Seventh Circuit Issues Important Decision on Key Class-Certification Issues

April 5, 2011

The Seventh Circuit issued an important decision last week in Randall v. Rolls-Royce Corp., No. 10-3446 (7th Cir. Mar. 31, 2011) touching on several key class-certification issues that have split the courts of appeals and currently are before the Supreme Court in Wal-Mart Stores, Inc. v. Dukes

Randall involved alleged gender discrimination in a putative class action brought under the Equal Pay Act and Title VII.  In an opinion written by Judge Richard Posner, the court held that the putative class failed to satisfy the requirements of Federal Rule of Civil Procedure 23(a) or (b)(2), due to intractable conflicts of interest among the class members and the plaintiffs’ attempt to "shoehorn damage actions into the Rule 23(b)(2) framework," which can only be used for a class seeking injunctive or declaratory relief.  Slip op. 12.

The two named plaintiffs in Randall brought a gender discrimination lawsuit against Rolls-Royce, alleging that the company discriminated against women in pay and promotion decisions.  According to the plaintiffs, Rolls-Royce set the base pay for women lower than the base pay for men in the same employment category, and denied the women promotions that they would have received had they been men.  Although the plaintiffs sought both an injunction and back pay damages, the plaintiffs sought certification of a mandatory class under Rule 23(b)(2).  The plaintiffs purported to represent a class of "more than 500 female employees of a Rolls-Royce plant in Indiana that manufactures aircraft, industrial, and marine engines."  Slip op. 1.  As described in Judge Posner’s opinion, "the class that the plaintiffs want[ed] certified sprawl[ed] over twenty different compensation grades, including supervisory and nonsupervisory positions and encompass[ed] starting salaries ranging from $40,050 to $190,750."  Slip op. 5.

The district court denied class certification and granted summary judgment for the employer.  The court held that the plaintiffs failed to satisfy the prerequisites of Rule 23(a), including the typicality and adequacy of the class representatives, because of conflicts of interest among the class members.  And the court held that a mandatory class under Rule 23(b)(2) was inappropriate given that the plaintiffs sought back pay damages.  The Seventh Circuit affirmed the denial of class certification under both Rule 23(a) and (b)(2), and upheld the grant of summary judgment to the defendant. 

The Randall opinion highlights several key concerns that arise when plaintiffs seek certification of a class despite having dissimilar and often conflicting claims.  Although the named plaintiffs claimed that they were denied both pay and promotions, they did not have a plausible claim for back pay.  Their expert’s analysis could not show that the named plaintiffs’ compensation was lower than the average male compensation.  (The report by plaintiffs’ expert, Richard Drogin, was "defective," and included errors that "made no sense."  Slip op. 8.)  As a result, the court explained, "[t]he named plaintiffs are more concerned with promotions they failed to get than they are with the largely nonexistent (for them at least) base-pay differentials."  Slip op. 9.

This preference for the promotion claim made the named plaintiffs inadequate class representatives.  The absent class members may have far stronger claims for back pay than the named plaintiffs, and if the court were to allow the plaintiffs to represent the class, it would "jeopardize the ability of unnamed class members to obtain relief in individual suits or in a subsequent class action."  Slip op. 10.  In addition, because the named plaintiffs were supervisors, they were involved in the compensation decisions of other putative class members.  This created a clear conflict of interest between the managers and other employees, which "is an independent ground for denial of class certification."  Slip op. 11.

These concerns were all the more acute because the plaintiffs sought certification of a mandatory class.  Judge Posner explained that when plaintiffs seek certification under Rule 23(b)(2), "notice to unnamed class members is optional."  Slip op. 2.  "The consequence is that if the denial of certification is reversed but the decision on the merits, adverse to the class, is affirmed, the claims of the unnamed members, as of the named members, will be barred unless . . . their claims are dissimilar to those of the named plaintiffs."  Ibid.  This stands in stark contrast to certification under Rule 23(b)(3), which requires notice to the class and "gives [absent class members] a chance to litigate their claims in a new suit."  Slip op. 3.

Judge Posner noted that even though Rule 23(b)(3) is more appropriate for putative classes seeking monetary damages, plaintiffs’ lawyers increasingly "like to sue under [23(b)(2)] because it is less demanding, in a variety of ways, than Rule 23(b)(3) suits, which usually are the only available alternative."  Slip op. 12 (citing Mark A. Perry & Rachel S. Brass, "Rule 23(b)(2) Certification of Employment Class Actions: A Return to First Principles," 65 N.Y.U. Annual Survey of Am. Law 681, 689-92 (2010)).  In this vein, Judge Posner noted that "[h]ow far Rule 23(b)(2) can be stretched is the issue in the gigantic class action against Wal-Mart, Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571, 619 (9th Cir.) (en banc), cert. granted, 131 S. Ct. 795 (2010), now before the Supreme Court."  Slip op. 13.  He concluded, "[t]he present case is not as big a stretch, but it is big enough."  Ibid.

"Fortunately for the class" in Randall, the court explained, "this isn’t a proper Rule 23(b)(2) suit," because the plaintiffs were seeking back pay–monetary relief that is not available in a mandatory class.  Slip op. 10.  The court noted that in the Seventh Circuit "incidental" monetary relief may be awarded in a (b)(2) class, but concluded that back pay was not incidental to the injunction that plaintiffs sought.  "[C]alculating the amount of back pay to which the members of the class would be entitled if the plaintiffs prevailed would require 500 separate hearings."  Slip op. 14.  As such, Judge Posner stated, "[t]he monetary tail would be wagging the injunction dog."  Ibid.  Certification under Rule 23(b)(2) is appropriate "only when the primary relief sought is injunctive, with monetary relief if sought at all mechanically computable," and the individualized inquiry necessary before awarding back pay damages does not meet this standard.  Ibid.

Judge Posner’s opinion for the Seventh Circuit in Randall serves as a timely and effective reminder that certification of a class action, particularly of a mandatory class that precludes absent class members from opting out, requires courts to rigorously scrutinize the arguments and evidence plaintiffs put forth in support of certification in order to ensure that the rights of absent class members and defendants are protected.  The decision also illustrates the challenges to class certification that may arise in employment pay and promotion cases particularly.   

Gibson, Dunn & Crutcher LLP  

Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have regarding these issues.  Please contact the Gibson Dunn lawyer with whom you work, any member of the firm’s Appellate and Constitutional Law, Class Actions, or Labor and Employment Practice Groups, or any of the following:

Theodore J. Boutrous, Jr. – Los Angeles (213-229-7000, tboutrous@gibsondunn.com)
Mark A. Perry – Washington, D.C. (202-887-3667, mperry@gibsondunn.com)
Rachel S. Brass – San Francisco (415-393-8293, rbrass@gibsondunn.com
Christopher J. Martin – Palo Alto (650-849-5305, cjmartin@gibsondunn.com)
Michele L. Maryott – Orange County (949-451-3945, mmaryott@gibsondunn.com)
Karl G. Nelson – Dallas (214-698-3203, knelson@gibsondunn.com

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