gavel.jpgBy 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.