McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc.
2012 WL 592745, 81 Fed. R. Serv. 3d 1218, 672 F.3d 482 (2012)
Rule of Law:
In employment discrimination class actions, the commonality requirement of Rule 23(a)(2) is satisfied where an employer implements specific company-wide policies—such as allowing employees to self-select teams or distributing accounts based on past success—that allegedly facilitate disparate impact, distinguishing such cases from those involving purely delegated managerial discretion.
Facts:
- Merrill Lynch employs approximately 15,000 'Financial Advisors' (brokers) across 600 branch offices, supervised by 'Complex Directors.'
- The company maintains a 'teaming' policy that allows brokers to voluntarily form teams to share clients and resources, with the team members themselves deciding whom to admit to the group.
- The company also maintains an 'account distribution' policy where the accounts of departing brokers are transferred to remaining brokers based on specific criteria, primarily the past revenue generated by the competing brokers.
- While local managers have some discretion to veto teams or supplement distribution criteria, the framework for these practices is established by company-wide policy.
- Many brokers prefer teaming to gain access to clients, but black brokers allege that teams operate like 'fraternities' where members select individuals who are racially similar to themselves.
- Because black brokers are allegedly excluded from high-performing teams, they generate less revenue and accumulate fewer clients.
- This lack of revenue creates a cycle that disadvantages black brokers in the 'account distribution' system, as they cannot compete with white brokers who have benefited from team membership.
- The 700 plaintiffs allege these policies have a disparate impact on black brokers, resulting in lower compensation compared to white counterparts.
Procedural Posture:
- Plaintiffs filed a class action lawsuit against Merrill Lynch in the U.S. District Court for the Northern District of Illinois alleging racial discrimination.
- Plaintiffs moved for class certification, which the District Court denied in August 2010.
- Following the Supreme Court's decision in Wal-Mart v. Dukes, plaintiffs filed an amended motion for class certification in July 2011.
- The District Court denied the amended motion for class certification in September 2011.
- Plaintiffs filed a petition for leave to appeal to the Seventh Circuit Court of Appeals under Rule 23(f) within 14 days of the second denial.
- A motions panel of the Seventh Circuit granted the plaintiffs leave to appeal.
- The defendant argued the appeal was untimely, claiming the 14-day window should have run from the initial 2010 denial.
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Issue:
Does a proposed class of employees satisfy the commonality requirement for class certification when they allege that specific company-wide policies, rather than the mere discretion of local managers, enable racial discrimination and result in a disparate impact on minority employees?
Opinions:
Majority - Judge Posner
Yes, class certification is appropriate because the validity of specific company-wide policies presents a common question of law applicable to the entire class. The court distinguished this case from the Supreme Court's decision in Wal-Mart v. Dukes. In Wal-Mart, class certification was denied because the only corporate policy was delegating total discretion to local managers, meaning there was no common mode of discrimination to adjudicate. Here, Merrill Lynch enforces two specific top-down policies: the authorization of broker-formed teams and the criteria for account distributions. Even though local managers exercise some discretion, the discrimination is alleged to stem from the structure of these corporate policies themselves (e.g., allowing brokers to choose their own partners creates a 'fraternity' dynamic). This 'incremental causal effect' of company-wide policy is a common issue that can be resolved efficiently in a single proceeding under Rule 23(c)(4). Determining whether these policies cause disparate impact and whether they are justified by business necessity does not require individualized hearings for every broker. Although individual damages proceedings would still be necessary later, the core question of the policies' legality is best handled as a class action.
Analysis:
This decision is a significant post-Wal-Mart v. Dukes precedent that clarifies the boundaries of employment class actions. It saves 'disparate impact' class actions from extinction by distinguishing between 'pure delegation' (impermissible under Wal-Mart) and 'discretion within a policy framework' (permissible). Judge Posner highlights the utility of Rule 23(c)(4), which allows courts to certify a class for specific issues—here, the legality of the teaming and account distribution policies—even if the calculation of damages requires individual trials. The opinion prevents employers from insulating themselves from liability simply by delegating some implementation details to local employees, provided the root cause of the discrimination is a central policy.
