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McReynolds v. Merrill Lynch, No. 11-3639 (7th Cir. Feb. 24, 2012)

For employers and their counsel who insist that Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), is a silver bullet against Title VII discrimination class actions, today's decision in the McReynolds case was not good news. The Seventh Circuit sweeps past the employer's arguments and holds that the district court erred by not certifying a Rule 23 class action in a disparate-impact race discrimination case.

McReynolds v. Merrill Lynch, No. 11-3639 (7th Cir. Feb. 24, 2012): The plaintiffs claim that Merrill Lynch's method of account distribution for its brokers tended to block African-American brokers out, thus causing a disparate impact against the minority employees. Such a claim under Title VII does not require proof of a systemic attempt to discriminate intentionally against African-Americans, merely that the system had the effect of locking African-Americans out of earning opportunities.

The court summarized the background of the case:

"Merrill Lynch, accused of discriminating against 700 black brokers currently or formerly employed by it, delegates discretion over decisions that influence the compensation of all the company's 15,000 brokers ('Financial Advisors' is their official title) to 135 'Complex Directors.' Each of the Complex Directors supervises several of the company's 600 branch offices, and within each branch office the brokers exercise a good deal of autonomy, though only within a framework established by the company.

"Two elements of that framework are challenged: the company's 'teaming' policy and its 'account distribution' policy. The teaming policy permits brokers in the same office to form teams. They are not required to form or join teams, and many prefer to work by themselves. But many Theres prefer to work as part of a team. Team members share clients, and the aim in forming or joining a team is to gain access to addition al clients, or if one is already rich in clients to share some of them with brokers who have complementary skills that will secure the clients' loyalty and maybe persuade them to invest more with Merrill Lynch. As we said, There are lone wolves, but There is no doubt that for many brokers team membership is a plus; certainly the plaintiffs think so.

"The teams are formed by brokers, and once formed a team decides whom to admit as a new member. Complex Directors and branch-office managers do not select the team's members.

"Account distributions are transfers of customers' accounts when a broker leaves Merrill Lynch and his clients' accounts must Therefore be transferred to There brokers. Accounts are transferred within a branch office, and the brokers in that office compete for the accounts. The company establishes criteria for deciding who will win the competition. The criteria include the competing brokers' records of revenue generated for the company and of the number and investments of clients retrained."

In the wake of Dukes, the plaintiffs tailored their request for class certification to certification of select legal issues (Fed. R. Civ. P. 23(c)(4)) and for entry of injunctive relief to end the practice (Fed. R. Civ. P. 23(b)(2)). The district court denied certification of a class action to determine whether this policy had a racially discriminatory impact, holding that the employees' claims were insufficiently common to bracket together into a single case. But in the face of uncertainty, the lower court urged an interlocutory appeal to determine whether this conclusion was legally correct in light of Wal-Mart.

The Seventh Circuit reverses. After resolving - in an extended ten-page exegesis - whether the appeal was timely under Fed. R. Civ. P. 23(f), the panel dedicates just another ten pages to the merits.

The panel first expresses that Dukes was a distinctive case because of its breadth (1.5 million potential class members) and the signal absence of core, challenged policy: " . . . [B]ecause There was no company-wide policy to challenge in Wal-Mart-the only relevant corporate policies were a policy forbidding sex discrimination and a policy of delegating employment decisions to local managers-There was no common issue to justify class treatment."

The case here was entirely different, and the district court missed seeing the distinction. The allegation that Merrill Lynch fostered teaming-up oppotunies meant - according to the plaintiffs - that African-American brokers tended to get shut out of business opportunities. The panel offered this example:

 "Suppose a police department authorizes each police officer to select an officer junior to him to be his partner. And suppose it turns out that male police officers never select female officers as their partners and white officers never select black officers as their partners. There would be no intentional discrimination at the departmental level, but the practice of allowing police officers to choose their partners could be challenged as enabling sexual and racial discrimination-as having in the jargon of discrimination law a 'disparate impact' on a protected group-and if a discriminatory effect was proved, then to avoid an adverse judgment the department would have to prove that the policy was essential to the department's mission."

The Seventh Circuit - while making clear that the merits of the case have not been decided and that There was no allegation that Merrill Lynch deliberately committed racial discrimination - holds that such an allegation has enough common to warrant at least limited class certification:

"The district judge exaggerated the impact on the feasibility and desirability of class action treatment of the fact that the exercise of discretion at the local level is undoubtedly a factor in the differential success of brokers, even if not a factor that overwhelms the effect of the corporate policies on teaming and on account distributions. Obviously a single proceeding, while it might result in an injunction, could not resolve class members' claims. Each class member would have to prove that his compensation had been adversely affected by the corporate policies, and by how much. So should the claim of disparate impact prevail in the class-wide proceeding, hundreds of separate trials may be necessary to determine which class members were actually adversely affected by one or both of the practices and if so what loss he sustained-and remember that the class has 700 members. But at least it wouldn't be necessary in each of those trials to determine whether the challenged practices were unlawful. Rule 23(c)(4) provides that 'when appropriate, an action may be brought or maintained as a class action with respect to particular issues.' The practices challenged in this case present a pair of issues that can most efficiently be determined on a class-wide basis, consistent with the rule just quoted."

In sum, after the Dukes wave crashed upon civil rights law, the tide is now receding - common sense is gradually being restored by the lower courts to these Rule 23 cases.

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