Sunday, February 3, 2013

FYI: 6th Cir Upholds Denial of Class Certification in Alleged Disparate Impact Lending Discrimination Case

The U.S. Court of Appeals for the Sixth Circuit recently affirmed the denial of class certification in an alleged disparate impact lending discrimination caseIn so ruling, the Court concluded that the proposed class did not satisfy the commonality requirement under Federal Rules of Civil Procedure 23(a), because the plaintiffs did not produce evidence to support a specific finding that the lender had a single company-wide policy which caused the disparate impact, or that there was a common mode of exercising discretion that pervaded the company.
A copy of the opinion is available at:
A group of eleven individuals ("Plaintiffs") obtained home loans from a mortgage lender ("Lender") that allegedly had a loan-pricing policy according to which the cost of a loan to a borrower was determined by applying an objective component as well as a subjective component.  The alleged objective component determined an annual percentage rate ("APR") based on such factors as market interest rates, borrowers' income, credit score, the loan-to-value ratio, and loan amount.  The alleged subjective component of the loan-pricing policy permitted local loan officers, mortgage brokers, or correspondent lenders (collectively, "Agents") to deviate to a certain extent from the so-called "par rate" APR to increase or decrease a borrower's interest rate or to charge a borrower loan fees. 
Plaintiffs alleged that the subjective component of Lender's loan-pricing policy had a disparate impact on them, as Agents supposedly had broad discretion to deviate from the par rate, as long as Agents remained within certain parameters.  Specifically, Plaintiffs contended that vesting local Agents with discretion to deviate from par rates led Lender to charge African-American and Hispanic borrowers substantially higher APRs than the rates paid by white borrowers.   Accordingly, seeking damages, injunctive, and declaratory relief for alleged violations of a number of federal consumer and civil rights statutes, Plaintiffs sought certification of a class consisting of all African-American and Hispanic borrowers who obtained a home mortgage loan from Lender during a certain periods of time reaching back to the statute of limitations under each claim
The lower court denied class certification, concluding that Plaintiffs' proposed class could not satisfy the commonality requirement of Federal Rule 23(a)(2) in light of the Supreme Court's decision in Wal-Mart Stores, Inc. v. Dukes, -- U.S. --, 131 S. Ct. 2541 (2011) ("Dukes").  Plaintiffs appealed.  The Sixth Circuit affirmed.
As you may recall, Federal Rule 23(a) sets forth the requirements for class certification:  (1) numerosity; (2) commonality; (3) typicality; and (4) adequate representation.  See Fed. R. Civ. Proc. 23(a). 
Relying on the "commonality" analysis set forth in Dukes, the Appellate Court focused on Plaintiffs' contention that the lower court improperly failed to distinguish their challenge to Lender's subjective loan-pricing policy from the local management practices at issue in Dukes, noting that "[t]o demonstrate 'questions of law or fact common to the class,' . . .   a plaintiff must show that the claims of 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.'"  See Dukes, 131 S. Ct. at 2551.  Thus, referring specifically to Agents' exercise of discretion, the Sixth Circuit also noted that Dukes required a showing that "some glue hold[s] the alleged reasons for all those decisions together."  Dukes, 131 S. Ct. at 2552. 
Accordingly, the Court noted that the plaintiffs in this case and in Dukes both challenged policies supposedly granting broad discretion to local agents, and that in neither case did the plaintiffs allege that the local actors acted outside the boundaries of their authority, or that a uniform policy or practice guided how these local actors exercised their discretion such that the corporate guidance caused or contributed to the alleged disparate impact on Plaintiffs.  The Court explained that class members must bring the various acts of discretion under a single policy or practice, or a common mode of exercising discretion, in order to establish commonality among claims.
The Sixth Circuit also rejected Plaintiffs' assertion that they could show that company-wide policies had a disparate impact on them, even though local managers had a certain amount of discretion, noting that the case on which Plaintiffs relied involved a single nationwide policy that actually encouraged local managers to exercise discretion in a way that had a disparate impact on minority employees.  See McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 672 F.3d 482, 490 (7th Cir.), cert. denied, -- U.S. --, 133 S. Ct. 338 (2012)(involving national uniform policy aimed at creating teams for purposes of incentivizing and rewarding employees the implementation of which was left to local managers); Bolden v. Walsh Constr. Co., 688 F.3d 893, 898 (7th Cir. 2012)("This single national policy [in McReynolds] was the missing ingredient in [Dukes]").
Within this context, the Court pointed out that there was no such uniform policy at issue in this case to provide the common contention, the "glue" among the claims, to allow Plaintiffs to show that a common mode of implementing Company's policies united all the Agents' individual acts of discretion.  Thus, stressing that plaintiffs' "claim that '[t]he discretion [Lender] has given its sales force is exercised in a common way – by limited variation of the par rate" conflated range of discretion with mode of exercising that discretion, the Sixth Circuit held that the "mere presence of a range within which acts of discretion take place will not suffice to establish commonality."
Agreeing with Plaintiffs that the Dukes decision did not prevent a finding of commonality in all disparate impact cases involving the exercise of discretion and, further, that Dukes did not prohibit the use of statistical evidence to prove disparate impact, the Sixth Circuit nevertheless noted that "statistical correlation, no matter how robust, cannot substitute for a specific finding of class-action commonality."  Dukes, 131 S. Ct. at 2555.   As the Court explained, what is required to satisfy the commonality requirement is statistical evidence showing specifically that the practice in question caused the disparate impact.
Having concluded that Plaintiffs failed to establish that a uniform policy or practice, or a common mode among the Agents' various acts of discretion, caused the alleged disparate impact, the Sixth Circuit affirmed the lower court's denial of class certification.

Ralph T. Wutscher
McGinnis Wutscher LLP
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