deciding whether to certify a class under Rule 23. In Sher, et al.  v. Raytheon Company, No. 09-15798 (11th Cir. March 9, 2011) [link to ruling], the Eleventh Circuit adopted – and arguably even expanded upon – the approach taken by the Seventh Circuit last year in American Honda Motor Co., Inc. v. Allen, 600 F. 3d 813 (7th Cir. 2010) [link to ruling], which held that a District Court is duty-bound to conclusively rule on the admissibility of expert opinion prior to ruling on any class certification motion that relies upon such opinion evidence. Now, as a result of the ruling in Sher, District Courts in the Eleventh Circuit must not only consider the admissibility of such expert evidence, but also its weight in deciding whether a plaintiff has met the burden of proving that there is “enough evidence to support a class[.]” Sher, at 8-9. 

In Sher, the named plaintiffs sought certification of a class consisting of all owners of real property allegedly impacted by the release of hazardous waste from a facility operated by Raytheon in St. Petersburg, Florida. In briefing class certification, the named plaintiffs offered the analysis of a groundwater expert and a damages expert to establish: (1) that a toxic underground plume of pollution stretched one mile long and 1.7 miles wide in the groundwater under Raytheon’s facility; and (2) that individual property owners’ damages could be determined by a hedonic multiple regression model, which could measure everyone’s diminution-in-value damages. This model supposedly would replace an individual-by-individual assessment of damages to property (which could mean that individualized issues predominated over common issues, making class certification inappropriate).  

The defense offered evidence from its own experts, who challenged both the methodology and conclusions of the reports presented by the named plaintiffs’ experts.  The District Court noted that even though the expert reports differed markedly as to the scope of the contamination and its impact on property values, it was acceptable to certify a class without deciding which expert opinions were sound. Undertaking that analysis, the District Court feared, would delve too far into the merits of the named plaintiffs’ case. 

The Eleventh Circuit found this was error, because the District Court wrongly “side-stepped” the tough questions of which experts’ opinions had a solid scientific foundation.  Instead, the Eleventh Circuit reasoned that the District Court should have weighed conflicting expert testimony presented by both parties. Thus, instead of postponing for another day the battle of the experts, the Eleventh Circuit has now made clear that District Courts must make the hard decisions on expert opinions early, before issuing any rulings on class certification.

Sher has broad application, and will assist employers in opposing motions for class certification in workplace class actions in the Eleventh Circuit.

Seyfarth Shaw's 2011 Workplace Class Action Report is coming soon! The report is the sole compendium in the U.S. dedicated exclusively to workplace class action litigation. Our loyal readers can expect to receive their copy in several weeks, with rulings and case law developments reviewed and analyzed through December 31, 2010.

To say the least, 2010 was a significant year for workplace class action litigation. We will address these developments in detail in the upcoming Report, and this post provides a preview.

Key developments over the past year manifest multiple trends that impact employers.

First, 2010 was the year of big headlines in employment discrimination class actions.  Those headlines involved the biggest class action trial verdict ever – the $250 million verdict in Velez, et al. v. Novartis in May of 2010 – and its subsequent settlement two months later for $175 million.  As success by the plaintiffs’ bar often prompts copy-cat litigation filings, these headlines are likely to encourage more class actions in the future, as well as enhanced settlement demands by the plaintiffs’ bar to resolve their cases.

Second, 2010 also spawned landmark Rule 23 decisions; none was more momentous than the ruling by the Ninth Circuit in Dukes, et al. v. Wal-Mart Stores, Inc. on April 26, 2010, and the subsequent grant of certiorari in the case by the U.S. Supreme Court on December 6, 2010.  In a 6 to 5 en banc opinion, the Ninth Circuit upheld, in part, certification of the largest employment discrimination class action ever – a pay and promotions class of approximately 1.5 million female workers.  The Supreme Court’s grant of certiorari put the Ninth Circuit’s decision in flux and other decisions on hold, while the class action bar awaits the next chapter in the litigation.  The Supreme Court’s expected ruling in Dukes in 2011 is apt to be a bellwether decision in areas that the Supreme Court has left mostly to federal circuit courts of appeals in recent years. 

Third, the continued economic challenges and low hiring rates during 2010 fueled more class action and collective action litigation.  Most significantly, the plaintiffs’ bar increased the pace of FLSA collective action filings seeking recovery for unpaid overtime wages.   These conditions spawned more employment-related case filings, both by laid-off workers and government enforcement attorneys.  In turn, this resulted in higher settlement numbers (especially in government-initiated lawsuits and wage & hour litigation).  Even more class action litigation is expected in 2011, as businesses continue to re-tool their operations.

Fourth, by sheer numbers, wage & hour litigation continued to far out-pace all other types of workplace class actions.  This trend was also manifest in more wage & hour class action and collective action decisions by federal and state court judges than any other area of workplace litigation.  It also reflected the fact that in terms of case filings, collective actions pursued in federal court under the Fair Labor Standards Act (“FLSA”) outnumbered all other types of private class actions in employment-related cases.  As a result, FLSA collective actions produced more rulings in 2010 than class actions for employment discrimination or under ERISA.  Significant growth in wage & hour litigation also was centered at the state court level, and especially in California, Florida, Illinois, New Jersey, New York, Massachusetts, Minnesota, Pennsylvania, and Washington. This trend is likely to continue in 2011.

Fifth, as Democratic legislative initiatives for labor and employment reform stalled, in the wake of Republican Congressional gains, the Obama Administration continued to ramp up its enforcement efforts through the U.S. Equal Employment Opportunity Commission (“EEOC”) and the U.S. Department of Labor (“DOL”).  The Obama Administration’s emphasis on administrative regulation and enforcement lead to more government-initiated litigation over workplace issues.  Those efforts are expected to intensify as the Administration’s policy goals, which may be thwarted in the Congress, are advanced through agency regulation and government enforcement litigation.  Many state labor departments are following this lead. Increased funding for the DOL and the EEOC also resulted in the recruitment and training of more DOL and EEOC attorneys and investigators.  It is expected that employers will encounter more investigations – and more governmental enforcement lawsuits – in 2011 as the augmented staffs of the DOL and EEOC carry out their law enforcement functions.  Likewise, when measured by monetary recoveries, government enforcement litigation resulted in higher settlement amounts for workplace litigation than past years.  Even more aggressive government enforcement litigation is likely in the coming year.

Sixth, the Class Action Fairness Act of 2005 (“CAFA”) continued to have significant effects on workplace litigation, and most significantly on wage & hour class actions filed in state court.  The past twelve months saw evolving case law developments on jurisdictional issues under the CAFA.  As the plaintiffs’ bar continues to devise techniques to adapt to the CAFA, rulings on the scope, meaning, and application of this law, of relatively recent vintage, have occurred at a surprising rate.  In this respect, the development of CAFA-related law continued to mature quickly in the Ninth Circuit, as the high volume of California-based wage & hour class action filings resulted in a deluge of CAFA removals in California federal courts in 2010.

Seventh, and finally, the financial stakes in workplace class action litigation increased in 2010.  Plaintiffs’ lawyers have continued to push the envelope in crafting damages theories to expand the size of classes and the scope of recoveries.  These strategies resulted in a series of massive settlements in nationwide class actions, particularly in the context of wage & hour litigation.  This trend is also unlikely to abate in 2011. 

Co-authored by Dana Howells and  Jennifer Riley

On November 8, 2010, the Ninth Circuit - in DeLodder v. Aerotek, Inc., Case No. 10-80178 (November 8, 2010) - agreed to hear a discretionary appeal of the denial of a class certification order in overtime litigation involving 700-plus Aerotek recruiters. Plaintiffs seek unpaid overtime and California Labor Code penalties for missed meal periods and rest breaks. Aerotek, a large staffing firm, classified its regular full-time recruiters exempt from overtime and California meal period and rest break rules under the white-collar administrative exemption. Judge Dolly Gee of the U.S. District Court for the Central District of California concluded that while Rule 23(a) requirements for numerosity, commonality, typicality, and adequate representation were met, certification under Rule 23(b) was not appropriate because of the necessarily highly individualized inquiry into the degree of independent judgment each recruiter exercised on the job. Discovery had showed substantial variations between locations, managers, and how individual recruiters worked. DeLodder  v. Aerotek, Inc., Case No. 08-CV-6044 DMG (C.D. Cal Aug. 16, 2010), appeal granted, 9th Cir. Case No. 10-80178 (November 8, 2010).  In 2002, Judge Richard Paez had certified a class of Aerotek recruiters (Johannes v. Aerotek, Case No. 2:98-CV-06153-DT (C.D. Cal. Sept. 16, 2002), but Judge Gee noted that both the job content of Aerotek’s recruiter positions and Ninth Circuit law had changed in the interim. Another decision from the U.S. District Court for the District of Maryland (another case in which DeLodder was a named plaintiff) denied certification of a nationwide class action against Aerotek encompassing recruiters and additional positions. Andrade v. Aerotek, 2009 WL 2757099, Case. No. 08-CV-2668 (D. Md. 2009). Judge Gee made it clear that her decision against class certification was based on evidence provided by both sides specific to work experiences of  recruiters in California. She also relied on a trend of class certification rulings in recent Ninth Circuit decisions, including: In Re Well Fargo Home Mortg. Overtime Pay Litigation, 571 F. 3d 953 (9th Cir. 2009), Vinole  v. Countrywide Home Loans, Inc. 571 F.3d 935 (9th Cir. 2009), and Dukes v. Wal-Mart Stores, Inc., 603 F. 3d 571 (9th Cir. 2010).

The Ninth Circuit appeal in Aerotek will be closely watched by class action practicioners for both sides. The case may impact the future of class-based litigation over exempt/nonexempt status, at least where qualification as exempt is a close call requiring fact-intensive inquiry.