Ellis v. Costco - Dukes v. Walmart Revisited?

by Art Gutman Ph.D., Professor, Florida Institute of Technology

In a ruling that should interest all employers facing class action lawsuits, the 9th Circuit, interpreting Dukes v. Walmart, overturned the main components of a class action lawsuit against Costco, one of Walmart’s chief competitors. The ruling was handed down on September 16, 2011 [2011 U.S. App. Lexis 19060]. The allegations in this case are that Costco discriminated against women for promotion to its two chief managerial positions, Assistant General Manager (AGM) and General Manager (GM). Unlike the Dukes case, the allegations are limited to promotion.

This case is an easier read than Dukes (thank goodness!) Costco promotes from within. Applicants must be AGMs to qualify for GM, and applicants must hold one of four Senior Staff Manager positions to qualify for AGM (Front End Managers, Administration Managers, Receiving Managers, and Merchandise Managers). There are three named plaintiffs. Shirley “Rae” Ellis applied for GM, sued in 2002, and left Costco in 2004. Leah Horstman applied for AGM, sued in 2003, and resigned in 2004. Elaine Sasaki, applied for GM, sued in 2005, and remains with the company.

Recall from the discussions of the Dukes case that class certification requires meeting all four requirements of Rule 23(a), including: (1) numerosity (the class is large enough so that individual trials are impractical); (2) commonality (the harm claimed is common to the class); (3) typicality (a relationship between the named plaintiff(s) claims and claims alleged on behalf of the class); and (4) adequate protection of class interest (the named plaintiff(s) will fairly and adequately represent the interest of the class). Also, plaintiffs must satisfy the requirements of either Rule 23(b)(1), 23(b)(2) or Rule 23(b)(3). Critically for present purposes (as well as the Dukes case), Rule 23(b)(2) is for injunctive or declaratory relief (so that any monetary relief is “incidental”), whereas Rule 23(b)(3) is primarily for monetary relief and is more difficult to satisfy because it requires both predominance (common issues predominate over individual ones) and superiority (class action is superior to other means of resolving the dispute). In comparison, Rule 23(b)(2) permits a purely statistical analysis for the merits of the claims, thus denying the defendant to answer individual claims.

At the district court level [2007 U.S. Dist. LEXIS 2103], the Costco plaintiffs submitted declarations from (1) a statistician who claimed females are promoted at a slower rate and are underrepresented in the AGM and GM positions; (2) a labor economist who claimed females are underrepresented in the Senior Staff Manager, AGM, and GM positions; and (3) a sociologist who claimed that Costco has “a pervasive culture of gender stereotyping and paternalism.” Costo’s expert claimed that women are not underrepresented at any of these positions at Costco, and whatever disparities exist are confined to only 2 of 25 regions. Costco also offered nondiscriminatory reasons in relation to failure to promote the three plaintiffs, declarations of support from 200 employees, and a motion to strike the declarations from the plaintiffs’ experts.

On January 11, 2007, District Court Judge Marilyn Hall Patel, upheld the declarations from the plaintiffs’ experts, ruled that all four elements of Rule 23(a) were satisfied, and granted class certification under Rule 23(b)(2) to a class of women who have been employed at Costco as Senior Staff Managers or AGMs since January 3, 2002.

Interestingly, Judge Patel struck down one of the declarations (from the statistician), but not the other two (from the labor economist and sociologist). Of some interest here is that two other Costco experts, including Frank Landy, testified that far from being too subjective, Costco’s promotion procedures represented “best practices.”

On the issue of commonality Judge Patel was satisfied that the plaintiffs “provided sufficient evidence of gender disparities in the promotion of women to GM and AGM to raise a common issue of triable fact” and that “absence of written criteria for promotion by the employer as well as other evidence that the process was subjective satisfied the court that there was a policy common to the class.”

Speaking for a unanimous 9th Circuit, Judge N. Randy Smith ruled that Judge Patel was overly reliant on the declarations from the plaintiffs’ experts, and failed to conduct a “rigorous” analysis of the issue of commonality and ruled that the plaintiffs did not have a “common question that will connect many individual promotional decisions to their claim for class relief.” Judge Smith also struck down Judge Patel’s ruling on typicality, for reasons somewhat unique to 9th Circuit case law (that typicality does not apply if 'there is a danger that absent class members will suffer if their representative is preoccupied with defenses unique to it.” More importantly for present purposes, Judge Smith reversed on use of Rule 23(b)(2) because two of the plaintiffs had already quit, and therefore would primarily be interested in money, not injunctive relief. Stated alternatively, only one of the named plaintiffs (Sasaki) was deemed an adequate class representative under Rule 23(b)(2) and the other two (Ellis and Horstman) could serve as adequate class representatives only under Rule 23(b)(3).

Legal mumbo jumbo aside, this ruling is somewhat akin to what the circuit court did in the Dukes case. Of course, the Supreme Court ruled unanimously that Rule 23(b)(2) is inapplicable, and there was a 5-4 split in which the majority ruled there was insufficient evidence for commonality and that Rule 23(b)(3) was also inapplicable. Stay tuned for further developments.

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