Monthly Archives: May 2015

Insurers’ Duty to Defend Determined by Class Definition, Not by Named Plaintiffs’ Claims

This post is contributed by R. Steven DeGeorge, an attorney at Robinson Bradshaw & Hinson, whose practice focuses on insurance coverage, product liability, toxic tort and environmental disputes.

We don’t often report on insurance coverage issues in this space, but the importance of possible coverage for expensive class action litigation should not be overlooked. On May 13, Judge Voorhees issued a decision addressing how an insurer’s duty to defend class action litigation is affected by the definition of a putative class. The policyholder was sued in multiple putative class action lawsuits alleging damages caused by building products it manufactured. The policyholder requested the insurer to defend the lawsuits. The insurer refused, relying on the fact that its policies expired years before the named plaintiffs allegedly suffered their damages. The policyholder successfully defended the litigation and asked the Court to order the insurer to reimburse approximately $7 million in defense costs. The policyholder argued that the insurer’s duty to defend should be determined by how the putative classes were defined, irrespective of the facts involved in the named plaintiffs’ claims. The underlying class action suits defined the putative classes broadly to include persons who purchased the policyholder’s products, with no temporal limit. Judge Voorhees agreed with the policyholder, ruling that the insurer had a duty to defend because the broad class definition created a “possibility” of coverage. This is one of only a few decisions addressing this issue. Class actions can be expensive to defend, so this decision should provide some solace to defendants.

[Robinson Bradshaw served as counsel for the policyholder in this case].

Fourth Circuit Issues Split, 150-Page Opinion in Title VII Class Action

View David Wright's Complete Bio at The Fourth Circuit today handed down its second decision in Brown v. Nucor, a split decision from 2009. In the initial decision, over Judge Agee’s dissent, the panel majority had reversed the district court’s denial of class certification. On remand, the district court decided to revisit the certification decision in light of Wal-Mart v. Dukes, and decertified a class consisting of individuals who had not been promoted to supervisory positions. In a 154-page opinion, a split panel again reversed. Judge Gregory again wrote the majority decision, joined by Judge Keenan. Judge Agee – who was in dissent in the original case — filed a 90-page dissent.

Brown involves claims of racially discriminatory promotion practices and a hostile work environment at a six-department Nucor plant in South Carolina. The record contains anecdotal evidence of discrimination that the majority found to be “disquieting in [its] volume, specificity and consistency,” including racial epithets broadcast over the plant-wide radio system, displays of a hangman’s noose and the Confederate flag, the routine use of racial slurs by supervisors, and a department manager’s comment that “I don’t think we’ll ever have a black supervisor while I’m here.”

The first issue was an obvious one: what business does a district court have not following an appellate direction to certify the class? For the most part, though, because of the intervening Wal-Mart decision, the panel majority found that the district court had the right to reexamine its certification decision. As we have noted, class certification decisions are inherently tentative. But even though the district court had the right to revisit its ruling, the panel majority found it got the decision wrong again.

This alone is fairly startling, as Judge Agee’s dissent points out. Appellate review of class certification is the deferential “abuse of discretion” standard, and the panel found – twice – that the district court needed to be reversed. The majority grapples with a number of issues, starting with “alternative benchmarks” used for statistical analysis of disparity in light of Nucor’s (apparently innocent) failure to preserve certain promotion records. Utilizing these benchmarks led to a statistically significant disparity (2.54 standard deviations) in the race of those promoted to supervisory positions. But the court also reaffirmed its holding in Brown I that the direct evidence alone was sufficient to demonstrate commonality for purposes of both the disparate treatment and disparate impact claims.

The majority distinguished Wal-Mart on three grounds: (1) Wal-Mart involved a nationwide claim, not just a single Wal-Mart store spanning multiple departments. Had plaintiffs’ evidence “captured discrimination at a store level, a very different Rule 23(a)(2) analysis would have been required.” In this regard, the court noted that the class it was considering involved only 100 employees who shared “common spaces” and “were in regular physical contact with other departments” and were all subject to “hostile plant-wide policies and practices.” The majority concluded that the six departments were not autonomous operations but simply parts of a single facility. (2) By contrast to Wal-Mart’s record of alleged “vulnerability” to gender bias, the record in Brown involved “unadulterated, consciously articulated, odious racism throughout the Nucor plant.” The majority differed substantially from the dissent’s views about the relevance of the “hostile environment” determination to the promotions data contained in the record. (3) According to the majority, the “abundant direct and circumstantial anecdotal evidence of discrimination” was substantially more probative of discrimination than in Wal-Mart.

The majority concluded that the plaintiffs had established a “pattern or practice” of discrimination, which in turn provided the “glue” that Wal-Mart requires for class certification.

The majority also analyzed the plaintiffs’ disparate impact claim, specifically noting that “For a nationwide class, Wal-Mart found that providing a consistent exercise of discretion will be difficult, if not impossible in some circumstances.” For a “localized, circumscribed class of workers at a single facility,” however, the majority found that a “policy of subjective, discretionary decision-making can more easily form the basis for Title VII liability.” In cases in which there is a “clear showing of pervasive racial hostility,” “the underlying animus may help to establish a consistently discriminatory exercise of discretion.” Nucor’s policy of requiring the “supervisor, the department manager and the general manager” to approve a change of status and the “inaction” of the Nucor general manager – according to the majority — resulted in a “disparate impact” in promotions. In contrast to Wal-Mart, the court concluded, “the workers have provided ample evidence supporting their allegation of a common, racially-biased exercise of discretion throughout the plant – demonstrated through alleged incidents of specific discrimination in promotions decisions, statistical disparities, and facts suggesting pervasive plant-wide racism.

The court also devotes a good deal of discussion concerning whether plaintiffs waived their right to challenge 23(b)(3) certification because they didn’t argue the point in their brief. The majority finds plaintiffs’ failure to do so suboptimal, but concludes no waiver occurred both because “there is simply no reason why we should exercise our discretion to discard years of litigation on appeal because of an inartful opening brief” and because the lower court didn’t have grounds to revisit the predominance mandate from Brown I.

Judge Agee was hardly sparing in his dissent, decrying the majority’s decision to revisit a discretionary decision that a district judge is typically best able to make. He starts his analysis with a criticism of plaintiffs’ failure to make any mention of Rule 23(b)(3) in their brief, and cites case law demonstrating that such a failure typically operates as a waiver: “Plaintiffs’ failure to address the predominance finding in any way ends their appeal,” according to the dissent. In this regard, the dissent was particularly scathing: “[The majority’s approach] seems to give pro se litigant treatment to a brief crafted by experienced class counsel – counsel that has appeared in our court before. Surely it does not expect too much from veteran counsel to ask them to make their argument straight up and square.” Perhaps the more salient point was the dissent’s observation that no court ever found that Rule 23(b)(3) was satisfied in the case – the district court never made such a finding and the appellate court, the dissent observed, was ill equipped to do so.

Judge Agee objects in his opinion to what he regards as the surprising willingness of the majority to ignore traditional appellate roles in class certification matters, noting that “The majority’s decision to reanimate Brown I’s negligible evidentiary standard leaves this circuit alone on an island.” Judge Agee also cautioned about the risks of accepting “any conclusions from standard deviations in the range of one to three.” The dissent noted that the statistical evidence did not control for seniority or disciplinary factors, and cited numerous cases questioning the methodology of plaintiffs’ experts.

Judge Agee also viewed the decision making within the various departments at the Nucor plant as anything but homogeneous. He noted that each department had its own procedures and at least eight different criteria that might be used in making any employment decisions: “Locker rooms and radios bear no relationship to promotions decisions.” He noted that “We should not assume that dozens of supervisors acted in concert merely because their employees might have changed clothes in the same room.” And Judge Agee thought that “inaction” (which the majority found might constitute a ‘common practice’) is “just discretion by another name.”

Judge Agee took issue with the majority’s characterization of anecdotal evidence: “Individual stories say little . . . about the frequency of an event’s occurrence or the reasons for that occurrence. Without knowing at least those two items, it can hardly be assumed that the stories reflect a broader trend flowing directly from intentional discrimination.” And the dissent chided the majority for applying an apparently different standard of review when considering affidavits offered in support of the employer from those offered against the employer.

The dissent expresses hope that the Supreme Court will resolve the quandary, noting the split in circuits created with the Eighth Circuit’s decision in Bennett v. Nucor: “Perhaps the Supreme Court will act to rectify the problems that are sure to follow from today’s opinion. One can only hope that it will do so soon.”

Brown is the second lengthy, sharply divided decision from the Fourth Circuit involving the application of Wal-Mart to a Title VII class. In Scott v. Family Dollar, Judge Wilkinson – in dissent – concluded that the same two judges comprising the majority in Brown had “subverted a Supreme Court decision.” The Supreme Court denied review in Scott. Perhaps the Court will accept Judge Agee’s invitation in Brown. Stay tuned.