Classes can still be certified post-Wal-Mart, even in large employment discrimination cases.  That seemed to be the message delivered by Judge Posner in his opinion for the Seventh Circuit in McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 11-3639, slip op. (7th Cir. Feb. 24, 2012).  The Seventh Circuit found certification appropriate where companywide employment practices were challenged and certification was sought under Rule 23(b)(2) for the limited purpose of seeking injunctive relief and resolving certain key issues pertaining to the defendant’s liability (but not fully resolving liability to any individual class member).  This type of request for partial certification is likely to become more common post-Wal-Mart, particularly now that it has gained some traction in at least one circuit.

This case was somewhat analogous to Wal-Mart, involving allegations that Merrill Lynch’s employment practices for its brokers (called financial advisors) had a disparate impact on African-American brokers.  The plaintiffs challenged two of Merrill Lynch’s policies – (1) its “teaming” policy whereby brokers in a particular office were allowed to form and operate as teams, sharing clients; and (2) its “account distribution” policy whereby, when a broker leaves Merrill Lynch, brokers or teams who have stronger financial performance history tend to receive more transferred accounts.  The regional managers (Complex Directors), however, have some discretion over teams and account distribution.  The claim was basically that brokers tend to form teams with others of the same race, that African Americans have a more difficult time joining teams, and that the stronger teams get more account distributions.  All of this was claimed to have had a disparate impact on African Americans.

The Seventh Circuit reversed the district court’s order denying class certification, which requires a conclusion that the district court abused its discretion, although the opinion did not discuss the standard of review.  Judge Posner’s opinion first resolved a procedural issue regarding whether the plaintiffs could appeal a denial of a second motion for certification where they chose not to appeal from the first denial of certification.  The court ruled essentially that it had discretion to allow such an appeal under Rule 23(f) and would do so.  The court explained that, in a circumstance where the second ruling really did not differ much from the first or did not raise new issues, the court likely would simply deny discretionary review. 

The court concluded that certification was consistent with Wal-Mart because, unlike the facts of Wal-Mart, this case challenged a companywide practice that the court felt was not simply leaving discretion to local mangers.  The court explained that “permitting brokers to form their own teams and prescribing criteria for account distributions that favor the already successful – those who may owe their success to having been invited to join a successful or promising team – are practices of Merrill Lynch, rather than practices of that local managers can choose or not at their whim.”  Id. at 17.  Moreover, “[t]he incremental causal effect (overlooked by the district judge) of those company-wide policies – which is the alleged disparate impact – could be most efficiently determined on a class-wide basis.”  Id. at 17-18.

Judge Posner further explained that certification was appropriate for the limited purpose of deciding whether to grant injunctive relief and to decide whether the challenged practices were unlawful.  If that proceeding were decided favorable to the plaintiffs, there would then be up to 700 individual trials on the remaining liability issues in individual cases, as well as damages.  Judge Posner explained:

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 practice was 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.

. . .

If resisting a class action requires betting one’s company on a single jury verdict, a defendant may be forced to settle; and this is an argument against definitively resolving an issue in a single class if enormous consequences ride on that resolution.  But Merrill Lynch is in no danger of being destroyed by a binding class-wide determination that it has committed disparate impact discrimination against 700 brokers . . . .

Id. at 19-20 (emphasis added; citations omitted).  The court also noted that, because Merrill Lynch brokers are relatively well-compensated and the case involved multiple years of compensation, the court thought they would have a sufficient incentive to pursue individual cases following the class proceeding.

This result is precisely what some commentators have been predicting would happen post-Wal-Mart — that some federal courts would find it appropriate to certify class actions solely to decide liability or certain liability issues, and then the remainder of the proceedings would require individual trials for those class members who want to pursue them.  This was impossible in Wal-Mart because of the massive size of the class, but the Seventh Circuit concluded it was possible in McReynolds.  But how do courts draw the line between the 700 individual trials that the Seventh Circuit suggests would be possible (still an awful lot of cases to try) and the over 1 million trials that the Supreme Court said plainly would be impossible? 

The second paragraph quoted above also raises some interesting questions.  How are district courts supposed to draw the line between a “bet the company” case or another case that might fit that “big case” mold and a smaller case?  In a case like McReynolds, why should it matter whether the company is big or small, or whether the company is well-established and on solid financial footing, or a startup just getting by?  Some people would argue the law generally should be blind to those kinds of factors.

What does this case mean for class actions against insurers involving coverage issues or claim handling (putting aside the impact on employment practices liability insurance)?  We may see more cases in which the request for certification focuses on declaratory or injunctive relief on a particular coverage issue or claim practice, for example, which, if a class were certified, would then have to be followed by individual trials on each class member’s claim to decide remaining issues of liability as well as damages.    The number of claims involved that would have to be tried individually and what those trials would involve obviously would be a factor.  Insurance cases, however, for the most part seem more likely to fit Wal-Mart than McReynolds if there is individual discretion given to front-line claim handlers and their supervisors in conducting investigations and making claim decisions.  Giving discretion to the front line personnel continues to be a good strategy for insurers to reduce class action exposure.