Case Information
*1 No. 3:08-md-1974—John G. Heyburn II, District Judge.
Argued: December 5, 2012 Decided and Filed: January 15, 2013 Before: MOORE, GILMAN, and KETHLEDGE, Circuit Judges. _________________
COUNSEL ARGUED: Gary Klein, KLEIN, KAVANAGH & COSTELLO, LLP, Boston, Massachusetts, for Appellants. James W. McGarry, GOODWIN PROCTER LLP, Boston, Massachusetts, for Appellees. ON BRIEF: Gary Klein, KLEIN, KAVANAGH & COSTELLO, LLP, Boston, Massachusetts, Wendy J. Harrison, BONNETT, FAIRBOURN, FRIEDMAN & BALINT, P.C., Phoenix, Arizona, for Appellants. James W. McGarry, GOODWIN PROCTER LLP, Boston, Massachusetts, Thomas M. Hefferon, GOODWIN PROCTER LLP, Washington, D.C., for Appellees.
_________________
OPINION
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KAREN NELSON MOORE, Circuit Judge. Eleven individuals (“the plaintiffs”) who obtained home loans from Defendant-Appellee Countrywide Bank, N.A. (“Countrywide”) seek class certification to challenge alleged racial disparities dating back to 2002 and resulting from Countrywide’s loan-pricing policy for home mortgages. In re Countrywide Fin. Mortg. Lending Practices Litig. , No. 08-MD-1974, 2011 WL 4862174, at *1 (W.D. Ky. Oct. 13, 2011) [hereinafter In re Countrywide ]. The only issue before this panel is whether the district court abused its discretion in finding that the plaintiffs’ proposed class failed to satisfy Federal Rule of Civil Procedure 23(a)’s commonality requirement. We conclude that the district court did not abuse its discretion, and we AFFIRM .
I. BACKGROUND AND PROCEDURE
At issue is Countrywide’s loan-pricing policy, which dictated how its home loans
were priced across three channels of loan origination.
[1]
The cost of a borrower’s loan is
expressed as an annual percentage rate (“APR”), which is measured in basis points, or
hundredths of a percent. Countrywide established a borrower’s APR through its loan-
pricing policy, which has two components. The first, objective component determined
an applicable “par rate” based on objective factors about the borrower and about the loan
sought.
[2]
The plaintiffs present no complaints relating to Countrywide’s objective
calculation of par rates. R. 54 (Pls.’ Mot. for Class Cert. at 5) (Page ID #811).
The second, subjective component permitted local agents—be they loan officers,
mortgage brokers, or correspondent lenders—to deviate from the par rate as follows.
Loan officers and mortgage brokers could increase or decease a borrower’s interest rate,
and could charge borrowers with fees, provided that the total deviation fell within a
specified range of the par rate. Appellee Br. at 6–9. Countrywide compensated loan
officers and brokers for securing loans, and in some instances increased their
compensation when a loan had a higher interest rate or additional fees.
[3]
As to
correspondent lenders, Countrywide purchased only those loans that satisfied its
underwriting requirements, and paid a premium for loans with higher interest rates or
extra fees.
In re Countrywide
,
The plaintiffs challenge the subjective component of Countrywide’s loan-pricing policy, which they claim disparately impacts minority borrowers. Id. at 5. They allege that vesting local agents with discretion to deviate from objective par rates led Countrywide to charge African-American borrowers on average 11.64 basis points and Hispanic borrowers 12.50 basis points over the APR paid by their white counterparts. R. 54 (Pls.’ Mot. for Class Cert. at 12) (Page ID #818). Plaintiffs seek to certify a class consisting of “[a]ll African-American and Hispanic borrowers to whom Countrywide originated a residential-secured loan, including correspondent loans, between January 1, 2002 and the present.” Id. at 18 (Page ID #824). They seek damages, injunctive relief, and declaratory relief for alleged violations of the Equal Credit Opportunity Act, 15 U.S.C. § 1691, the Fair Housing Act, 42 U.S.C. § 3601, and the Civil Rights Act, 42 U.S.C. §§ 1981–82. Id. at 24–25 (Page ID #830–31); Appellant Br. at 2.
Under the Federal Rules of Civil Procedure, a plaintiff seeking to certify a class
must satisfy four requirements under Rule 23(a) and at least one of several requirements
under Rule 23(b). F ED . R. C IV . P. 23. Our attention here is on whether the plaintiffs
have established that “there are questions of law or fact common to the class.” F ED . R.
C IV . P. 23(a)(2). The district judge found that the proposed class cannot satisfy Rule
23(a)(2)’s commonality requirement in light of
Wal-Mart Stores, Inc. v. Dukes
, — U.S.
—,
II. STANDARD OF REVIEW
“‘The district court maintains substantial discretion in determining whether to
certify a class.’”
Beattie v. CenturyTel, Inc.
,
III. COMMONALITY CLAIM
The plaintiffs’ core contention is that the district court abused its discretion by
failing to distinguish their challenge to Countrywide’s subjective loan-pricing policy
from the failed challenge to Wal-Mart’s subjective pay-and-promotion practices in
.
[4]
The Supreme Court in faced a proposed class of 1.5 million women—all
current or former Wal-Mart employees—alleging systematic discrimination on matters
of pay and promotion in violation of Title VII of the Civil Rights Act. Subject to
boundaries on the size of salary increases and on the minimal eligibility qualifications
for promotion, “pay and promotion decisions at Wal-Mart are generally committed to
local managers’ broad discretion, which is exercised in a largely subjective manner.”
,
To demonstrate “questions of law or fact common to the class,” F ED . R. C IV . P. 23(a)(2), a plaintiff must show that the claims in the proposed class “depend upon a common contention . . . of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” , 131 S. Ct. at 2551. For a suit seeking to address “millions of employment decisions at once,” demonstrating a common contention means showing that “some glue hold[s] the alleged reasons for all those decisions together.” Id. at 2552 (emphasis in original). A companywide policy could serve as glue if it affected all class members and caused a disparate impact. But in the context of a broad delegation of decisionmaking to the discretion of local managers, the Court observed the following:
The only corporate policy that the plaintiffs’ evidence convincingly establishes is Wal-Mart’s “policy” of allowing discretion by local supervisors over employment matters. On its face, of course, that is just the opposite of a uniform employment practice that would provide the commonality needed for a class action; it is a policy against having uniform employment practices.
Id.
at 2554 (emphasis in original). Instead, the Court considered whether there was some
other glue—“a common mode of exercising discretion that pervades the entire
company”—holding these individual decisions together.
Id.
at 2554–55. Stating that
“it is quite unbelievable that all managers would exercise their discretion in a common
way without some common direction,”
id.
at 2555, the Court concluded that the
district court conflated damages with injury and thus expected class members to suffer the same damages,
it did so in error.
See In re Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig.
,
The district court did not abuse its discretion in finding that Dukes forecloses the instant proposed class from establishing commonality. Both cases challenge policies that grant broad discretion to local agents: Countrywide to local agents who varied home-loan prices, and Wal-Mart to managers who made pay-and-promotion decisions. In both cases, the exercise of discretion is cabined inside clear boundaries: Wal-Mart managers could grant pay raises only of a certain amount and could promote only pre- qualified employees, while Countrywide agents could vary home loans only within a specified range of the predetermined par rate. In neither case do plaintiffs allege that local actors exceeded these boundaries. And in neither case is it asserted that, for acts of discretion taken within these boundaries, a uniform policy or practice guides how local actors exercise their discretion, such that the corporate guidance caused or contributed to the alleged disparate impacts. The plaintiffs claim that “[t]he discretion Countrywide has given its sales force is exercised in a common way—by limited variation of the par rate.” Appellant Br. at 7. This statement conflates range with mode. Both Wal-Mart and Countrywide placed clear boundaries on how far a local exercise of discretion could go, but in neither case do plaintiffs demonstrate that this range, rather than discretionary decisions made within this range, disparately impacted the proposed class. On this point, is clear: class members must unite acts of discretion under a single policy or practice, or through a single mode of exercising discretion, and the mere presence of a range within which acts of discretion take place will not suffice to establish commonality.
In seeking to distinguish , the plaintiffs direct us to a recent opinion
involving a class that fell on the opposite side than did of “the line that separates
a company-wide practice from an exercise of discretion by local managers.”
McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc.
,
McReynolds involved 700 African-American brokers and former brokers of Merrill Lynch, who challenged two companywide policies. First, a “teaming policy” permitted brokers to create teams that shared clientele across members; joining a team proved financially advantageous for many brokers. Merrill Lynch left team selection largely to the discretion of local brokers. Second, an “account-distribution policy” distributed the clients of departing brokers according to criteria that made team members more likely than lone brokers to secure distributed clients. The two policies together allegedly worked a disparate impact on the earnings of African Americans, who were underrepresented on teams as compared to their white counterparts. Although both Merrill Lynch’s brokers and Wal-Mart’s managers held discretion that, as exercised, created a disparate impact, McReynolds diverged from , according to the Seventh Circuit, because “the exercise of that discretion is influenced by the two company-wide policies at issue . . . [that] exacerbate racial discrimination by brokers.” Id. at 489. The Seventh Circuit determined that a common contention existed as to whether it was lawful for Merrill Lynch to adopt companywide policies that enabled individual acts of bias and then amplified their effect on minorities. Id. Because the policies themselves provided commonality “glue,” the court did not further require the plaintiffs to show that teams had exercised their discretion to select members according to a common mode. Id. at 490 (stating that the district court overlooked “the incremental causal effect . . . of those company-wide policies.”).
Essential to
McReynolds
, and missing from the instant litigation, were
companywide policies that contributed to the alleged disparate impact that arose from
the delegation of discretion to individual brokers.
See Bolden v. Walsh Constr. Co.
Finally, the plaintiffs protest that
Dukes
does not “prevent a commonality finding
in all disparate impact cases involving the exercise of discretion.” Appellant Br. at 16.
We agree.
See Dukes
,
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s order denying class certification.
Notes
[1] Countrywide originated home loans through retail, wholesale, and correspondent channels. Retail loan officers originated loans directly on Countrywide’s behalf. Wholesale mortgage brokers submitted borrower information for consideration; if Countrywide agreed to provide the loan, then it permitted the mortgage broker to negotiate additional fees. Third-party correspondent lenders produced loans conforming to Countrywide’s underwriting guidelines, which Countrywide purchased. Bank of America acquired Countrywide’s home mortgage services in July 2008.
[2]
Objective factors included market interest rates, “income, property value, and loan amount,”
In
re Countrywide
,
[3] Countrywide’s Full Spectrum Lending Division—a segment of Countrywide’s retail channel—did not permit loan officers to charge interest rates above par. Appellee Br. at 35; R. 62-4 (Swain Dep. at 111–13) (Page ID #2166–67).
[4]
The plaintiffs also complain that the district court required that all class members suffer the same
damages in order to satisfy commonality under Rule 23(a). “Commonality requires the plaintiff to
demonstrate that the class members ‘have suffered the same injury.’” ,