Author Archives: Gerald Maatman Jr. and Jennifer Riley

About Gerald Maatman Jr. and Jennifer Riley

Gerald L. Maatman Jr. is a partner of Seyfarth Shaw LLP. He is resident in the firm’s Chicago and New York offices. Jennifer A. Riley is a partner in the Chicago office of Seyfarth Shaw LLP.
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7th Circuit: ‘Common Damage’ Not Required for Class Certification

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On July 2, 2014, the U.S. Court of Appeal for the Seventh Circuit entered its opinion in IKO Roofing Shingle Products Liability Litigation, No. 14-1532 (7th Cir. July 2, 2014), and vacated a district court’s decision denying class certification.

A Seventh Circuit panel of Judges Wood, Easterbrook, and Kanne found that the district court erred when it interpreted the Supreme Court’s decisions in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), and Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), as requiring plaintiff to demonstrate “commonality of damages.” Instead, the Seventh Circuit held that these SCOTUS decisions merely require plaintiffs to match their theory of loss to their theory of liability—a fact that is “equally true in a suit with just one plaintiff.”

We have previously blogged about the Seventh Circuit’s limiting interpretation of Comcast (read more here). The Seventh Circuit went further in IKO and essentially found the fact that Comcast involved a Rule 23 class action beside the point.

Although the IKO decision arose outside the employment context, we anticipate that plaintiffs’ counsel will argue that it spells bad news for employers faced with class claims, particularly in the Seventh Circuit, and that it further limits defendants’ ability to use disparate damages as grounds to oppose class certification.

Factual Background

Purchasers of organic asphalt roofing shingles brought suit against IKO Manufacturing contending that it falsely told customers that the shingles met an industry standard known as ASTM D225. Plaintiffs asked the district court to certify a class that would cover IKO’s sales in eight states since 1979. The district court denied the motion.

The district court noted that Comcast and Wal-Mart require proof that plaintiffs, “will experience a common damage” and that their claimed damages “are not disparate.” The district court found that the inevitable differences in consumers’ experiences with IKO’s tiles prevented class certification. Subsequently, Plaintiffs sought interlocutory review under Rule 23(f), which the Seventh Circuit granted.

The Seventh Circuit’s Opinion

The Seventh Circuit disagreed with the district court’s reading of Wal-Mart and Comcast.  It noted that, if the district court’s reading is correct, class actions about consumer products are “impossible.”

With respect to Wal-Mart, the Seventh Circuit explained that the case “has nothing to do with commonality of damages.” Instead, at least according to the Seventh Circuit, Wal-Mart deals with the need for “conduct” common to members of the class. In that case, damages differed but only because the underlying conduct differed. The Seventh Circuit reasoned that “[i]n a suit alleging a defect common to all instances of a consumer product, however, the conduct does not differ.”

With respect to Comcast, the Seventh Circuit recognized that the case “does discuss the role of injury under Rule 23(b)(3), though not in the way the district court thought.” The Seventh Circuit explained that, there, plaintiffs specified four theories of liability, and their damages expert estimated harm resulting from all four. Because the district judge certified a class limited to one of the four theories, plaintiffs lacked a theory of loss that matched the theory of liability.

The Seventh Circuit held that, in IKO by contrast, plaintiffs had two “theories of damages that match[ed] their theory of liability” and, therefore, plaintiffs did not run afoul of Comcast. The Seventh Circuit noted that, although a buyer-specific remedial approach (purchasers whose tiles actually failed are entitled to recover damages if non-conformity to the D225 standard caused the failure) “would require confining any class certification to questions of liability,” it “is not hard to frame liability issues suited to class-wide resolution.”

Implications for Employers

The Seventh Circuit’s ruling is plaintiff-friendly and cuts back on defenses that other jurisdictions have utilized to cabin class actions. In Comcast, the Supreme Court noted that, to meet the predominance requirement, plaintiffs must show that damages resulting from the alleged injury are “measureable ‘on a class-wide basis’ through use of a ‘common methodology.’” The Supreme Court went on to hold that plaintiffs’ model fell short of establishing that damages were “capable of measurement on a class-wide basis” and that, without another methodology, plaintiffs could not show Rule 23(b)(3) predominance:, “[q]uestions of individual damage calculations will inevitably overwhelm questions common to the class.”

Despite the Supreme Court’s language, in IKO, the Seventh Circuit specifically held that a plaintiff need not demonstrate “commonality of damages” to obtain class certification under Rule 23(b)(3). It remains to be seen whether the Seventh Circuit’s interpretation is faithful to the Supreme Court’s intent, and whether this interpretation will be applied to workplace class actions.

This blog previously appeared on the Seyfarth Shaw website.

Sixth Circuit Affirms EEOC Credit-Check Case Dismissal

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Less than three weeks after oral argument, the Sixth Circuit affirmed a lower court order granting summary judgment in favor of Kaplan in one of the EEOC’s most high profile cases – EEOC v. Kaplan Higher Education Corp.

The EEOC brought suit against Kaplan for using credit-checks in its hiring process – “the same type of background check that the EEOC itself uses” the Sixth Circuit pointed out – claiming that the practice had a disparate impact on African Americans.

On Jan. 28, 2013, Judge Patricia A. Gaughan of the U.S. District Court for the Northern District of Ohio granted summary judgment in favor of Kaplan, finding that the EEOC’s statistical evidence of disparate impact was not reliable and not representative of Kaplan’s applicant pool as a whole. (Read more about that ruling here.)

The Sixth Circuit found no abuse of discretion. The EEOC’s “homemade” methodology for determining race – by asking its “race raters” to label photographs – was, in the Sixth Circuit’s words, “crafted by a witness with no particular expertise to craft it, administered by persons with no particular expertise to administer it, tested by no one, and accepted only by the witness himself.”

Background

The EEOC filed suit against Kaplan alleging that Kaplan’s use of credit-checks causes it to screen out more African-American applicants than white applicants, creating a disparate impact in violation of Title VII.

In support of its allegations, the EEOC relied on statistical data compiled by Kevin Murphy.  Because Kaplan’s credit check process was race-blind, the EEOC subpoenaed records regarding Kaplan’s applicants from state departments of motor vehicles. Thirty-six states and the District of Columbia provided color copies of approximately 900 drivers’ license photos.

Murphy assembled a team of five “race raters” and directed them to review the photos and classify them as “African-American,” “Asian,” “Hispanic,” “White,” or “Other.” Murphy also provided the raters with applicant names.

Based on the results of this “race rating,” Murphy opined that, in a sample of 1,090 (out of 4,670 applicants), the percentage of black applicants who were flagged for review based upon their credit histories was higher than the percentage of white applicants who were flagged.

The district court excluded Murphy’s testimony as unreliable for two reasons. First, the EEOC presented “no evidence” that Murphy’s methodology satisfied any of the factors that courts typically consider in determining reliability under Federal Rule of Evidence 702; and second, as Murphy himself admitted, his sample was not representative of Kaplan’s applicant pool as a whole. The district court granted summary judgment in favor of Kaplan, and the EEOC appealed.

The Sixth Circuit’s Opinion

The Sixth Circuit affirmed. The Sixth Circuit noted that, as the proponent of expert testimony, the EEOC bears the burden of proving its admissibility. It determined that the district court did not abuse its discretion in finding that the EEOC failed to make such a showing.

The EEOC argued that the district court erred in finding that it had “wholly fail[ed]” to provide evidence that its technique had been tested or had any “known or potential rate of error.” The EEOC contended that it provided such support in the form of “anecdotal corroboration.” That is, as to 57 applicants, Murphy cross-checked his raters’ classifications with racial identifications provided by a DMV or Kaplan.

The Sixth Circuit noted that the EEOC’s cross-check yielded an 80% match – “an unimpressive correlation in case where a few percentage points (in credit-check fail rates for blacks and whites) might make the difference between significant liability and none.” In any event, as Murphy himself conceded, a mere 57 instances of anecdotal corroboration is “not enough” to establish the reliability of his photo rating methodology.

As the Sixth Circuit found, “[t]he EEOC’s case goes downhill from there.” The EEOC failed to present evidence that its technique was subjected to peer-review or publication, failed to show that Murphy employed standards to control “the technique’s operation,” and presented no evidence that Murphy’s race-rating methodology was “generally accepted in the scientific community.” The raters themselves “had no particular standard in classifying each applicant; instead, they just eyeballed the DMV photos.”

Finally, as an independent ground for excluding Murphy’s testimony, the district court found “no indication” that Murphy’s group of 1,090 applicants was representative of the applicant pool as a whole. The Sixth Circuit noted that, “[i]nstead there is a strong indication to the contrary: Murphy’s group had a fail rate of 23.8%, whereas the GIS applicant pool had a fail rate of only 13.3%.” It held that an unrepresentative sample “by definition” might skew the respective fail rates of black and white applicants in the larger pool – “and thus is not a reliable means to demonstrate disparate impact.”

Implications

In its opinion, the Sixth Circuit staunchly critiqued the EEOC’s “do as I say, not as I do” litigation tactics. It noted (in the first line of its opinion) that the EEOC “sued the defendants for using the same type of background check that the EEOC itself uses.” It also noted, as the district court observed, that “the EEOC itself discourages employers from visually identifying an individual by race and indicates that visual identification is appropriate ‘only if an employee refuses to self-identify.’”

This blog was previously published by Seyfarth Shaw LLP.