Co-author: Elizabeth Braverman

In a recent case, Miller v. Countrywide Bank (In re Countrywide Financial Corp. Mortgage Lending Practices Litigation), — F.3d —, No. 12-5250, 2013 U.S. App. LEXIS 924 (6th Cir. Jan. 15, 2013), the Sixth Circuit provided more guidance on the requirements of commonality where plaintiffs allege discrimination resulted from a companywide delegation of discretion. Relying on Dukes, the Sixth Circuit held that mere delegation of authority to local officers did not constitute a uniform company policy sufficient to establish commonality under Fed. R. Civ. P. 23. Id. at *9–10. Rather, plaintiffs must point to some affirmative companywide policy that could “serve as glue if it affected all class members and caused a disparate impact.” Id. at *9. Alternatively, plaintiffs could establish commonality by pointing to a companywide grant of discretion as well as “a uniform policy or practice [that] guides how local actors exercise their discretion.” Id. at *10.

The Sixth Circuit considered a portion of a Countrywide policy governing the determination of borrowers’ annual percentage rates (“APRs”). Under Countrywide’s policy, loan officers and mortgage brokers used objective factors to determine a borrower’s par rate. Id. at *2. Countrywide’s policy then afforded discretion to individual officers and brokers to vary those rates within a specified range. Id. at *3. Plaintiffs alleged that this delegation led Countrywide to charge higher average rates for African-American and Hispanic borrowers than to similarly-situated white borrowers. Id. at *4.

Relying on Wal-Mart v. Dukes, the Sixth Circuit affirmed the district court’s denial of class certification on commonality grounds. Countrywide’s policy of affording broad discretion to its local brokers was analogous to Wal-Mart’s policy of allowing local supervisors discretion in employment matters. Id. at *9–10. In both cases, the companywide policy was “‘just the opposite of a uniform employment practice that would provide the commonality needed for having a class action; it is a policy against having uniform employment practices.’” Id. at *9 (quoting Wal-Mart Stores Inc. v. Dukes, — U.S. —, 131 S. Ct. 2541, 2554 (2011)).

The Sixth Circuit also rejected Plaintiffs’ arguments that Countrywide’s limitation of variations to a certain range provided a uniform, companywide policy sufficient to support a commonality finding. Plaintiffs did not allege that local officers and brokers exceeded their discretion, or that a uniform policy guided the exercise of discretion within the applicable boundaries. Id. at *10. Furthermore, the fact that Countrywide limited rate variations to a certain range did not mean there was a uniform policy or practice guiding how local brokers or officers exercised their discretion. Id. Such an argument “conflates range with mode. Both Wal-Mart and Countrywide placed clear boundaries on how far a local exercise of discretion could go, but in neither case do plaintiffs demonstrate that this range, rather than discretionary decisions made within this range, disparately impacted the proposed class.” Id.

In reaching its holding, the Sixth Circuit distinguished a 2012 Seventh Circuit case, McReynolds v. Merrill Lynch, 672 F.3d 482. [See our blog post of March 1, 2012, “In Contrast to Wal-Mart, Seventh Circuit Allows Issue Certification” by Deborah Renner]. In that case, the Seventh Circuit found commonality existed where plaintiffs challenged as discriminatory Merrill Lynch’s “teaming policies” governing broker assignments. One policy permitted brokers to form teams and left team selection largely to the discretion of local brokers. Id. at 488. Another policy governed account distributions and awarded accounts on the basis of criteria such as revenue generated and number and investments of clients retained. Id. at 488–89. Importantly, being a team member allegedly allowed brokers to generate more revenue and better attract and retain clients. Id.

In McReynolds, plaintiffs alleged these policies combined to disfavor African-American brokers, whom white team leaders were less likely to select to join teams. Id. at 489. The policies clearly left much to the discretion of local managers, but the key issue for the Seventh Circuit (and the Sixth Circuit in distinguishing the case) was less that Merrill Lynch’s companywide policies created a potentially discriminatory situation. Id. at 490; see also Miller, 2013 U.S. App. LEXIS 924, at *12–13. Instead, the important concern for the court was that the delegation of discretion amplified the effects of that discriminatory situation. McReynolds, 672 F.3d at 490. In other words, the policies created a “spiral effect”: “if as a result of racial preference at the team level black brokers employed by Merrill Lynch find it hard to join teams, or at least good teams, and as a result don’t generate as much revenue or attract and retain as many clients as white brokers do, then they will not do well in the competition for account distributions either; and a kind of vicious cycle will set in.” Id. at 489–90. Thus, plaintiffs could present a common issue: whether Merrill Lynch’s teaming policies enabled individual acts of bias, and then amplified the effects of that bias on racial minorities. Id.

Unlike in McReynolds, the Sixth Circuit held that the spiral effect was not present in Countrywide’s policy. Miller, 2013 U.S. App. LEXIS 924, at *12–13. Plaintiffs did not allege any other policy or uniform practice that exacerbated the racial discrimination allegedly allowed by the policy’s delegation of discretion. Id. at *13. Accordingly, the Sixth Circuit found the case was analogous to Dukes, rather than McReynolds.