On February 24, 2012, Judge Richard Posner of the Court of Appeals for the Seventh Circuit authored a significant post-Wal-Mart Stores, Inc. v. Dukes class certification decision.  In McReynolds v. Merrill Lynch, No. 11-3639, the Seventh Circuit reversed the denial of class certification under Fed. R. Civ. P. 23(b)(2).  A detailed discussion of the McReynolds opinion appears here on our sister publication, the Workplace Class Action Blog.   Although McReynolds is not an ERISA case, we expect to see it cited by plaintiffs’ counsel in ERISA cases.  We summarize  below  the key aspects of the case from an ERISA litigation perspective.

We find it noteworthy that the Seventh Circuit first found that the Fed. R. Civ. P. 23(f) appeal was timely.  Plaintiff appealed within the 14-day period after the denial of his amended motion for class certification in light of Dukes, even though he did not appeal within 14 days of the denial of his original motion for certification (which predated Dukes).  The Seventh Circuit found that the appeal was timely in large part because of the importance of motions for class certification to modern federal jurisprudence.  The court noted that:  “[a] denial of class certification often dooms the suit—the class members’ claims may be too slight to justify the expense of individual suits. Conversely, because of the astronomical damages potential of many class action suits, a grant of certification may place enormous pressure on the defendant to settle even if the suit has little merit.” Slip op. at 3 (citation omitted).

The Seventh Circuit then proceeded to the facts, which we summarize to provide context.  Plaintiff alleged that Merrill Lynch discriminates against 700 African-American brokers by virtue of its company-wide “teaming” and “account distribution” policies.  The teaming policy permits brokers in the same office to form teams.  Many brokers prefer to work by themselves, but others prefer to work as a team.  The teams are formed by brokers, and once formed, a team decides whom to admit as a new member.  Account distributions are transfers of customer accounts when a broker leaves Merrill Lynch.  Accounts are transferred within a branch office, and the brokers in that office compete for the accounts.  Merrill Lynch distributes accounts on the basis of broker records of revenue generated, and of the number and investments of clients retained.  Plaintiff claimed that these corporate policies exclude African-Americans in greater proportions than whites from teams and account distributions.  In contrast to the plaintiffs in Dukes, the McReynolds plaintiff did not accuse Merrill Lynch of intentional discrimination and argued that level of managerial discretion in implementing the corporate policies was less than that present in Dukes.

The Seventh Circuit held that certification was appropriate under Fed. R. Civ. P. 23(b)(2) as to liability, even though damage issues would be individualized.  The court drew support for this hybrid model from Fed. R. Civ. P. 23(c)(4).  This rule provides:  “When appropriate, an action may be brought or maintained as a class action with respect to particular issues.”   Whether the class will be awarded pecuniary relief, the court said, will turn on individualized suits for backpay, or for compensatory or punitive damages if  the members of the class can then show intentional discrimination, perhaps aided by issue or claim prelusion against Merrill Lynch.

McReynolds’ significance extends to ERISA cases (and beyond).  It now may be easier for a plaintiff in the Seventh Circuit to certify a class adversely affected by a plan communication or term under Fed. R. Civ. P. 23(b)(2),  seeking only injunctive or declaratory relief, even if there are individualized issues, such as individualized damage issues.   McReynolds creates new, uncharted  territory by appearing to support the idea that individualized issues may now be decided in separate proceedings involving each and every class member after a certified class issue is decided in plaintiff’s favor.   It is unclear, however, how the court would address situations where the individual issues such as causation and harm are imbedded in the core merits issues.  For example, the Seventh Circuit has held that a breach of fiduciary duty finding requires a finding that the act or omission at issue caused harm.