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Wal-Mart Decision Scuttles Mortgage Discrimination Suit

August 23, 2013
Michael Mandiberg via Flickr

Michael Mandiberg via Flickr

Back in 2011, the Supreme Court placed significant restrictions on class action certifications. In doing so, it handed Wal-Mart a major victory and gave plaintiff’s attorneys major heartburn. In Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, the Court decertified a plaintiff class. That class was huge  – 1.5 million of the retailer’s female employees were claiming gender discrimination. Then again, Wal-Mart is huge so any class action by Wal-Mart employees, both past and present, would necessarily entail very large numbers of class members.  The Wal-Mart plaintiffs asserted that the company’s local managers exercised discretion over pay and promotions in a way that favored men over women, and that the company’s failure to “cabin” the managers amounted to disparate treatment by the company as a whole.

The real meat of the opinion lay in the Court’s holding that the plaintiffs failed to satisfy the commonality requirement of Federal Rule of Civil Procedure 23(a)(2). That rule has historically been construed to mean that  a party seeking class certification prove that there is a single question of law or fact common to the members of the class; it’s not been thought of as a particularly high hurdle to clear. To satisfy that requirement, the plaintiffs in Wal-Mart­ produced a statistical analysis of the company’s employment information. The Court rejected the analysis and held it was insufficient to establish commonality. What was required, the divided Court held, was identification of the specific employment practice that is challenged, a demonstration of a common mode of exercising discretion that pervades the entire company, and evidence establishing that all the members of the proposed class suffered the same injury. Where Wal-Mart had a corporate anti-discrimination policy, the discretion afforded  individual store and regional managers militated against a finding of commonality among the plaintiffs.

We have all been waiting to see how lower courts would apply this new, more restrictive reading of the Rule 23(a)(2) commonality requirement. Now the ruling has landed on a mortgage loan discrimination suit and sunk it.

Earlier this month the Third Circuit issued an opinion in a case it described as bearing a striking resemblance to Wal-Mart. Rodriguez v. National City Bank involved 153,000 African-American and Hispanic borrows who brought disparate treatment claims against National City Bank alleging a company-wide practice of racial discrimination in financing home mortgages. Like the Wal-Mart plaintiffs, the plaintiffs in Rodriguez relied on regression analysis, a statistical tool which determines the relationship between a variable to be studied and one or more potentially explanatory variables. The Rodriguez plaintiffs claimed their statistical analysis demonstrated discretionary impact even after controlling for legitimate factors affecting the price of loans. The Court rejected that argument, holding that, under Wal-Mart, the plaintiffs were required to challenge specific employment practices. And, just as in Wal-Mart, the exercise of broad discretion by an untold number of unique decision-makers in the making of thousands upon thousands of individual decisions undermined the attempt to claim, on the basis of statistics alone, that the decisions were bound together by a common discriminatory mode. (The fact that the Rodriguez plaintiffs failed to provide the district court with their data, regression analyses, or any other evidence to support a finding of commonality didn’t exactly help their case either. Practitioners will be sure to submit that sort of data in the future.)

The parties originally entered into a settlement agreement while Wal-Mart­ was pending, aware that it might alter the legal landscape. And alter it, it did. The Rodriguez opinion is a significant blow to the many class action claims brought against financial institutions in the wake of the Great Meltdown of 2008. The Court tried to calm the waters by noting that its decision was not a death knell for all disparate impact class actions. It left open the possibility of claims brought on a narrower regional basis, or against specific branches or individual loan officers. But bringing a successful class action suit against a large institution on a national basis just got a whole lot harder. If you are representing a bank, take a long lunch. If you represent class plaintiffs, stay late at the office.

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