Bank-icon.pngBy 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.