On August 8, 2012, the U.S. Court of Appeals for the Seventh Circuit reversed an order certifying large classes in a lawsuit alleging race discrimination and hostile work environment.  Bolden v. Walsh Construction Co., Case No. 12-cv-2205 (7th Cir. Aug. 8, 2012).

Background & Procedural History

Defendant Walsh Construction Company (the “Company”) maintains a central organization of employees, including superintendents dispatched to manage particular construction projects.  Those individuals have discretion with respect to hiring and compensating hourly workers.  The central organization maintains a limited number of employment-related policies, including rules prohibiting racial discrimination and a requirement that superintendents honor collective bargaining agreements.  According to the Seventh Circuit, “superintendents are in charge” with respect to most other subjects of employment.  According to the Company, its many sites had different superintendents whose respective employment-related practices differed.  Many superintendents move to new sites after finishing their projects and, with a limited exception, superintendents use different groups of foremen at different sites.  Likewise, different sites have materially different working conditions.

On July 28, 2006, 12 of the Company’s construction workers filed a putative class action in the U.S. District Court for the Northern District of Illinois, alleging race discrimination and harassment in violation of Title VII of the Civil Rights Act of 1964 and 42 U.S.C. § 1981.  Those individuals worked for the Company in 2002 and earlier. They alleged that the Company’s superintendents discriminated against African-American employees in assigning overtime work and in creating (or tolerating) impermissible work conditions.  In support of their putative class claims, they submitted statistical analyses purporting to establish that white and Hispanic workers were more likely to work overtime hours than African-American workers.  They also alleged that some superintendents and foremen at certain project sites uttered racial epithets, and that derogatory graffiti and nooses were present at certain sites.

Plaintiffs sought certification of classes covering all of the Company’s 262 projects in the Chicago area since mid-2001.  The first class included “[a]ll blacks employed by Walsh on its construction sites in the Chicago Metropolitan area during the time period June 1, 2001, through the present.”  The second class included “[a]ll blacks employed as journeymen by Walsh in the Chicago metropolitan area at any time during the period June 1, 2001, through the present, who were denied opportunities to work, not afforded overtime hours or not afforded premium pay hours, because of their race.”  The District Court certified both classes, and the Seventh Circuit agreed to review the decision pursuant to Rule 23(f).

Class Certification Was Improper For Multiple Reasons

At the outset, the Seventh Circuit found that the type of statistical evidence plaintiffs offered suffered from essentially the same infirmities as the statistical evidence offered by the plaintiffs in Wal-Mart Stores, Inc. v. Dukes.  Indeed, Plaintiffs’ expert in this case assumed that the appropriate unit of analysis was all of the Company’s Chicago-area sites, but his approach overlooked the reality that complaints regarding the alleged conduct of a limited number of supervisors did not reflect the experiences of workers who had no interaction with those particular supervisors.  Plaintiffs’ expert also failed to control for variables other than race.  For example, the Company’s collective bargaining agreements require it to offer overtime first to union stewards, and if stewards are more likely to be white than other journeymen, that could explain the data without needing to impute racial bias.

Furthermore, although the Seventh Circuit recognized that a multi-site class could potentially satisfy Rule 23(b)(2) if the Company used a discriminatory policy that spanned all sites, that was not the case here.  While plaintiffs asserted that the Company had 14 policies that presented common questions, the Seventh Circuit found that those policies amounted to a policy of affording discretion to each site’s superintendent.  And, following Wal-Mart, the Seventh Circuit emphasized that allowing discretionary employment decisions by local supervisors amounts to a “policy against having uniform employment practices.”  More specifically, it stated that Wal-Mart “tells us that local discretion cannot support a companywide class, no matter how cleverly lawyers may try to package local variability as uniformity.”

The Seventh Circuit also determined that the District Court erred in focusing its class certification decision on whether class litigation was manageable pursuant to Rule 23(b)(3)(D).  In this regard, it emphasized that Wal-Mart was decided under Rule 23(a)(2), and concluded that the District Court used Rule 23(b)(2) “in an effort to sidestep the complexities entailed in giving individual notice to class members and allowing them to opt out.”  In a similar vein, the Seventh Circuit found that the District Court’s reliance on McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (7th Cir. 2012), in treating Wal-Mart as a decision turning on manageability rather than commonality, was misplaced.  It explained that its decision in McReynolds turned on its determination that a national class could be certified under Rule 23(a)(2) in the context of challenging a national policy allowing brokers to form and distribute commissions within teams, as that policy allegedly was applied to all of the employer’s offices throughout the country.

Moreover, the Seventh Circuit found that certification of the hostile-work-environment class was improper both under Rule 23(a)(2) and based on manageability concerns.  It stressed that the 12 plaintiffs did not experience the challenged working conditions at all 262 sites, and granting certification “would require at least one trial per site … and perhaps one trial per week or month per site … .”

Flaws In The Class Definitions

The Seventh Circuit also ruled that the class definitions permitted by the District Court were flawed.  In particular, the 12 plaintiffs could not represent either class because none of the plaintiffs worked for the Company after 2002, even though the classes extend into the indefinite future.  Likewise, the overtime class improperly relied on a future decision on the merits to specify the scope of the class (again, it defined its members as persons who did not earn more “because of their race”).

Implications

Employers faced with sprawling putative class actions in the employment discrimination and harassment contexts will benefit greatly from the Seventh Circuit’s application of the Wal-Mart decision in Bolden, and this decision should temper concerns regarding the extent to which McReynolds blunts the edge of the Wal-Mart decision.  Importantly, employers can rely on Bolden to preclude unrealistic extrapolations of statistical analyses in the face of variability among putative class members, and use it to underscore the rigorous nature of the commonality standard.