250px-US-CourtOfAppeals-7thCircuit-Seal.pngBy Gerald L. Maatman, Jr. and Jennifer Riley

As we have noted in multiple posts (herehere 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). The Seventh Circuit recently rejected one of those efforts, finding it too little, too late. 

In Puffer v. Allstate Insurance Company, No. 11-1273 (7th Cir. Mar. 27, 2012), intervenors pursed an appeal from the lower court’s denial of class certification, but, in the wake of Dukes, dropped their efforts to certify a class based on their disparate treatment claims. Instead, intervenors argued that the lower court should have certified a class based on their disparate impact theory. The Seventh Circuit held that, although plaintiff nominally mentioned a disparate impact claim in her complaint, she failed meaningfully to develop it before the lower court and therefore waived it for purposes of appeal.      

Factual And Procedural Background 

Katherine Puffer filed suit against Allstate Insurance Company (“Allstate”) alleging that Allstate discriminated against her and a class of female managerial employees and paid them lower wages than male employees in violation of Title VII and the Equal Pay Act. In her complaint, Puffer asserted both disparate treatment and disparate impact claims based on Allstate’s salary, promotion, and training policies, which, according to Puffer, left significant discretion in the hands of individual managers. 

On November 8, 2007, Puffer first moved for class certification pursuant to Federal Rules of Civil Procedure 23(b)(2) and 23(b)(3). She sought to certify a class of approximately 1,700 female managers who held 275 different jobs in a hundred offices across the country.  Id. at 6-7.  On January 15, 2009, Magistrate Judge Schenkier denied plaintiff’s motion. Stressing the heterogeneity of the class members and the individual decision-makers, the lower court found, among other things, that plaintiff failed to satisfy the commonality requirement of Rule 23(a) or the predominance and superiority requirements of Rule 23(b). Id. at 8-9. Following adoption of the Ledbetter Act, on September 11, 2009, plaintiff renewed her motion for class certification, but Magistrate Judge Schenkier found that she still failed to satisfy Rule 23. Id. at 10.

On January 7, 2011, Puffer settled her individual claims with Allstate, and three putative class members moved to intervene to appeal the lower court’s denials of class certification. In light of the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), intervenors appealed only the denial of certification for plaintiff’s disparate impact claims. Id. at 11.

Intervenors argued that two aspects of Allstate’s salary administration process had a disparate impact on female managers, which could be resolved on a class-wide basis. Id. Intervenors argued that the award of merit increases on a percentage basis caused female managers to receive smaller increases in terms of actual dollars than similarly situated male managers, and they alleged that an external market comparison, by which Allstate compared average salaries by job code to the external market, failed to correct gender-based earnings disparities because average salaries were skewed by the disproportionately high salaries received by men. Id.  

The Seventh Circuit’s Opinion 

The Seventh Circuit concluded that plaintiff did not adequately develop her disparate impact claim in the lower court and, therefore, waived the claim for purposes of appeal. Id. at 13. The Seventh Circuit reviewed the differences between disparate impact and disparate treatment claims – disparate impact claims involve employment practices that are facially neutral but in fact fall more harshly on one group than another; and by contrast, differential treatment claims require plaintiffs to prove discriminatory motive or intent. Pattern or practice claims, like that asserted by Puffer, represent a theory of intentional discrimination. Id.

The Seventh Circuit noted that even arguments that have been raised to the lower court may be waived on appeal “if they are underdeveloped, conclusory, or unsupported by law.” Id. at 16. Plaintiff argued “repeatedly and almost exclusively” to the lower court that she sought class certification under a pattern or practice theory. Id. at 17. Although she alleged both disparate treatment and disparate impact theories in her complaint, in her motions for certification she only provided factual allegations and legal arguments to support her pattern or practice claims. Id. Accordingly, the Seventh Circuit reasoned that the lower court fully addressed only her intentional discrimination claim and plaintiff preserved only that claim for appeal. Id. at 20. 

The Seventh Circuit, however, went on to note that, even if it had not found the disparate impact claim waived, the claim would fall short on the merits. Id. at 21 n.7. The Seventh Circuit noted that the record did not support Interveners’ claims that Allstate’s compensation policies were uniformly applied or caused gender-based earning disparities. Id. at 22 n.7. Indeed, intervenors pointed to the same evidence that plaintiff presented when arguing that Allstate’s salary decisions were decentralized, discretionary, and partially based on subjective criteria. Id. The Seventh Circuit further noted that, more importantly, intervenors failed to establish that Allstate’s merit increase and market comparison policies, as opposed to other policies or variations in performance levels, caused any earnings disparities.  Id.   

Impact For Employers 

Although plaintiff failed to adequately preserve the issue for consideration by the Seventh Circuit, the case is yet another example of plaintiffs attempting to use a disparate impact theory to circumvent the Supreme Court’s decision in Dukes. As we noted in an earlier post, employers should expect to see more plaintiffs attempting to repackage claims that attack discretionary decision-making as claims that attack a company-wide policy under a disparate impact theory. In McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 11-3639 (7th Cir. Feb. 24, 2012), for instance, plaintiffs asserted that the policy at issue allowed managers to exercise discretion in a certain allegedly discriminatory way, and in Puffer, intervenors asserted that the policy at issue exacerbated or failed to correct the results of discriminatory decision-making. More plaintiffs’ class action lawyers are adding this re-tooled theory to their arsenal and, as a result of the Seventh Circuit’s decision in Puffer, employers should expect them to assert it early and often.