eeocseal.jpgBy Pamela Q. Devata, Gerald L. Maatman, Jr., Jennifer A. Riley, and David J. Rowland

On January 28, 2013, Judge Patricia A. Gaughan of the U.S. District Court for the Northern District of Ohio granted summary judgment to the defense in EEOC v. Kaplan Higher Education Corp, et al., No. 10-CV-2882, 2013 U.S. Dist. LEXIS 11722 (N.D. Ohio Jan. 28, 2013) and thereby dismissed the EEOC’s first lawsuit challenging the use of credit reports in the hiring process on the grounds that such a screen adversely impacts African-Americans. The lawsuit, one of the Commission’s highest profile cases, received immediate media attention following the summary judgment order (click here, here, and here to read more).

The Court also rejected the EEOC’s theory that, contrary to its own mandates, an expert can determine the races of job applicants by looking at their photographs. The Court excluded the EEOC’s “race rating” evidence and, finding no evidence of disparate impact, entered judgment in favor of Kaplan. 

Factual Background

The EEOC brought suit against Kaplan claiming that its use of credit as a hiring criterion had a disparate impact on Black applicants. (Id. at 6.) (Click here for the EEOC’s press release issued upon the filing of the case.)

Kaplan did not collect race information for job applicants. Id. at *4. Thus, to attempt to show the races of particular applicants, the EEOC subpoenaed records from the Department of Motor Vehicles (DMV) in 38 states and the District of Columbia. Id. at *9. Although 14 states provided records that identified race, 24 states provided only copies of driver’s license photos. Id.

To purport to determine race from the photos, the EEOC’s expert, Dr. Kevin Murphy, assembled a team of five “race raters,” individuals with advanced degrees in cultural anthropology, education, human development, psychology, and economics. Id. at *10. Dr. Murphy asked the “race raters” to review each photograph (along with each applicant’s name) and determine whether the individual was African-American, Asian, Hispanic, White, or “Other.” Id.

Although Dr. Murphy assembled a data set of 4,670 individuals, he utilized only 1,090 of the applicants in his statistical analysis and did not take a random or representative sample. Id. at *19-21. Kaplan moved to exclude the expert’s opinions and moved for summary judgment on several additional grounds, including a novel governmental estoppel theory, as the EEOC itself conducts credit checks on its own employees. As the Court noted, the EEOC runs credit checks for job applicants for 84 of the 97 positions at the EEOC, for reasons similar to those employed by Kaplan. Id. at *6.

The Court’s Opinion

The Court excluded the expert reports and testimony of Dr. Murphy as inadmissible because the EEOC failed to show that his methodology was reliable. Id. at *13.

The Court noted that, “to establish the reliability of the analysis, the Court must be convinced that the rate of error is within acceptable parameters.” Id. at *14. The EEOC offered no indication that its use of “race raters” had been or could be tested and provided no known or potential rate of error in the technique employed by the “rate raters.” Id. at *13. Likewise, the EEOC failed to show that the process of “rating race” by visual means had been the subject of peer review or publication. Id. at *14. 

The Court expressed “great concern” over numerous other aspects of Dr. Murphy’s analysis. For instance, Dr. Murphy was involved not only in the statistical analysis of race data, but he selected photos to forward to the race raters and sat on the “panel” that determined race for 15 applicants. Id. at *15-16. Further, Dr. Murphy supplied the names of the applicants to the “race raters,” increasing the likelihood that an individual would be rated “Hispanic,” for instance, merely because she had a traditionally Hispanic surname. Id.

The Court also noted that the EEOC itself discourages employers from visually identifying an individual by race and indicates that visual identification is appropriate “only if an employee refuses to self-identify.” Id. Thus, the EEOC itself “frowns on the very practice it seeks to rely on.” Id. at *17.

Finally, the Court expressed great concern that Dr. Murphy’s sample was not random and, instead, consisted only of individuals for whom Dr. Murphy obtained race information. “There is no indication, for example, that the data is fairly distributed among geographic areas or is in any other way ‘representative’ of the applicant pool as a whole.” Id. at *18-19. In fact, the evidence showed the opposite. Id. at *21.   

Implications For Employers

Judge Gaughan’s opinion is a welcome relief for employers who fall victim to the EEOC’s “do as I say, not as I do” litigation tactics. The Court was quick to point out that the EEOC’s methodology for judging race based on photographs contradicted its own mandates and was an affront to both common sense and personal dignity. Because Judge Gaughan excluded the EEOC’s evidence of a purported statistical disparity, the Court did not reach other grounds for summary judgment, including arguments concerning job-relatedness, business necessity, and estoppel. These arguments centered, in part, on the EEOC’s decision to attack a criterion that it uses in its own personnel practices.

Thumbnail image for SupremeCourt.jpgBy Rebecca Bjork and Gerald L. Maatman, Jr.

This morning we observed oral arguments in the biggest Supreme Court Rule 23 case of this term – Comcast Corp. v. Behrend, No. 11-864 (argued Nov. 5, 2012). For those who want a taste of the arguments and questioning, the transcript is here.

The SCOTUS accepted Comcast’s petition for certiorari on the issue whether a class may be certified without resolving whether plaintiff has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis. While Behrend is not an employment case, the SCOTUS’s answer to that question has enormous strategic significance for employers defending workplace class action lawsuits.

At today’s oral argument, most Justices were actively engaged in questioning counsel on whether a district court may certify a class without resolving whether there is admissible evidence, including expert testimony, to show that damages can be awarded on a class-wide basis. Comcast seeks to secure a reversal of the Third Circuit’s earlier ruling that its attacks on the methodology of an expert report has no place in a class certification proceeding. As we wrote on this blog previously, the stakes associated with this ruling are very high for defendants in the context of forcing litigants to demonstrate the Rule 23 proof prerequisites to put a company to its paces in a class action. You can read our summary of the oral argument and its implications here.

Today’s article in Business Week on Comcast Corp. v. Behrend included our comments too, and can be accessed here.

SupremeCourt.jpgBy Gerald L. Maatman, Jr. and Rebecca Bjork

The next “big one” for the U.S. Supreme Court to address under Rule 23 is in Comcast Corp. v. Behrend where the issue is whether a class may be certified without resolving whether plaintiff has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis. While Behrend is not an employment case, the SCOTUS’s answer to that question has enormous strategic significance for employers defending workplace class action lawsuits.

Respondents in Behrend must have felt like they were outnumbered this past week, as four amicus curiae briefs in support of Comcast were filed nearly simultaneously. (You can read the briefs here, here, here, and here.) The amici include important groups that have chimed in on cutting-edge issues in class action law over the years, including the Equal Employment Advisory Council, The Chamber of Commerce of the United States, Business Roundtable, The Securities Industry and Financial Markets Association, and DRI—The Voice of the Defense Bar. To top it off, Intel Corporation also chimed in with its own amicus brief. The fact that all of these briefs were filed demonstrates why employers at risk for class action lawsuits should pay close attention to this case as it hits the Justices’ desks this term.  The “battle of the experts” has always been important in defending against employment class actions, and the Supreme Court’s decision in Behrend will no doubt provide important clarity to this area of the law. 

The case is important in class action law because it presents a key question that was left open by Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), which we have discussed on this blog several times (here, here, here, here, and here.) The question, as framed by Comcast, is “[w]hether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.” (You can read Comcast’s brief here.) The issue was not decided in Wal-Mart, but the majority left the door wide open for arguments that the standards for admissibility of expert testimony established in Daubert v. Merrill Dow Pharmaceuticals, Inc., 509 U.S. 570 (1993), should come in to play at the certification stage of a class action lawsuit.  See Wal-Mart v. Dukes, 131 S. Ct. 2541, 2553-54 (“The District Court concluded that Daubert did not apply to expert testimony at the certification stage of class-action proceedings. We doubt that is so. . . .”) (citation omitted). At bottom, the question is whether the “rigorous analysis” required of a court deciding class certification also requires it to apply Daubert to the parties’ competing expert analyses. 

In Behrend, plaintiffs alleged that the cable giant engaged in “anticompetitive clustering,” making deals with competitors in Philadelphia to swap cable assets and allocate regional cable markets among themselves. Behrend v. Comcast Corp., 264 F.R.D. 150 (E.D. Pa. 2010) (reconsidering class certification in light of In Re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 (3d Cir. 2008), and affirming prior decision to certify a class). Plaintiffs claimed this was an exercise of monopoly power that increased the prices for cable services to artificially high levels. They initially advanced four theories of how this caused an “injury” under antitrust law. Id. at 156-57. In granting class certification, the district court relied on only one: a damages model offered by their expert, who compared actual cable prices to hypothetical prices that would have been in place absent Comcast’s alleged wrongdoing. Comcast offered rebuttal expert testimony and also argued that the plaintiff’s expert analysis could not form the basis for a class-wide damages model. The district court nonetheless found that the plaintiffs had shown that “there is a common methodology available to measure and quantify damages on a class-wide basis” and certified a Rule 23(b)(3) class. Id. at 154. The Third Circuit affirmed the decision in a split decision, but the majority did not address Comcast’s challenges to the viability of the methodology of plaintiffs’ expert, holding 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). Comcast petitioned for Supreme Court review, which was granted. 

In employment class actions, particularly those involving large numbers of potential class members, statistical models and arguments about their reliability are crucial parts of the class certification fight. Recall that in Wal-Mart, the majority of the Justices were highly skeptical of the expert evidence offered by the plaintiffs, purporting to show that a corporate culture allegedly imbued with gender stereotyping could explain why discretionary decision-making on pay and promotions caused discrimination in a common way against female employees. Wal-Mart, 131 S. Ct. at 2553. If challenges to the reliability of such evidence are not proper in deciding the certification question, it is much more likely that weak claims will survive the “rigorous analysis” a court must undertake. This makes a decision on class certification even more important. As the EEAC’s amicus brief puts it, “the act of certifying a class significantly increases the pressure on a defendant, wary of the substantial ‘bet the farm’ costs associated with mounting an adequate defense, to settle even questionable class claims[.]” (EEAC Br. at 7.) The Chamber’s brief makes the point even more starkly, noting that if the Third Circuit’s decision stands, it “will make it easier for plaintiffs with meritless claims to pass through the class-certification gateway.” (Chamber’s Br. at 4.) 

We will continue to monitor the proceedings in this highly significant case, so stay tuned. 

Thumbnail image for SupremeCourt.jpgBy 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. 

untitled.bmpBy Rebecca Bjork and Gerald L. Maatman, Jr.

Workplace class action litigation poses enormous risks for employers. For those that play out the string and go all the way down the road to a remedies phase, an award for plaintiffs of over $128 million is a head-line grabber.

While it might be a stretch to say it should be required Springtime reading – given its heft at 64 double-spaced pages when pulled from PACER – the Memorandum Order issued recently by Judge Nicholas A. Garaufis of the U.S. District Court for the Eastern District of New York in United States, et al. v. City of New York, et al., No. 07-CV-2067, 2012 U.S. Dist. LEXIS 30989 (E.D.N.Y. Mar. 8, 2012) is a must-read for employers who face the twists and turns of complex discrimination litigation. The Memorandum Order provides an eye-opening view of how the practical realities of claims administration and notice processes can take on huge significance in the bottom line of damages calculations in employment discrimination class actions. And it shows once again, as we have commented on before in this Blog, how the outcome in large employment discrimination cases can often come down to a Court’s judgments with regards to dueling experts. The bottom line is that failing to challenge the methodology of the other side’s experts each and every time the opportunity the presents itself can result in unhappy consequences down the road if and when liability is proven. 

The Court’s latest ruling continues the remedial phase in a race discrimination suit the U.S. Department of Justice Department originally filed in 2007 alleging that the City violated Title VII of the 1964 Civil Rights Act by using firefighter entrance exams that had a disproportionate adverse impact on black and Hispanic applicants. The Vulcan Society, which represents African-American firefighters, and individual minority candidates subsequently intervened as plaintiffs, alleging intentional discrimination as well. In July 2009, the Court granted summary judgment on liability for disparate impact discrimination under Title VII largely on the basis of the statistical analysis of the impact of a multi-stage pre-hiring testing process on minority versus non-minority applicants. This analysis was presented by the United States’ expert Dr. Bernard Siskin. Id. at *16-17. Subsequently, in January 2010, the Court entered summary judgment for plaintiffs on liability for disparate treatment discrimination, moving to the remedial phase. Id. at *17. 

The first step of the remedial process was the entry of an Initial Remedial Order, “which provided a preliminary outline for the remedial phase . . . [which would involve] order[ing] compensatory, ‘make whole’ relief for the individual victims of the disparate impact of the entry-level firefighter hiring process.” Id. at *17-18. The Court granted certification of sub-classes in this phase, including a “Delayed-Hire Victim Sub-class” and a “Non-Hire Victim Sub-class,” to allow for class-wide determination of several elements of “make whole” relief including back pay, benefits, retroactive seniority, and priority hiring; at the same time, the Court declined to extend class treatment to mitigation of damages, finding it to be too individualized. Id. at *20-21. 

The second step of the remedial process was before the Court in this decision, namely whether to enter summary judgment in favor of plaintiffs for back pay under the calculations submitted by Dr. Siskin, the plaintiff-intervenors’ expert Dr. Louis Lanier, and rebutted by the defendant’s expert Dr. Christopher Erath. While the defendant did attempt to rebut assumptions made by Dr. Siskin in creating his regression models, the Court rejected nearly each and every such attempt in turn. 

The most important reason from the point of view of case management of complex litigation was the Court’s conclusion that the law of the case doctrine prevented the defendant from attempting to poke holes in the methodological approach and assumptions made therein by the plaintiffs’ expert. As the Court explained, “the parties have used these calculations, and relied on the methodology that underlies them, for years [and] [t]he City offers no cogent reason for reversing this determination.” Id. at *39. One key lesson from this holding is not to make the assumption that bifurcation of liability and damages will allow for a fresh “numbers” analysis to occur in any damages phase, should liability be found in the plaintiffs’ favor. 

In addition, the Court denied the defendant the right to off-set its potential liability figure by adjusting the dataset to account for 2008 hiring patterns, which were more favorable towards minority applicants. Id. at *43-44. It did so on the ground that the defendant was under a continuing duty to supplement the data produced in discovery and which formed the basis of Dr. Siskin’s analysis; because the City did not supplement the data, Dr. Siskin did not include the 2008 hires into his calculations. Id. As a result, the Court concluded, [t]he City’s failure to follow the Rules of Civil Procedure created the incomplete nature of Dr. Siskin’s data, and the City has not explained why this information should not be excluded” as those Rules provide for in Fed. R. Civ. P. 37(c)(1). Id. at *44. 

As a result of its rulings on class-wide “make whole” relief for both sub-classes, the Court found the City liable for the sum of $128,696,803 in gross lost wages. The Court, however, noted that the City “will have the opportunity to reduce this amount significantly by proving the interim earnings of claimants in individual proceedings.” Id. at *72. It then appointed four special masters from the private bar to oversee the claims and notice process, which was necessary in the Court’s view because of the individualized nature of the mitigation evidence (which is why the Court previously found could not be handled on a class-wide basis).

Take-Aways For Employers

Time will tell how the class-wide nature of the next remedial phase of this case turns out. Individual evidence of remediation, or of other factors that could undermine the cohesiveness of the class remedy, could reveal the fractures in the commonality underlying the class, defined by the Court largely through statistics.  

Further, the sheer cost of moving through the remedial phase in and of itself will be very costly. In litigation brought by private plaintiffs, an employer faces the double whammy of having to pay attorneys’ fees for the successful prosecution of claims. A dollar saved in cutting down damages is often lost by having to pay for the attorneys’ fees of the plaintiffs.

The bottom line is good defense experts are critical, as liability and monetary exposure are fueled by expert testimony in cases of this ilk.

Texas%20Fishing%20Online%20Map.jpgBy Chris Palamountain and Esteban Shardonofsky

Searches for mysterious creatures are hot again. We used to have to satisfy our curiosity by flipping through tabloids while waiting to pay for groceries or logging on to Wikipedia to stay up to date on the latest appearance of man-ape, alien, or the Loch Ness dragon. Now, entire cable television shows are dedicated to “searching” for such beings. Actual money and time is being spent on these “investigations,” and the motivation behind such decisions is open for public speculation.

Law has its own set of elusive curiosities. For class action litigators, an attorneys’ fees award that comes with a lodestar “enhancement” above 150% is the courtroom equivalent of passing a leprechaun on your morning jog. Young lawyers hear rumors about how once upon a time courts awarded attorneys’ fees above and beyond the lodestar (the reasonable hourly rate multiplied by the number of hours reasonably spent on a case). However, fee multipliers have been virtually extinct in federal courts for over a decade, and proof of a significant positive multiplier has been increasingly hard to substantiate even in state courts. Texas state courts are particularly unlikely jurisdictions for finding a positive multiplier above 1.5. But the wait is over. 

In a recent ruling on February 9, 2012, the Texas Court of Appeals awarded a lodestar enhancement in Stratton v. XTO Energy, Inc., Case No. 20-10-00483-CV (Tex. Ct. App. Feb. 9, 2012). It is believed that the ruling represents the first Texas appellate court to address the state’s lodestar enhancement statute. 

Stratton started as a shareholders’ class action arising in the wake of the $41 billion 2009 merger of ExxonMobil Corp and XTO Energy, Inc. A class of XTO shareholders filed suit, alleging that the company’s directors breached their fiduciary duty in their disclosures and failed to maximize shareholder value. Class actions were filed in a Texas state court, a Delaware chancery court, and a federal district court in Texas. After two months of intensive discovery, the parties reached a settlement in April 2010 that involved increased disclosures but no monetary awards to the class. As part of the settlement, Exxon Mobil agreed not to oppose any application for an award of attorneys’ fees and costs up to $8.8 million.

During the settlement approval process, Plaintiffs moved for fees and expenses totaling $8.8 million. The lodestar figure of the 21 firms who represented the class amounted to $3.97 million, and costs were $188,355.66. In addition, Plaintiffs sought a multiplier of 2.17, for a total fee and costs award of $8.8 million. To support their application, Plaintiffs submitted affidavits from all 21 firms attesting to the work done by each firm and the hours and rates of their attorneys. Per the settlement agreement, Defendants did not object.

The trial court awarded the full lodestar figure and costs but declined to apply any multiplier. The trial court issued a letter to clarify the reasons for its ruling. The letter noted several problems with the evidence for the award, including a lack of substantiation that the hours worked and rates billed were reasonable, as well as concern that some of the factors to be considered in granting a multiplier “would not be appropriate across the board” because of the firms’ differences in size, location, specialization, and degree of involvement with the case. In addition, the trial court assumed that the factors governing lodestar awards had already been applied to justify the unusually high rates requested by the firms. 

Plaintiffs filed a motion to modify the judgment and to supplement the record, including new affidavits from the law firms attesting to the reasonableness of their respective firms’ rates. Plaintiffs also submitted an affidavit from Professor Geoffrey P. Miller, as an expert opinion on attorneys’ fees in class actions; and an affidavit from Professor Arthur Miller, a member of the Advisory Committee on Civil Rules of the Judicial Conference. At a hearing on Plaintiffs’ motion, Professor Miller and Craig Enoch (a former Justice of the Texas Supreme Court) testified and submitted an exhibit comparing the rates of Plaintiffs’ counsel with other comparable firms in and beyond Texas. The trial court took no action on Plaintiffs’ motion, so the motion was denied by operation of law. Plaintiffs subsequently appealed.

Applying an abuse of discretion standard to its review of the judgment, the Texas Court of Appeals more than doubled the attorneys’ fees award, holding that the trial court misconstrued the multiplier factors outlined in Tex. R. Civ. P. 42(i)(1) and failed to account for unrebutted evidence supporting a fee enhancement. Those factors include:  (i) the novelty and difficulty of the questions involved; (ii) the likelihood that acceptance of the case precluded other employment by the lawyer; (iii) the customary fee charged in the locality for similar legal services; (iv) the amount involved and results obtained; (v) time limitations; (vi) the nature and length of the professional relationship; () the experience of reputation of counsel; and (viii) the uncertainty of collection before services are rendered. 

Given the lack of Texas authority on the subject, the Court of Appeals’ decision draws heavily from Johnson v. Georgia Highway Express, Inc., 488 F.3d 714, 717-19 (5th Cir. 1974). The Georgia Highway Express decision articulated a very similar set of standards for applying a multiplier in federal court as those laid out in the Texas statute. Interestingly, the Texas Court of Appeals did not mention, much less address, the dramatic evolution in the application of multipliers that has occurred since that time. In the end, the Texas Court of Appeals in large part appears to have been persuaded by the expert testimony, which, under the terms of the settlement, Defendants were not permitted to rebut. Similarly, as the final fee award is within the amount negotiated as part of the settlement, a further appeal is unlikely. 

Whether or not this decision breathes new life into plaintiffs’ attempts to obtain multipliers as part of their fee applications in workplace class actions remains to be seen. However, given the procedural posture, the settlement that prevented Defendants from challenging the fee award, and the unusual set of experts involved in this litigation, it could well be decades before a multiplier of this type is seen again. 

3rd_Circuit_seal.jpgBy Rebecca Bjork and Lynn Kappelman

The recent decision of the U.S. Court of Appeals for the Third Circuit in NAACP, et al v. North Hudson Regional Fire & Rescue, Nos. 10-3965 & 10-3983, 2011 WL 6144188 (3d Cir. Dec, 12, 2011), demonstrates how employers facing disparate impact claims must have a laser-like focus on statistical analysis of hiring patterns, along with the demonstrable business reasons implicated in hiring policies and decision-making.

In this case, the Third Circuit affirmed the findings of the U.S. District Court for the District of New Jersey that the North Hudson Regional Fire and Rescue Department’s (“North Hudson”) residency requirement for firefighter candidates caused a disparate impact by excluding African-Americans who would otherwise be qualified for available firefighter positions. The Third Circuit affirmed the District Court’s decision granting summary judgment for the NAACP and Plaintiff class and found that North Hudson had failed to present evidence to create any genuine dispute regarding this disparate impact or to adduce a valid business necessity for the residency requirement. 

By way of background, the North Hudson fire department was formed in 1998, and it was comprised of firefighters from five New Jersey municipalities, including Guttenberg, North Bergen, Union City, Weehawken, and West New York. North Hudson maintained a requirement that all firefighter candidates must live within the five North Hudson towns to be eligible for hire, regardless of their written or physical test scores. The NAACP filed a class action to challenge this policy in 2007, along with three African-American firefighter candidates, alleging that it had a disparate impact on African-American applicants.

In February 2009, the District Court certified Plaintiffs’ class and preliminarily enjoined North Hudson from hiring any firefighters from its residents-only list. The District Court also permitted six Hispanic firefighters who would have otherwise been hired from that residents-only list to intervene in the NAACP’s action. 

At the close of discovery, Plaintiffs sought summary judgment on their disparate impact claim and a permanent injunction against North Hudson prohibiting it from hiring from the residents-only list. Since disparate impact claims depend heavily on statistical proof of the discriminatory effects of the policy at issue, the District Court focused its analysis on the expert testimony presented by both sides. In the District Court, North Hudson had challenged the NAACP expert’s statistical analysis, arguing that it had failed to establish a causal relationship between the residency requirement and the statistical disparity in its African-American employment ratio. Alternatively, North Hudson claimed that even if there was a causal relationship, it could establish that there was a business necessity for its residents-only hiring policy for firefighters. 

In granting Plaintiffs’ summary judgment motion, and permanently enjoining North Hudson from using its residents-only list, the District Court held that the North Hudson residency requirement had a disparate impact on African-American applicants. North Hudson appealed the District Court’s judgment to the Third Circuit, and the six Hispanic firefighter candidates who had intervened also joined in the appeal.

The Third Circuit affirmed the decision. The Third Circuit held that the report from the NAACP’s expert, Dr. Richard Wright, had established a prima facie case of disparate impact discrimination. Dr. Wright’s report had compared the proportion of African-Americans employed by North Hudson with the percentages of African-Americans employed in “full time protective service” positions (i) in the three neighboring counties and (ii) in the entire state of New Jersey. In the report, Dr. Wright identified disparities between the percentage of qualified African-Americans in the relevant labor market, and the percentage of African-Americans employed by North Hudson. 

After finding Dr. Wright’s analysis credible, the Third Circuit then analyzed the finding of North Hudson’s expert, Dr. Bernard Siskin. The Third Circuit determined that Dr. Siskin’s expert report actually supported the NAACP’s case because it revealed that a significant number of qualified African-Americans would have been eligible and qualified for employment with North Hudson if the labor market were expanded to the Tri-County Area. 

As a result, the Third Circuit found that Plaintiffs had provided ample evidence of not only a statistical disparity between the number of African-Americans in the labor market in New Jersey, but also a causal connection between its residents-only policy and that disparity. The Third Circuit emphasized that in more than a decade since North Hudson’s inception, it had hired only two African-American firefighters (0.62% of its firefighters), despite an African-American population of 3.4%. 

As a result, the Third Circuit held that Plaintiffs had satisfied their prima facie case that by applying a facially neutral policy, it had caused a significantly discriminatory hiring pattern. The Third Circuit noted that Dr. Wright’s comparison of the proportion of African-Americans employed in Tri-County Area protective service positions (37.4%) with the proportion of African-Americans employed as firefighters by North Hudson (0.62%) showed a disparity that raised an inference of causation. It suggested that North Hudson should have employed sixty-five African-American firefighters, but in fact it employed only two. 

Both the District Court and the Third Circuit were struck by the fact that although North Hudson had contested Dr. Wright’s definition of the relevant labor market as too broad because he had included the Tri-County Area, Dr. Siskin had offered no alternative analysis to explain why the market should be defined more narrowly. The Third Circuit further reasoned that Dr. Wright had bolstered his definition of the broader labor market by pointing out that applicants from the Tri-County area would not have significantly higher commuting times than the average for North Hudson residents. In addition, the Third Circuit rejected North Hudson’s argument that Dr. Wright’s analysis of full-time protective service employees included several positions which were not analogous to firefighters. The Third Circuit found that Dr. Wright’s definition of “protective service employee” fairly, and as nearly as possible, approximated the pool of qualified African-Americans.

In sum, Plaintiffs won this “battle of the experts” because both the District Court and the Third Circuit concluded that North Hudson’s expert not only failed to create a real dispute regarding Dr. Wright’s findings, but also actually bolstered the causal link between the residency requirement and the hiring disparity demonstrated in the NAACP’s expert’s calculations. Once the Third Circuit found that Plaintiffs had established a prima facie case of disparate impact, it made short shrift of North Hudson’s purported business necessity arguments and held that they too failed. The Third Circuit found that there was no business necessity for firefighters to be resident in the North Hudson towns; this requirement was not tied to minimum firefighter qualifications and less discriminatory alternatives were available. 

The moral of this story is that employers who engage in a battle of the statistical experts to defend against a disparate impact hiring case, may win or lose based on how their expert defines the class of people from whom they draw applicants. In addition, if an employer has a facially neutral policy which is determined to have a disparate impact on one protected class, it must be prepared to advance significant business necessity arguments to survive close scrutiny.