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Christian v. Generation Mortgage Co.

United States District Court, N.D. Illinois, Eastern Division

September 12, 2014

MICHAEL J. CHRISTIAN, BETY FLEMMING, EARTHA C. JOHNSON, as Attorney-in-Fact for MINNIE ALICE LARK, and CLAUDIA DORTCH, on behalf of themselves and all others similarly situated, Plaintiffs,


JOHN J. THARP, Jr., District Judge.

Plaintiffs have sought reconsideration of the Court's order granting Generation Mortgage Company's motion to bifurcate class and merits discovery in this matter. Dkt. 83 ("Order"). That motion was predicated on the plaintiffs' efforts to obtain data from tens of thousands of individual loan files for use in a statistical analysis comparing the loan terms offered to members of the putative classes (African Americans and single females) to those outside those classes. Generation argued that it should not be required to undergo such hugely burdensome and expensive class-wide discovery unless and until the plaintiffs have obtained certification of the putative classes. The plaintiffs argue that they need class-wide discovery in order to make the showing of commonality necessary to obtain class certification.

Although framed as a discovery dispute, at its core this dispute involves the relevance of the statistical analysis the plaintiffs wish to conduct with Generation's loan data.[1]Relying on Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011), the Court concluded that the proposed regression analysis would not suffice to establish that Generation's mortgage brokers exercised their pricing discretion in a discriminatory manner because "a statistical disparity in the loan terms received by African-Americans and/or single women says nothing about the cause of the disparity." Order at 4. The Court therefore granted Generation's bifurcation motion, limited initial discovery in the case to evidence pertinent to the question of whether Generation's brokers exercised their pricing discretion in a common manner, and held that the statistical evidence needed for the plaintiffs' proposed regression analysis is not relevant to that question.

Plaintiffs' primary argument for reconsideration asserts that the Court erroneously assumed that "plaintiffs' statistical analysis of loan data will not control for all the factors that may account for any observed disparities in interest rates and origination fees." If by "may account for" the plaintiffs mean "cause, " it is true enough that the Court drew that conclusion- for two substantial reasons. First, the plaintiffs conceded the point in their response. And second, the Supreme Court's opinion in Wal-Mart compels the conclusion.

In their response to Generation's motion to bifurcate, the plaintiffs acknowledged that their complaint " does not assert that regression analysis alone will resolve the class or commonality questions "; rather, "statistical analysis of loans will uncover whether this policy had a common effect. " Resp., Dkt. 73, at 14 (emphasis added). See also id. at 1 and 12 (statistical analysis necessary but "not sufficient" to show commonality). That is because the data the plaintiffs seek will, at best, establish "the common effect of Generation's nationwide policy." Surreply, Dkt. 80, at 2 (emphasis added).

A common effect does not establish a common cause for that effect, even in a disparate impact case. That is the Supreme Court's teaching in Wal-Mart; which "reiterates that statistical correlation, no matter how robust, cannot substitute for a specific finding of class-action commonality." In re Countrywide Financial Corp. Mortgage Lending Practices Litig., 708 F.3d 704, 709 (6th Cir. 2013) (citing Wal-Mart, 131 S.Ct. at 2555, and affirming the denial of certification of class of borrowers because plaintiffs statistical evidence of disparity was insufficient to establish that the disparity was the product of a single cause). As the plaintiffs have acknowledged, disparate impact is a necessary but not sufficient condition to establish their claim.

In the context of a class disparate impact claim, the plaintiffs must identify a "specific employment practice" that is the common cause of the disparate impact. Wal-Mart, 131 S.Ct. at 2555. As noted in this Court's original opinion, the plaintiffs attempted to do this by attributing the alleged disparate impact to Generation's policy of affording pricing discretion to its brokers, but Wal-Mart squarely rejected the proposition that a company's policy of permitting discretion to managers can serve as the common link between individual claims in a disparate impact case.[2] Id. at 2554-55. The "bare existence of delegated discretion, " id. at 2555, is no policy at all-or, viewed another way, it is a policy against having a policy. Id. at 2554. Wal-Mart holds that showing that such a non-policy produces disparate impact "does not suffice" to satisfy Rule 23's commonality requirement. Id. at 2556.

Notwithstanding this unequivocal holding, the plaintiffs continue to argue that Generation's policy of pricing discretion does suffice as the common cause of the alleged disparate impact because that policy cabins the discretion afforded to brokers by setting a minimum rate. Generation's brokers, in other words, only have discretion to increase the rate, not to lower it, and because they receive more compensation for higher rates, the plaintiffs argue that the policy incentivizes brokers to increase rates above the minimum approved rate. The Court rejected this purported distinction as illusory;[3]the rationale for any company policy-including the policy of giving hiring and promotion discretion to local managers that was at issue in Wal-Mart -presumably can be linked to the company's desire to increase profits. That does not change the fact that in affording discretion to managers, or here, brokers, the company replaces centralized decisionmaking with localized decisionmaking. And in that context, as Wal-Mart holds, there is no "glue" to tie those individualized decisions together in a class action.

Plaintiffs argue that they "are not required to pinpoint exactly which business practice" caused a disparate impact, Supp. Br., Dkt. 106 at 4-5; they cite 42 U.S.C ยง 2000e-2(k)(1)(B)(i) for the proposition that "the elements of a decision-making process may not be capable of separation for analysis, in which case it may be appropriate to challenge the decision-making process as a whole." Id. But that argument merely rephrases the proposition that Wal-Mart rejected, namely that it suffices to identify a general policy of managerial discretion as the common cause of a disparate impact on a protected group. 131 S.Ct. at 2555-56 (rejecting the identification of a policy of delegated discretion as sufficient identification of a specific policy on which to base a disparate impact claim). As the Supreme Court observed in Watson v. Fort Worth Bank & Trust, 487 U.S. 977, 990 (1988), and reiterated in Wal-Mart, 131 S.Ct. at 2554, a policy of permitting managerial discretion "should itself raise no inference of discriminatory conduct." Accordingly, merely lumping together an amalgamation of subjective individual decisions does not satisfy this standard. See, e.g., Davis v. Cintas Corp., 717 F.3d 476, 497 (6th Cir. 2013) (affirming summary judgment where plaintiff failed to identify the challenged employment practice with more particularity than aggregating all of the subjective elements of a hiring system). The Seventh Circuit has similarly left no room for doubt on this score:

For disparate impact claims, a plaintiff must establish that a particular employment practice causes a disparate impact on a member of a protected class. To satisfy this burden, the plaintiff is responsible for isolating and identifying the specific employments [sic] practices that are allegedly responsible for any observed statistical disparities. Notably, it is not enough to simply allege that there is a disparate impact on workers, or point to a generalized policy that leads to such an impact. Failure to identify the specific practice could lead to employers being held liable for the myriad of innocent causes that may lead to statistical imbalances.

Pell v. Allstate Ins. Co., 675 F.3d 709, 717 (7th Cir. 2012) (emphasis added).

In advancing this argument, moreover, the plaintiffs fail to distinguish between the requirements for an individual disparate impact claim and the additional requirements for certification of a class. As the Court explained in Wal-Mart, that an individual may advance a disparate impact claim based on the existence of a policy of discretion "does not lead to the conclusion that every employee in a company using a system of discretion has such a claim in common." 131 S.Ct. at 2554. What is required, rather, is the identification of "a common mode of exercising discretion that pervades the entire company." Id. at 2554-55. Given the pricing discretion afforded to Generation's brokers, the putative class members must focus on the implementation of that discretion by the brokers; to tie their claims together in a class, they are required to show (among other things) that the brokers exercised their discretion in a common, discriminatory, manner.

Which brings us back to the question of the utility of the plaintiffs' proposed regression analysis. As noted, the plaintiffs conceded in their response and surreply to the defendant's bifurcation motion that their proffered statistical analysis does not suffice to establish commonality: plaintiffs do " not assert that regression analysis alone will resolve the class or commonality questions." Plt's Amended Response (Dkt. 73) at 14 (emphasis in original); see also id. at 1 and 12 (statistical analysis "not sufficient" to show commonality). That concession should end the debate, because the plaintiffs also concede that they have no other means to establish commonality:

The only possible way to know whether Generation's brokers exercised their pricing discretion in a common direction is for Generation to produce the evidence of each pricing decision of each broker for each borrower in the class period. There simply is no "other means" in existence for discovering and showing "whether Generation's brokers exercised their pricing discretion in a common manner." By making the well-intentioned but uninformed suggestion that plaintiffs use "other means" to ...

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