Posted On: October 10, 2011 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Ellis v. Costco Wholesale Corp.: Ninth Circuit Vacates And Remands Class Action Certification In Gender Discrimination Labor Law Case

District Court Applied Wrong Legal Criteria in Certifying Gender Discrimination Class Action Requiring Remand for Reconsideration based on Standards Enunciated in Wal-Mart v. Dukes Ninth Circuit Holds

Plaintiffs filed a putative class action against Costco Wholesale alleging that it discriminates in its promotional practices based on gender. Ellis v. Costco Wholesale Corp., ___ F.3d ___, 2011 WL 4336668 (9th Cir. September 16, 2011) [Slip Opn., at 17693, 17697]. The class action complaint was filed after the Equal Employment Opportunity Commission (EEOC) dismissed a charge that Costco engaged in gender discrimination in its practice of promoting employees. The class action complaint alleges violations of Title VII, and sought to be brought on behalf “of a Title VII class of all women employed by Costco in the United States denied promotion to [assistant general managers] and/or [general managers] positions.” Id., at 17702-03. The class action “sought class-wide injunctive relief, lost pay, and compensatory and punitive damages.” Id., at 17703. Plaintiffs moved the district court to certify the lawsuit as a class action based, in part, on the declarations of three experts – a statistician, a labor economist, and a sociologist – who opined that Costco’s female employees were “promoted at a slower rate” and were “underrepresented” in management positions relative to their male peers. Id. Costco opposed class action treatment, based in part on the declarations of 200 employees and the declarations of its own experts. Id. The district court granted class certification, id., at 17703-04. The Ninth Circuit granted Costco’s request for leave to file an interlocutory appeal, and proceeded to affirm in part, vacate in part, and remand the matter for further proceedings. Id., at 17697.

Briefly, Costco operates 350 warehouses, each containing a general manager (GM), two or three assistant general managers (AGM), and three or four senior staff managers (who are themselves divided into four categories consisting of front end managers, administration managers, receiving managers, and merchandise managers). Ellis, at 17699. The company “promotes almost entirely from within its organization” and “[o]nly current Costco AGMs are eligible for GM positions.” Id. No written policy exists explaining the criteria that Costco considers in selecting employees for consideration or in making its promotion decisions. Id., at 17699-700. Among senior staff managers, however, Costco generally rotates managers among the various categories as part of its belief that this exposure trains and develops employees for future positions as AGMs and GMs. Id., at 17700.

Plaintiff Shirley Ellis had worked in retail management for 20 years, including 5 years as a general manager for Sam’s Club, when Costco hired her in 1998 as an AGM. Ellis, at 17700. Despite her interest in being promoted to GM, she remained an AGM and, in 2002, filed her gender discrimination charge with the EEOC. Id., at 17700-01. Costco claims that Ellis lied about her job performance at Sam’s Club, claiming that she was “a star at Sam’s Club, when she had, in fact, lost her job for poor performance.” Id., at 17700. Ellis left Costco in November 2004. Id., at 17701.

Plaintiff Leah Horstman began working for Costco in 1981. Ellis, at 17701. She was promoted to senior staff manager in 1996, and by 2000 she had rotated through each senior staff managerial position. Id. While she had expressed interest in being elevated to an AGM or GM position, as a single mother with 2 children, she wrote in her final 3 self-assessments that she wanted to remain a senior staff manager for another 3-5 years so that she could balance her family and work life. Id., at 17701-02. Horstman filed a gender discrimination charge with the EEOC in October 2003, and quit in June 2004. Id., at 17702.

Plaintiff Elaine Sasaki started working for Costco in 1985, and within 4 years had been elevated to senior staff manager. Ellis, at 17702. As early as 1993, her GM opined that Sasaki was “ready to be promoted to AGM,” but despite consistently high performance reviews and Sasaki’s willingness to transfer as far away as Hong Kong for a promotion, she was not elevated to AGM until 1996. Id. Moreover, even though at least 8 GM openings became available after Sasaki was promoted AGM, she never received another promotion and “never ranked high on Costco’s GM promotable list.” Id. Sasaki filed a gender discrimination charge with the EEOC in March 2005, and remains an AGM with Costco. Id.

The Ninth Circuit began by noting, “This complicated case requires us to consider a number of issues relating to class certification.” Ellis, at 17697. The first issue involved standing. Costco argued that plaintiffs failed establish Article III standing with respect to each form of relief sought by the class action complaint. Id., at 17705. The Ninth Circuit held that only one plaintiff need satisfy the standing requirement, id., and concluded that “Sasaki satisfies all aspects of the standing requirements,” id., at 17706.

With respect to Rule 23(a), the Circuit Court noted that Supreme Court authority required district courts to consider the merits as part of its analysis of whether the prerequisites of Rule 23(a) have been satisfied. Ellis, at 17708. In this case, “the question of commonality overlaps with Plaintiffs’ claim that Costco’s system of promotion and corporate culture constitutes a pattern or practice of discrimination.” Id. The Ninth Circuit agreed with defense counsel that the district court had failed to perform the required “rigorous analysis” needed to establish commonality, id., at 17709. “Plaintiffs must have a common question that will connect many individual promotional decisions to either claim for class relief.” Id., at 17710. The appellate court could not discern what standard the district court used in analyzing commonality, and therefore remanded because the lower court must consider the merits (while the district court stated only that it “may”),and because “the merits of the class members’ substantive claims are often highly relevant when determining whether to certify a class.” Id., at 17711.

The Circuit Court explained that “the district court was not required to resolve factual disputes regarding: (1) whether women were in fact discriminated against in relevant managerial positions at Costco, or (2) whether Costco does in fact have a culture of gender stereotyping and paternalism.” Ellis, at 17713. Nonetheless, “the district court was required to resolve any factual disputes necessary to determine whether there was a common pattern and practice that could affect the class as a whole.” Id. Because the lower court failed to apply the correct legal criteria and “failed to resolve the critical factual disputes centering around the national versus regional nature of the alleged discrimination,” the Ninth Circuit vacated class certification and remanded the matter for reconsideration. Id., at 17715.

For further guidance on remand, the federal court also addressed the typicality requirement of Rule 23(a)(3). See Ellis, at 17715. Costco argued that typicality did not exist “because each of the named Plaintiffs’ respective discrimination claims are subject to unique defenses.” Id. The district court rejected this argument holding that “‘as a general matter, individualized defenses do not defeat typicality.’” Id., at 17715-16 (citation omitted). The Circuit Court disagreed, explaining that “‘a named plaintiff’s motion for class certification should not be granted if “there is a danger that absent class members will suffer if their representative is preoccupied with defenses unique to it.”’” Id., at 17716 (citations omitted). Here, Horstman requested to defer promotion “due to family reasons,” Sasaki was “not an outstanding performer” and there is no evidence that “females are promoted to gm at a lesser rate in Sasaki’s region,” and Ellis allegedly “misrepresented her way into Costco, lacked the Costco experience of other AGMs, transferred to a market with limited promotional opportunities, and was disciplined for abusing subordinates.” Id. Because the lower court applied the wrong legal standard in analyzing these unique defenses, the Ninth Circuit vacated the finding of typicality and remanded for further consideration. Id., at 17717.

Finally, we note that the Ninth Circuit also addressed whether the district court abused its discretion in certifying a Rule 23(b)(2) class. See Ellis, at 17719. The district court found that (b)(2) certification was appropriate because the “subjective intent” of the plaintiffs was to secure injunctive relief. Id. The Circuit Court held that the district court erred by focusing on plaintiff’s subjective intent “instead of on whether the monetary relief could be granted absent ‘individualized determinations of each employee’s eligibility’” for monetary damages. Id., at 17721. Thus, in light of the Supreme Court decision in Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011), the Ninth Circuit concluded that the district court had applied the wrong legal standard in several respects, vacated class certification, and remanded the case to the district court. Id., at 17723.

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