EFTA01295633.pdf

Mort, Inc
NAME SEARCHED:
PWM BIS-RESEARCH performed due diligence research in accordance with the standards set by AML Compliance for your business. We completed thorough searches
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No Information Found
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BIS O Yes No
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Information Found (Please see attached)
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SONY GM_00056796
CONFIDENTIAL
CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) OB-SDNY-0019620
EFTA_00 167366
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OFAC RESULTS
RDC:
City:St, Thomas
Not Alerts OBOI
Mort, Inc Country:N Argin Islands, U.s.
PCR:
Mort, Inc NCA customised Auto-Closed No-Hit 02/10/2015
BIS RESULTS:
Negative Media:
No Information Found
Non-Negative Media:
No Information Found
Other Language Media:
No Information Found
Public Record:
1 OF 2 RECORD(S)
Comprehensive Business Report
Report Created:10.01-2015 6:17 PM EST I FOR INFORMATIONAL PURPOSES ONLY I Copyright@ 2015 LexisNexis.
All rights reserved.
Search Terms - company(Mort. Inc) radius(15)
Executives - Current (0) Incorporation/SOS (1) Operations/Sites (2) Sales (0)
Licenses (0) URLs (0) Real Property - Current (1) Real Property - Prior (0)
MVRs - Current (0) MVRs • Prior (1) Watercraft • Current (0) Watercraft • Prior (0)
Aircraft - Current (0) Aircraft - Prior (0) Bankruptcy Filings (0) Judgments & Liens Filings (0)
UCC Filings (0) Executives - Prior (2) Registered Agents (1) Name Variations (1)
Possible Employees (1) Person Associates (0) Business Associates (2) TINs (0)
Possible Connected Parent Company (0) Industry Information (0)
Business (4)
View Al Sources (9)
For internal use only
SDNY_GM_00056797
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Business Summa
Name Address
MORT, INC. 820 W Spruce St
Rawlins, WY 82301-5440
(Most Reconi Listing)
Carbon County osbirzoi2 - 09292015
(E) (Business)
LexID Established TIN
0001-0078-5323 2004
(11 Years in Business)
At a Glance
Real Property 1 UCC Debtor 0
Personal Property 0 Bankruptcy 0
Secured Assets 0 Judgments/Liens 0
Executives 0 Foreclosure/Notice of Default 0
Name Variations -1 name variations found
NO. NAME
1. MORT. INC.
TINs - 0 TINs found
Business Profile
Executives: Current - 0 executive(s) found
lncor oration/SOS (1 active, 0 other)
NO. 1 NAME FILING TYPE STATUS FILING FILING NO. STATE
DATE
1. MORT, INC. CORPORATION- ACTIVE 03125/1999 1999- WY
BUSINESS 000343534
Additional Details
Business Type: CORPORATION-BUSINESS
Business Status: ACTIVE
Filing Type: FILING
Expiration: PERPETUAL
For Profit Unknown
Foreign/Domestic: Domestic
Origin: State of WY
OperatingLocations - Showing 2 location(s)
NO. ADDRESS METRO AREA PHONE
1. 502 W Spruce St CARBON COUNTY
Rawlins, WY 82301-5548
Carbon County
(Business)
2. 820 W Spruce St CARBON COUNTY
Rawlins, WY 82301-5440
(Most Recent Listng)
Carbon County 05&012012.091292015
8 (Business)
Sales - 0 record(s) found
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SDNY_GM_00056798
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Parent Company - 0 record(s) found
Industry Information - no information found
Licenses - 0 licenses found
URLs - 0 URLs found
Bankruptcy (0 active, 0 closed)
Judgments/Liens (0 filings)
UCC Filings (0 debtor, 0 creditor)
1
Real Property (1 current, 0 prior
NO. ADDRESS STATUS PURCHASE PRICE SALE PRICE STATE
1. 820 W Spruce St Current WY
Rawlins. WY 82301-5440
Carbon County
Source: B
Owner 1 Information
MORT INC
PO Box 357
Rawlins. WY 82301-0357
Carbon County
Legal Information
Parcel Number 21871733100400
Assessment Year: 2014
Recording Date: 02/29/2008
Document Type: ASSESSOR
Assessed Value: $18,654.00
Market Land Value: 310,212.00
Total Market Value: 5196.364.00
Type of Address: COMMERCIAL OFFICE (GENERAL)
Personal Property (0 current, 1 prior)
NO. TYPE STATUS YEAR/MAKE MODEL VIN
1. MVR Prior 2004 Lexus RX 330.4 Dr Wagon Sport
Utility
Vehicle Information
VIN-
Year 2004
Make. Lexus
Model: RX 330
Style: 4 Dr Wagon Sport Utility
Base Price: $37,000.00
For internal use only
SDNY_GM_00056799
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Source Information
Data Source: GOVERNMENTAL
Registrant 1
MORT. INC.
502 W Spruce St
Rawlins, WY 82301-5548
Carbon County
Jurisdiction: WY
License Plate:
Original Registration Date. 05/1912008
Registration Date. 03/24/2010
Registration Expiration Date: 03/31/2011
Associates
Executives: Prior - 2 prior executive(sl found
NO. NAME TITLE
1. Mortensen, Tammy DIRECTOR
(03/25/1999)
2. Mortensen, Troy L DIRECTOR
(03/25/1999)
Registered Agents -1 registered agent(s) found
NO. NAME ADDRESS STATE DATE S
1. Mortensen, Tammy K Wyoming 03/25/1999 -
09/102015
Possible Employees - 0 current, 1 prior employees found
NO. NAME ADDRESS STATUS DATE S
1. Mortensen. Tammy Prior
N/A 03/25/1999
Person Associates - 0 other person associates found
Possible Connected Business - 4 businesses found
NO. NAME ADDRESS
1. MORT INC PO Box 357
Rawlins. WY 82301-0357
Carbon County
2. MORT INC 2222 Dunblane Dr
Rawlins, WY 82301-4236
Carbon County
3. MORT INC 603 W Spruce St
Rawlins, WY 82301-5435
Carbon County
4. MORT. INC. 1325 High St
Rawlins, WY 82301-4642
Carbon County
For internal use only
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Business Associates - 2 business associates found
NO. NAME ADDRESS ROLE
1. MORT INC PO Box 357 Real Property
Rawlins, WY 82301-0357
Carbon County
2. MORT INCORPORATED 2222 Dunblane Dr Real Property
Rawlins, WY 82301.4236
Carbon County
Sources
All Sources 9 Source Documents
Real Property 4 Source Documents
Personal Property 2 Source Documents
Corporate Filings 1 Source Documents
Other Directories 1 Source Documents
Experian Credit Risk DB 1 Source Documents
Key:
A High Risk Indicator. These symbols may prompt you to investigate further.
/ Moderate Risk Indicator. These symbols may prompt you to investigate further.
r-
General Information Indicator. These symbols inform you that additional information is provided.
to0 The most recent telephone listing as reported by Electronic Directory Assistance.
Wireless Phone Indicator. These symbols indicate a cell phone number.
® Residential Phone Indicator. These symbols indicate a residential phone number.
Business Phone Indicator. These symbols indicate a business phone number.
® Shared Phone Indicator. These symbols indicate the phone number may be shared between wireless and landline
service.
(E.) FAX Indicator. These symbols indicate a FAX number.
Government Phone Indicator. These symbols indicate a government phone number.
Important: The Public Records and commercially available data sources used on reports have errors. Data is sometimes entered poorly. processed
imamate/ and is generally not free from doled. This system should not be relied upon as definitively accurate. Before retying on any dada this system
supplies, it should be independently verified. For Secretary of State documents* the foloviing data is for information purposes only and is not an official
record. Certified copies may be obtained horn that VuRridual slates Department of State.
Your DPPA Permissible Use is: Debt Recovery/Fraud
Your GLBA Permissible Use Is: Legal Compliance
Copyright O 2015 Lexistrexis, a derision of Reed Elsevier Inc. AI Rights Reserved.
2 OF 2 RECORD(S)
Comprehensive Business Report
Report Created:10-01-2015 6.17 PM EST I FOR INFORMATIONAL PURPOSES ONLY I Copyright O 2015 LexisNexis,
All rights reserved.
Search Terms - company(Mort. Inc) radius(15)
Executives • Current (0) Incorporation/SOS (0) Operations/Sites (1) Sales (0)
Licenses (0) URLs (0) Real Property - Current (0) Real Properly • Prior (0)
MVRs - Current (0) MVRs - Prior (0) Watercraft - Current (0) Watercraft - Prior (0)
Aircraft - Current (0) Aircraft - Prior (0) Bankruptcy Filings (0) Judgments & Liens Filings (0)
UCC Filings (0) Executives - Prior (0) Registered Agents (1) Name Variations (1)
Possible Employees (1) Person Associates (0) Business Associates (0) TINs (0)
For internal use only
SDNY_GM_00056801
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Possible Connected Parent Company (0) Industry Information (0)
Business (4)
View AII Sources (0)
Business Summa
Name Address Phone
MORT INC 603 W Spruce St
Rawlins, WY 82301-5435
/ (Company is inactive)
Carbon County
LexID Established TIN
0001-0078-5723 2011
(4 Years in Business)
At a Glance
Real Property 0 UCC Debtor 0
Personal Property 0 Bankruptcy 0
Secured Assets 0 Judgmentstiens 0
Executives 0 Foreclosure/Notice of Default 0
Name Variations -1 name variations found
NO. NAME
1. MORT INC
TINS - 0 TINS found
Business Profile
Executives: Current - 0 executive(s) found
Incorporation/SOS (0 active, 0 other)
0 eratin Locations - Showing 1 location s
NO. ADDRESS METRO AREA PHONE
1. 603 W Spruce St CARBON COUNTY
Rawlins. WY 82301-5435
Carbon County
Sales 0 record(s) found
Parent Company - 0 record(s) found
Industry Information - no information found
Licenses - 0 licenses found
URLs - 0 URLs found
Bankruptcy (0 active, 0 closed)
Judgments/Liens (0 filings)
UCC Filings (0 debtor, 0 creditor)
Real Property (0 current, 0 prior)
Personal Property (0 current, 0 prior)
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SDNY_GM_00056802
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Associates
Executives: Prior - 0 prior executive(s) found
Registered Agents -1 registered agent(s) found
NO. NAME ADDRESS STATE DATE(S)
1.
Possible Employees - 0 current, 1 prior employees found
NO. NAME ADDRESS STATUS DATE(S)
1. Mortensen, Tammy K Prior
N/A 03/25/1999
Person Associates - 0 other person associates found
Possible Connected Business - 4 businesses found
NO. NAME ADDRESS
1. MORT INC PO Box 357
Rawlins, WY 82301-0357
Carbon County
2. MORT INC 2222 Dunblane Dr
Rawlins. WY 82301-4236
Carbon County
3. MORT, INC. 820 W Spruce St
Rawlins. WY 82301-5440
Carbon County
4. MORT. INC. 1325 High St
Rawlins, WY 82301-4642
Carbon County
Business Associates - 0 business associates found
Sources
Key:
A High Risk Indicator. These symbols may prompt you to investigate further.
/ Moderate Risk Indicator. These symbols may prompt you to investigate further.
116- General Information Indicator. These symbols inform you that additional information is provided.
40 The most recent telephone listing as reported by Electronic Directory Assistance.
4it Wireless Phone Indicator. These symbols indicate a cell phone number.
Residential Phone Indicator. These symbols indicate a residential phone number.
Business Phone Indicator. These symbols indicate a business phone number
Shared Phone Indicator. These symbols indicate the phone number may be shared between wireless and landline
service.
FAX Indicator. These symbols indicate a FAX number.
Government Phone Indicator. These symbols indicate a govemment phone number.
Important: The Public Records end oornmercially washable dela sources used on reports have errors. Data is sometimes entered phony, processed
incorrectly and is generally not free from detect This system should 001 be relied upon as definitively accurate. Before relying on any data this system
supplies. it should be independently verified. For Secretary of Slate documents, the focloyring data is for information purposes only and is not an official
record. Declined copies may be obtained from that autnidual stales Department of Stale.
For internal use only
SDNY_GM_00056803
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Your DPPA Permissible Use is. Debt Recovery/Fraud
Your MBA Permissible Use is: Legal Compliance
Copyright 0 2015 LexisNexis. a division or Reed Ebevier Inc Al Rights Reserved.
D&B:
Copyright 2015 Dun & Bradstreet, Inc.
July 8, 2015
Dun's Decision Makers
View the DMI Record
Glass City Mort Inc
2558 Parkway Plz Maumee,
OH 43537-3772
United States
BUSINESS ADDRESS: 2558 Parkway Plz, Maumee, OH 43537-3772, United States
MSA: Toledo, OH - 8400
COUNTY: Lucas
COMPANY IDENTIFIERS
DUNS NUMBER:
EXECUTIVES
Principal:
Donald McCorkle, Ill, Prin
Donald McCorkle, III, Prin
DESCRIPTION
INDUSTRY TYPE: Retail Trade; Ret Paint/Glass/Wallpaper
Copyright 2015 Dun & Bradstreet, Inc.
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SDNY_GM_00056804
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Dun's Market Identifiers Plus, 07/05/15, Mort's Inc
July 5, 2015
Dun's Decision Makers
View the DMI Record
Mort's Inc
P O Box 400 Latimer,
IA 50452
United States
BUSINESS ADDRESS: 1451a Gull Ave, Latimer, IA 50452, United States
COUNTY: Franklin
COMPANY IDENTIFIERS
DUNS NUMBER: 02-207-9289
EXECUTIVES
President:
Seth Morton, President
Seth Morton, President
Treasurer:
Tracy Morton, Treasurer
Tracy Morton, Treasurer
Administrative Secretary:
Priscilla M Eddy, Secretary
Priscilla M Eddy, Secretary
Bookkeeper:
Norma Allen, Bookeeper
Norma Allen, Bookeeper
DESCRIPTION
For internal use only
SDNY_GM_00056805
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Dun's Market Identifiers Plus, 07/05/15, Mort's Inc
INDUSTRY TYPE: Construction; Water Pump Installation Plumbing Contractor Sewer
Construction & Whol & Installation Water Treatment Equipment
Copyright 2015 Dun & Bradstreet, Inc.
June 28, 2015
Dun's Decision Makers
View the DMI Record
Mort's Inc
505 Industrial Park Rd Iowa Falls,
IA 50126-9500
United States
BUSINESS ADDRESS: 505 Industrial Park Rd, Iowa Falls, IA 50126-9500, United States
COUNTY: Hardin
***** * * " * COMPANY IDENTIFIERS
DUNS NUMBER:
EXECUTIVES
Manager:
Deaune Sudpelgte, Manager
Deaune Sudpelgte, Manager
DESCRIPTION
INDUSTRY TYPE: Construction; Plumbing & Heating Contractor
Copyright 2015 Dun & Bradstreet, Inc.
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SDNY_GM_00056806
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dun&bracstreet
Federal Employer Identification Numbers
June 7, 2015
MORTS INC
505 INDUSTRIAL PARK RD
IOWA FALLS, IA 50126
UNITED STATES
COMMUNICATIONS
TELEPHONE:
COMPANY IDENTIFIERS
FEIN:
SOURCE REFERENCE NAME: MORT'S INC
HEADQUARTER/PARENT DUNS NUMBER:
EXECUTIVES
TOP CONTACT: Manager Deaune Sudpelgte
MARKET AND INDUSTRY
SIC CODES:
CROSS REFERENCE:
PRIMARY BUSINESS NAME: Mort's Inc
ADDITIONAL BUSINESS NAME: Mort's Plumbing & Heating
LOAD-DATE: September 28, 2015
LEGAL RESULTS:
Court Cases:
QUINTON BROWN; JASON GUY; ALVIN SIMMONS; SHELDON
SINGLETARY; GERALD WHITE; RAMON ROANE; JACOB
RAVENELL, individually and on behalf of the class they seek to
represent, Plaintiffs - Appellants, v. NUCOR CORPORATION;
NUCOR STEEL-BERKELEY, Defendants - Appellees.
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SDNY_GM_00056807
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Page 12
785 F.3d 895, "; 2015 U.S. App. LEXIS 7739, **;
126 Fair Empl. Prac. Cas. (BNA) 1793: 99 Empl. Prac. Dec. (CCH) P45,306
No. 13-1779
UNITED STATES COURT OF APPEALS FOR THE FOURTH
CIRCUIT
785 F.3d 895; 2015 U.S. App. LEXIS 7739; 126 Fair Empl. Prac.
Cas. (BNA) 1793; 99 Empl. Prac. Dec. (CCH) P45,306; 91 Fed. R.
Serv. 3d (Callaghan) 1169
September 17, 2014, Argued
May 11, 2015, Decided
r ij
PRIOR HISTORY: Appeal from the United States District Court for the District of
South Carolina, at Charleston. (2:04-cv-22005-CWH). C. Weston Houck, Senior District
Judge.
Brown v. Nucor Corp., 576 F.3d 149, 2009 U.S. App. LEXIS 17643 (4th Cir. S.C., 2009)
DISPOSITION: VACATED IN PART, AND REMANDED WITH INSTRUCTIONS.
CASE SUMMARY:
OVERVIEW: HOLDINGS: [1]-Certification of a class of black steel workers who alleged
racial discrimination at a South Carolina plant was warranted for allegations of
discriminatory job promotion practices because statistical and substantial anecdotal
evidence suggested discrimination in promotion decisions in multiple departments for
purposes of commonality under Fed. R. Civ. P. 23(a)(2): [2]-Decertification of the class
was an abuse of discretion because the workers' direct evidence sufficiently showed
common claims of disparate treatment and disparate impact under 42 U.S.C.S. § 2000e-
2(k). and additionally. the statistical disparity actually exceeded two standard deviations:
[3]-Reconsideration of the predominance requirement under Rule 23(b)(3) was error, as it
was not part of the remand order and there were no new facts or legal precedent that
justified revisiting that determination.
OUTCOME: Judgment vacated in part; matter remanded with instructions to recertify
promotions class.
CORE TERMS: promotion, statistical, commonality, plant, predominance, anecdotal,
supervisor, disparity, hostile, class certification, certification, work environment, statistical
evidence, bidding, statistics, class action, certify, discriminatory, plant-wide, beam mill,
black workers, class members, disparate treatment, opening, bidder, pool, standard
deviations, manager, disparate impact. general manager
LexisNexis(R) Headnotes
For internal use only
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Page 13
785 F.3d 895, *; 2015 U.S. App. LEXIS 7739, n;
126 Fair Empl. Prac. Cas. (BNA) 1793; 99 Empl. Prac. Dec. (CCH) P45,306
Civil Procedure > Class Actions > Certification
Civil Procedure > Class Actions > Appellate Review
Civil Procedure > Appeals > Remands
Civil Procedure > Appeals > Standards of Review > De Novo Review
Civil Procedure > Appeals > Standards of Review > Abuse of Discretion
[HN1]Appellate courts typically review a district court's certification order for abuse of
discretion. The appellate courts review de novo, however, whether a district court
contravenes a prior express or implicit mandate issued by the appellate court.
Civil Procedure > Appeals > Remands
Civil Procedure > Class Actions > Decertification
[HN2]As to the question of whether a district court's decertification order violated the
appellate court's mandate, an "extraordinary" exception to the mandate rule exists when
there is a showing that controlling legal authority has changed dramatically. Moreover,
Fed. R. Civ. P. 23(c)(1)(C) provides a district court with broad discretion to alter or amend
a prior class certification decision at any time before final judgment.
Civil Procedure > Class Actions > Prerequisites > Commonality
[HN3]At the very least, Wal-Mart recalibrated and sharpened the lens through which a
court examines class certification decisions under Fed R. Civ. P. 23(a)(2), an impact
plainly manifested by the number of certifications overturned in its wake.
Civil Procedure > Class Actions > Certification
Civil Procedure > Class Actions > Appellate Review
Civil Procedure > Appeals > Appellate Jurisdiction > Lower Court Jurisdiction
[HN4] Class certification orders are not final judgments impervious to lower court review
and revision.
Civil Procedure > Appeals > Standards of Review > Abuse of Discretion
Civil Procedure > Class Actions > Certification
Civil Procedure > Class Actions > Appellate Review
[HN5]The law gives broad leeway to district courts in making class certification decisions,
and their judgments are to be reviewed by the court of appeals only for abuse of discretion.
A district court abuses its discretion when it materially misapplies the requirements of Fed.
R. Civ. P. 23. A district court per se abuses its discretion when it makes an error of law or
clearly errs in its factual findings.
Civil Procedure > Class Actions > Prerequisites > Commonality
[HN6] Fed. R. Civ. P. 23(a)(2) establishes that a class action may be maintained only if
"there are questions of law or fact common to the class."
Civil Procedure > Class Actions > Prerequisites > General Overview
Evidence > Procedural Considerations > Burdens of Proof > Allocation
[HN7]Wal-Mart reaffirmed existing precedent that courts must rigorously examine whether
plaintiffs have met the prerequisites of Fed. R. Civ. P. 23(a) at the certification stage, an
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Page 14
785 F.3d 895, *; 2015 U.S. App. LEXIS 7739, ea;
126 Fair Empl. Prac. Cas. (BNA) 1793; 99 Empl. Prac. Dec. (CCH) P45,306
analysis that will often overlap with the merits of a claim. But as the Court later clarified,
Rule 23 grants courts no license to engage in free-ranging merits inquiries at the
certification stage. Instead, the merits of a claim may be considered only when relevant to
determining whether the Rule 23 prerequisites for class certification are satisfied.
Evidence > Procedural Considerations > Weight & Sufficiency
Civil Procedure> Class Actions > Prerequisites > General Overview
[HN8] While an evaluation of the merits to determine the strength of the plaintiffs' case is
not part of a Fed. R. Civ. P. 23 analysis, the factors spelled out in Rule 23 must be
addressed through findings, even if they overlap with issues on the merits.
Civil Procedure> Class Actions > Prerequisites > General Overview
Evidence > Procedural Considerations > Weight & Sufficiency
[HN9] Fed. R. Civ. P. 23 is not a mere pleading standard. Far from it. A court should
engage the merits of a claim only to the extent necessary to verify that Rule 23 has been
satisfied.
Evidence > Procedural Considerations > Weight & Sufficiency
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > General
Overview
[HN10] Of course, it belabors the obvious to observe that the alternative benchmark is a
less precise measure than actual bidding data to prove discrimination. It is also clear,
however, that plaintiffs may rely on other reliable data sources and estimates when a
company has destroyed or discarded the primary evidence in a discrimination case. More
than two decades of judicial precedent affirm as much.
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > General
Overview
Labor & Employment Law > Discrimination > Disparate Treatment > Proof >
Statistical Evidence
Civil Procedure> Class Actions > Prerequisites > Commonality
[HN11] The critical question is not whether the data used is perfect for purposes of
establishing commonality for class certification in a discrimination matter, but instead
whether it is reliable and probative of discrimination. To that end, a court must examine
whether any statistical assumptions made in the analysis are reasonable.
Civil Procedure> Class Actions > Prerequisites > Commonality
Labor & Employment Law > Discrimination > Disparate Treatment > Proof >
Statistical Evidence
[HN12] An incremental reduction in probative value - which is a natural consequence of the
use of proxy data - does not itself render a statistical study unreliable in establishing a
question of discrimination common to the class. Indeed, to conclude otherwise would
undermine prior precedent, rendering plaintiffs unable to bring a statistics-based
employment discrimination claim after a company has intentionally or inadvertently
destroyed actual applicant data.
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Page 15
785 F.3d 895, *; 2015 U.S. App. LEXIS 7739, n;
126 Fair Empl. Prac. Cas. (BNA) 1793; 99 Empl. Prac. Dec. (CCH) P45,306
Labor & Employment Law > Discrimination > Disparate Treatment > Proof >
Statistical Evidence
Civil Procedure > Class Actions > Prerequisites > Commonality
[HN13] What matters for determining commonality under class certification in a
discrimination matter is not whether an analysis makes assumptions based on imperfect
data, but whether those assumptions are reasonable. Indeed, statistics are not certainties
but are merely a body of methods for making wise decisions in the face of uncertainty.
Labor & Employment Law > Discrimination > Disparate Treatment > Proof >
Statistical Evidence
[HN14] Statistical significance is not always synonymous with legal significance, such as in
the discrimination context. Indeed, the usefulness of statistical evidence often depends on
all of the surrounding facts and circumstances.
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > Burdens
of Proof
Civil Procedure > Class Actions > Prerequisites > Commonality
[HN15] Wal-Mart instructs that plaintiffs must present a common contention capable of
being proven or disproven in "one stroke" to satisfy Fed., R. Civ. P. 23(a)(2)'s commonality
requirement. Thus, a class-wide proceeding must be able to generate common answers
that drive the litigation. For a claim based on discrimination in employment decisions,
without some glue holding the alleged reasons for all those decisions together, it will be
impossible to say that examination of all the class members' claims for relief will produce a
common answer to the crucial question why was I disfavored. Semantic dexterity in
crafting a common contention is not enough. Commonality instead requires the plaintiff to
demonstrate that the class members "have suffered the same injury." As such, a court
must examine whether differences between class members impede the discovery of
common answers.
Civil Procedure > Class Actions > Prerequisites > Commonality
Labor & Employment Law > Discrimination > Disparate Treatment > Proof >
Statistical Evidence
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > Burdens
of Proof
[HN16] In the absence of a common job evaluation procedure, Wal-Mart held that
statistical proof of employment discrimination at the regional and national level, coupled
with limited anecdotal evidence from some states, is insufficient to show that the company
maintained a "general policy of discrimination" present in each store where class members
worked for purposes of commonality for class certification.
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > General
Overview
Civil Procedure > Class Actions > Prerequisites > Commonality
[HN17] A more centralized. circumscribed environment generally increases the uniformity
of shared injuries, the consistency with which managerial discretion is exercised, and the
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likelihood that one managers promotions decisions will impact employees in other
departments for purposes of commonality for class certification.
Civil Procedure > Class Actions > Prerequisites > Commonality
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > General
Overview
[HN18] Nothing in the Supreme Courts opinion suggests that single, localized operations
must be analytically dissected into component departments for purposes of commonality
for class certification in a discrimination context.
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > General
Overview
Labor & Employment Law > Discrimination > Racial Discrimination > Proof >
General Overview
[HN19] It is difficult to fathom how widespread racial animus that consistently emphasized
the inferiority of black workers bears no relationship to decisions whether or not to promote
an employee of that race. Courts are not limited to the record in making such elementary
judgments. Justice is not blind to history, and courts need not avert their eyes from the
broader circumstances surrounding employment decisions, and the inferences that
naturally follow.
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > General
Overview
[HN20] Companies may investigate allegations of discrimination and take statements from
employees. But when it comes to assessing the probative value of those statements -
when weighed against the numerous declarations of employees who took the often grave
risk of accusing an employer of a workplace violation - courts should proceed with eyes
open to the imbalance of power and competing interests.
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > General
Overview
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > Burdens
of Proof
[HN21] A plaintiff need not offer evidence that each person for whom it will ultimately seek
relief was a victim of the employers discriminatory policy. Instead, a bifurcated class action
proceeding allows for a "liability" stage to first determine whether an employer engaged in
a pattern or practice of discriminatory conduct. Upon a finding of liability, a second
damages stage allows for the consideration of which individuals were specifically harmed
by the policy.
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > Burdens
of Proof
Labor & Employment Law > Discrimination > Disparate Treatment > Proof >
Statistical Evidence
[HN22] For a liability determination in a disparate treatment claim, such a claim requires
proof of a "systemwide pattern or practice" of discrimination such that the discrimination is
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'the regular rather than the unusual practice." The required discriminatory intent may be
inferred upon such a showing. Where gross statistical disparities can be shown, they alone
may in a proper case constitute prima facie proof of a pattern or practice of discrimination.
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > Burdens
of Proof
Labor & Employment Law > Discrimination > Disparate Impact > Proof > General
Overview
Labor & Employment Law > Discrimination > Racial Discrimination > Proof >
Statistical Evidence
[H N23] Unlike a disparate impact claim, a showing of disparate treatment does not require
the identification of a specific employment policy responsible for the discrimination. A
pattern of discrimination, revealed through statistics and anecdotal evidence, can alone
support a disparate treatment claim, even where the pattern is the result of discretionary
decision-making. To hold otherwise would dramatically undermine Title VII's prophylactic
powers. A central purpose of Title VII is to achieve equality of employment opportunities
and remove barriers that have operated in the past to favor an identifiable group of white
employees over other employees.
Labor & Employment Law > Discrimination > Disparate Impact > Proof > Burdens of
Proof
Labor & Employment Law > Discrimination > Disparate Impact > Proof > Statistical
Evidence
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > General
Overview
[H N24] Statistics and anecdotes suggesting a pattern of discrimination are not enough
alone to sustain a disparate impact claim. Disparate impact liability requires the
identification of a specific employment practice that caused racially disparate results. 42
U.S.C.S. § 2000e-2(k). Unlike disparate treatment, the disparate impact theory does not
require proof of improper intent to sustain a Title VII violation. Instead, liability is premised
on facially neutral policies.
Labor & Employment Law > Discrimination > Disparate Impact > Proof > Burdens of
Proof
[HN25] Under Wal-Mart, a mere showing that a policy of discretion has produced an
overall disparity does not suffice for purposes of disparate impact. Instead, plaintiffs who
allege such a policy of discretion must demonstrate that a "common mode of exercising
discretion" actually existed throughout a company. Wal-Mart recognizes that in certain
cases, giving discretion to lower-level supervisors can be the basis of Title VII liability
under a disparate-impact theory because an employees undisciplined system of subjective
decisionmaking can have precisely the same effects as a system pervaded by
impermissible intentional discrimination. For a nationwide class, Wal-Mart found that
proving a consistent exercise of discretion will be difficult, if not impossible in some
circumstances.
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Labor & Employment Law > Discrimination > Disparate Impact > Proof > Burdens of
Proof
Labor & Employment Law > Discrimination > Racial Discrimination > Proof >
Burdens of Proof > Employee Burdens
[HN26] For a localized, circumscribed class of workers at a single facility, a policy of
subjective, discretionary decision-making can easily form the basis of Title VII liability
under a disparate impact theory, particularly when paired with a clear showing of pervasive
racial hostility. In such cases, the underlying animus may help establish a consistently
discriminatory exercise of discretion. Several ways that such a disparate impact claim may
satisfy Fed. R. Civ. P. 23 after Wal-Mart, include: (1) when the exercise of discretion is
"tied to a specific employment practice" that "affected the class in a uniform manner"; (2)
when there is "also an allegation of a company-wide policy of discrimination" that affected
employment decisions; and (3) "when high-level personnel exercise" the discretion at
issue. A specific employment practice or policy can comprise affirmative acts or inaction.
Civil Procedure> Class Actions > Prerequisites > Predominance
Civil Procedure> Class Actions > Prerequisites > Commonality
[HN27] In a class action brought under Fed. R. Civ. P. 23(b)(3), the "commonality"
requirement of Rule 23(a)(2) is subsumed under, or superseded by, the more stringent
Rule 23(b)(3) requirement that questions common to the class predominate over other
questions. But as Wal-Mart made clear, the Rule 23(a) commonality requirement and the
Rule 23(b)(3) predominance requirement remain separate inquiries.
Civil Procedure > Appeals > Briefs
Civil Procedure > Appeals > Reviewability > Preservation for Review
[HN28] The doctrine of waiver derives from the Federal Rules of Appellate Procedure,
which require that the argument section of an appellant's opening brief contain the
appellant's contentions and the reasons for them, with citations to the authorities and parts
of the record on which the appellant relies. Fed. R. App. P. 28(a)(8)(A). Failure of a party in
its opening brief to challenge an alternate ground for a district court's ruling waives that
challenge.
Civil Procedure > Appeals > Reviewability > Preservation for Review
Civil Procedure > Appeals > Briefs
[HN29] Where an argument advanced in an appellant's opening brief applies to and
essentially subsumes an alternative basis for affirmance not separately argued therein, the
appellant does not waive that alternative basis for affirmance.
Civil Procedure > Appeals > Reviewability > Preservation for Review
[HN30] The purpose of the waiver doctrine is to avoid unfairness to an appellee and
minimize the risk of an improvident or ill-advised opinion being issued on an unbriefed
issue. Even when an argument has been waived, an appellate court may nonetheless
consider it if a "miscarriage of justice would otherwise result."
Civil Procedure > Appeals > Remands
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[HN31] A district court must implement both the letter and spirit of the mandate, taking into
account the appellate court's opinion and the circumstances it embraces. The mandate
rule forecloses relitigation of issues expressly or impliedly decided by the appellate court.
Civil Procedure > Appeals > Remands
Evidence > Procedural Considerations > Burdens of Proof > Allocation
Governments > Courts > Judicial Precedents
[HN32] The "extraordinary" exception to the mandate rule is when there is a showing that
controlling legal authority has changed dramatically.
Civil Procedure > Class Actions > Certification
Civil Procedure > Class Actions > Judicial Discretion
[HN33] Fed. R. Civ. P. 23 provides wide discretion to district courts, in part, to promote the
systemic class action virtues of efficiency and flexibility. The realization of such benefits,
however, requires that a district court exercise its judgment in a reasoned and expeditious
manner.
COUNSEL: ARGUED: Robert L. Wiggins, Jr., WIGGINS, CHILDS, QUINN & PANTAZIS
LLC, Birmingham, Alabama, for Appellants.
Lisa Schiavo Blatt, ARNOLD & PORTER LLP, Washington, D.C., for Appellees.
ON BRIEF: Armand Derfner, D. Peters Wilborn, Jr., DERFNER, ALTMAN & WILBORN.
Charleston, South Carolina; Ann K. Wiggins, WIGGINS, CHILDS, QUINN & PANTAZIS
LLC, Birmingham, Alabama, for Appellants.
Cary A. Farris, John K. Linker, J. Shannon Gatlin, ALANIZ SCHRAEDER LINKER FARRIS
MAYES, LLP, Houston, Texas; Dirk C. Phillips, Sarah M. Harris, ARNOLD & PORTER
LLP, Washington, D.C.; J. Tracy Walker, IV, Robert L. Hodges, Matthew A. Fitzgerald,
MCGUIREWOODS, LLP, Richmond, Virginia, for Appellees.
JUDGES: Before GREGORY, AGEE, and KEENAN, Circuit Judges. Judge Gregory wrote
the opinion, in which Judge Keenan joined. Judge Agee wrote the dissenting opinion.
OPINION BY: GREGORY
OPINION
["898] GREGORY, Circuit Judge:
This case concerns the certification of a class of black steel workers who allege endemic
racial discrimination at a South Carolina plant owned ["2] by Nucor Corporation and
Nucor Steel Berkeley (collectively, "Nucor"). Plaintiffs-appellants ("the workers") accuse
Nucor of both discriminatory job promotion practices and a racially hostile work
environment under Title VII of the Civil Rights Act of 1964 and 42 U.S.C. § 1981. The
district court originally denied class certification for both claims, and this Court reversed.
See Brown v. Nucor Corp., 576 F.3d 149 (4th Cir. 2009) ("Brown I").
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The district court has revisited certification and decertified the promotions class in light of
the Supreme Court's opinion in Wal-Mart Stores, Inc. v. Dukes, U.S. , 131 S. Ct. 2541,
180 L. Ed. 2d 374 (2011).' We thus again confront the question of whether the workers'
have presented a common question of employment discrimination through evidence of
racism in the workplace. Despite Wal-Mart's reshaping of the class action landscape, we
hold that the district court has for a second time erred in refusing to certify the workers'
class, where (1) statistics indicate that promotions at Nucor depended in part on whether
an individual was black or white; (2) substantial anecdotal evidence suggests
discrimination in specific promotions decisions in multiple plant departments; and (3) there
is also significant evidence that those promotions decisions were made in the context of a
racially hostile [**3] work environment.
1 The district court refused to decertify the wotters hostile work environment claim. We have previously deried as untimely
Nucor's petition for interlocutory review of that decision. Nucor Corp. v. Brown. 760 F.3d 341.342 (4th Cir. 2014).
Against that backdrop, the district court fundamentally misapprehended the reach of Wal-
Mart and its application to the workers' promotions class. We thus vacate the district
courts decision in part and remand for re-certification of the class.
I.
The Nucor plant encompasses six production departments that work together to melt,
form, finish, and ship steel products to customers. See Brown I, 576 F.3d at 151. At the
start of this litigation, 611 employees worked at the plant. Seventy-one (11.62%) were
black? There was, however, at most one black supervisor in the production departments
until after the Equal Employment Opportunity Commission ("EEOC") initiated charges that
preceded the putative class action.
2 By comparison. more than 38% of the available local labor market is black. according to Census data provided by the
workers' experts.
The workers' promotions claim rests on alternative theories of liability under Title VII, which
rig
prohibits employment discrimination because of an individual's "race, color, religion,
sex, or national origin." 42 U.S.C. § 2000e-2. The promotions claim first alleges a pattern
or practice of racially disparate treatment in promotions decisions. See Teamsters v.
United States, 431 U.S. 324, 336, 97 S. Ct. 1843, 52 L. Ed. 2d 396 (1977). Second, it
charges that Nucor's facially neutral promotions policies and procedures had a racially
disparate impact. See Griggs v. Duke Power Co., 401 U.S. 424, 431, 91 S. Ct. 849, 28 L.
Ed. 2d 158 (1971); Wal-Mart, 131 S. Ct. at 2554.
Both theories are grounded in a statistical analysis of racial disparities in job pro p899]
motions at the plant combined with anecdotal evidence of discrimination. The workers'
statistical evidence spans the four-year period preceding the litigation, between December
1999 and December 2003. Because Nucor destroyed and/or discarded the actual bidding
data for the period before 2001, the workers' experts established an alternative benchmark
using 'change-of-status' forms filed by the company whenever a promotion took place at
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the plant. The experts extrapolated comparative statistics for that period using an
assumption that the racial composition of the bidding pool for those jobs was the same as
for the post-2001 jobs analyzed (when Nucor retained actual bidding records).
The workers also presented abundant direct and circumstantial anecdotal evidence of
discrimination in promotions, including:
rsi
Anecdotal evidence provided by the seven named plaintiffs and nine other putative class members. claiming
discrimination in specific promotions decisions in the Nucor production departments;
' A description of complaints, contained in affidavits and depositions. made to plant General Manager Ladd Hall, who
the workers allege failed to meaningfully respond;
' Descriptions of retaliation against those who complained to management,
' A written copy of Nucor's promotions policy and testimony that the policy was largely ignored in favor of giving
unbridled discretion to supervisors; and
• Testimony by a white supervisor that his department manager told him that "I don't think well ever have a black
supervisor while I'm here."
The facts undergirding the workers' separate hostile work environment claim, not directly
at issue in this appeal, also bear on the promotions analysis. Those facts are disquieting in
their volume, specificity, and consistency. Supervisors allegedly routinely referred to black
workers as "nigger" and "DAN (dumb ass nigger)," with one supervisor reportedly stating
"niggers aren't smart enough" to break production records, while others tolerated the
routine use of epithets like "bologna lips," "yard [`6] ape," and "porch monkey." These
epithets and others were broadcast over the plant-wide radio system - comprising a
network of walkie-talkies used to communicate - along with monkey noises and the songs
"Dixie" and "High Cotton." The workers' declarations and depositions further suggest that
departmental supervisors and the plant's general manager consistently ignored racial
harassment carried out by white workers, including the circulation of racist emails, the
prominent display of a hangman's noose, the commonplace showing of the Confederate
flag, and an episode when a white employee draped a white sheet over his head with eyes
cut out in the form of a KKK hood.
In 2007, the South Carolina district court denied the workers' motion for class certification
for both the promotions and hostile work environment claims. In 2009, a divided panel of
this Court reversed, concluding that the workers satisfied the threshold requirements of
Federal Rule of Civil Procedure 23. We remanded the case 'with instructions to certify the
appellants' class action." Brown I, 576 F.3d at 160.
On February 17, 2011, the district court followed our instructions to certify the class,
concluding that the workers satisfied Rule 23(b)(3)'s requirements that common questions
['9OO]
predominate ["7] and that the class action was superior to other litigation devices
to resolve the dispute. The district court later declined to stay the case pending a ruling in
Wal-Mart, and it declined to reconsider its order certifying the class.
The Supreme Court decided Wal-Mart in June 2011, decertifying an unprecedented
nationwide class of approximately 1.5 million female employees spread over 3,400 stores.
Wal-Mart held that the plaintiffs had failed to present a "common contention" of
employment discrimination capable of "classwide resolution," as required by Rule 23(a)(2).
Wal-Mart, 131 S.Ct. at 2551. Given the diffuse class and number of employment decisions
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at issue, the Supreme Court observed that "[w]ithout some glue holding the alleged
reasons for all those decisions together, it will be impossible to say that examination of all
class members' claims for relief will produce a common answer to the crucial question why
was I disfavored." Id. at 2552 (emphasis in original). The plaintiffs, Wal-Mart concluded,
failed to meet that standard when they premised liability on a company policy of
decentralized subjective decision-making by local managers, combined with statistics
showing gender-based employment disparities, limited anecdotal evidence, [**8] and
expert testimony about a corporate culture that allowed for the transmission of bias. See
id. at 2551, 2554-55.
On September 11, 2012, the district court relied on Wal-Mart to decertify the workers'
promotions class, invoking the courts authority under Rule 23(c)(1)(C) to amend a
certification order at any time before final judgment. Wal-Mart, the court observed, clarified
and heightened the commonality requirement of Rule 23(a)(2), requiring the workers to
present "significant proof" that Nucor "operated under a general policy of discrimination"
and that they suffered a common injury. J.A. 10934 (quoting Wal-Mart, 131 S.Ct. at 2553).
Under that standard, the district court concluded that decertification of the promotions
class was required because: (1) this Court's examination of the workers' statistical analysis
in Brown I was not sufficiently "rigorous" to assess whether it raised questions common to
the class under Rule 23(a)(2); (2) the workers' statistical and anecdotal evidence failed to
establish such commonality because it did not provide "significant proof' that there existed
both a "general policy of discrimination" and a "common injury"; (3) the delegation of
subjective decision-making to Nucor supervisors was not, without more, a sufficiently
[".9]
uniform policy to present "common' issues appropriate for resolution on a class-wide
basis"; and (4) even if the workers had identified a common question of law or fact
satisfying Rule 23(a)(2), they failed to independently satisfy Rule 23(b)(3)'s requirements
that common issues predominate and that the class action is a superior litigation device.
Although the court decertified the class for the promotions claim, it refused to do so for the
hostile work environment claim. The district court reaffirmed that the workers had
demonstrated that the "landscape of the total work environment was hostile towards the
class." J.A. 10964 (quoting Newsome v. Up-To-Date Laundry, Inc., 219 F.R.D. 356, 362
(D. Md. 2004)). Unlike the promotions claim, the court determined that the hostile
environment allegations required no showing of a company-wide adherence to a common
policy of discrimination. Still, the court found that "there is significant evidence that
management ignored a wide range of harassment" and that the workers "met their burden
to present significant proof of a general policy of discrimination." J.A. 10968.
x901]
On September 30, 2013, the workers appealed the district court's decertification of
the promotions class.
II.
["'10]
[FIN1] We typically review a district court's certification order for abuse of discretion.
Doe v. Chao, 306 F.3d 170, 183 (4th Cir. 2002), affd on other grounds, 540 U.S. 614, 124
S. Ct. 1204, 157 L. Ed. 2d 1122 (2004). We review de novo, however, whether a district
court contravenes a prior express or implicit mandate issued by this Court. United States v.
Bell, 5 F.3d 64, 66 (4th Cir. 1993); S. Atl. Ltd. P'ship of Tenn. v. Riese, 356 F.3d 576, 583
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(4th Cir. 2004) ('We review de novo . . . whether a post-mandate judgment of a district
court contravenes the mandate rule, or whether the mandate has been 'scrupulously and
fully carried out."' (quoting 2A Fed. Proc., L. Ed. § 3:1016)).
Determining the appropriate standard of review thus requires a two step approach. First,
we examine de novo whether the district court's decertification order violated our mandate
in Brown Ito certify the workers' class. Second, if no such violation occurred, we must
determine anew whether the district court abused its discretion in decertifying the
promotions class.
[HN2] As to the first question, an "extraordinary" exception to the mandate rule exists
when there is "a show[ing] that controlling legal authority has changed dramatically." Bell,
5 F.3d at 67 (alteration in original). Moreover, Rule 23(c)(1)(C) provides a district court with
broad discretion to alter or amend a prior class certification decision at any time before
final judgment.
Against that backdrop, the parties disagree about whether Wal-Mart provided sufficient
rig
justification for the district court to invoke its powers to revisit certification. Nucor
maintains that Wal-Mart represents a "sea change" and that "class actions may proceed
only in the most exceptional of cases." Resp'ts' Br. 15, 20. The workers suggest, however,
that the Supreme Court instead largely reaffirmed existing precedent. Appellants' Br. 34.
The truth has settled somewhere in between. See Scott v. Family Dollar Stores, Inc., 733
F.3d 105, 113-14 (4th Cir. 2013) (discussing limitations on the scope of Wal-Mart's
holding); McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 672 F.3d 482, 487-88
(7th Cir. 2012), cert. denied, 133 S. Ct. 338, 184 L. Ed. 2d 157 (2012) (finding that Wal-
Mart provided the basis for a renewed class certification motion); DL v. District of
Columbia, 713 F.3d 120, 126, 404 U.S. App. D.C. 316 (D.C. Cir. 2013) (surveying how
Wal-Mart has changed the class action landscape); Elizabeth Tippett, Robbing A Barren
Vault: The Implications of Dukes v. Wal-Mart for Cases Challenging Subjective
Employment Practices, 29 Hofstra Lab. & Emp. L.J. 433 (2012) (using an empirical
analysis to predict Wal-Mart's likely impact on class certifications in the future). [HN3] At
the very least, Wal-Mart recalibrated and sharpened the lens through which a court
examines class certification decisions under Rule 23(a)(2), an impact plainly manifested by
the number of certifications overturned in its wake. See, e.g., EQT Prod. Co. v. Adair, 764
F.3d 347 (4th Cir. 2014); Rodriguez v. Nat'l City Bank, 726 F.3d 372, 376 (3d Cir. 2013);
M.D. ex rel. Stukenberg v. Perry, 675 F.3d 832, 839, 841-44 (5th Cir. 2012); Ellis v. Costco
Wholesale Corp., 657 F.3d 970, 974 (9th Cir. 2011).
In that light, we find that the district court's decision to reconsider the certification of the
[".12]
workers' class did not itself violate our mandate in Brown I. Per this Court's original
['9O2]
remand instructions, the district court certified both the promotions and hostile
work environment classes. Although the court had no discretion to then reconsider
questions decided by this Court under then-existing facts and law, Wal-Mart provided a
sufficiently significant change in the governing legal standard to permit a limited
reexamination of whether the class satisfied the commonality requirement of Rule
23(a)(2).3There are, however, instances described below when the district court
unnecessarily revisited other discrete determinations made by this Court in Brown I, such
as whether the Nucor plant should be treated analytically as a single entity, and whether
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the class independently met the requirements of Rule 23(b)(3). The reconsideration of
those determinations was not compelled by Wal-Mart and contravened our mandate in
Brown I.
3 Furthermore, this Court's original mandate did not entirely divest the district court of its ongoing authority under Rule
23(c)(1)(C) to monitor the class and make changes when appropriate. See Prado-Steiman v. Bush, 221 F.3d 1266, 1273 (11th
Or. 2000) ( (FIN4) 'Class certification orders ... are not final judgments impervious to lower court review and revision"); Gene
& Gene, L.LC. v. BioPay. L.L.C., 624 F.3d 698, 702-03 (5th Or. 2010).
Because the district court could reexamine ("13] whether the workers met the
requirement of commonality, we review those findings under the abuse of discretion
standard that typically applies to certification orders. See Amchem Prods., Inc. v. Windsor,
521 U.S. 591, 630, 117 S. Ct. 2231, 138 L. Ed. 2d 689 (1997) ( [HN5]"The law gives
broad leeway to district courts in making class certification decisions, and their judgments
are to be reviewed by the court of appeals only for abuse of discretion."); Brown I, 576
F.3d at 152; Thorn v. Jefferson-Pilot Life Ins. Co., 445 F.3d 311, 317 (4th Cir. 2006). A
district court abuses its discretion when it materially misapplies the requirements of Rule
23. See Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 424 (4th Cir. 2003); Thorn, 445
F.3d at 317-18 ("A district court per se abuses its discretion when it makes an error of law
or clearly errs in its factual findings."). The decisive question here is whether the district
court materially misapplied Rule 23(a)(2) to the facts at hand in light of Wal-Mart.'
4 The dissent is skeptical that an appellate court can articulate a deferential standard of review while then finding reversible
error in many of the factual and legal determinations made by a district court. See post at 84. Deference, however, clearly does
not excuse us from conducting a detailed review of the record. Nor does it blind us from factual findings that were not supported
I"14]
and legal determinations that represent a fundamental misunderstanding of Wal•Mart's scope. Indeed. we recently
applied similar scrutiny when overturning a district court's class certification order. See EOT Production. 764 F.3d at 357.58.
Ill.
[FIN6] Rule 23(a)(2) establishes that a class action may be maintained only if "there are
questions of law or fact common to the class." The district court determined that Wal-Mart
required decertification of the workers' promotions class insofar as the Supreme Court's
interpretation of the rule (1) emphasized the analytical rigor required to evaluate a
plaintiffs statistical evidence of commonality at the class certification stage, (2) placed the
burden on plaintiffs to provide "significant proof' of a "general policy of discrimination" and
"common injury," and (3) relatedly established that a company's policy of discretionary
decision-making cannot sustain class certification without a showing that supervisors
exercised their discretion in a common way.
Each of these arguments is considered in turn.
r9O3]
A.
(HN7] Wal-Mart reaffirmed existing precedent that courts must rigorously examine
whether plaintiffs have met the prerequisites of Rule 23(a) at the certification stage, an
analysis that will often overlap with the merits of a claim. Wal-Mart, 131 S. Ct. at 2551
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(citing Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160-61, 102 S. Ct. 2364, 72 L. Ed. 2d
740 (1982)). But as the Court later clarified, "Rule 23 grants courts no license to engage in
free-ranging ["15] merits inquiries at the certification stage." Amgen Inc. v. Conn. Ret.
Plans & Trust Funds, U.S. , 133 S. Ct. 1184, 1194-95, 185 L. Ed. 2d 308 (2013).
Instead, the merits of a claim may be considered only when "relevant to determining
whether the Rule 23 prerequisites for class certification are satisfied." Id. at 1195.5
5 The Wal-Mart majority confronted a split among courts regarding the depth of review necessary to sustain class certification
under Rule 23. See Dukes v. Wal-Mart Stores. Inc.. 603 F.3d 571. 582-84 (9th Cir. 2010). rev'cl. 131 S. Ct. 2541. 180 L. Ed. 2d
374 (2011) (describing the split between circuits): Wal-Mart. 131 S. Ct. at 2551.52. On one end of the spectrum. a number of
courts liberally construed the Supreme Court's language in Eisen v. Carlisle 8 Jacquelin, 417 U.S. 156.94 S. Ct. 2140. 40 L.
Ed. 2d 732 0974), stating that "nothing in either the language or history of Rule 23 . gives a court any authority to conduct a
preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action." 417 U.S. at
177. On the other end, many courts, including this Circuit, heeded the Supreme Court's later call for a "rigorous analysis," as
announced in Falcon. See 457 U.S. at 160. As Falcon held. "sometimes it may be necessary for the court to probe behind the
pleadings before coming to rest on the certification question." Id.
This Court's precedent and its approach in Brown I are consistent with Wal-Mart and
Falcon. See Gariety v. Grant Thornton, LLP, 368 F.3d 356, 366 (4th Cir. 2004) (observing
that [FINS] "while an evaluation of the merits to determine the strength of the plaintiffs'
("16] case is not part of a Rule 23 analysis, the factors spelled out in Rule 23 must be
addressed through findings, even if they overlap with issues on the merits"). In Brown I,
this Court expressly invoked Falcon's requirement of a rigorous analysis to determine
compliance with Rule 23. 576 F.3d at 152. More important, of course, we actually
conducted such an analysis, providing a detailed evaluation of the workers' anecdotal and
statistical evidence to ensure that it presented a common question under Rule 23(a)(2). Id.
at 153-56.
Contrary to the dissent's assertion, we do not (and Brown I did not) suggest that [HN9]
Rule 23 is a mere pleading standard. See post at 92. Far from it. It is true that Brown I
cautioned that "an in--depth assessment of the merits of appellants' claim at this stage
would be improper." Id. at 156. Such a statement, however, is consistent with the Supreme
Court's dictate in Amgen that a court should engage the merits of a claim only to the extent
necessary to verify that Rule 23 has been satisfied. Amgen, 133 S. Ct. at 1194-95. Brown I
did precisely that.
1.
Even evaluated in a still more painstaking manner, the workers' statistical evidence is
methodologically sound while yielding results that satisfy Wal-Mart's heightened
requirement of commonality discussed below. The parties' (**17] central dispute concerns
the data used to analyze the period from December 1999 to January 2001, when Nucor
failed to retain actual bidding records. For that period, the workers' expert developed an
alternative benchmark that uses 27 relevant 'change-of-status' forms -- filled out when an
employee ['9O4] changes positions at the plant -- to extrapolate promotions data because
actual bidding information was unavailable.
[I-IN10) Of course, it belabors the obvious to observe that the alternative benchmark is a
less precise measure than actual bidding data. It is also clear, however, that plaintiffs may
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rely on other reliable data sources and estimates when a company has destroyed or
discarded the primary evidence in a discrimination case. More than two decades of this
Court's precedent affirm as much. See Lewis v. Bloomsburg Mills, Inc., 773 F.2d 561 (4th
Cir. 1985); United States v. County of Fairfax, 629 F.2d 932, 940 (4th Cir. 1980); see
generally Ramona L. Paetzold & Steven L. Willborn, The Statistics of Discrimination: Using
Statistical Evidence in Discrimination Cases § 4.03 (2014) (describing the use of proxy
data when actual data is unavailable or unreliable). In Lewis v. Bloomsburg Mills, Inc., this
Court approved the use of Census data to establish a hypothetical available pool of black
female job applicants after a company discarded ["18] employment applications for the
relevant period. 773 F.2d at 568.e Plaintiffs then compared the "observed" annual rate of
hires of black women with the "expected" rates based upon the proportional availability of
black females in the labor pool. Id. We endorsed a similar use of proxy data in United
States v. County of Fairfax, involving a county government that had destroyed three years
of employment applications. 629 F.2d at 940. To analyze hiring during that time, plaintiffs
assumed that the proportion of black and women applicants for those years was the same
as in the first year for which the county retained records. Id. This Court approved,
concluding the altemative benchmark was "the most salient proof of the County's labor
market." Id.'
6 In Lewis. the company had 'improperly disposed" of the relevant employment applications. uNike the present case where
there is no direct evidence of any impropriety. 773 F.2d at 568. That fact. however, does not affect our analysis of the workers'
alternative benchmark.
7 The dessert cites Men v. Prince George's County, 737 rid 1299. 1306 (4th Cir. 1984), to support its argument that a court
has wide discretion to reject alternative benchmarks. Post at 110-11. In Men, however, the defendants produced actual
"applicant flow data" that contradicted the conclusions of r`19] the plaintiffs' statistics that were based on more general
worktorceflabor market comparisons. Men. 737 F.2d at 1306. Here, like in Lewis, such actual applicant data is unavailable. See
Lewis, 773 F.2d at 568 (noting that "applicant flow data" was not available). Furthermore, Nucor has not presented any
alternative statistical study, or shown that data exists that may be more reliable than the alternative benchmark used by the
workers.
2.
(FIN11) The critical question is thus not whether the data used is perfect but instead
whether it is reliable and probative of discrimination. To that end, a court must examine
whether any statistical assumptions made in the analysis are reasonable. See Paetzold &
Willborn, supra, § 4.16. The district court here identified two assumptions made by the
workers' experts as problematic.
The district court first questioned the assumption that the job changes described on the 27
forms represent promotions. See J.A. 10942. As an example of clear factual error
committed by the court, it quoted at length from the dissent in Brown Ito argue that the
forms may represent job changes unrelated to promotions. J.A. 10942 (quoting Brown I,
576 F.3d at 167-68 (Agee, J., concurring in part and dissenting in part)). The forms cited in
['
Judge Agee's original dissent, however, are r20] plainly not among the 27 905] relied
upon by the workers' experts in constructing the alternative benchmark. Compare J.A.
10942 (the district court's decertification order quoting the dissent in Brown I), with J.A.
11005-11032 (copies of the actual change-of-status forms used in the expert analysis).
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Worse still, the dissent in Brown I reached the question of whether the 27 forms
represented promotions without the issue having been raised, much less analyzed, by the
district court in its original order denying certification, see J.A. 8979, or by Nucor itself in its
briefing before this Court in Brown l.° The dissent in Brown I thus both engaged in sua
sponte fact-finding to divine which forms were used, and then got the facts wrong.° Using
the flawed data, the dissent concluded in Brown I that "[ojn this record, it is difficult, if not
impossible to discern whether the 2000 data based on the nebulous change-of-status
forms proves those positions were promotion positions available for employee bidding and
thus relevant to the formulation of statistical evidence for the appellants' claims." Brown I,
576 F.3d at 168 (Agee, J., concurring in part and dissenting in part). The district court
[""21]
expressly embraced that conclusion in decertifying the promotions class after Wal-
Mart. J.A. 10942.
8 Nucor instead argued that the change of status forms failed to capture whether black employees bid on the positions, and
whether the positions were open for bidding in the first place. Given the lack of controversy surrounding whether the 27 forms
described promotions, the forms themselves were not introduced into the record until 2012. after the district embraced the fact-
finding conducted by the dissent in Brown I and observed that 'the Court has never seen the 27 charge-of-status forms...."
J.A 10943. The workers then appended all the forms to their motion to "alter and amend" the decertification order -- a motion
that was denied. J.A. 11005. 11083. Notably, it also appears that in 2006 the workers' expert provided Nucor with a list of the 27
employees used in the benchmark analysis. See J.A 1409. 1438.
9 Given that history, we would be remiss not to acknowledge the irony inherent in the dissent's insistence that we are now
impermissibly making factual determinations without due deference to the district court.
Upon examining the correct change-of-status forms, discerning whether they represent
promotions is a relatively r221 straightforward enterprise. Nineteen of the 27 forms
expressly state they are for a promotion, for a "successful bidder' on a "higher position," or
for a new position that was "awarded" or "earned." Two of the forms describe changes in
job classification accompanied by an increase in pay. One form notes that an inspector
was a "successful bidder" on a mill adjuster job — a move referred to on another change
form as a promotion. Two forms are for a "successful bidder' on a new position where no
new pay grade is noted. The remaining three forms appear to involve changes in positions
or training that involved a decrease in pay, but there is no indication, or argument by Nucor
or the district court, that the exclusion of those forms would substantially undermine the
probativeness of the expert analysis.
The second assumption criticized by the district court was that the bidding pools for the 27
positions filled between December 1999 and January 2001 had the same average racial
composition as the pools for similar jobs analyzed from 2001 to December 2003, when the
company retained actual bidding data. Because of discovery limitations imposed by the
district court, the information available r*23] regarding the 2001-2003 promotions was
restricted to positions similar to ones bid on by the named plaintiffs, where there was at
least one black bidder. However, because Nucor failed to retain bidding records for 1999-
['9O6]
2000, the data from that period could not be limited to positions where there was a
known black bidder. Instead, the alternative benchmark had to assume that there was at
least one black worker applying for each promotion analyzed -- an assumption that the
district court concluded helped render the statistical analysis unreliable. But as we already
determined in Brown I. the assumption does not fatally undermine the probativeness of the
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experts' findings. The workers' experts limited the records they analyzed to the same
positions identified in the later period when bidding data was available, positions for which
there was a black bidder. J.A. 1161-62. In its original order denying certification, the district
court observed that the assumptions regarding bidding "may be reasonable and the
statistics based thereon may be relevant to prove discrimination at the plant," but "the
necessity of the assumptions diminishes their probative value."" J.A. 8987; see also Brown
I, 576 F.3d at 156. As we previously r*24] concluded, [HN12] an incremental reduction in
probative value -- which is a natural consequence of the use of proxy data -- does not itself
render a statistical study unreliable in establishing a question of discrimination common to
the class. Brown I, 576 F.3d at 156. Indeed, to conclude otherwise would undermine our
prior precedent in cases like Lewis and Fairfax, rendering plaintiffs unable to bring a
statistics-based employment discrimination claim after a company has intentionally or
inadvertently destroyed actual applicant data." See Lewis, 773 F.2d at 568; Fairfax, 629
F.2d at 940.
10 After we pointed to this language in Brown I, the district court did an about-face and changed its conclusion to state that the
statistics were 'fundamentally unreliable.' J.A. 10941.
11 The workers experts acknowledged that the incomplete data "undermined" their "ability to use posting and bidding records
to analyze (those] promotions." J.A. 1161. In context, hawever, the experts were lamenting the failure of Nucor to "produce all
such records." J.A. 1161. As the experts concluded. they were able to "calculate reliable statistics" for the limited universe of
positions they analyzed. even though greater discovery would have allowed them to make a more 'powerful" study of plantwide
r251 disparities. J.A. 1253-54; see also J.A 1340-41.
3.
The dissent points to still more statistical assumptions -- assumptions not discussed by
either the district court or Nucor -- to further question the reliability of the alternative
benchmark. Specifically, the dissent suggests that the black workers may not have been
qualified for higher paying jobs and that they may have been denied promotions because
of disciplinary records that were not themselves the result of racial animus. See post at
111, 114-17. As to the qualifications of the workers, Nucor identifies nothing in the record -
- or in any factual findings by the district court - to suggest that black workers regularly
applied for jobs for which they were not qualified, such that the reliability of the study would
be compromised. Indeed, the Nucor job postings explicitly listed the minimum
qualifications required, and the workers' experts reasonably assumed that individuals
would normally apply only if they believe they met such qualifications. See J.A. 7763 (an
example of a job posting); J.A. 1162. That is not to say that patently unqualified workers
did not apply in isolated cases. But there is no reason to believe that such incidents ("26]
would have substantially reduced the reliability of the statistical conclusions. It also bears
repeating that it was Nucor that failed to retain or produce records that would have allowed
the experts to take other variables like qualifications more precisely into account. See J.A.
1165.
r9O7] The dissent, however, goes a step further in speculating that black workers may
have been denied promotions because of their disciplinary records. See post at 111.
Again, Nucor itself does not make this argument. Instead, the argument the dissent
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constructs is based on the company's self-serving responses to the workers'
interrogatories and requests for production -- where Nucor asserts that some of the black
workers were not chosen for promotions due to disciplinary issues. The record, however,
does not include disciplinary records for the named plaintiffs or putative class members.
More fundamental, the workers allege that any disproportionate disciplinary action levied
against them was itself a product of racial discrimination, with the disciplinary records then
used as a pretext in hiring decisions. As worker Ramon Roane has stated:
Discipline, attendance. and safety allegations are similar factors ("in that are not equally applied and that have been
used as an excuse to deny promotions to me and other persons of my race. The attitudes I have experienced with
white supervisors lead me to believe that my race and that of other black employees makes a difference in how we are
treated and viewed for discipline(,) promotionsH and training.
J.A. 1000; see also J.A. 1024 (Alvin Simmons's statement that a white employee was
promoted over him despite the fact that the white employee "had been disciplined less
than a year earlier for 'not paying attention' when operating equipment"); J.A. 1111 (Earl
Ravenell's statement that black workers were disproportionately singled out for disciplinary
action); J.A. 6783 (Michael Rhode's description of discrimination in disciplinary action).
See generally J.A. 10960-10972 (the district court's factual findings regarding the
existence of a racially hostile work environment); Desert Palace, Inc. v. Costa, 539 U.S.
90, 101-02, 123 S. Ct. 2148, 156 L. Ed. 2d 84 (2003) (allowing the use of circumstantial
evidence to show that race was a motivating factor in a "mixed-motive" case involving both
legitimate and illegitimate reasons for an employment decision); Rowland v. Am. Gen. Fin.,
Inc., 340 F.3d 187, 193-94 (4th Cir. 2003) (allowing the use of circumstantial evidence to
show that gender was "a motivating factor" ["28] in a failure to promote an employee).
Given that background, it is easy to see why the district court chose not to advance the
arguments that the dissent makes today.
Finally, the dissent criticizes the assumption that the 27 positions identified were actually
open for bidding." Post at 109. That assumption, however, derives directly from Nucor's
stated policy that every job vacancy is posted on plant bulletin boards and is open to
bidding plant-wide — a policy cited by Nucor's own expert and the district court. See J.A.
5887 (the Report of Finis Welch, observing that lojpen positions are posted on bulletin
boards and through email," and that "[a]ll employees in the plant are eligible to bid on a
posted job"); see also Resp'ts' Br. 9 ("Department managers set the process in motion by
["9O8]
sending postings for available promotions to Personnel employees, who performed
a purely clerical role and advertised postings plantwide."); J.A. 8979 (the district court's
original order denying certification, finding that "[w]hen a position in a department becomes
available, the job is posted on the plant's e-mail system, which is accessible to all
employees in the plant"). The dissent nonetheless argues that the statistical assumption
r29] was unreasonable.'' We disagree.
12 At times, the dissent seems to suggest that statistical assumptions themselves are to be viewed with great suspicion.
(HN13] What matters, however, is not whether an analysis makes assumptions based on imperfect data, but whether those
assumptions are reasonable. Indeed. statistics are not certainties but are merely 'a body of methods for making wise decisions
in the face of uncertainty." W. Alen Walis & Harry V. Roberts. The Nature of Statistics 11 (4th ed. 2014); see also M.J.
Moroney, Facts from Figures 3 (1951) ("A statistical analysis, properly conducted. is a delicate dissection of uncertainties, a
surgery of suppositions.").
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13 The record does indicate that "supervisory positions" are not typically posted for bidding under the Nucor hiring policy. J.A.
257. Neither Nucor nor the district court, however, has provided any reason to believe that any of the 27 records at issue
describe open supervisory jobs, as Nucor defined the term, and were thus not posted. Furthermore, the dissent suggests that
there may have been isolated instances when Nucor did not follow its posting policy for non-supervisory jobs. The fact that a
r301
company does not follow its policy to a tee. however, does not fatally undermine a statistical assumption based upon
such a policy.
4.
With the alternative benchmark evidence included, the statistical disparity in promotions is
statistically significant at 2.54 standard deviations from what would be expected if race
were a neutral factor. See Hazelwood Sch. Dist. v. United States, 433 U.S. 299, 308 n. 14,
97 S. Ct. 2736, 53 L. Ed. 2d 768 (1977) (indicating that anything greater than two or three
standard deviations in racial discrimination cases is suspicious, at least for large sample
sizes); Brown I, 576 F.3d at 156 n.9 (applying the Hazelwood standard to the workers'
statistical evidence); Jones v. City of Boston, 752 F.3d 38, 46-47 (1st Cir. 2014) (observing
that two standard deviations has become the commonly accepted threshold for social
scientists and federal courts "in analyzing statistical showings of disparate impact").
According to the experts' analysis, black employees constitute 19.24% of those who
applied for relevant promotions. Yet such employees were only 7.94% percent of those
promoted.
Of course, [HN141 statistical significance is not always synonymous with legal
significance. EEOC v. Fed. Reserve Bank of Richmond, 698 F.2d 633, 648 (4th Cir. 1983)
rev'd on other grounds sub nom. Cooper v. Fed. Reserve Bank of Richmond, 467 U.S.
867, 104 S. Ct. 2794, 81 L. Ed. 2d 718 (1984). Indeed, the usefulness of statistical
evidence often "depends on all of the surrounding facts and circumstances." Teamsters,
431 U.S. at 340. Here, the surrounding circumstances and anecdotal evidence of
discrimination, ("31] as described in greater detail below, are precisely what help animate
the statistical findings.- As we held in Brown I and reaffirm today, "because the appellants'
direct evidence alone was sufficient to demonstrate common claims of disparate treatment
and disparate impact, their statistical data did not need to meet a two-standard-deviation
threshold." Brown I, 576 F.3d at 156-57. Thus it is plain that when the statistical disparity
actually exceeded two standard deviations, the district court abused its discretion in
decertifying the class.
14 Indeed. the workers statistical analysis may actually underestimate the impact of race on promotions at Nucor. As worker
Erie Conyers stated in his declaration: "If I believed that a truly level playing field existed at the company I would have bid on
numerous other positions such as Roll Gtide Builder in the Beam Will." J.A 1079. But the expert analysis at issue could not
capture the impact of discrimination on depressed bidding rates.
B.
['9O9]
The district court further concluded that the workers' statistical and anecdotal
evidence was insufficient for class certification insofar as the evidence did not demonstrate
a uniform class-wide injury that spanned the entire Nucor plant. ("32] As the court
observed, [FIN15] Wal-Mart instructs that plaintiffs must present a common contention
capable of being proven or disproven in "one stroke" to satisfy Rule 23(a)(2)'s commonality
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requirement. Wal-Mart, 131 S. Ct. at 2551. Thus, a class-wide proceeding must be able to
generate common answers that drive the litigation. Id.; see also Jimenez v. Allstate Ins.
Co., 765 F.3d 1161, 1165 (9th Cir. 2014) (observing that "a class meets Rule 23(a)(2)'s
commonality requirement when the common questions it has raised are apt to drive the
resolution of the litigation, no matter their number' (internal quotation marks omitted)). For
a claim based on discrimination in employment decisions, "[w]ithout some glue holding the
alleged reasons for all those decisions together, it will be impossible to say that
examination of all the class members' claims for relief will produce a common answer to
the crucial question why was I disfavored." Wal-Mart, 131 S. Ct. at 2552 (emphasis
omitted); see also Scott v. Family Dollar Stores, Inc., 733 F.3d 105, 113 (4th Cir. 2013).
The workers here most generally present two such common contentions capable of class-
wide answers under Title VII. Under a disparate treatment theory, the common contention
is that Nucor engaged in a pattern or practice of unlawful discrimination against black
workers in promotions decisions. See Teamsters, 431 U.S. at 336. Under the workers'
disparate impact theory, the common contention r*33] is that a facially neutral promotions
policy resulted in a disparate racial impact. See Griggs, 401 U.S. at 429-31. As Wal-Mart
observed, however, semantic dexterity in crafting a common contention is not enough.
Commonality instead "requires the plaintiff to demonstrate that the class members 'have
suffered the same injury[.]"' Wal-Mart, 131 S. Ct. at 2551 (quoting Falcon, 457 U.S. at
157). As such, a court must examine whether differences between class members impede
the discovery of common answers. Id. at 2551.
[FIN16) In the absence of a common job evaluation procedure, Wal-Mart held that
statistical proof of employment discrimination at the regional and national level, coupled
with limited anecdotal evidence from some states, was insufficient to show that the
company maintained a "general policy of discrimination" present in each store where class
members worked. See Wal-Mart, 131 S. Ct. at 2553. Similarly, the district court here found
that the workers' statistical and anecdotal evidence was insufficient to show a general
policy in all Nucor departments that caused the class injury.
The district court, however, failed to adequately appreciate three significant differences
from Wal-Mart that make the case largely inapposite to the facts at hand.
1.
First, Wal-Mart discounted the plaintiffs' statistical r341 evidence in large part because
the statistics failed to show discrimination on a store-by-store basis. See Wal-Mart, 131 S.
Ct. at 2555. As such, the plaintiffs could not establish that a store greeter in Northern
California, for instance, was subject to the same discrimination as a cashier in New
Hampshire. These dissimilarities between class members were exacerbated by the sheer
size of the Wal-Mart class - 1.5 million members working at 3,400 stores under "a
kaleidoscope of supervisors (male and female), subject to a variety of regional policies
[*
910 ] that all differed." Id. at 2557 (quoting Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571,
652 (9th Cir. 2010) (Kozinski, J., dissenting)). The scale and scope of the putative class,
combined with the nature of the evidence offered, was thus essential to Wal-Mart's
holding. Had the class been limited to a single Wal-Mart store spanning multiple
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departments, or had the plaintiffs' evidence captured discrimination at a store level, a very
different Rule 23(a)(2) analysis would have been required.
In contrast to Wal-Mart, this litigation concerns approximately 100 class members in a
single steel plant in Huger, South Carolina. The class members shared common spaces,
were in regular physical contact with other departments, could apply for promotions in
other ["35] departments, and were subject to hostile plant-wide policies and practices.
See Brown I, 576 F.3d at 151. Such differences are not merely superficial. Instead,
[HN17] a more centralized, circumscribed environment generally increases the uniformity
of shared injuries, the consistency with which managerial discretion is exercised, and the
likelihood that one manager's promotions decisions will impact employees in other
departments. That is particularly the case where, as discussed further below, the entire
Nucor plant was allegedly infected by express racial bias and stereotypes — a culture that
management took few affirmative steps to meaningfully combat.
Nonetheless, the district court analogized to Wal-Mart in finding that the workers' evidence
of discrimination was insufficient because it disproportionately concerned a single
department -- the Beam Mill — and because there was an insufficient showing that all
departments operated under a common policy of discrimination. J.A. 10949-54. As such, a
class-wide proceeding would not generate "common answers" as Wal-Mart required, the
district court found. See Wal-Mart, 131 S. Ct. at 2551.
The district court, however, inappropriately discounted, and often ignored, evidence that
establishes discrimination ["36] in other Nucor departments. Although 11 of the 16
employees submitting declarations on behalf of the plaintiffs worked in the Beam Mill, the
declarants describe frequent instances of alleged promotions discrimination in other
departments. See J.A. 1021-24; 1032-35; 1049-51; 1055-56; 1061-63; 1085-86; 1091-92;
1103; 1110-11; 1118-19. Even the additional affidavits obtained by Nucor, discussed in
further detail below, present numerous allegations of discrimination in non-Beam Mill
departments. See J.A. 5992-95 (discrimination in the Hot Mill and Melt Shop); 6143-45
(discrimination in the Hot Mill); 6174 (general observations of promotions discrimination);
6369-70 (discrimination in the Melt Shop); 6505-07 (discrimination in the Hot Mill); 7036
(discrimination in the Melt Shop). The record additionally indicates numerous complaints of
discrimination made to the plant's general manager, who allegedly did little to nothing in
response. Such alleged tolerance of discrimination from top management at the plant
supports the workers' contention of a class-wide injury that affected them all."
15 As the district court found in the context of the workers' hostile work envirorsnent claim:
ni
These affidavits support the Court's conclusion that although allegations of a hostile work environment
were most prevalent and severe in the Beam Mill, employees from all of the production departments were
subjected to abusive behavior. Specifically. employees from every department reported seeing the
Confederate flag, employees from every department reported seeing racist graffiti; and employees from every
department reported receiving racially offensive e-mails. Furthermore. in several instances, employees who
worked in one department indicated they were harassed by employees from other departments, and many
employees reported observing what they considered to be racist symbols and racist graffiti in common areas of
the plant.
J.A 10968.
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r911] The district court made a still more fundamental error by choosing to treat the
Nucor departments as autonomous operations in the first place instead of part of a single
facility, contravening both this Court's instructions in Brown I and the district court's own
prior findings. The district court's original order to certify the class recognized that a
department-by-department approach had been foreclosed, writing:
Since the Fourth Circuit rejected Ns Court's characterization r381 of the production departments as separate
environments, the Court must proceed under the assumption that the production departments were permeable, if not
unitary. This assumption is buttressed by the fact that Nucor's bidding is plart-wide. and this Court already has held
that "potential applicants are eligible to prove they would have applied for a promotion but for the discriminatory
practice."
J.A. 9705. Wal-Mart provided no grounds for the court to reconsider that finding because
[HN18] nothing in the Supreme Court's opinion suggests that single, localized operations
must be analytically dissected into component departments.'° Here, all of the workers'
evidence concerns a single connected facility.
16 The dissent insists that Brown l's determination that the Nucor plant should be treated as a single facility only extended to
the hostile work environment claim. Post at 123-24. Yet the discussion of the issue in Brown I was specifically premised on the
district court's findings regarding both the "pattern or practice" and the work environment clams. Brown I, 576 F.3d at 157. A
district court may not typically rektigate "issues expressly or impkedly decided by the appellate court." Bell. 5 F.3d at 66. Here.
rm391
even the district court has recognized that Brown I prevented a finding that the plaid was not a witary environment in the
context of the promotions claim. J.A. 9706 (Certification Order).
Even if not required by our prior ruling, treating the plant as a single entity remains sound.
In addition to the direct and circumstantial evidence of discrimination in promotions
decisions in multiple departments, racial bias in one Nucor plant department itself
diminished the promotional opportunities for black workers in all the departments —
including those who wanted promotions into the infected department and those who
sought promotions to other departments and needed their supervisors' recommendations.
To that end, the workers cogently observe that requirements for dual approvals for
promotions -- by originating and destination department heads — "carilied] the effects of
racial discrimination from one department and supervisor to another, either by systemic
tolerance, acquiescence or design." Appellants' Reply Br. 24 (citing Smith v. Bray, 681
F.3d 888, 897 & n.3 (7th Cir. 2012)).
Such a conclusion is further strengthened by the workers' hostile work environment claim.
As the district court itself found. "the plaintiffs have submitted significant proof that the
[".40]
landscape of the total work environment at the Berkeley plant was hostile towards
African-Americans and that the defendants failed to take 'remedial action reasonably
calculated to end the harassment."' J.A. 10966; see also Brown I, 576 F.3d at 157-58. That
environment, the workers argue, supports their showing of an atmosphere of systemic
tolerance of racial hostility by managers and supervisors, forming part of the overall pattern
or practice that "infected black p912] employees' promotion opportunities." We agree.
2.
Second, the Wal-Mart plaintiffs' theory of commonality relied, in part, on showing that the
company maintained a corporate culture that facilitated the uniform transmission of implicit,
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or subconscious, bias into the hiring process. See Wal-Mart, 131 S. Ct. at 2548. To that
end, the plaintiffs' expert testified the company was "vulnerable" to "gender bias." Id. at
2553. The Court, however, concluded that the expert could not with specificity determine
how the culture concretely influenced individual employment decisions. Id. at 2553-54. The
testimony was therefore insufficient to show a common policy that produced a common
injury.
Here, however, the workers have provided substantial evidence of unadulterated,
consciously articulated, odious racism throughout the Nucor plant, including affirmative
[""41] actions by supervisors and a widespread attitude of permissiveness of racial
hostility. The examples in the record are ubiquitous: bigoted epithets and monkey noises
broadcast across the plant radio system, emails with highly offensive images sent to black
workers, a hangman's noose prominently displayed, a white supervisor stating that
"niggers aren't smart enough" to break production records, and abundant racist graffiti in
locker rooms and shared spaces. Moreover, no more than one black supervisor worked in
the Nucor production departments until after the EEOC charge that preceded this litigation.
It strains the intellect to posit an equitable promotions system set against that cultural
backdrop, particularly in light of the other evidence presented.
The dissent rejects the idea that evidence of a racially hostile work environment may help
establish a claim for disparate treatment in promotions decisions." Post at 124-25. Indeed,
the dissent goes so far as to observe that "locker rooms and radios bear no relationship to
promotions decisions." Id. at 125. Such a perspective, however, is perplexingly divorced
from reality and the history of workplace discrimination. [1-1N19] It is difficult to fathom how
widespread [""42] racial animus of the type alleged here, an animus that consistently
emphasized the inferiority of black workers, bears no relationship to decisions whether or
not to promote an employee of that race. Although the dissent asserts that "nothing in the
record supports" making a connection between the work environment and promotions
practices, we are not limited to the record in making such elementary judgments. Justice is
not blind to history, and we need not avert our eyes from the broader circumstances
surrounding employment decisions, and the inferences that naturally follow.
17 We do not suggest. of course. that evidence of a hostile work environment is sufficient by itself to support a disparate
treatment or disparate impact claim. Rather, we merely observe that the substantial showing of endemic prejudice at the plant --
a prejudice that was allegedly tolerated and/or encouraged by management - heightens the probativeness of the workers' other
evidence.
3.
Third, and related, the anecdotal evidence of discrimination in this case is substantially
more probative than that in Wal-Mart. The Wal-Mart plaintiffs presented affidavits from
about 120 female employees, representing approximately ["43] one affidavit for every
12,500 class members. Wal-Mart, 131 S. Ct. at 2556. The affidavits captured only 235 of
Wal-Mart's 3,400 stores, and there were no affidavits p913] from workers in 14 states. Id.
The evidence thus fell far short of the benchmark for a showing of company-wide
discrimination established by Teamsters, 431 U.S. 324, 97 S. Ct. 1843, 52 L. Ed. 2d 396.
In Teamsters, the plaintiffs produced statistical evidence of racial bias combined with
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approximately 40 accounts of discrimination from particular individuals. Id. at 338. Given
the class size of approximately 334 persons, there was roughly one anecdote for every
eight members of the class. See id. at 331, 338; Wal-Mart, 131 S. Ct. at 2556. "[T]he
anecdotes came from individuals spread throughout the company who for the most part
worked at the company's operational centers that employed the largest numbers of the
class members." See Wal-Mart, 131 S. Ct. at 2556 (internal quotation marks omitted).
Similarly, this litigation includes anecdotal evidence from more than 16 individualv in a
class that numbered approximately one-hundred "past and present black employees at the
plant" at the time litigation commenced -- an approximate ratio of one anecdote for every
6.25 class members.'' See Brown I, 576 F.3d at 151 (describing the class size).
r44)
18 This number includes both the 16 declarations introduced by the workers and other accounts of discrimination
included in affidavits obtained by Nucor after the EEOC charge was filed. See. e.g.. J.A. 5992-95. 6143-45. 6174, 6369-70.
6505-07. 7036. Of the 16 worker-filed declarations. Byron Turners statement fails to mention specific instances of promotions
discrimination. but instead affirms that that he was "affected by the same practices that Ramon Roane and the other named
plaintiffs" have raised. J.A 1124. The dissent argues that the declaration of Walter Cook also fails to mention promotions. Post
at 134. Cook's declaration, however, states that he heard white employees talking about a black worker's application for an
Operator position. According to Cook, the employees stated they would "do everything that they could to make sure that nigger
didn't get the job." J.A. 1075. Further, the dissent argues that the declaration from Kemeth Hubbard includes a complaint that
Nucor in tact promoted him. Post at 134. Hubbard's declaration, however. accuses Nucor of placing him "in the position to get
(himl out of the mill and the line of progression that lead to supervisory positions." J.A 1097. Hubbard also observes that his
trajectory at the company was dramatically different from that (""451 of a white co-worker who started at the plant at the same
time and later became a supervisor. Id. Indeed, the dissent's approach to the affidavits, consistent with its approach to the
anecdotal evidence throughout. appears to be to cherry pick facts from an 11.000 page record. strip those facts of context. and
then argue that they undermine the substantial, credible evidence of discrimination that the workers have produced.
19 There is some uncertainty about the precise size of the class. At the time the litigation began. seventy-one workers at the
Nucor plant were black. Brown I. 576 F.3d at 151. As the district court found. there was a total of "ninety-folk black employees
who worked at the plant from 2C01 through 2004." Id. at 152. The workers' experts estimated that there may have been about
150 black workers in total who "were potentially affected by the selection decisions regarding promotion at Nucor-Berkeley."
JA 1154. Even assuming a class size of 150, there would be more than one anecdotal account of racial discrimination for
every 9.38 class members, a ratio that remains in line with the evidence in Teamsters. Furthermore, that number does not take
into account the descriptions of discrimination in promotions (""461 decisions in the affidavits that Nucor itself obtained, as
previously described.
Balanced against such evidence, the district court gave "limited weight" to approximately
80 affidavits from Nucor employees largely disclaiming discrimination at the plant -
affidavits taken by company lawyers after the EEOC charges had been filed. See J.A.
10950-51. Common sense and prudence, however, instruct that the affidavits do little to
rebut the evidence of discrimination insofar as they were given under potentially coercive
circumstances, where the company reserved its ability to p9141 use them against other
employees in any future lawsuit (a fact that was omitted from the Statement of
Participation given to affiants). See J.A. 6003 (the Statement of Participation), 9379
(Nucor's statement that it intended "to use the affidavits for every purpose permitted under
the Federal Rules of Evidence," including the opposition to class certification and the
impeachment of witnesses); see also Kleiner v. First Nat'l Bank of Atlanta, 751 F.2d 1193,
1202 (11th Cir. 1985) (observing that after a class action has been filed, "[a] unilateral
communications scheme . . . is rife with potential for coercion"); Quezada v. Schneider
Logistics Transloading & Distrib., No. CV 12-2188 CAS, 2013 U.S. Dist. LEXIS 47639,
2013 WL 1296761, at *5 (C.D. Cal. Mar. 25, 2013) (finding in a class action context that
[**47] "[flailing to inform the employees of the evidence-gathering purpose of the
interviews rendered the communications fundamentally misleading and deceptive because
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the employees were unaware that the interview was taking place in an adversarial context,
and that the employees' statements could be used to limit their right to relief'); Longcrier v.
HL-A Co., 595 F. Supp. 2d 1218, 1228 (S.D. Ala. 2008); Mevorah v. Wells Fargo Home
Mort., Inc., No. C 05-1175 MHP, 2005 U.S. Dist. LEXIS 28615, 2005 WL 4813532, at *4
(N.D. Cal. Nov. 17, 2005). Of course, [I-IN201companies may investigate allegations of
discrimination and take statements from employees. But when it comes to assessing the
probative value of those statements -- when weighed against the numerous declarations of
employees who took the often grave risk of accusing an employer of a workplace violation
- courts should proceed with eyes open to the imbalance of power and competing
interests.'D Moreover, as previously observed, the company-obtained affidavits still contain
numerous allegations of discrimination in promotions decisions - allegations that carry
significant weight given the circumstances in which they were made. See J.A. 5992-95,
6143-46, 6174, 6370, 6506, 7036.
20 The dissent is thus mistaken when it asserts that we are articulating a ("48] new rule that courts categorically may not
consider the affidavits obtained by companies as part of an investigation irto allegations of discrimination. See post at 141.
Instead. our analysis concerns the weight that should be given to such affidavits in these circumstances.
Of course, [HN211 a plaintiff need not "offer evidence that each person for whom it will
ultimately seek relief was a victim of the employees discriminatory policy." Teamsters, 431
U.S. at 360; see also EEOC v. Korn Indus., Inc., 662 F.2d 256, 260 (4th Cir. 1981).
Instead, a bifurcated class action proceeding allows for a "liability" stage to first determine
whether an employer engaged in a pattern or practice of discriminatory conduct.
Teamsters, 431 U.S. at 360; Korn, 662 F.2d at 260. Upon a finding of liability, a second
damages stage allows for the consideration of which individuals were specifically harmed
by the policy. Teamsters, 431 U.S. at 361; Korn, 662 F.2d at 260.
4.
Here, [HN22] for a liability determination in a disparate treatment claim, the workers'
statistical and anecdotal evidence, especially when combined, thus provide precisely the
'glue' of commonality that Wal-Mart demands. See Brown I, 576 F.3d at 156. Such a claim
requires proof of a "systemwide pattern or practice" of discrimination such that the
discrimination is "the regular rather than the unusual practice." Teamsters, 431 U.S. at
336; Cooper, 467 U.S. at 875-76; see also Wal-Mart, 131 S. Ct. at 2552 n.7. The required
discriminatory r*49] intent may be inferred upon such a showing. See Teamsters, 431
r915]
U.S. at 339-40; Hazelwood, 433 U.S. at 308-09 (observing that "[w]here gross
statistical disparities can be shown, they alone may in a proper case constitute prima facie
proof of a pattern or practice of discrimination").
Whereas there may have been many answers in Wal-Mart to the question of why any
individual employee was disfavored, the workers here have sufficiently alleged that there is
only one answer to the question of why Nucor's black workers were consistently
disfavored.:' [HN23] Unlike a disparate impact claim, a showing of disparate treatment
does not require the identification of a specific employment policy responsible for the
discrimination. See Teamsters, 431 U.S. at 336 n.16 (discussing the legislative history of
Title VII and concluding that the words "pattern or practice" should be interpreted
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according to their plain meaning). A pattern of discrimination, revealed through statistics
and anecdotal evidence, can alone support a disparate treatment claim, even where the
pattern is the result of discretionary decision-making.
21 Contrary to the dissents assertion, we do not find 'in the first instance' that the worker's allegation is correct. Instead. we
conclude that the district court dearly erred in finding ("50] that the allegation was not sufficiently supported by the record.
To hold otherwise would dramatically undermine Title VII's prophylactic powers. As the
Supreme Court observed in Griggs, a central purpose of Title VII is "to achieve equality of
employment opportunities and remove barriers that have operated in the past to favor an
identifiable group of white employees over other employees." 401 U.S. at 429-30; see also
Albemarle Paper Co. v. Moody, 422 U.S. 405, 417-18, 95 S. Ct. 2362, 45 L. Ed. 2d 280
(1975) (stressing Title VII's prophylactic goals in addition to its purpose "to make persons
whole for injuries suffered on account of unlawful employment discrimination"). Here,
where substantial evidence suggests a pattern of engrained discriminatory decision-
making that consistently disadvantaged black workers at Nucor, to deny class certification
would significantly weaken Title VII as a bulwark against discrimination.
C.
[HN24] Statistics and anecdotes suggesting a pattern of discrimination, however, are not
enough alone to sustain a disparate impact claim. See Wal-Mart, 131 S. Ct. at 2555;
Watson v. Fort Worth Bank & Trust, 487 U.S. 977, 994, 108 S. Ct. 2777, 101 L. Ed. 2d 827
(1988). Disparate impact liability requires the identification of a specific employment
practice that caused racially disparate results. See 42 U.S.C. § 20O0e-2(k); Watson, 487
U.S. at 986-87; Griggs, 401 U.S. at 431. Unlike disparate treatment, the disparate impact
["
theory does not require proof of improper intent 51] to sustain a Title VII violation.
Teamsters, 431 U.S. at 349; Griggs, 401 U.S. at 429-31 (finding the use of standardized
tests resulted in a disparate impact). Instead, liability is premised on facially neutral
policies. Griggs, 401 U.S. at 431.
[HN25] Under Wal-Mart, a mere showing that a "policy of discretion has produced an
overall . . . disparity does not suffice." Wal-Mart, 131 S. Ct. at 2556. Instead, plaintiffs who
allege such a policy of discretion must demonstrate that a "common mode of exercising
discretion" actually existed throughout a company. Id. at 2554; see also Tabor v. Hilti, Inc.,
703 F.3d 1206, 1229 (10th Cir. 2013) (observing that "after Wal-Mart, federal courts . . .
['
have generally denied certification when allegedly discriminatory 916] policies are
highly discretionary and the plaintiffs do not point to a common mode of exercising
discretion that pervades the entire company" (internal quotation marks omitted)). Given
that standard, the district court here found that the workers "failed to identify any factor that
unites the manner in which the various decision makers throughout the Berkeley plant
exercised their discretion." J.A. 10955.
Wal-Mart recognizes that in certain cases, "giving discretion to lower-level supervisors can
be the basis of Title VII liability under a disparate-impact theory," 131 S. Ct. at 2554,
because "an employer's undisciplined system ("52] of subjective decisionmaking [can
have] precisely the same effects as a system pervaded by impermissible intentional
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discrimination." Id. (alteration in original) (quoting Watson, 487 U.S. at 990). For a
nationwide class, Wal-Mart found that proving a consistent exercise of discretion will be
difficult, if not impossible in some circumstances. Id.; see also Davis v. Cintas Corp., 717
F.3d 476, 488 (6th Cir. 2013) (noting the difficulties Wal-Mart presents for parties seeking
to certify a nationwide class).
But [HN26] for a localized, circumscribed class of workers at a single facility, a policy of
subjective, discretionary decision-making can more easily form the basis of Title VII
liability, particularly when paired with a clear showing of pervasive racial hostility. In such
cases, the underlying animus may help establish a consistently discriminatory exercise of
discretion.
This Court's recent opinion in Scott v. Family Dollar Stores, Inc. specifically provides
several ways that such a disparate impact claim may satisfy Rule 23 after Wal-Mart,
including: (1) when the exercise of discretion is "tied to a specific employment practice"
that "affected the class in a uniform manner"; (2) when there is "also an allegation of a
company-wide policy of discrimination" that affected [""53] employment decisions; and (3)
'When high-level personnel exercise" the discretion at issue. Scott, 733 F.3d at 113-14.
The first and second of Scott's alternatives are most relevant to this case. A specific
employment practice or policy can comprise affirmative acts or inaction. Cf. Ellison v.
Brady, 924 F.2d 872, 881 (9th Cir. 1991) (explaining an employer's responsibility to act to
rectify a hostile or offensive work environment under Title VII). Regarding affirmative acts,
the district court has established that Nucor's promotions practice provides that
le]mployees in each of the production departments may bid on positions available in other
departments," and that in order to promote one of the bidders, "the supervisor, the
department manager, and the general manager must approve a written change of status
and then submit the change of status form to the personnel office." J.A. 477-78.
For purposes of class certification, the workers have provided sufficient evidence that such
a policy, paired with the exercise of discretion by supervisors acting within it, created or
exacerbated racially disparate results. The promotions system, requiring approvals from
different levels of management, created an environment in which the discriminatory
exercise of discretion by one [""54] department head harmed the promotions opportunities
for all black workers at the plant by foreclosing on opportunities in that department and
generally impeding upward mobility. Moreover, the disproportionate promotions of white
workers had to be ratified by the general manager, Ladd Hall, who was thus on notice, or
should have been on notice, that there were pronounced racial disparities in department-
level promotion practices, r9171 as indicated by the statistical and anecdotal evidence
presented.
The workers have also presented sufficient evidence of a practice of inaction by the
general manager who ignored the evidence of, and complaints regarding, discrimination in
promotions at the plant. See, e.g., J.A. 996-97, 1016, 1056, 1087, 1104. Such managerial
inaction occurred despite Nucor's status as an "Equal Opportunity Employer" and its claim
to have a "plantwide policy barring racial discrimination." Resp'ts' Br. 6. One black worker,
Ray Roane, has testified that he complained directly to Hall about discrimination in
promotions. J.A. 996-97. Hall threatened his job. J.A. 997. Consistent with that evidence,
the workers observe in the context of their hostile work environment claim that [""55]
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despite a policy of investigating complaints of racial harassment, "[n]ot even one of the five
department managers has been shown to have lifted a finger to redress the racially hostile
work environment found to exist both plant-wide and in each department." Appellants' Br.
25. The workers have sufficiently alleged that such a uniform policy of managerial inaction
also contributed to racial disparities in promotions decisions.
Consistent with Scott, the workers have further demonstrated that the exercise of
discretion at Nucor was joined by "a company-wide policy of discrimination" that was
encouraged, or at least tolerated, by supervisors and managers. See Scott, 733 F.3d at
114. In addition to the evidence of a hostile work environment previously described in
detail, one white supervisor has expressly stated in a deposition that he heard the head of
the Beam Mill declare, "I don't think we'll ever have a black supervisor while I'm here." J.A.
1885-86. Such facts provide a critical nexus between the racial animus at the plant and
promotions decisions that impacted all black workers by foreclosing opportunities for them.
Or, using Wal-Mart's language, the evidence of pervasive racial hostility in the working
[**56] environment provides a "common mode of exercising discretion that pervade[dj the
entire company." Wal-Mart, 131 S. Ct. at 2554-55.
In the end, Wal-Mart simply "found it unlikely" that thousands of managers across different
regions "would exercise their discretion in a common way without some common
direction." Tabor, 703 F.3d at 1222. Here, however, 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 district court abused its discretion in finding that such evidence was
insufficient to meet the burden that Wal-Mart imposes.
IV.
Nucor further argues that the workers have failed to contest the district court's independent
finding that the putative class failed to satisfy Rule 23(b)(3). As the company observes, the
district court specifically held that the class failed to meet the rule's requirements for a
class action seeking individualized money damages, namely, that common questions
predominate over individualized inquiries and that the class action is "superior to other
available methods for fairly and ["57] efficiently adjudicating the controversy." Fed. R.
Civ. P. 23(b)(3). The court remarked that "even if the Fourth Circuit subsequently
concludes that the plaintiffs have identified a common issue that satisfies Rule 23(a)(2),
this Court nonetheless finds that 'common issues,' as that term is defined by Wal-Mart, do
['
not predominate over individual 918] issues with regard to the plaintiffs' promotions
claims."r J.A. 10956.
22 This Court has previously observed that g-IN27] lijn a class action brought under Rule 23(5)(3), the 'commonality'
requirement of Rule 23(a)(2) is 'subsumed wrier. or superseded by. the more stringent Rule 23(b)(3) requirement that
questions common to the class predominate over' other questions." Lienhart v. Dryvit Sys.. Inc.. 255 F.3d 138, 146 n.4 (4th Cir.
2001) (quoting Amchem. 521 U.S. at 609). But as Wal-Mart made clear, the Rule 23(a) commonality requirement and the Rule
23(b)(3) predominance requirement remain separate inquiries. Wal-Man. 131 S. Ct. at 2556.
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Nucor contends that nowhere in the workers' opening brief is the Rule 23(b)(3) ruling
addressed, and that any challenge to that decision has thus been waived. [HN281 The
doctrine of waiver derives from the Federal Rules of Appellate Procedure, which require
that the argument section of an appellant's opening brief contain the "appellant's
contentions and the reasons for them, with citations to the authorities and parts of the
record on which the appellant [**58] relies." Fed. R. App. P. 28(a)(8)(A); see also Mayfield
v. Nat'l Ass'n for Stock Car Auto Racing, Inc., 674 F.3d 369, 376-77 (4th Cir. 2012).
"Failure of a party in its opening brief to challenge an alternate ground for a district court's
ruling . . . waives that challenge." United States ex rel. Ubl v. IIF Data Solutions, 650 F.3d
445, 456 (4th Cir. 2011) (quoting Rodriguez v. Hayes, 591 F.3d 1105, 1118 n.6 (9th Cir.
2010))).
The workers contend first, and we agree, that no waiver occurred because their arguments
in the opening brief extended to the district court's discussion of both predominance and
commonality. The single issue identified by the workers on appeal did not differentiate
between the court's findings on either question. The issue, as presented, was this:
Was it error or an abuse of discretion for the district court not to follow this Circuit's mandate holding that sufficient
statistical and non-statistical evidence has been presented to certify a pattern-or-practice and disparate impact class
covering all six production departments of the defendants' manufacturing plant in Huger, South Carolina?
Consistent with that framing, the workers' opening brief describes the district court's
decision in equally broad terms without distinguishing between commonality and
predominance. See Appellants' Br. 28-29 ("The district court erred as a matter of law by
declining to follow this Court's mandate that held there is sufficient statistical r59] and
non-statistical evidence to certify a class covering all six production departments.");
Appellants' Br. 3 (citing to the portion of the district court opinion where predominance is
discussed).
Although more explicit separation of the predominance and commonality inquiries would
no doubt have been wise, the workers' arguments throughout their brief directly respond to
the issues the district court raised in both contexts (issues that, as discussed below, were
intertwined by the court). The workers, for instance, specifically cite cases discussing
predominance when arguing about the extent to which a court may look to merits in
deciding certification. See Appellants' Br. 34-35. Elsewhere, in discussing the sufficiency of
the anecdotal evidence presented, the workers argued in favor of our holding in Brown I
that "[t]his evidence alone establishes common claims of discrimination worthy of class
certification." Appellants' Br. 42 (citing Brown I, 576 F.3d at 153). Certification of the
workers' class required a finding that Rule 23(b) was satisfied, in addition to a finding of
commonality under Rule 23(a)(2). More generally, without limiting its analysis to the
[*919]
question of commonality, the workers' opening brief observes that "[I]he district
[**60] court's finding that there is no pattern-or-practice evidence in the non-Beam Mill
departments is directly contrary to the evidence and [the Fourth Circuit's] mandate."
Appellants' Br. 42-43.
It is true that the workers arguments often focus expressly on the question of commonality,
as Wal-Mart focused its analysis. In that regard, however, the workers have merely
followed the district courts lead insofar as the court itself raised the same arguments
under Rule 23(b)(3) as it did regarding commonality under Rule 23(a)(2).fl See J.A. 10958-
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59; see also United States v. Goforth, 465 F.3d 730, 737 (6th Cir. 2006) (observing that
[HN29] "where an argument advanced in an appellant's opening brief applies to and
essentially subsumes an alternative basis for affirmance not separately argued therein, the
appellant does not waive that alternative basis for affirmance"). The district court based its
conclusion that common issues did not predominate on the observation that because the
workers' evidence disproportionately concerns the Beam Mill, "there is no 'glue' connecting
the promotions decisions in the Beam Mill to the decisions in the other departments." J.A.
10959. That is exactly the same argument raised, and responded to by the workers, in the
context of Rule 23(a)(2) commonality. See J.A. [*61] 10950-54; Appellants' Br. 42-47.
Elsewhere in its Rule 23(b)(3) discussion, the court observes that lajlthough there are, to
varying degrees, a few allegations of discrimination in promotions in departments other
than the Beam Mill, there is nothing to link these allegations to the pattern of behavior
alleged in the Beam Mill." J.A. 10959. Again, this argument is also made in the Rule
23(a)(2) context and responded to in detail by the workers there. Indeed, the district court
itself acknowledged that it "employ[ed] the language of Wal-Mart" regarding Rule 23(a)(2)
in discussing the requirements of Rule 23(b)(3). J.A. 10958-59. In responding directly to
the reasons given by the district court for its predominance determination, the workers
have thus done far more than take a mere "passing shot at the issue." See Belk, Inc. v.
Meyer Corp., 679 F.3d 146, 152 n.4 (4th Cir. 2012) (finding that an issue was waived after
a party mentioned the issue in a heading but failed to further develop the argument); see
also Williams v. Woodford, 384 F.3d 567, 587 n.5 (9th Cir. 2002) (concluding that an
appellant preserved a claim for review even though the argument consisted of "eight
sentences in a footnote," where the argument identified the basis of disagreement with the
district court, the requested relief, and relevant citations to case law and the record).
23 Even superficially, the district r62] court includes its predominance analysis under the heading of "Subjectivity as a Policy."
dovetailing a discussion of commonality. instead of as a separate section of analysis. See J.A 10954. 10956.
Nonetheless, the dissent argues that "many different reasons underlay [the district court's]
predominance finding, including several individual questions that could 'overwhelm'
common ones." Post at 69. But a plain reading of the district court's opinion belies the idea
that it made any predominance arguments that were not responded to by the workers. The
only specific argument cited by the dissent as unaddressed contends that because of the
workers' reliance on anecdotal evidence, a jury "would have to delve into the merits of
each individual promotion decision." J.A. 10959; post at 69. Yet, as observed above, the
workers specifically argued that the anecdotal evidence establishes "common claims of
['92O]
discrimination" that merit certification, not merely a finding of commonality.
Appellants' Br. 42 (quoting Brown I, 576 F.3d at 153). Indeed, such an argument is
consistent with the workers' fundamental contention throughout their brief that plant-wide
discrimination existed.
As this Court has observed, [HN30] the purpose of the waiver ("63] doctrine is to avoid
unfairness to an appellee and minimize the "risk of an improvident or ill-advised opinion
being issued on an unbriefed issue." United States v. Leeson, 453 F.3d 631, 638 n.4 (4th
Cir. 2006) (citing McBride v. Merrell Dow & Pharm., Inc., 800 F.2d 1208, 1211, 255 U.S.
App. D.C. 183 (D.C. Cir. 1986)). Given the briefing presented, the fully developed record
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below, and the lack of any showing of unfairness or prejudice, there is simply no reason
why we should exercise our discretion to discard years of litigation on appeal because of
an inartful opening brief. See A Helping Hand, LLC v. Baltimore Cnty., Md., 515 F.3d 356,
369 (4th Cir. 2008) (observing that even when an argument has been waived, this Court
may nonetheless consider it if a "miscarriage of justice would otherwise result" (internal
quotation marks omitted)); cf. In re Am. W. Airlines, Inc., 217 F.3d 1161, 1165 (9th Cir.
2000) (observing that a court may refuse to find waiver and consider an argument raised
for the first time on appeal when the issue "is one of law and either does not depend on
the factual record, or the record has been fully developed").
Independent of the adequacy of the workers' opening brief, the district court had no
grounds to revisit the question of predominance in the first place given this Court's remand
instructions and mandate in Brown I. Unlike the requirement of commonality under Rule
23(a)(2) discussed above, Wal-Mart did not change, nor purport to change, the Rule
23(b)(3) analysis. Indeed, any [*"64] impact of the Supreme Courts ruling on the question
of whether common questions predominate is only incidental insofar as Wal-Mart
recalibrated what constitutes a common question in the first place. The majority in Wal-
Mart only invoked Rule 23(b)(3) to argue that the rule's well-established procedural
protections should apply to the plaintiffs' claims for backpay. See Wal-Mart, 131 S. Ct. at
2559.
Following our instructions in Brown I for the district court to "certify the appellants' class
action." the court found that "the putative class satisfied both the predominance and
superiority requirements of Rule 23(b)(3)." J.A. 10930. The court then certified the class for
those employed in all six Nucor operations departments. The district court cites no new
facts or legal precedent after Brown Ito justify revisiting that determination once the
underlying question of commonality has been resolved.
Nonetheless, the dissent insists that our decision in Brown I "did not prevent the district
court in any way from considering predominance because our prior decision did not say
anything about predominance." Post at 75-76 (emphasis added). Such a conclusion
misconstrues both the plain language of our original mandate and ignores the district
court's equally [*"65] plain understanding of it. The pivotal question in determining the
scope of the mandate is whether the district court was free on remand to find that the
workers had not satisfied the predominance requirement. If so, then our mandate did not
reach the issue and the district court was free to reconsider it. But if the court did not have
such liberty, then we must ask whether "controlling legal authority has changed
dramatically" regarding Rule 23(b)(3) such that the court could reconsider the question.
See Bell, 5 F.3d at 67. If no such change has occurred, then the district court could not
revisit it.
0921] As for the first question, the district court had no discretion to find that the workers'
class failed to satisfy Rule 23(b)(3), after we expressly told it "to certify the appellants'
class action and to engage in further proceedings consistent with this opinion." Brown I,
576 F.3d at 160; see also Bell, 5 F.3d at 66 (requiring that [HN31] a district court
"implement both the letter and spirit of the . . . mandate, taking into account [our] opinion
and the circumstances it embraces" (internal quotation marks and citation omitted)); United
States v. Pileggi, 703 F.3d 675, 679 (4th Cir. 2013) (observing that the mandate rule
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"forecloses relitigation of issues expressly or impliedly decided by the appellate court"
(quoting Bell, 5 F.3d at 66)); S. Atl. Ltd., 356 F.3d at 583 (observing r66] that a mandate
must be "scrupulously and fully carried out" (internal quotation marks and citation
omitted)).
Indeed, the district court itself recognized that we had "dictate[d] the general outcome to
be reached (class certification) while leaving [the district court] to fill in the details." J.A.
9886 (Order Den. Mot. for Recons. 8 n.2). Of course, the court could have, and did,
evaluate whether certification was best under Rule 23(b)(2) or (b)(3). But it had no
discretion to then find that the prerequisites of either rule were not met. As the court
observed, Nucor's argument on remand that the workers had failed to satisfy Rule 23(b)
"overlook[ed] the Fourth Circuit's prior holding in this case." J.A. 9704 (Certification
Order).=• Thus, the dissent misstates the record when it maintains that our original decision
did not "in any way" prevent the district court from considering predominance. Post at 75-
76. Indeed, following our instructions and findings in Brown I, the court proceeded to make
the only finding it could under Rule 23(b)(3), namely, that "common issues predominate
and that a class action is superior to any other method for adjudication of the claims in this
case." The dissent is thus also misinformed when it states we are now certifying "a Rule
23(b)(3) class (**67] action without any court ever finding that the Rule 23(b)(3)
requirements are satisfied." Post at 78.
24 The dissent also maintains that our mandate did not reach the question of predominance because we amended our original
opinion in Brown Ito delete a specific reference to Rule 23(b)(3). Post at 77. Such a deletion, however, did not change either
our mandate to certify - a mandate that required the court to find the workers lad met Rule 23(b) - or the district court's express
understanding of that mandate.
Given the fact that our prior ruling foreclosed the denial of certification on the basis of Rule
23(b)(3), the district court needed some compelling reason to reconsider the question. Bell,
5 F.3d at 67 (describing [HN32] the "extraordinary" exception to the mandate rule when
there is "a show[ing] that controlling legal authority has changed dramatically"). But the
court cited no such reason and, unlike the question of commonality, Wal-Mart provided
none. Indeed, as the district court itself acknowledged, Wal-Mart only incidentally narrowed
an inquiry into whether common questions predominate by clarifying what constitutes a
common question in the first place under Rule 23(a)(2). J.A. 10971-72.
V.
More than seven years have now elapsed since the workers first filed their class
certification r68] motion, and the district court twice has refused to certify the class. The
nature of the allegations, the evidentiary support buttressing them, and the inherent
cohesiveness of the class all demonstrate that the court's failure to certify was an error.
[HN33] Rule 23 provides wide discretion to district courts, in part, to promote the ("922]
systemic class action virtues of efficiency and flexibility. The realization of such benefits,
however, requires that a district court exercise its judgment in a reasoned and expeditious
manner.
The dissent rightly observes that the majority presses forward "[o]n the road to its desired
result." Post at 152. And that result is simple justice. At bottom, the workers seek nothing
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more than the chance to speak with one voice about the promotions discrimination they
allegedly suffered as one class on account of one uniting feature: the color of their skin.
The dissent would deny them that chance while leading this Court down a different road - a
road that would further weaken the class action as a tool to realize Title VII's core promise
of equality.
We vacate the district court's decertification of the workers' promotions class and remand
the case to the district court with instructions ["69] to certify the class.
VACATED IN PART, AND REMANDED WITH INSTRUCTIONS.
DISSENT BY: AGEE
DISSENT
AGEE, Circuit Judge, dissenting:
We typically tread lightly when reviewing a class certification decision, affording
"substantial deference" to the district court, especially when it provides "well-supported
factual findings." Ward v. Dixie Nat'I Life Ins. Co., 595 F.3d 164, 179 (4th Cir. 2010). Class
certification proceedings often call for fact-intensive choices requiring intimate knowledge
of the peculiarities of complex litigation. Id. We usually trust that the district court has the
better eye for these sorts of questions.
The majority today declines to follow that path. It instead takes issue with almost every
aspect of the district court's decision to decertify, reversing that court's determination
because of newfound facts on appeal and different notions about the nature of this case. In
doing so, the majority creates a split between this Court and another, see Bennett v. Nucor
Corp., 656 F.3d 802 (8th Cir. 2011), overlooks a plain and decisive waiver from the
appellants, and drains a critical Supreme Court decision of much of its meaning, see Wal-
Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 180 L. Ed. 2d 374 (2011). I respectfully
dissent.
I. Predominance
A.
The district court decertified Plaintiffs' promotions classes for two distinct reasons. First,
the court found that Plaintiffs had not identified r70] a "question[) of law or fact common
to the class," as Rule 23(a)(2) of the Federal Rules of Civil Procedure requires. Second, it
held that any questions common to the class members did not "predominate over any
questions affecting only individual members," so the class could not be certified under
Rule 23(b)(3). Each of these separate reasons -- commonality or predominance — provide
an independent ground to decertify the class. See, e.g., Thom v. Jefferson-Pilot Life Ins.
Co., 445 F.3d 311, 319 (4th Cir. 2006).
Because the district court provided two different bases for its decision, Plaintiffs were
required to contest both. They did not. Plaintiffs' opening brief nowhere mentions the topic
of predominance. Neither does it refer to Rule 23(b). And even though "the main concern
in the predominance inquiry" is "the balance between individual and common issues,"
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Myers v. Hertz Corp., 624 F.3d 537, 549 (2d Cir. 2010), a reader searches in vain for any
mention of such a "balancing" in Plaintiffs' submissions. Instead, Plaintiffs' opening brief
focuses solely on Rule 23(a) commonality. The brief does not even contain a simple
r923J
statement that the district court erred as to predominance for the same reasons
that it purportedly erred as to commonality -- not to say that such a statement would be
sufficient, either. See Jimenez v. Allstate Ins. Co., 765 F.3d 1161, 1165 n.4 (9th Cir. 2014)
(holding that "cursory statements that the district court's order also incorrectly [""71]
applied Rule 23(b)(3)'s [predominance] requirement" are "not enough to preserve the issue
for appeal").
An appellant must raise every issue that he wishes to press in his opening brief. If the
appellant fails to address an issue there, then we will deem the issue waived or
abandoned. We have repeated this rule so often that it might rightfully be termed the best-
established rule in appellate procedure. See, e.g., Metro. Reg'I Info. Sys., Inc. v. Am.
Home Realty Network, 722 F.3d 591, 602 n.13 (4th Cir. 2013); Kensington Volunteer Fire
Dep't, Inc. v. Montgomery Cnty., 684 F.3d 462, 472 n.4 (4th Cir. 2012); Mayfield v. Nat'l
Ass'n for Stock Car Auto Racing, Inc., 674 F.3d 369, 376 (4th Cir. 2012); A Helping Hand,
LLC v. Balt. Cnty., 515 F.3d 356, 369 (4th Cir. 2008); French v. Assurance Co. of Am., 448
F.3d 693, 699 n.2 (4th Cir. 2006). As a rule that "all the federal courts of appeals employ,"
waiver "makes excellent sense." Joseph v. United States, 135 S. Ct. 705, 705, 190 L. Ed.
2d 461 (2014) (Kagan, J., respecting denial of certiorari).
In past cases, we have endeavored to apply our waiver rule consistently, finding waiver
whenever a party fails to "develop [his] argument" -- even if his brief takes a passing shot
at the issue. Belk, Inc. v. Meyer Corp., 679 F.3d 146, 152 n.4 (4th Cir. 2012). We have
further found arguments waived even though they might have had merit. See IGEN Intl,
Inc. v. Roche Diagnostics GmbH, 335 F.3d 303, 308-09 (4th Cir. 2003); Pleasurecraft
Marine Engine Co. v. Thermo Power Corp., 272 F.3d 654, 657 (4th Cir. 2001). And we
have applied the doctrine despite its potentially significant impact. See, e.g., Carter v. Lee,
283 F.3d 240, 252 n.11 (4th Cir. 2002) (applying the doctrine in a death penalty case).
Given that Plaintiffs failed to challenge the district court's ruling on predominance, the plain
and consistent waiver rule defeats their appeal. "[T]o obtain reversal of a district court
judgment based on multiple, independent grounds, [""72] an appellant must convince us
that every stated ground for the judgment against him is incorrect." In re Under Seal, 749
F.3d 276, 289 (4th Cir. 2014); accord Maher v. City of Chi., 547 F.3d 817, 821 (7th Cir.
2008); Jankovic v. Intl Crisis Gm., 494 F.3d 1080, 1086, 377 U.S. App. D.C. 434 (D.C. Cir.
2007). Appellate courts have repeatedly affirmed district court decisions denying class
certification where plaintiffs failed to contest a predominance finding. See, e.g., Little v. T-
Mobile USA, Inc., 691 F.3d 1302, 1306-08 (11th Cir. 2012); Klay v. Humana, Inc., 382 F.3d
1241, 1268 (11th Cir. 2004), abrogated on other grounds by Bridge v. Phoenix Bond &
Indemnity Co., 553 U.S. 639, 128 S. Ct. 2131, 170 L. Ed. 2d 1012 (2008); Applewhite v.
Reichhold Chems., Inc., 67 F.3d 571, 573-74 (5th Cir. 1995). Nothing calls for a different
result here.
B.
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In view of their failure to raise the predominance issue, Plaintiffs now suggest that
Ipiredominance and commonality . . . are [both) part of Rule 23(b)(3)," such that a
challenge concerning one should be treated as a challenge to both. Appellant's Reply Br.
2. They are mistaken.
Commonality, found in Rule 23(a)(2), asks whether the proposed class will "resolve an
issue that is central to the validity of each of one of the claims in one stroke." EQT Prod.
['92k1]
Co. v. Adair, 764 F.3d 347, 360 (4th Cir. 2014). Predominance, found in Rule
23(b)(3), presents a "far more demanding" inquiry, Amchem Prods., Inc. v. Windsor, 521
U.S. 591, 624, 117 S. Ct. 2231, 138 L. Ed. 2d 689 (1997), namely whether any common
questions "pre-dominate over any questions affecting only individual members," Fed. R.
Civ. P. 23(b)(3). Thus, while a "common issue" will establish commonality, that common
issue only goes to one part of the predominance inquiry. Consequently, courts and parties
must address these requirements separately, rather than muddle them together. See Vega
v. T-Mobile USA, Inc., 564 F.3d 1256, 1268-70 (11th Cir. 2009); In re Ins. Brokerage Litig.,
579 F.3d 241, 277 (3d Cir. 2009); accord Ealy v. Pinkerton Gov't Servs., Inc., 514 F. App'x
299, 305 (4th Cir. 2013) (" r731[ T]he Rule 23(a) commonality requirement[] and the Rule
23(b)(3) predominance requirement remain separate inquiries and the inquiries should not
be 'blended."').
The majority excuses Plaintiffs' waiver because it believes that Plaintiffs "followed the
district courts lead" in combining the two issues. Maj. op. at 55. Thus, even though
commonality and predominance are legally distinct, the majority speculates that the district
court did not treat them as such here. The majority's analysis mischaracterizes the district
court's opinion.
The district court did not just repeat back its commonality findings in determining that
Plaintiffs' class failed as to predominance. To the contrary, the court expressly held that it
could not find the required predominance "even if the Fourth Circuit subsequently
conclude[d] that plaintiffs have identified a common issue that satisfies Rule 23(a)(2)." J.A.
10956. The court then explained -- over several pages — that many different reasons
underlay its predominance finding, including several individual questions that could
"overwhelm" common ones. Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 133 S. Ct.
1184, 1196, 185 L. Ed. 2d 308 (2013). Because Plaintiffs heavily rely on anecdotal
evidence, for instance, the district court correctly concluded that a jury 'would have to
delve into the merits [*74] of each individual promotion decision" to determine whether
each decision evidenced discrimination. J.A. 10959. Thus, a trial meant to resolve class-
wide issues would likely devolve into a series of mini-trials examining each promotion
decision made in the Nucor plant. The court further acknowledged that "individual
damages determinations," like those that would be required here, can "cut against class
certification." J.A. 10956. Although it concluded that such damages determinations did not,
standing alone, compel decertification in this case, J.A. 10958, they did provide the district
court an additional basis for caution in making its predominance finding. See, e.g., Cooper
v. So. Co., 390 F.3d 695, 722-23 (11th Cir. 2004), overruled on other grounds by Ash v.
Tyson Foods, Inc., 546 U.S. 454, 126 S. Ct. 1195, 163 L. Ed. 2d 1053 (2006) (noting that
individualized damage issues could swamp the advantages coming from an initial, class-
wide liability determination); accord Allison v. Citgo Petroleum Corp., 151 F.3d 402, 421-22
(5th Cir. 1998), cited with approval in Gunnells v. Healthplan Servs., Inc., 348 F.3d 417,
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445 n.18 (4th Cir. 2003); see also Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1433, 185
L. Ed. 2d 515 (2013) (explaining that individual damage-related questions might destroy
predominance); Windham v. Am. Brands, Inc., 565 F.2d 59, 71-72 (4th Cir. 1977).
The district court appropriately resolved predominance separately from commonality.
Plaintiffs' failure to address the predominance finding in any way ends their appeal.
[`925]
C.
The majority at least recognizes that Plaintiffs should have ["75] been "more explicit" in
addressing predominance. Maj. op. at 54; see also id. at 55 (acknowledging that Plaintiffs'
"express[]" arguments largely concern commonality). Even so, it concludes that certain
oblique references in Plaintiffs' briefs preserved a predominance-related challenge on
appeal. They do not.
Plaintiffs' statement of the issue on appeal, for instance, does not help them. See maj. op.
at 53. The statement asks only whether "it [was] error or an abuse of discretion for the
district court not to follow this Circuit's mandate" when it decertified the class. See
Appellant's Br. 1. Here again, Plaintiffs never mention predominance, and the statement
does not otherwise indicate any specific complaint with the district court's predominance
holding. Even if it had, that reference would not have been enough without some further
argument on the matter -- an argument that Plaintiffs wholly failed to provide. See Belk,
Inc., 679 F.3d at 153 n.6; 11126 Balt. Blvd., Inc. v. Prince George's Cnty., Md., 58 F.3d
988, 993 n.7 (4th Cir. 1995).
The majority also ignores Plaintiffs' waiver because their brief contains some broadly
stated attacks on the district court's decertification decision — attacks purportedly not
"limit[ed] to the question of commonality." Maj. op. at 55. But in the usual case, a
generalized attack ["76] on the lower court's decision does not preserve the specific
arguments that might be subsumed within the broader one. Quite the opposite: a
"generalized assertion of error" will not suffice to preserve anything. MMG Fin. Corp. v.
Midwest Amusements Park, LLC, 630 F.3d 651, 659 (7th Cir. 2011); see also, e.g., Garrett
v. Selby Connor Maddux & Janer, 425 F.3d 836, 841 (10th Cir. 2005); Norman v. United
States, 429 F.3d 1081, 1091 n.5 (Fed. Cir. 2005). Preservation would have little to
recommend it if litigants could make nebulous, broadly worded arguments and trust
appellate courts to work out the details once the opposing party points out the default.
In much the same way, Plaintiffs did not preserve their predominance challenge by citing a
few cases that happen to touch upon the concept. See maj. op. at 54. The traditional rule
provides that citations to the "occasional case," without any fuller discussion, do not
preserve an argument. Pike v. Guarino, 492 F.3d 61, 78 n.9 (1st Cir. 2007); see also Am.
Wildlands v. Kempthorne, 530 F.3d 991, 1001, 382 U.S. App. D.C. 78 (D.C. Cir. 2008) ("A
fleeting statement in the parenthetical of a citation is no more sufficient to raise a claim
than a cursory remark in a footnote[.]"). Similarly, "[m]ere notation of the applicable law,
without any argumentation as to how it applies to [this] case, does not raise the issue of its
application on appeal." Sou v. Gonzales, 450 F.3d 1, 6 n.11 (1st Cir. 2006) (internal
quotation marks and citations omitted here and throughout); accord Johnson v. United
States, 734 F.3d 352, 360 (4th Cir. 2013).
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['.77]
The majority's analysis casts an inappropriate role for an appellate court. Now, a
court must review each decision that an appellant cites and independently consider
whether any part of it might undermine the district court's judgment for some reason that
the appellant never raised. That concept reconceives the appellate courts' role, as those
"courts do not sit as self-directed boards of legal inquiry and research." Nat'l Aeronautics &
Space Admin. v. Nelson, 562 U.S. 134, 147 n.10, 131 S. Ct. 746, 178 L. Ed. 2d 667
(2011); see also Walker v. Prince George's Cnty., Md., 575 F.3d 426, 429 n." (4th Cir.
2009) ("Judges are not like pigs, hunting for truffles buried in briefs."). In addition, using the
[1'926] majority's new rule, appellants may now launch late-in-the-day challenges to any
part of a district court's certification decision so long as they serendipitously cited a case
canvassing Rule 23 in their opening brief. This "preservation-by-citation" approach renders
the waiver rule a nullity.
D.
In the end, the majority declares itself unwilling to exercise its "discretion" to "discard years
of litigation on appeal because of an inartful brief." Maj. op. at 58. That 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 arguments straight up and square. All the more ("78] so when
these counsel have been specifically cautioned about waiver on previous occasions. See,
e.g., Davis v. Coca-Cola Bottling Co. Consol., 516 F.3d 955, 972-73 (11th Cir. 2008)
(holding that party represented by same counsel had "abandoned" claim by failing to raise
it in his opening brief); see also Angles v. Dollar Tree Stores, Inc., 494 F. App'x 326, 330
n.6 (4th Cir. 2012) (same); cf. Bennett, 656 F.3d at 821 (holding that party represented by
same counsel had "essentially abandoned" argument by making only a "conclusory
challenge"); Anderson v. Cagle's, Inc., 488 F.3d 945, 959 (11th Cir. 2007) (same).
The "purpose" of the preservation rule is also not served by overlooking Plaintiffs' waiver.
See maj. op. at 57-58. The rule "ensures that the opposing party has an opportunity to
reflect upon and respond in writing to the arguments that his adversary is raising."
Hamilton v. Southland Christian Sch., Inc., 680 F.3d 1316, 1319 (11th Cir. 2012); see also
United States v. Leeson, 453 F.3d 631, 638 n.4 (4th Cir. 2006) (noting that late arguments
are "unfair to the appellee"); Pignons S.A. de Mecanique v. Polaroid Corp., 701 F.2d 1, 3
(1st Cir. 1983) ("In preparing briefs and arguments, an appellee is entitled to rely on the
content of an appellant's brief for the scope of the issues appealed[.]"). Nucor never had a
chance to address Plaintiffs' predominance arguments directly, as Plaintiffs waited until
their reply brief to make them. Plaintiffs argued in their reply brief, for example, that no
"heightened" predominance standard applies after Wal-Mart Stores, Inc. v. Dukes, 131 S.
Ct. 2541, 2551, 180 L. Ed. 2d 374 (2011), and the majority agrees, see maj. op. at 62.
There might very well be reason to believe ("79] otherwise, though Nucor has never had
a chance to make that argument. See, e.g., Andrey Spektor, The Death Knell of Issue
Certification and Why That Matters After Wal-Mart v. Dukes, 26 St. Thomas L. Rev. 165,
172 (2014) (suggesting that Wal-Mart rendered it harder for issues to predominate). It must
be cold comfort to Nucor, then, to hear that it was not "prejudice[d]" by these and other
unanswerable arguments. Maj. op. at 58.
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E.
The majority goes on to hold that the mandate rule barred the district court from examining
Rule 23(b)(3) predominance. See maj. op. at 58-62. That view is factually and legally
incorrect. The decision in the prior appeal in this case did not prevent the district court in
any way from considering predominance because our prior decision did not say anything
about predominance.
In its original class certification decision in 2007, the district court held that Plaintiffs did not
satisfy three of Rule 23(a)'s four requirements. It expressly declined to consider "the
['92T]
remaining requirements of Rule 23(b)." J.A. 8997. On appeal, the parties'
submissions focused solely on Rule 23(a). A majority of the Court then reviewed these
"Rule 23(a) factors" and found them "satisfied." Brown v. Nucor Corp., 576 F.3d 149, 160
(4th Cir. 2009) ("Brown I"). The Brown I majority initially went on to hold, in a single
sentence at the end r801 of the opinion, that "the requirements of [Rule] 23(b)(3) ha[d]
also been satisfied for these claims." See Brown v. Nucor Corp., No. 08-1247, 576 F.3d
149 at 160 (4th Cir. Aug. 7, 2009). Nucor then petitioned for rehearing en banc, arguing,
among other things, that neither the lower court nor the parties had previously analyzed
the Rule 23(b) issue. See Nucor Pet. for Reh'g at 9, Brown I, 576 F.3d 149 (No. 08-1247),
ECF No. 53. In response, the Brown I panel amended its opinion and excised any mention
of Rule 23(b)(3). See Order, Brown v. Nucor Corp., No. 08-1247 (4th Cir. Oct. 8, 2009).
One can easily discern why the opinion was amended: Brown I could not decide a fact-
intensive issue -- that is, the predominance issue under Rule 23(b)(3) -- when the parties
had not yet argued it and the district court had not yet addressed it. See Transamerica
Leasing, Inc. v. Instit. of London Underwriters, 430 F.3d 1326, 1332 (11th Cir. 2005)
(explaining that the mandate rule and the broader law of the case doctrine "cannot apply
when the issue in question was outside the scope of the prior appeal"). In fact, up to that
point, Plaintiffs had never even sought certification under Rule 23(b)(3); they sought to
certify only a Rule 23(b)(2) class or, in the alternative, a so-called "hybrid" action.
By removing any reference to Rule 23(b), Brown I left it to the district court to determine in
the first instance whether Plaintiffs' class ("81] met that provision's requirements. The
district court complied with both the letter and the spirit of Brown I, and it correctly took
"into account [the] opinion and the circumstances it embrace[d]." United States v. Bell, 5
F.3d 64, 66 (4th Cir. 1993); see also, e.g., Lindy Pen Co. v. Bic Pen Corp., 982 F.2d 1400,
1404-05 (9th Cir. 1993) (affirming district court's decision not to order accounting or
damages, despite appellate court's instructions to "order an accounting and to award
damages," where district court acted in line with the "spirit" of the mandate). An appellate
mandate "does not reach questions which might have been decided but were not." United
States v. Lentz, 524 F.3d 501, 528 (4th Cir. 2008). And "[w]hile a mandate is controlling as
to matters within its compass, on the remand a lower court is free as to other issues."
Sprague v. Ticonic Nat'l Bank, 307 U.S. 161, 168, 59 S. Ct. 777, 83 L. Ed. 1184 (1939).
Simply put, the Brown I mandate did not apply to Rule 23(b)(3), nor could it.
On remand after Brown I, the district court initially certified the two promotions classes
under Rule 23(b)(3). The court later reconsidered, as it was entitled to do under Rule 23,
which provides that "[a]n order that grants or denies class certification may be altered or
amended before final judgment." Fed. R. Civ. P. 23(c)(1)(C); see also Fed. R. Civ. P.
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54(b). "[C]ertifications are not frozen once made," Amgen, Inc., 133 S. Ct. at 1202 n.9, and
a district court has "considerable discretion to decertify the class," Cent. Wesleyan Coll. v.
W.R. Grace & Co., 6 F.3d 177, 189 (4th Cir. 1993). See also PradoSteiman ex rel. Prado
v. Bush, 221 F.3d 1266, 1273 (11th Cir. 2000). The district court could revisit its
interlocutory decision regardless r821 of whether, as the majority puts it, "new facts or
legal precedent [arose] after Brown I." Maj. op. at 59.
In effect, the majority today certifies a Rule 23(b)(3) class action without any court ever
finding that the Rule 23(b)(3) requirements are satisfied. It cannot genuinely contend that
['928]
Brown I did the work, as "the Fourth Circuit has never allowed the rigorous Rule 23
analysis to be accomplished implicitly." Partington v. Am. Intl Specialty Lines Ins. Co., 443
F.3d 334, 341 (4th Cir. 2006). And the district court ultimately did not make such a finding
either. The majority's decision to certify in part on this illusory mandate, then, substantially
damages Rule 23(b)(3)'s "vital prescription." Amchem, 521 U.S. at 623. The Supreme
Court recently reminded us that "plaintiffs wishing to proceed through a class action must
actually prove -- not simply plead -- that their proposed class satisfies each requirement of
Rule 23, including . . . the predominance requirement of Rule 23(b)(3)." Halliburton Co. v.
Erica P. John Fund, Inc., 134 S. Ct. 2398, 2412, 189 L. Ed. 2d 339 (2014). At least as to
predominance, Plaintiffs have yet to prove anything.
Plaintiffs did not challenge the district court's predominance ruling and do not credibly
explain why they failed to do so. The district court's decision should therefore be affirmed
on that basis alone.
II. Relevant Standards
Even ignoring Plaintiffs' waiver of the predominance issue, they have not r831
established that the district court abused its discretion in finding insufficient commonality.
To see why, it is first necessary to recognize the standard that appellate courts use in
reviewing a district court's class-certification decision. Then, the standard that the district
court used in evaluating the evidence at the certification stage must be considered.
A.
1.
A district court's ultimate class-certification decision — that is, how it applied the Rule 23
factors -- is reviewed for an abuse of discretion. See, e.g., EQT Prod. Co., 764 F.3d at
357; Ward, 595 F.3d at 179; Monroe v. City of Charlottesville, Va., 579 F.3d 380, 384 (4th
Cir. 2009); Gregory v. Finova Capital Corp., 442 F.3d 188, 190 (4th Cir. 2006). But reciting
the standard is not enough; there must be genuine respect and adherence paid to the
limits that it imposes.
The abuse-of-discretion standard does establish some substantial limits, representing "one
of the most deferential standards of review." Matthew Bender & Co. v. West Publ'g Co.,
240 F.3d 116, 121 (2d Cir. 2001). Under it, the appellate court may reverse only when "the
[trial] court's exercise of discretion, considering the law and the facts, was arbitrary and
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capricious." United States v. Mason, 52 F.3d 1286, 1289 (4th Cir. 1995). We act only when
the decision could not "have been reached by a reasonable jurist," or when we may call it
"fundamentally wrong," "clearly unreasonable, arbitrary, or fanciful." Bluestein v. Cent. Wis.
Anesthesiology, S.C., 769 F.3d 944, 957 (7th Cir. 2014); accord Am. Copper & Brass, Inc.
v. Lake City Indus. Prods., Inc., 757 F.3d 540, 543 (6th Cir. 2014) (characterizing review of
a class certification decision as "very ["84] limited").
Of course, deference does not equal blind acceptance. If, for instance, the district court
entirely fails to undertake some part of the requisite analysis, then it may be appropriate to
reverse. See, e.g., EQT Prod., 764 F.3d at 371 (vacating and remanding a certification
order where the district court failed to conduct an appropriately rigorous analysis of Rule
23's requirements). But when our review ventures into intensely factual matters or areas of
practical concern, then our deference must be at its greatest — indeed, we ['929] must
stand aside in those circumstances unless the lower court was "clearly wrong." Windham,
565 F.2d at 65; accord CGC Holding Co., LLC v. Hutchens, 773 F.3d 1076, 1086 (10th Cir.
2014) ("[A]s long as the district court applies the proper Rule 23 standard, we will defer to
its class certification ruling provided that decision falls within the bounds of rationally
available choices given the facts and law involved in the matter at hand.").
We do not then reverse anytime we disagree with the result that the district court reaches.
See First Penn-Pac. Life Ins. Co. v. Evans, 304 F.3d 345, 348 (4th Cir. 2002). Rather, "the
[abuse-of-discretion] standard draws a line . .. between the unsupportable and the merely
mistaken, between the legal error, disorder of reason, severe lapse of judgment, and
procedural failure that a reviewing court may always correct, and [ *85] the simple
disagreement that, on this standard, it may not." Evans v. Eaton Corp. Long Term
Disability Plan, 514 F.3d 315, 322 (4th Cir. 2008); see also Cooter & Gell v. Hartmarx
Corp., 496 U.S. 384, 405, 110 S. Ct. 2447, 110 L. Ed. 2d 359 (1990) (holding that the
district court did not abuse its discretion where it "applied the correct legal standard and
offered substantial justification for its finding").
These principles might strike some as truisms, but they carry special force in the class-
certification context. "Granting or denying class certification is a highly fact-intensive matter
of practicality," Monreal v. Potter, 367 F.3d 1224, 1238 (10th Cir. 2004), so much so that
Ihrighly fact-based, complex, difficult matters" arise as a matter of routine, Amchem, 521
U.S. at 630 (Breyer, J., concurring in part and dissenting in part). Unsurprisingly, then, we
give district courts "broad discretion in deciding whether to allow the maintenance of a
class action." Roman v. ESB, Inc., 550 F.2d 1343, 1348 (4th Cir. 1976); see also Lowery v.
Circuit City Stores, Inc., 158 F.3d 742, 757-58 (4th Cir. 1998), vacated 527 U.S. 1031, 119
S. Ct. 2388, 144 L. Ed. 2d 790 (1999), reaffd in relevant part, 206 F.3d 431 (4th Cir.
2000). As with any other decision that appellate courts review for abuse of discretion, we
should affirm a certification decision even if we are convinced that "reasons clearly existed
for taking the other course." Lewis v. Bloomsburg Mills, Inc., 773 F.2d 561, 564 (4th Cir.
1985); accord Simmons v. Poe, 47 F.3d 1370, 1382 (4th Cir. 1995).
2.
An appellate court must be even more careful in reviewing any factual findings underlying
the district court's decision, as we review those only for clear error. Thom, 445 F.3d at
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126 Fair Empl. Prac. Cas. (BNA) 1793; 99 Empl. Prac. Dec. (CCH) P45,306
317-18; see also Fed. R. Civ. P. 52(a)(6). "The clear error standard .. . protects ("86]
district courts' primacy as triers of fact." Evans, 514 F.3d at 321. Our opinions have
repeatedly emphasized that clear-error review is "narrow," Walker v. Kelly, 593 F.3d 319,
323 (4th Cir. 2010), "highly deferential," Green v. Johnson, 515 F.3d 290, 301 (4th Cir.
2008), and "particularly circumscribed," Jiminez v. Mary Washington College, 57 F.3d 369,
378 (4th Cir. 1995). We may reverse findings reviewed under this standard only when,
having reviewed the entire record, we are "left with the definite and firm conviction that a
mistake has been committed." United States v. Heyer, 740 F.3d 284, 292 (4th Cir. 2014). If
the district court those between "two permissible views of the evidence," or if it otherwise
offered a "plausible" account of that evidence, Anderson v. City of Bessemer City, N.C.,
470 U.S. 564, 574, 105 S. Ct. 1504, 84 L. Ed. 2d 518 (1985), then its factual findings are
"conclusive," Walker, 593 F.3d at 323. And as with the abuse-of-discretion standard, we
cannot reverse ('930] merely because we would have decided the matter differently. See
Anderson, 470 U.S. at 573.
3.
Despite these deferential standards of review, the majority identifies reversible error in
virtually every legal and factual judgment that the district court rendered. Yet in searching
the majority's opinion for any of the hallmarks of deference -- explanations as to how the
district court clearly erred, or full analysis of how the district court abused its discretion --
we find very little.
In truth, the majority seems to apply just about every standard of review but a deferential
one. For the most r87] part, the majority offers bare statements that the district court
erred, apparently because the district court decided things differently than the majority
would have. For instance, it insists that Plaintiffs' statistical evidence is simply "less
precise" and rejects out-of-hand the district court's view that the evidence was
"fundamentally unreliable." Maj. op. at 18, 23. Likewise, it draws its own conclusions about
the anecdotal evidence, reciting certain portions of certain affidavits and declaring them
enough. It makes credibility determinations, categorically rejecting Nucor's evidence as
"self-serving," id. at 25, or "coercive," id. at 42, while embracing contrary statements from
Plaintiffs because the majority finds them "credible," id. at 41. And it offers its own notions
about what is "plain," id. at 29, "elementary," id. at 39, or "common sense," id. at 42. The
majority does so even while decrying the dangers of "cherry pick[ing] facts from an 11,000
page record." Id. at 41. In short, the majority opinion shows little respect for a district court
that is far more familiar with each page of the record than we are.
Contravening our "axiomatic" rule against factual findings on appeal, Core Communs., Inc.
v. Verizon Maryland LLC, 744 F.3d 310, 324 (4th Cir. 2014), the majority eventually finds
in the first ("88] instance that "there is only one answer to the question of why Nucor's
black workers were consistently disfavored," maj. op. at 45. This adventuresome approach
is rather jarring when placed against the more measured methods found in some of our
other class certification decisions. See, e.g., EQT Prod., 764 F.3d at 371 (remanding for
further consideration of class certification after determining that district court misapplied
the relevant standards); Gariety v. Grant Thornton, LLP, 368 F.3d 356, 366 (4th Cir. 2004)
(same). Making matters worse, the majority offers no good reason for it. Instead, it
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engages in a rather extended discussion of the Brown I dissent and then declares any
attack on the majority's factfinding today "iron[ic]." Maj. op. at 21.
Too often, we fail to give standards of review the attention that they deserve. We see them
recited in boilerplate and then dispensed with when the perceived exigencies of a case
seem to call for it. But "[s]tandards of review are . . . an elemental expression of judicial
restraint, which, in their deferential varieties, safeguard the superior vantage points of
those entrusted with primary decisional responsibility." Evans, 514 F.3d at 320-21. An
appellate court should not be so quick to ignore them.
B.
We must next consider the district court's role in deciding the certification r"891 motion in
the first place. The majority implies that the district court too readily dismissed Plaintiffs'
['931]
efforts to certify. But the district court was not just permitted to take a hard look at
Plaintiffs' submissions -- it was required to.
1.
Although plaintiffs shoulder the burden of demonstrating that a proposed class complies
with Rule 23, the district court has an "independent obligation to perform a rigorous
analysis to ensure that all of the prerequisites have been satisfied." EQT Prod., 764 F.3d
at 358. Among other things, this "rigorous analysis" requires the district court "to resolve a
genuine legal or factual dispute relevant to determining the requirements." In re Hydrogen
Peroxide Antitrust Litig., 552 F.3d 305, 320 (3d Cir. 2008).
"[C]areful attention to the requirements of [Rule] 23 remains .. . indispensable" even in
cases "alleging racial or ethnic discrimination." E. Tex. Motor Freight Sys., Inc. v.
Rodriguez, 431 U.S. 395, 405, 97 S. Ct. 1891, 52 L. Ed. 2d 453 (1977). Thus, "a Title VII
class action, like any other class action, may only be certified if the trial court is satisfied,
after a rigorous analysis, that the prerequisites of [the Rule] have been satisfied." Gen. Tel.
Co. of Sw. v. Falcon, 457 U.S. 147, 161, 102 S. Ct. 2364, 72 L. Ed. 2d 740 (1982); see
also Desert Palace, Inc. v. Costa, 539 U.S. 90, 99, 123 S. Ct. 2148, 156 L. Ed. 2d 84
(2003) (noting the "conventional rule[s] of civil litigation . .. generally appl[y] in Title VII
cases"). And there is no "entitlement to class proceedings for the vindication of statutory
rights," Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2309, 186 L. Ed. 2d 417
(2013), Title VII included. Thus, r*90] the Court must be careful not to bend and twist the
"rigorous analysis" that Rule 23 compels merely for the sake of abstract notions of Title
VII's objectives and purposes. Cf. Touche Ross & Co. v. Redington, 442 U.S. 560, 578, 99
S. Ct. 2479, 61 L. Ed. 2d 82 (1979) ("[G]eneralized references to the 'remedial purposes'
of [a statute] will not justify reading a provision more broadly than its language and the
statutory scheme reasonably permit."). To do so would not only ignore the Supreme
Court's warnings; it might also have unforeseen effects in the many other areas of law in
which Rule 23 is implicated.
In basic terms, the rigorous-analysis standard tests whether plaintiffs have presented
substantial evidence of compliance with Rule 23. Plaintiffs may "not simply plead" that the
relevant requirements have been met, but must "actually prove" it. Halliburton, 134 S. Ct.
at 2412; accord Monroe, 579 F.3d at 384. To meet that standard, plaintiffs must summon
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"evidentiary proof," Comcast, 133 S. Ct. at 1432, and "affirmatively demonstrate [their]
compliance with the Rule," Wal-Mart, 131 S. Ct. at 2551. "[S]ome evidence" is not enough.
In re Initial Pub. Offerings ["IPO") Sec. Litig., 471 F.3d 24, 33 (2d Cir. 2006).
Before certifying a class action, courts will require a plaintiff to establish by a
preponderance of the evidence that the action complies with each part of Rule 23. See In
re U.S. Foodservice Inc. Pricing Litig., 729 F.3d 108, 117 (2d Cir. 2013); Carrera v. Bayer
Corp., 727 F.3d 300, 306 (3d Cir. 2013); Messner v. Northshore Univ. HealthSystem, 669
F.3d 802, 811 (7th Cir. 2012); Ala. Elec. Pension Fund v. Flowserve Corp., 572 F.3d 221,
228 (5th Cir. 2008), abrogated in other respects by Halliburton, 134 S. Ct. 2398, 189 L. Ed.
2d 339; accord In re Titanium Dioxide Antitrust Litig., 284 F.R.D. 328, 336 (D. Md. 2012)
r .91] ; In re Mills Corp. Sec. Litig., 257 F.R.D. 101, 104 (E.D. Va. 2009); In re Safety-
Kleen Corp. Bondholders Litig., No. 3:00-1145-17, 2004 U.S. Dist. LEXIS 31099, 2004 WL
3115870, at *2 (D.S.C. Nov. 1, 2004); see also Anthony F. Fata, Doomsday Delayed: How
the Court's Party-Neutral Clarification of Class Certification Standards [*932] in Wal-Mart
v. Dukes Actually Helps Plaintiffs, 62 DePaul L. Rev. 675, 681 (2013) (reading Wal-Mart to
apply a preponderance-of-the-evidence standard).
2.
"[T]he factors spelled out in Rule 23 must be addressed through findings, even if they
overlap with issues on the merits." Gariety, 368 F.3d at 366; accord In re Rail Freight Fuel
Surcharge Antitrust Litig., 725 F.3d 244, 249, 406 U.S. App. D.C. 371 (D.C. Cir. 2013)
(recognizing that certification will sometimes "resemble[] an appraisal on the merits").
Obviously, "[a] court may not say something like 'let's resolve the merits first and worry
about the class later . . . or 'I'm not going to certify a class unless I think that the plaintiffs
will prevail."' Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 677 (7th Cir. 2001), cited
with approval in Wal-Mart, 131 S. Ct. at 2552. But overlap "cannot be helped," as
certification "generally involves considerations that are enmeshed in the factual and legal
issues comprising the plaintiff's cause of action." Wal-Mart, 131 S. Ct. at 2551-52.
Compare Brown I, 576 F.3d at 156 (citing Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177,
94 S. Ct. 2140, 40 L. Ed. 2d 732 (1974), and refusing to inquire into Plaintiffs' statistics
because it would be an impermissibly "in-depth assessment of the merits"), with Wal-Mart,
131 S. Ct. at 2552 & n.6 (admonishing courts not to "mistakenly cite[]" Eisen for the
incorrect idea that merits inquiries are barred).
3.
Contrast these well-defined and rigorous [**92] standards with the ambiguous and
limitless ones found in the majority opinion. The majority acknowledges the "rigorous
analysis" that lower courts must perform, but abandons that standard soon after
mentioning it. Instead, it treats the evidentiary standard for certification as one different
from that required for a party to prevail on the merits, never acknowledging that this view
breaks from the many courts (including those in our Circuit) that apply the preponderance
standard. Nor does it even tell us what a "rigorous analysis" might consist of. Instead, it
merely invokes Amgen, a case that addresses what questions may be considered on class
certification, not what evidence will suffice to answer them. 133 S. Ct. at 1194-95. Having
rendered the rigorous analysis less rigorous than other courts' (though to what degree, one
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does not know), the majority then proceeds to apply its weakened test, repeatedly using
mere allegations -- or, sometimes, allegations "proven" by allegations -- to justify
certification. See, e.g., maj. op. at 25, 33, 34, 39, 43, 45, 50, 51, 62. The necessary
implication is that the majority's "rigorous analysis" consists of very little.
One finds a further hint at the level of proof r93] that the majority means to apply when it
embraces Brown I's metric. Maj. op. at 16-17. Brown I held that "allegations" of disparate
treatment were enough to establish commonality, a conclusion at odds with Wal-Mart.
Compare Brown I, 576 F.3d at 153, with Wal-Mart, 131 S. Ct. at 2553 (distinguishing
between an "otherwise unsupported allegation" and the "significant proof' required to
establish a common policy). The majority in Brown I also said that anecdotes from three
employees concentrated in a single department proved a common policy of discrimination.
576 F.3d at 153. And it held that statistical evidence of "relatively weak probative value"
was enough, even though problems in that evidence — the statistical evidence seen here —
might "very well discredit" it at some later stage. Id. at 156 & n.10. In short, Brown I
required the plaintiffs to summon an exceptionally low, almost non- p933] existent level of
proof at the class-certification stage.
The majority's decision to reanimate Brown l's negligible evidentiary standard leaves this
circuit alone on an island. The Brown I majority suggested that its lenient view of the
necessary evidence aligned with the Second Circuit's decision in Caridad v. Metro-North
Commuter Railroad, 191 F.3d 283 (2d Cir. 1999). See Brown I, 576 F.3d at 157 (citing
Caridad, 191 F.3d at 293). But by the time Brown I was issued, the Second Circuit ("94]
had already repudiated any part of Caridad suggesting a lesser burden of proof than a
preponderance of the evidence. See In re IPO, 471 F.3d at 42 ("[O]ur conclusions
necessarily preclude the use of a 'some showing' standard, and to whatever extent
Caridad might have implied such a standard for a Rule 23 requirement, that implication is
disavowed."). Only one circuit followed Brown l's lead and accepted such a low degree of
proof: the Ninth Circuit, in its now-reversed decision in Dukes v. Wal-Mart Stores, Inc. See
603 F.3d 571, 595-96 & n.17 (9th Cir. 2010). (citing Brown I, 576 F.3d at 156). In the
meantime, another circuit rejected Brown I outright. See Bennett, 656 F.3d at 816 n.2
(declining to "follow" Brown l's finding that sufficient evidence established commonality, as
"Brown[ I] was decided without the benefit of the Supreme Court's recent opinion in
Dukes").
All in all, despite assurances otherwise, the majority treats Rule 23 as something akin to a
pleading standard. It is not. See Wal-Mart, 131 S. Ct. at 2551. Were the rule written as the
majority envisions it, district courts would get to "duck hard questions." West v. Prudential
Sec., Inc., 282 F.3d 935, 938 (7th Cir. 2002). But framing class certification as a mere
pleading standard "amounts to a delegation of judicial power to the plaintiffs." Id. "[A]
district court's certification order often bestows upon plaintiffs extraordinary leverage, and
r*95] its bite should dictate the process that precedes it." Oscar Private Equity Ines. v.
Allegiance Telecom, Inc., 487 F.3d 261, 267 (5th Cir. 2007), abrogated in other respects
by Erica P. John Fund, Inc. v. Halliburton Co., 131 S. Ct. 2179, 180 L. Ed. 2d 24 (2011).
Ill. Commonality
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With the proper standards in mind, it becomes evident that the district court did not abuse
its discretion in finding that Plaintiffs failed to establish commonality.
"In this case, proof of commonality necessarily overlaps with [Plaintiffs'] merits contention
that [Nucor] engages in a pattern or practice of discrimination." Wal-Mart, 131 S. Ct. at
2552. Plaintiffs must establish a unifying policy of discrimination at certification, or "it will
be impossible to say that examination of all the class members' claims for relief will
produce a common answer to the crucial question [of] why was I disfavored." Id. In other
words, Plaintiffs cannot simply identify a group of people who they allege have suffered
some type of Title VII injury. Id. To certify the class, Plaintiffs must be able to trace that
injury to a single, common source. Id.; accord Ellis v. Costco Wholesale Corp., 657 F.3d
970, 981 (9th Cir. 2011); see also William B. Rubenstein, Newberg on Class Actions §
3:19 (5th ed. 2014) (citing Brown I as an example of a case that approached commonality
"loosely" and explaining that Wal-Mart articulated "a more explicit definition of
commonality"). Plaintiffs here must identify [""96] a common policy with common injury to
members of a class spanning more than a decade, covering Nucor's entire South Carolina
production facility, and touching upon dozens of relevant decisionmakers. That task can be
['
decidedly difficult, especially given that Plaintiffs premise their 934] class in part on a
disparate treatment theory. See Stastny v. S. Bell Tel. & Tel. Co., 628 F.2d 267, 274 n.10
(4th Cir. 1980); see also Garcia v. Johanns, 444 F.3d 625, 633, 370 U.S. App. D.C. 280
(D.C. Cir. 2006) ("Establishing commonality for a disparate treatment class is particularly
difficult where, as here, multiple decisionmakers with significant local autonomy exist.").
A plaintiff who brings a class-wide charge of discrimination must traverse a "wide gap"
between his claim of individual mistreatment and a class-wide harm. Falcon, 457 U.S. at
157. The plaintiff could do so in one of two ways. See Wal-Mart, 131 S. Ct. at 2553. First,
he might identify a "biased testing procedure" that is used to evaluate applicants and
employees. Id. By all accounts, Plaintiffs do not identify that sort of procedure here.
Second, a plaintiff might offer "significant proof" that an employer "operated under a
general policy of discrimination .. . [that] manifested itself in hiring and promotion practices
in the same general fashion." Id. This second route forms the focus of this case.
Plaintiffs offer two types of ["" 97] evidence that they say bridge the gap between individual
and class-wide claims: statistical evidence and anecdotal evidence. Whether examining
these two categories of evidence separately or together, the district court did not abuse its
discretion in deeming the Plaintiffs' case insufficient.
A. Statistical Evidence
1.
Plaintiffs first present a statistical study comparing a hypothesized, weighted benchmark of
black bidders for promotions to the number of black employees that they assumed Nucor
promoted during the relevant period. This evidence performs a double duty, as it goes to
Plaintiffs' disparate impact claim and their disparate treatment claim.
As to the disparate impact claim, this sort of statistical evidence should identify disparities
that are "sufficiently substantial" to raise "an inference of causation." Anderson v.
Westinghouse Savannah River Co., 406 F.3d 248, 281 (4th Cir. 2005). Without
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"substantial" disparities, we cannot be confident that a challenged policy produced an
injury common to the class. See Wal-Mart, 131 S. Ct. at 2551.
As to the disparate treatment claim, "gross statistical disparities" "may in a proper case
constitute prima fade proof of a pattern or practice of discrimination." Hazelwood Sch.
Dist. v. United States, 433 U.S. 299, 307-08, 97 S. Ct. 2736, 53 L. Ed. 2d 768 (1977);
accord Ardrey v. United Parcel Serv., 798 F.2d 679, 683 (4th Cir. 1986) . But see Warren
v. Halstead Indus., Inc., 802 F.2d 746, 753 (4th Cir. 1986) ("[S]tatistics cannot alone prove
the existence of a pattern or practice ("98] of discrimination [.]"). But not every case will
present the truly egregious and unexplained disparities that leave no room for any
inference other than intentional discrimination. Moreover, "[i]nferring past discrimination
from statistics alone assumes the most dubious of conclusions: that the true measure of
racial equality is always to be found in numeric proportionality." Md. Trooper Ass'n, Inc. v.
Evans, 993 F.2d 1072, 1077 (4th Cir. 1993).
2.
The majority observes that Plaintiffs' evidence is "statistically significant at 2.54 standard
deviations from what would be expected if race were a neutral factor." Maj . op. at 28.
Statistical significance, however, is a necessary but not sufficient condition to finding a
discriminatory practice or policy; statistical significance does not axiomatically equate with
["
legal significance. 935] See EEOC v. Fed. Reserve Bank of Richmond, 698 F.2d 633,
648 (4th Cir. 1983) (" [S]tatistical significance as measured by the standards of acceptable
statistical principles will not necessarily be legally significant[.]"), rev'd sub nom on other
grounds, Cooper v. Fed. Reserve Bank of Richmond, 467 U.S. 867, 104 S. Ct. 2794, 81 L.
Ed. 2d 718 (1984). High statistical significance levels might lack practical and legal
significance, for instance, because "a high significance level may be a misleading artifact
of the study's design." Kadas v. MCI Systemhouse Corp., 255 F.3d 359, 362 (7th Cir.
2001) . Thus, determining what is legally significant -- as opposed to statistically significant
["99] -- "is a legal determination properly made by the court and not by an expert." Fed.
Reserve Bank of Richmond, 698 F.2d at 648; cf. United States v. Philip Morris USA, Inc.,
449 F. Supp. 2d 1, 706 n.29 (D.D.C. 2006) (criticizing one of Plaintiffs' experts for his
undue reliance on statistical significance).
Nevertheless, the majority seems to defer to Plaintiffs' experts and assume legal
significance because the statistical evidence crosses the two-standard-deviation threshold,
the threshold for statistical significance at a 95% confidence level. Yet "courts of law
should be extremely cautious in drawing any conclusions from standard deviations in the
range of one to three." EEOC v. Am. Nat'l Bank, 652 F.2d 1176, 1192 (4th Cir. 1981); see
also Kingsley R. Browne, Statistical Proof of Discrimination: Beyond "Damned Lies", 68
Wash. L. Rev. 477, 503 (1993) ("Random disparities of this magnitude are pervasive in the
workplace and are not suggestive of a nonrandom cause, let alone an illegal one."). In
specific cases, even higher numbers may not be enough. EEOC v. Western Electric Co.,
Inc., 713 F.2d 1011 (4th Cir. 1983), provides one example. There, we held that a district
court clearly erred in finding a policy or practice of discrimination, even though statistics
showed overall disparities of 4.7955 and 5.883 standard deviations. Id. at 1018-19.
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Similarly, other courts have rejected statistical evidence even though the evidence met the
two-standard-deviation threshold. See, e.g., r*100] Carpenter, 456 F.3d at 1201 (7.95
and 38.03 standard deviations); Lopez v. Laborers Intl Union Local No. 18, 987 F. 2d
1210, 1213-14 (5th Cir. 1993) (3.26 and 3.01 standard deviations); Waisome v. Port Auth.
of N.Y. & N.J., 948 F.2d 1370, 1376 (2d Cir. 1991) (2.68 standard deviations); EEOC v.
Chi. Miniature Lamp Works, 947 F.2d 292, 300 (7th Cir. 1991) (20.1 standard deviations);
Gay v. Waiters' & Dairy Lunchmen's Union, Local No. 30, 694 F.2d 531, 551 (9th Cir.
1982) (2.45 standard deviations). In short, "there is nothing magical about two or three
standard deviations." Ramona L. Paetzold & Steve L. Willborn, The Statistics of
Discrimination § 4:13 (2014).
3.
Instead of assuming "that any particular number of 'standard deviations"' establishes a
discriminatory policy, courts must evaluate statistical evidence on a "case-by-case basis."
Watson v. Fort Worth Bank & Trust, 487 U.S. 977, 995 n.3, 108 S. Ct. 2777, 101 L. Ed. 2d
827 (1988) (plurality opinion); see also Intl Bhd. of Teamsters v. United States, 431 U.S.
324, 340, 97 S. Ct. 1843, 52 L. Ed. 2d 396 (1977) . Neither "courts [n]or defendants [are]
obliged to assume that plaintiffs' statistical evidence is reliable." Watson, 487 U.S. at 996.
And we must always keep in mind that we are looking for reliable indications of "gross" or
"substantial" disparities that amount to "significant proof." Wal-Mart, 131 S. Ct. at 2551,
2553; p936] Hazelwood, 433 U.S. at 307-08.
The duty to test the relevant statistical evidence attaches at the class certification stage,
Comcast, 133 S. Ct. at 1433, as "reliance on unverifiable evidence is hardly better than
relying on bare allegations," Unger v. Amedisys, Inc., 401 F.3d 316, 324 (5th Cir. 2005) .
District courts must probe the validity of statistical evidence, as "any method of
measurement" would otherwise become "acceptable so long as it c[ouldj be applied
classwide, no matter how arbitrary the measurements may r101] be." Comcast, 133 S.
Ct. at 1433; accord Rail Freight Fuel Surcharge Antitrust Litig., 725 F.3d at 254; Am.
Honda Motor Co., Inc. v. Allen, 600 F.3d 813, 815 (7th Cir. 2010).
In this case, the district court evaluated Plaintiffs' statistical evidence, reasonably found it
wanting, and explained in detail why that was so. It should not then be said that the district
court clearly erred by refusing to give weight to unconvincing evidence. And when one
takes a closer look, Plaintiffs' statistical evidence truly is fundamentally unconvincing, not
just -- as the majority calls it — "less precise." Maj. op. at 18.
4.
"[Tjrial judges may evaluate the data offered to support an expert's bottom-line opinions to
determine if that data provides adequate support to mark the expert's testimony as
reliable." Milward v. Acuity Specialty Prods. Grp., Inc., 639 F.3d 11, 15 (1st Cir. 2011). And
in any case involving expert testimony, "a court may conclude that there is simply too great
an analytical gap between the data and the opinion offered." Gen. Elec. Co. v. Joiner, 522
U.S. 136, 146, 118 S. Ct. 512, 139 L. Ed. 2d 508 (1997).
Plaintiffs' own experts conceded that they used problematic data. In support of a motion to
compel, one of Plaintiffs' experts affirmed under oath that the information he had received
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thus far was "incomplete in a number of important ways that ma[d]e it impossible to
calculate reliable statistics." J.A. 399. Because of this "inadequate" data, the expert opined
r102]
that he could not calculate "proper statistics" or perform "any of th[e] three
standard forms of statistical analysis." J.A. 403, 409. Without additional data, it was
concededly "impossible to calculate . . . statistical patterns that might show whether or not
a common issue of fact exists in this case." J.A. 403-04. Ultimately, the expert did not
receive any of the additional data that he professed to need for a scientifically valid
analysis. But, despite his sworn statements that the task was "impossible," he and another
expert nevertheless produced statistical analyses based on the "incomplete" and
"inadequate" data.
Plaintiffs' experts' report confirms that they used incomplete data to support and reach
their conclusions. For instance, even though the experts drew conclusions about positions
throughout the Nucor plant, they did not employ any data from either the shipping or
maintenance departments. J.A. 1154. They used only a "limited amount of data" for the
remaining departments. J.A. 1153. And although Plaintiffs' experts chose to use bidding
data to determine an expected number of black promotions, they conceded that
incomplete data "undermined" their "ability to use posting and bidding records to analyze
[those] promotions." r*103] J.A. 1161. Nucor's expert identified other basic issues in
Plaintiffs' experts' data that the majority opinion ignores. See J.A. 5892. For instance,
Plaintiffs' experts included a promotion won by an external candidate in their pool — even
though this case only concerns internally filled promotions. They further overlooked seven
selections of ['937] black employees for promotions. See J.A. 5891.
The district court did not clearly err in discrediting this incomplete work and deeming it
unworthy of evidentiary weight.
5.
a.
To further understand why Plaintiffs' statistical evidence is problematic, it helps to consider
how it came about. In discovery, Nucor produced bidding packets and other promotion-
related applicant data covering certain promotions from January 2001 to February 2006.
Plaintiffs' analysis of the 2001-2006 data indicated that the black selection rate fell only
0.84 standard deviations from the mean -- a statistically insignificant result. See J.A. 5872.
Fortunately for Plaintiffs, the district court limited the use of the actual data to the January
2001 to December 2003 period. But an analysis of that period's data did not produce a
statistically significant disparity, either. ["'104] At best, analysis of the 20012003 data
produced disparities falling only 1.53 standard deviations from the mean. See J.A. 1449.
Left with no results from actual records that suggested discrimination, Plaintiffs' experts set
about creating extrapolated "benchmark" figures for promotions bidding between
December 1999 and January 2001. They began by using so-called "change-of-status"
forms plucked from personnel records to identify 27 purported promotions during the
period. The experts then constructed a hypothetical bidding pool by essentially guessing
that bidders in early years were racially identical to bidders in later ones. See J.A. 1162.
With their theoretical promotion and bid figures established, Plaintiffs' experts then
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calculated an expected black promotion rate and compared it to the "actual" black
promotion rate for the same period. Tied with the actual promotions figures from 2001
through 2003, Plaintiffs' extrapolated figures produced the number on which the majority
now relies — 2.54 standard deviations.
b.
Plaintiffs' experts, however, based their extrapolations on several erroneous assumptions
that render their model unreliable.
It begins with the change-of-status forms, [" 105] which Nucor used to record any change
of employee status. Because the forms also recorded demotions, pay increases,
reassignments, and transfers, one cannot and should not assume that every form reflects
a posted promotion. But up to the time that the district court decertified the promotions
classes, Plaintiffs had never provided the 27 relevant change-of-status forms to the district
court. Quite understandably, the district court wanted more concrete assurance that
Plaintiffs' selected forms showed actual promotions. The district court never got that
assurance, and it was "not inclined" to "take [Plaintiffs'] word for it." J.A. 10943. Plaintiffs
did eventually submit the 27 relevant change- of-status forms — but only after the district
court decertified the promotions classes. As it turns out, those forms do little to dispel the
concern that Plaintiffs misidentified promotions. For example, two forms seem to show
transfers, not promotions, J.A. 11006 (Reynolds), 11028 (Forsell), while another just
reflects training, J.A. 11029 (Green). Others do not involve pay raises, suggesting no
promotion occurred. See J.A. 11006 (Haselden), 11030 (Cooper). Certain other forms are
ambiguous, ["106] failing to indicate whether pay rates changed or what the nature of the
position change was. See, e.g., J.A. 11022 (Anderson), 11024 (Proskine), 11025 (Pope).
Most of the forms fail p938] to indicate whether Nucor posted the relevant opening for
bidding. See, e.g., J.A. 11006-15, 11019-21, 11023, 11026-32. So, the district court was
reasonably concerned that the 27 purported promotions — representing nearly half of the
promotions in Plaintiffs' statistical analysis -- were suspect and statistically useless.
The problems with Plaintiffs' experts' model continue to mount when the hypothesized
bidding pools for the purported promotions are examined. Plaintiffs' experts hypothesized
that at least one black employee bid on each of the 27 assumed promotion opportunities.
But that approach rejects the prospect of an all-white bidding pool during the projected
period, something likely to randomly happen from time to time given Nucor's 11% black
workforce. Consequently, Nucor's expert concluded that Plaintiffs' experts' model
"overstat[ed] the expected number of African American selections" between December
1999 and January 2001, as the model very likely inflated the number of black bidders. J.A.
5912. And indeed, ["107] Plaintiffs' experts calculated that black workers applied to jobs
at a substantially higher pace than their actual percentage of the workforce, further
suggesting some degree of inflation. Compare J.A. 1157 (noting that workforce was
"11.3% African-American"), with J.A. 1162 ("The racial composition of the bidders . . was
19.24% African-American.").
An "inflated pool" like the one that Plaintiffs used "can undermine the validity of a statistical
study to determine imbalances." Smith v. Va. Commonwealth Univ., 84 F.3d 672, 677 (4th
Cir. 1996) . When a statistical model overestimates the number of black bidders, for
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instance, then black bidding rates artificially rise and black selection rates artificially fall.
These effects might explain, for instance, why the black bidder selection rate for January
2001 to December 2003 -- when actual data was available -- was three times higher than
the calculated selection rate for December 1999 to January 2001 — when projected data
was used. If, during the projected period, the hypothesized number of black bidders in the
pool (artificially) rose while the number of black bidder selections stayed the same, then
the hypothesized black selection rate would be (artificially) driven down during the
projected period. ["108]
c.
The majority nevertheless dubs the extrapolated data "sound." Maj. op. at 17. That
conclusion, however, reflects an unwillingness to confront genuine concerns over
statistical validity.
For instance, although admitting that the change-of-status forms are ambiguous, the
majority blames Nucor for not explaining how these ambiguities would affect Plaintiffs'
statistical accuracy. Maj. op. at 22. That burden was not Nucor's. Cf. Cooper v. Smith &
Nephew, Inc., 259 F.3d 194, 199 (4th Cir. 2001) (noting that the "proponent of the
testimony" bears the burden of proving that it is reliable). Recently, for example, the Court
affirmed a district court's refusal to consider statistical evidence offered to show disparate
impact because the evidence contained a number of "mistakes and omissions" in its
analysis. EEOC v. Freeman, 778 F.3d 463, 467 (4th Cir. 2015) . The Court did so even
though the plaintiff there raised the very same argument that the majority now embraces:
that the employer never "shoveled] that correcting the errors would negate the disparate
impact." Brief for Appellant at 26, Freeman, 778 F.3d 463, 2014 WL 320746. The Court
appropriately rejected that argument then; it should have done the same now.
['939] Rather than focusing on the reliability of the extrapolated statistics, the majority
prefers to revisit the Brown I dissent. ["109] See maj. op. at 20-21. That dissent noted
some of the concerns mentioned here: not all change-of-status forms used to extrapolate
openings reflect promotions, many forms are unclear, and few forms indicate whether
positions were posted. See Brown I, 576 F.3d at 168 (Agee, J., concurring in part and
dissenting in part) . To illustrate these concerns, the dissent examined "the change-of-
status forms found in the record for 2000." Id. Bear in mind that, at least up to that point,
Plaintiffs had never produced the particular change-of-status forms that they relied upon to
guesstimate their statistics. Nor had they informed the Court that the forms in the record
were not those upon which they based their statistical evidence. So, the Brown I dissent
used the only change-of-status forms that were available to assess whether they could
credibly support Plaintiffs' alleged statistical disparities. Id. Although the majority labels this
exercise "sua sponte fact-finding," maj. op. at 21, the discussion in the Brown I dissent
consisted of nothing more than explication by example.
The majority then attempts to tie the district court's decertification decision to the "error"
that the majority mistakenly identifies in the ["`110] Brown I dissent. According to the
majority, the district court committed "clear factual error' by assuming that the change-of-
status forms discussed in the Brown I dissent were those that Plaintiffs relied upon to build
their statistical model. But here's the rub: the district court expressly disclaimed that very
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assumption. The district court noted that, at the time of decertification, Plaintiffs still had
not produced the relevant forms. So, it had "never seen the 27 change-of-status forms
upon which [Plaintiffs'] experts apparently relied." J.A. 10943. Thus, the district court cited
the Brown I dissent only to emphasize the potential problems inherent in using the forms
and why it needed to see them. See J.A. 10942-43. The majority's protracted discussion of
the Brown I dissent therefore does nothing to rehabilitate Plaintiffs' evidence, resting as it
does on a twofold misreading of the Brown I dissent and the district court's decertification
decision.
Nor does the majority explain why inflated black bidding rates can be excused. Rather than
address that obstacle, the majority assures the reader that the problem causes only "an
['•111]
incremental reduction in probative value" that does not "fatally undermine the
probativeness of the experts' findings." Maj. op. at 23. But it is hard to minimize these
defects so quickly when Plaintiffs' experts offered few explanations for their assumptions
or any assessment of the expected impact of those assumptions. The experts did not say,
for instance, whether black bidding rates varied during the years for which data was
available. If they had shown that the rates remained steady, then one might assume that
those same rates applied to the extrapolated years. But if the rates varied, then Plaintiffs'
experts' assumptions are not sustainable. Oddly, the majority again blames Nucor for not
summoning any evidence going to variation, but that tack once more reverses the burden
of proof. "It is the plaintiffs' burden to demonstrate compliance with Rule 23," not Nucor's.
EQT Prod. , 764 F.3d at 358. The majority further finds that Plaintiffs' experts reasonably
assumed that "every" position was posted for bidding. But Plaintiffs themselves submitted
testimony identifying several unposted positions. See, e.g., J.A. 1010, 1051, 1091, 1110.
Nucor's stated policies also indicated that, at least for a time, "[v]acant supervisory
positions [were] not [to] be posted for bidding." r"112] J.A. 257.
r940) The majority stresses that, as a general matter, plaintiffs may employ extrapolated
data to prove discrimination. Maj. op. at 18-19. That can be true in some cases, but
extrapolated data must still be statistically valid. And the majority ignores a significant and
telling distinction between this case and past ones: Plaintiffs' experts extrapolated two data
points — the composition of the applicant pool and the success rates -whereas experts in
our prior cases only extrapolated one data point. See Lewis, 773 F.2d at 568; United
States v. Cnty. of Fairfax, Va., 629 F.2d 932, 940 (4th Cir. 1980).
The majority's cited cases also involved defendants who wrongfully destroyed relevant
evidence. See Lewis, 773 F.2d at 568 (noting that the defendant "improperly disposed" of
applicant records); Cnty. of Fairfax, 629 F.2d at 936 n.4 (noting that the defendant
destroyed applicant data "[i] n violation of the record keeping regulations of [two statutes]").
In a situation involving spoliation of evidence, the Court commonly draws adverse
inferences against the spoliators. But this record contains no evidence of spoliation.
Regardless, no authority requires the district court to find extrapolated data convincing in
every case. Our precedent holds just the opposite. In Allen v. Prince George's County, 737
F.2d 1299, 1306 (4th Cir. 1984), for example, the district court relied solely upon actual
r.1131
applicant flow data "to the exclusion of all [other] statistical evidence," including
evidence crafted from alternative benchmarks. We affirmed, emphasizing that we could not
"second-guess" a fact-bound decision concerning "the relative weights to be accorded to
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the parties' respective evidence." Id. The district court here did essentially the same thing
as the district court in Allen, giving weight for good reason to the actual data available to
the exclusion of the speculative extrapolation evidence. As in Allen, we should not say that
the district court clearly erred in doing so.
6.
a.
Plaintiffs' statistical evidence also does not apply controls for non-discriminatory factors
that could very well have caused any observed disparities. See Lowery, 158 F.3d at 764.
Seniority, for instance, influences promotions decisions at Nucor. See, e.g., J.A. 257.
Disciplinary issues also led Nucor to reject certain applicants for promotion -- including
frequent bidder Jason Guy, who is black. See J.A. 659.67; see also Coates v. Johnson &
Johnson, 756 F.2d 524, 544 n.20 ("[A]n employee's prior discipline record seems likely to
be a major, if not the most important, factor in [an employment] decision."). But Plaintiffs'
[.114]
experts admitted that they did not control for these or any other "additional factors
beyond the control for each job posting." J.A. 1164. The majority would wish these
considerations away, reasoning that Nucor never raised them. But Nucor's expert noted
the need to "control for characteristics that would seem to affect the chance of selection,"
which would include matters like seniority and discipline. See J.A. 5893. Anyway, we could
have affirmed the district court's decision here on "any basis supported by the record."
Defenders of Wildlife v. N.C. Dep't of Transp., 762 F.3d 374, 392 (4th Cir. 2014).
The majority also tries to summon its own justifications for these omissions, implying that
records were not available to control for matters like discipline. Maj. op. at 25. Even
Plaintiffs' experts conceded that they were. See J.A. 1165 (acknowledging that Nucor had
maintained and produced "bidders' training, discipline, and bidding records"); see also J.A.
5893 (Nucor's expert observing that "separate p941] discipline and training files [were]
provided to Drs. Bradley and Fox and [him]"). And, based on allegations and personal
assessments from Plaintiffs themselves, the majority assumes that potential explanatory
variables are themselves racially biased. See maj. op. at 25-26. Yet here again, Plaintiffs'
r1151
experts do not assume so, perhaps because there is no concrete evidence of such
taint in the record. See Ottaviani v. State Univ. of N.Y. at New Paltz, 875 F.2d 365, 375 (2d
Cir. 1989) (holding that district court correctly required the plaintiffs to account for potential
explanatory variable where the plaintiffs alleged but did not prove that the variable was
biased). And even if one were to indulge the majority's assumption that discipline at Nucor
was itself biased, that outcome would not justify excluding the variable from the statistical
model completely. "[T]ainted variables should not be routinely excluded from the
regression equation. Instead, the effects of the inclusion of a tainted variable must be
assessed and minimized." Paetzold & Willbom, supra, § 6:13. The majority's reasons,
then, do not fill the gaps in Plaintiffs' experts' work.
The failure to control for non-race-related explanatory variables "is sufficiently serious so
as to weaken the statistical study's probativeness." Lowery, 158 F.3d at 764; see also
Smith, 84 F.3d at 676; accord Rodriguez v. Nat'l City Bank, 726 F.3d 372, 384-85 (3d Cir.
2013); Morgan v. United Parcel Serv. of Am., Inc., 380 F.3d 459, 468 (8th Cir. 2OO4);
Munoz v. Orr, 200 F.3d 291, 301 (5th Cir. 2000); Sheehan v. Daily Racing Form, Inc., 104
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F.3d 940, 942 (7th Cir. 1997); Penk v. Or. St. Bd. of Higher Educ., 816 F.2d 458, 465 (9th
Cir. 1987). A trier of fact must determine whether racial discrimination -- rather than
chance or some other "confounding factor[]" -- caused an alleged disparity. In re Navy
Chaplaincy, 738 F.3d 425, 429, 407 U.S. App. D.C. 436 (D.C. Cir. 2013). Only a controlled
model can provide that answer, and Plaintiffs' experts' evidentiary model did not meet that
definition.
b.
In most every employment case, a valid statistical ["•116] model must account for one
particularly important explanatory variable: the applicant pool's qualifications. "[T]he
relevant comparison is between the percentage of minority employees and the percentage
of potential minority applicants in the qualified labor pool." Carter v. Ball, 33 F.3d 450, 456
(4th Cir. 1994); see also City of Richmond v. J.A. Croson Co., 488 U.S. 469, 501-02, 109
S. Ct. 706, 102 L. Ed. 2d 854 (1989); McNaim v. Sullivan, 929 F.2d 974, 979 (4th Cir.
1991). If courts were to accept statistical models containing unqualified applicants, then
employers could be punished merely because of a "dearth of qualified nonwhite applicants
(for reasons that are not [the employers] fault)." Wards Cove Packaging Co. v. Atonio, 490
U.S. 642, 651, 109 S. Ct. 2115, 104 L. Ed. 2d 733 (1989). Thus, "statistics based on an
applicant pool containing individuals lacking minimal qualifications for the job [are] of little
probative value." Watson, 487 U.S. at 997; see also Paetzold & Willbom, supra, § 4:3
("[W]hen considering potential discrimination in promotions within an organization, only
employees qualified for promotion should be considered in the proxy pool."). Furthermore,
"[n]o rational enterprise that has several qualified candidates for a position selects among
them by lot; it picks the best qualified." Mason v. Cont'I III. Nat'l Bank, 704 F.2d 361, 364
(7th Cir. 1983). So, a truly effective statistical model will not just account for minimum
qualifications, but should control for the variations in skills even among minimally qualified
applicants.
rtm
[.942] By this point, Plaintiffs and their experts should have known better than to
ignore other explanatory factors. In a related case challenging promotions practices at a
different Nucor facility, the Eighth Circuit found that similarly substandard work from the
same expert did not create a triable question of fact on summary judgment. See Bennett,
656 F.3d at 812. In so holding, the Eighth Circuit emphasized that the expert's statistics
had "little force" because they "assumed that all applicants were qualified for promotion to
each available position." Id. at 818. The Eighth Circuit is not alone. Other courts have
criticized Plaintiffs' principal expert for employing his "warm body hypothesis," which
"assumes that every person is just as qualified and skilled and experienced as everyone
else." Davis v. Ala. Dep't of Educ. Dep't of Disability Determination Serv., 768 F. Supp.
1471, 1477 (N.D. Ala. 1991); accord Adams v. Austal, U.S.A., L.L.C., No. 08-00155--KD-
N, 2011 U.S. Dist. LEXIS 44424, 2011 WL 1558790, at *8 (S.D. Ala. Apr. 25, 2011);
Rollins v. Ala. Cmty. Coll. Sys., No. 2:09cv636—WHA, 2010 U.S. Dist. LEXIS 113534,
2010 WL 4269133, at *8-9 (M.D. Ala. Oct. 25, 2010); Bennett v. Nucor Corp., No.
3:04CV00291 SWW, 2007 U.S. Dist. LEXIS 59598, 2007 WL 2333193, at *3 (E.D. Ark.
Aug. 13, 2007); Yapp v. Union Pac. R.R. Co., 229 F.R.D. 608, 619 (E.D. Mo. Aug. 5,
2005); Rhodes v. Cracker Barrel Old Country Store, Inc., No. Civ.A. 4:99--CV-217--H,
2002 U.S. Dist. LEXIS 25962, 2002 WL 32058462, at *65 (N.D. Ga. Dec. 31, 2002). We
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even affirmed a district court's choice to exclude work from the same expert precisely
because he did not incorporate adequate controls. See r118] Anderson, 406 F.3d at
262-63 (agreeing with the district court's view that the expert had ignored "actual job
performance or job requirements" even though he "conceded" that he could have "use[d] a
control factor that would control for the actual job title or the job duties").
Plaintiffs' experts assumed that all persons in each bidding pool were equally qualified
because "only persons who decided to bid based on the posted qualifications were
included." J.A. 1162. This opaque language obscures another faulty assumption built into
the model: the experts assumed that only qualified persons applied for each promotion
opportunity. It takes no expertise to comprehend that some people "might be discouraged
from applying because of a self-recognized inability to meet the [opening's] standards."
Dothard v. Rawlinson, 433 U.S. 321, 330, 97 S. Ct. 2720, 53 L. Ed. 2d 786 (1977). But one
could hardly assume that every job applicant is so discerning, and even the majority
seems unwilling to make that assumption. See maj. op. at 25. The majority prefers to
guess that the number of unqualified applicants will be so trivially small as to be
statistically irrelevant, and it makes that guess simply because the job announcement
includes job requirements. In practical effect, the majority has read the "qualified [""119]
applicants" limitation found in our prior cases out of the law, as most every job opening
provides some minimal description of what skills are required.
"A statistical study that fails to correct for explanatory variables, or even to make the most
elementary comparisons, has no value as causal explanation[.]" People Who Care v.
Rockford Bd. of Educ., 111 F.3d 528, 537 (7th Cir. 1997). Plaintiffs presented just such a
study here, and the district court did not clearly err in rejecting it.
7.
Lastly, Plaintiffs' statistical evidence improperly aggregates data in a way that distorts the
results.
a.
The objective in a class action — even in a proceeding that alleges disparate treatment -- is
[1'943] to identify a common, uniform policy. "While in a case alleging intentional
discrimination, such as this one, a plaintiff need not isolate the particular practice and
prove that such practice caused the discrimination, plaintiffs must make a significant
showing to permit the court to infer that members of the class suffered from a common
policy of discrimination that pervaded all of the employer's challenged employment
decisions." Love v. Johanns, 439 F.3d 723, 728, 370 U.S. App. D.C. 96 (D.C. Cir. 2006).
Thus, if the class challenges a policy implemented at the nationwide level, then plaintiffs
might use applicable statistics showing nationwide disparities ["120] to establish the
policy's effects. Conversely, if the class challenges policies implemented on a plant-by-
plant or department-by-department basis, then the class must summon statistics showing
disparities at that level. Otherwise, non-uniform decisions made by one discriminatory
decisionmaker might create disparities that, when aggregated with other, neutral decisions,
misleadingly indicate discrimination across the whole group of decisionmakers.
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Wal-Mart demonstrates these concepts well. There, the plaintiffs offered statistics
purporting to show regional and national disparities in employment decisions at Wal-Mart.
Wal-Mart, 131 S. Ct. at 2555. Those decisions, however, were made at the store level. Id.
at 2547. Because of that disconnect, the Supreme Court held that plaintiffs' statistics did
not establish a common policy. Once again, the broader disparities might have been
"attributable only to a small set of Wal-Mart stores" and did not "establish the uniform,
store-by-store disparity upon which plaintiffs' theory of commonality depend[ed]." Id. at
2555. In essence, Wal-Mart agreed with our own, earlier cases indicating that statistics
should not be aggregated together to create disparities that are not actually representative
of ("121] the class as a whole. Compare Stastny, 628 F.2d 279-80 (requiring the
plaintiffs' statistics to focus on the "locus of autonomy"), with Elizabeth Tippett, Robbing a
Barren Vault: The Implications of Dukes v. Wal-Mart for Cases Challenging Subjective
Employment Practices, 29 Hofstra Lab. & Emp. L.J. 433, 447 (2012), cited with approval
by Scott v. Family Dollar Stores, Inc., 733 F.3d 105, 113 (4th Cir. 2013) (explaining that
Wal-Mart requires that plaintiffs' statistics focus on "the locus of the subjective decision-
making").
In requiring the plaintiffs' statistics to be centered at the level of relevant decisionmaking,
Wal-Mart did not distinguish between nationwide and other class actions. Rather, Wal-Mart
asked whether the plaintiffs there were too dissimilar to bring their claims together,
regardless of how many claims there might be. Thus, courts have applied principles from
Wal-Mart in cases involving classes of roughly the same size as the class at issue here.
See, e.g., Wang v. Chinese Daily News, Inc., 737 F.3d 538, 544 (9th Cir. 2013) (200 class
members); Ealy, 514 F. App'x at 304-08 (150 class members). Even statisticians agree
that Wal-Mart reaches classes big and small. See, e.g., Dr. Mary Dunn Baker, Class
Certification Statistical Analysis Post-Dukes, 27 ABA J. Lab. & Empl. L. 471, 479 (2012)
("[T]he size of the putative class or the number of establishments the defendant operates
will have little to ("122] do with whether the Dukes commonality approach is applicable.").
So, even though Plaintiffs here challenge practices in one plant, they still must offer
statistics showing disparities among all the relevant decisionmakers, regardless of that
one-plant focus. See Rubenstein, supra, § 24:40 ("Courts have certified [only] limited
classes when the facts show that no uniform personnel policies are applied ("944] among
the various plants, departments, or levels of employees.").
b.
Here, as the Brown I majority agreed, the evidence indicates "that each department
manager" in each of Nucor's six production departments "has unbridled discretion to make
promotions within his department utilizing whatever objective or subjective factors he
wishes." Brown I, 576 F.3d at 151. Department managers took full advantage of that
discretion, developing processes that they recurrently characterized as unique and
independent. See J.A. 7887, 7894-95, 7900, 7906-07. Indeed, these processes were so
varied that one supervisor declared that he had "no idea what other departments d[id]."
J.A. 8109. Even the decisionmakers varied. In some departments, such as the hot mill and
shipping departments, supervisors and the department managers made promotion
decisions. In other ("123] departments, such as maintenance and the cold mill,
promotions decisions were a more collaborative effort involving even lower-level lead men.
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These different decisionmakers then applied different standards. In the beam mill, for
example, the process centered upon interviews alone. In contrast, the melt shop looked to
applicants' work history, safety record, psychological interview, job skills, training,
attendance, and scores on a job-specific aptitude test. Nucor's general manager quite
reasonably described the promotions processes when he said that "each department ha[d]
their own way of doing [promotions]." J.A. 1723.
Plaintiffs' own expert found that each department had its own procedures, and at least
eight different criteria — not including "numerous other idiosyncratic factors" -- might or
might not be considered in making any employment decision. J.A. 1518-19. "Different
supervisors," he explained, "utilized different criteria weighting schemes with little
consistency among the selection officials and among the different hiring/promotion/transfer
opportunities." J.A. 1525. Taking all this dissimilarity together, the expert concluded that
Nucor's selection process was only "consistent ("1241 in its inconsistency." J.A. 1519.
Yet Plaintiffs' statistical evidence incorrectly assumed the exact opposite: perfect, plant-
wide consistency as to promotions. Given that promotions decisions were made at the
department or supervisor level using different and independent criteria, we cannot rightfully
assume that a plant-wide disparity resulted from a uniform problem arising in the same
way in each Nucor department. See Wal-Mart, 131 S. Ct. at 2555. Put differently, the
district court reasonably found that the "locus of autonomy" rested at the departmental
level, not a plant-wide one. We cannot then assume that department decisions were made
in lockstep, such that plant-wide disparities necessarily reflect common, departmental
ones. See Bolden v. Walsh Constr. Co., 688 F.3d 893, 896 (7th Cir. 2012) (rejecting
aggregate data because it did not necessarily imply that "all 25 superintendents behaved
similarly, so it would not demonstrate commonality").
We have already seen these concepts play out in another employment discrimination
action involving a similar Nucor facility. Applying Wal-Mart, the Eighth Circuit rejected
statistics — from the same expert -- that reflected plant-wide disparities in promotions at an
Arkansas Nucor plant. Bennett, 656 F.3d at 815-16. Just as in this case, the statistical
[1'125] evidence there indicated that different departments in the plant applied different
criteria for promotions decisions. Id. at 815. The plant-wide evidence therefore "ha[d] little
p945] value in the commonality analysis" because it "did not differentiate between the
hiring and promotion decisions made in each department." Id. The Eighth Circuit found
that, in those sorts of circumstances, "a bottom-line analysis [wa]s insufficient to
demonstrate that any disparate treatment or disparate impact present in one department
was also common to all others." Id. at 815-16.
As in Bennett, Nucor here provided its own analysis that demonstrated how the statistical
disparities varied among the different departments in the plant. Nucor's expert measured
how selection rates varied between white and black applicants on a department-by-
department basis over the period for which bidding information was available. With proper
controls applied, the expert found that race differences between departments could vary by
as much as 2.44 standard deviations. J.A. 5894. In other words, some departments
experienced decidedly smaller disparities in selection rates, undermining any inference of
uniformity and commonality among all departments.
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Given ["126] the wide variance in promotions practices at the Nucor facility, the district
court did not clearly err in rejecting a statistical study that failed to account for that
variance.
c.
The majority finds, however, that Nucors entire plant should be treated "as a single entity"
when it comes to promotions decisions. Maj. op. at 35-36 (alluding to Brown I, 576 F.3d at
158). Although the majority suggests otherwise, Brown I did not decide this issue. Brown I
held that the district court should treat Nucor's various production departments as a single
facility only for purposes of Plaintiffs' hostile work environment claim. 576 F.3d at 158
("[T]he affidavits of employees in one department are admissible to prove a plant-wide
hostile environment that affected employees in other departments, and the plaintiffs have
satisfied the commonality requirement for their hostile work environment claim." (emphasis
added)); see also id. at 157 (discussing how a "hostile environment determination" must be
made in the context of discussing Plaintiffs' "single entity" argument). It said nothing about
the uniformity of promotions decisions across the plant. Id. The Brown I majority did so
because Plaintiffs likewise focused their "single entity" argument on ["127] only the
hostile work environment claim. See Brief for Appellant at 25-35, Brown I, 576 F.3d 149,
2008 WL 2307453. Thus, as with predominance, the district court was not constrained in
deciding the "single facility" issue, as no Brown I mandate existed as to that issue.
Nonetheless, the majority concludes that facts establishing a single hostile work
environment claim also establish a common promotions policy. Maj. op. at 37. Yet
"[d]isparate treatment . . . is inherently different from hostile work environment. The federal
courts treat the two types of cases differently for good reason." See Pollard v. E.I. DuPont
de Nemours Co., 213 F.3d 933, 943 (6th Cir. 2000), rev'd on other grounds, 532 U.S. 843,
121 S. Ct. 1946, 150 L. Ed. 2d 62 (2001). And no court has held that a common hostile
work environment establishes that a facility must be treated as a single entity for purposes
of every other kind of employment discrimination claim.
In finding a common environment, Brown I focused on shared locker rooms and spaces,
plant-wide email, and plant-wide radio systems. 576 F.3d at 158. When it comes to a
hostile work environment claim, those facts may matter: racial slurs and "monkey noises"
uttered in a common space or transmitted via plant-wide [146] radio can affect whoever
hears them. See Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, 762, 118 S. Ct. 2257, 141
L. Ed. 2d 633 (1998) ("[A]nyone who has regular contact with an employee can inflict
psychological injuries [" 128] by his or her offensive conduct."). But locker rooms and
radios bear no relationship to promotions decisions; certainly nothing in the record
supports such a concept. Only supervisors can inflict the "pain" of a denied promotion, and
they can do so only when empowered by company structure, not common spaces. We
should not assume that dozens of supervisors acted in concert merely because their
employees might have changed clothes in the same room. Nor should we assume -- in the
face of expressly different criteria applied to different groups of employees -- that
applicants in each department nevertheless suffer the same injury merely because of their
physical proximity to one another at some point during a workday. Though the majority
insists that "centralized, circumscribed environments" will "generally" increase
"consistency" in managerial decisionmaking, maj. op. at 33, Plaintiffs' own expert made
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clear that this hypothesized general rule cannot apply here, see J.A. 1519 ('The best
sentiment I can muster in favor of the [Nucor] selection procedure is that it is consistent in
its inconsistency."). See also, e.g., Tabor v. Hilti, Inc., 703 F.3d 1206, 1229 (10th Cir.
2013) (affirming denial of class certification where "Plaintiffs challenge[d] a highly [**129]
discretionary policy for granting promotions").
The majority also notes that the general manager formally approved promotions in the
plant. Maj. op. at 50. Without saying so explicitly, the majority seems to propose that the
general manager provided some common, plant-wide direction that drove common, plant-
wide disparities. Yet even the Brown I majority recognized that the general manager
played no genuine role in the promotions decisionmaking process. 576 F.3d at 152
("Although, by policy, the plant's general manager approves all promotions and handles
discrimination and harassment investigations, the record suggests that each department
manager has unbridled discretion to make promotions within his department utilizing
whatever objective or subjective factors he wishes."). The evidence confirms that
proposition. Promotions, the general manager explained, were "not [his] area of
responsibility," as he had "department managers that ma[d]e those decisions." J.A. 8163.
Nucor instead trained its department managers to make promotions decisions and
implement the anti-discrimination policy.
The majority nevertheless says the general manager engaged in "inaction." Maj. op. at 48,
50. The majority's theory -- ["*130] premised on an assumed culture of "odious racism"
and passive enabling -- resembles a theory that Wal-Mart out-and-out rejected. See 131 S.
Ct. at 2553-54 (refusing to credit evidence asserting that a "strong corporate culture,"
enabled by policies of discretion, permitted bias in pay decisions); accord Davis v. Cintas
Corp., 717 F.3d 476, 489 (6th Cir. 2013).
Even if one assumes that such a theory were viable and relevant here, it would not prove
commonality. "Inaction" -- letting supervisors do as they wish -- is just discretion by another
name. "[I]t is a policy against having uniform employment practices." Wal-Mart, 131 S. Ct.
at 2554. "Wal-Mart tells us that local discretion cannot support a company-wide class no
matter how cleverly lawyers" (or judges) "may try to repackage local variability as
uniformity." Bolden, 688 F.3d at 898; accord In re Navy Chaplaincy, No. 1:07--mc--269
(GK), 306 F.R.D. 33, 2014 U.S. Dist. LEXIS 122936, 2014 WL 4378781, at *15 (D.D.C.
Sept. 4, 2014). Were it otherwise, one could find a common [147] policy in most every
case, as most every company has a management head at the top that could be accused of
not doing enough. Beyond that, Plaintiffs' experts never traced their identified disparities to
the general manager, and their reports never even mention him. For good reason.
Individual acts of discretion, not the general managers purported acquiescence, would
have caused any disparities ["131] and the injuries that they reflect. Thus, the not-very-
common common policy does not present a common injury.
Nucor also used a plant-wide "dual-approval" scheme, under which promotions required
approval from both "originating" and "destination" department heads. The majority sees
this as a case of potential "cat's paw" liability, wherein a non-decisionmaker influences the
ultimate decisionmaker's choice in a discriminatory way. Maj. op. at 36-37 (citing Smith v.
Bray, 681 F.3d 888, 897 & n.3 (7th Cir. 2012)). But nothing other than speculation
indicates that dual approval was used to effect discrimination in any common way, and any
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cat's paw must be the "proximate cause" of the discriminatory harm to be actionable.
Staub v. Proctor Hosp., 562 U.S. 411, 131 S. Ct. 1186, 1192, 179 L. Ed. 2d 144 (2011).
Not even Plaintiffs' statistical experts attempt to tie their disparities to a dual-approval
policy.
The majority surmises that a discriminatory supervisor in one department could have
theoretically used dual approval to inflict his animus upon employees outside his own
department. But if a racist department head had tried to use the dual-approval scheme to
disadvantage black workers, he would not have been able to reach all or even most of the
promotions decisions in the plant, dual approval notwithstanding. A discriminatory ("132]
department head in the beam mill, for instance, would have had no say when it came to a
cold mill employee seeking a higher position within the cold mill, hot mill, melt shop,
maintenance department, or shipping department. Perhaps, then, the majority's concept --
if properly supported with evidence -- might justify a class of persons applying in and out of
a particularly problematic department. In fact, the district court proposed certifying just
such a class as to the beam mill. See J.A. 10953-54 & n.16. But it would not justify the
plant-wide class action that Plaintiffs now mean to bring. Cf. Ellis, 657 F.3d at 983 ("A
disparity in only 25% of the regions, however, would not show that discrimination
manifested in promotions practices in the same general fashion.").
* * * *
In sum, the district court did not clearly err in choosing not to rely on Plaintiffs' statistical
evidence. Faced with evidence based on questionable data, uncontrolled explanatory
variables, and poorly structured methodologies, the district court did not act irrationally in
determining that such evidence was of negligible credence. The "troubling effects of
statistical inferences require thoughtful consideration in each case," Mister v. III. Cent. Gulf
R.R. Co., 832 F.2d 1427, 1437 (7th Cir. 1987), and ("133] that consideration is sorely
lacking from the work of Plaintiffs' experts. Thus, Plaintiffs' evidence, with its many
deficiencies, does not establish the common policy necessary for class certification. The
district court did not abuse its discretion in making that finding.
B. Anecdotal Evidence
Plaintiffs also present affidavits from sixteen employees in support of certifying the
promotions classes. The district court did not abuse its discretion in refusing to certify
Plaintiffs' proposed class based on this limited evidence.
[*948] 1.
In their original class certification motion, Plaintiffs never argued that anecdotal evidence,
standing alone, could establish a common policy of discrimination. Rather, Plaintiffs
presented the anecdotal evidence only to supplement their statistical evidence. See Brown
I, 576 F.3d at 164 (Agee, J., dissenting). The Brown I majority constructed its own theory
of the case, finding that Plaintiffs could in fact advance their case on anecdotal evidence
"alone." Id. at 153. Plaintiffs now take up the Brown I majority's theory in this appeal.
Plaintiffs made the better choice in their initial offering, as anecdotes only help tell the
story. They are meant to bring "the cold numbers convincingly ("134] to life," Teamsters,
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431 U.S. at 339, providing "texture" for statistical evidence. Robinson v. Metro-North
Commuter R.R. Co., 267 F.3d 147, 168 (2d Cir. 2001), abrogated on other grounds by
Wal-Mart, 131 S. Ct. at 2560-62. But standing alone, "anecdotal evidence . . . [will] rarely,
if ever, . . . show a systemic pattern of discrimination." O'Donnell Constr. Co. v. Dist. of
Columbia, 963 F.2d 420, 427, 295 U.S. App. D.C. 317 (D.C. Cir. 1992); accord Briggs v.
Anderson, 796 F.2d 1009, 1019 (8th Cir. 1986) (observing that plaintiffs "punished
themselves" by choosing to rely on anecdotal evidence); EEOC v. Bloomberg L.P., 778 F.
Supp. 2d 458, 470-71 & n.8 (S.D.N.Y. 2011) (collecting cases); see also Michael Selmi,
Theorizing Systemic Disparate Treatment Law: After Wal-Mart v. Dukes, 32 Berkeley J.
Emp. & Lab. L. 477, 501 (2011) ("[A]necdotal evidence is always of marginal significance
in a pattern or practice claim.").
In discrimination cases, courts move anecdotal evidence to the background because such
evidence does not prove much. "Anecdotal reports . . . are ordinarily more helpful in
generating lines of inquiry than in proving causation." Federal Judicial Center, Reference
Manual on Scientific Evidence 217 (2011). Individual stories say little, for instance, 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. See Wessmann v. Gittens,
160 F.3d 790, 805-06 (1st Cir. 1998); Coral Constr. Co. v. King Cnty., 941 F.2d 910, 919
(9th Cir. 1991). Anecdotes are also more susceptible to mistaken perception, leading to
r135]
erroneous conclusions -- especially when collections of stories are treated as
quasi-statistics. See Fisher v. Vassar Coll., 70 F.3d 1420, 1444-45 (2d Cir. 1995). And bias
can skew anecdotal evidence, as when only those who feel most strongly about an issue
offer anecdotes or when the soliciting party has a particular objective in mind. Cf. United
States v. Local 560 of Intl Bhd. of Teamsters, Chauffeurs, Warehousemen, & Helpers of
Am., 780 F.2d 267, 277 (3d Cir. 1985) (finding that a survey that was meant to show the
"reputation" of a particular organization should have been excluded when it only surveyed
persons known "to be hostile" to the organization). Because "anecdotes provide no
mechanism for assessing truthfulness, typicality, or frequency," courts can and should
question their usefulness, just as "[s]cientists and medical researchers" have done for
many years. David A. Hyman, Lies, Damned Lies, and Narrative, 73 Ind. L. J. 797, 803
(1998).
2.
The majority finds Plaintiffs' anecdotal evidence sufficient principally because the ratio
reflecting the number of affidavits alleging discrimination compared to the number of class
r949i
members is purportedly small. Maj. op. at 40-41. As of 2006, Plaintiffs' experts
determined that "approximately 150 African-Americans" comprised the class. J.A. 1154.
Given that the class period extends well into 2011, it is reasonable to assume that Nucor
hired additional black applicants since 2006, conservatively r136] setting the present
class size at 160 black employees or more. The sixteen affidavits that Plaintiffs provide
therefore represent roughly one affidavit for every ten class members -- a weak sample
from the entire class. "[A] court must be wary of a claim that the true color of a forest is
better revealed by reptiles hidden in the weeds than by the foliage of countless free-
standing trees." Cooper, 467 U.S. at 879-80. When ten percent of a class (or less)
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complains of mistreatment in a discrimination case, a district court does not clearly err in
finding that such complaints do not establish a "standard operating procedure" of
discrimination, Teamsters, 431 U.S. at 336, "significant adverse effects" on the relevant
class, Watson, 487 U.S. at 986, or "significant proof' of class-wide discrimination, Wal-
Mart, 131 S. Ct. at 2553.
3.
What may matter more than the quantity of a plaintiffs evidence is its quality. If, for
instance, the anecdotal evidence is indirect and circumstantial, the district court might
justifiably probe whether that evidence truly gives rise to a necessary inference of
discrimination. After all, "a district court may properly consider the quality of any anecdotal
evidence." Rossini v. Ogilvy & Mather, Inc., 798 F.2d 590, 604 (2d Cir. 1986); accord
Eastland v. Tenn. Valley Auth., 704 F.2d 613, 625 (11th Cir. 1983).
(-1371
At least as to the promotions-related matters at issue in this appeal, Plaintiffs do
not present compelling anecdotal evidence. Byron Turner, for instance, does not address
promotions at all. Neither does Walter Joseph Cook. In what might be an employment law
first, Kenneth Hubbard complains that Nucor promoted him. See J.A. 1097; cf. Kalamazoo
Cnty. Rd. Comm'n v. Deleon, 135 S. Ct. 783, 784, 190 L. Ed. 2d 887 (2015) (Alito, J.,
dissenting from denial of certiorari) ("Respondent's supervisors did not violate federal law
by granting him the transfer that he sought and that they had no reason to believe he did
not want."). And Earl Ravenell testifies about a time that he applied for a promotion and
was not selected — because another black employee was selected for that opening. He
also tells us that he chose not to apply for any other positions because of "the look on his
[supervisor]'s face." J.A. 1111. These and other examples are not "cherry pick[ed]," maj.
op. at 41, but merely offer some insight into why the district court could reasonably decide
differently than the majority does.
Much of the anecdotal evidence also amounts to conclusory and speculative statements of
personal belief. For instance, even those employees who do mention job qualifications rely
almost exclusively on their personal, subjective, and unsubstantiated views of their own
abilities. ["*138] We usually do not give such testimony much, if any, weight. See Williams
v. Giant Food Inc., 370 F.3d 423, 433 (4th Cir. 2004); Evans v. Techs. Applications & Serv.
Co., 80 F.3d 954, 960 (4th Cir. 1996). Other employees assume racism in the process
without identifying an objective fact to support that view. Named plaintiff Ramon Roane
declares, for example, that he applied for a position that was "suddenly cancelled because
Nucor was not ready for an African American to hold a supervisory position." J.A. 996. Yet
[*9513]
he does not explain how or why he came to that conclusion, and "[a] plaintiffs self-
serving opinions, absent anything more, are insufficient to establish a prima facie case of
discrimination." Mackey v. Shalela, 360 F.3d 463, 469-70 (4th Cir. 2004).
In addition, Plaintiffs' evidence is often so incomplete that it lacks any probative value. For
example, Bernard Beaufort discusses a promotions decision that he believes "was made
unfairly." J.A. 6008. But he does not know who eventually received the job, what his or her
race was, "what [the decision] was based on," or whether "it was based on [his] race." J.A.
6008. Other employees testify about not receiving promotions, but many of these
declarants do not indicate whether they were minimally qualified for the position or whether
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the selected employee was of another race. Without these fundamental facts, we cannot
["•139] know whether particular promotions decisions raise even a circumstantial
inference of discrimination. See Cline v. Roadway Express, Inc., 689 F.2d 481, 485 n.4
(4th Cir. 1982); accord Tex. Dep't of Cmty. Affairs v. Burdine, 450 U.S. 248, 253, 101 S.
Ct. 1089, 67 L. Ed. 2d 207 (1981).
4.
The majority concentrates on one anecdotal comment from one supervisor in the beam
mill: "I don't think we'll ever have a black supervisor while I'm here." J.A. 1885-86; see also
maj. op. at 6, 51. That comment could be compelling evidence in a case hinging on
decisions made by that particular decisionmaker. On the other hand, it might not be, as we
have discounted "stray or isolated" remarks, even at summary judgment. Brinkley v.
Harbour Recreation Club, 180 F.3d 598, 608 (4th Cir. 1999); see also Birkbeck v. Marvel
Lighting Corp., 30 F.3d 507, 511-12 (4th Cir. 1994) (finding that decisionmaker's singular
remark did not evidence discriminatory practices at company).
In the end, the question proves academic. A class-wide claim challenging decisions made
by many different decisionmakers plainly requires something more than a single comment
from just one of them. We see this rule -- that sparse comments are not enough for class
treatment — illustrated in cases like King v. General Electric Company, 960 F.2d 617 (7th
Cir. 1992). There, the Seventh Circuit found that the plaintiffs' anecdotal evidence in an
age-discrimination case was not enough, even though the record contained testimony from
a higher manager that the company was "going to get rid of these old farts ("140] and get
some new blood in here." Id. at 628 (Cudahy, J., dissenting) (summarizing evidence
rejected by the majority). This Court, too, has rejected anecdotal evidence of a similarly
"damning character," this time in a racial discrimination case. See Coker v. Charleston
Cnty. Sch. Dist., No. 92-1589, 1993 U.S. App. LEXIS 20836, 1993 WL 309580, at *6 (4th
Cir. Aug. 16, 1993). We found that the plaintiffs had not established a policy or practice of
discrimination despite testimony that a black principal was told the community would not
"accept" him at a predominantly white school.1993 U.S. App. LEXIS 20836 [WL] at '4. All
this goes to illustrate that plaintiffs likely cannot prove a class-wide policy with a single
comment, no matter how bigoted the comment may be. One comment certainly does not
make the showing that Plaintiffs insist they make here: a common, uniform policy of
animus inflicted by 55 or more independent supervisors upon more than 150 employees
scattered throughout a multi-department plant. Consequently, the district court did not
abuse its discretion in refusing to certify Plaintiffs' class based on a single comment.
5.
a.
The district court also gave "limited weight" to almost 80 affidavits from black ('951]
employees at the Nucor plant. J.A. 10950. The affidavits consistently rejected the idea of
[".141]
discrimination in the promotions process, and the district court did not abuse its
discretion in affording them some minimal value. Repeatedly, the affidavits suggest that
the promotions process was fair. See, e.g., J.A. 6024, 6042, 6052, 6069, 6078. One such
employee specifically remarked that "[n]ot all African-Americans feel like they have been
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discriminated against at Nucor." J.A. 6109. The same employee was actually "upset by this
racial discrimination issue because it is not something that has happened to me or is
happening across the board here at Nucor." Id. Another employee explained that "the way
things are done . . . at Nucor are not influenced by race." J.A. 6164.
The list goes on: black employees approved of management's handling of race-related
issues in the plant, see, e.g., J.A. 6109, 6215, 6480-81, 6943, explained that they were
treated well, see, e.g., J.A. 6350, 6361, and often reasoned that complaints of racism from
other employees were unjustified, see, e.g., J.A. 6566. Even those who felt that
promotions were not made fairly often blamed factors other than race, such as a "buddy"
system in which supervisors promoted friends. See, e.g., J.A. 6258, 6299, 6438, 6494.
Some affidavits also directly contradicted ["142] the sixteen declarations that Plaintiffs
submitted. In fact, Jacob Ravenell, Kenneth Hubbard, Robyn Spann, and Byron Turner all
expressly denied that they had been denied promotions because of their race, even
though Plaintiffs cite them as four of their sixteen key witnesses. See J.A. 6400, 6746,
6933, 6964. The district court had every right to weigh such self-contradictory testimony
and conclude as it did. See Stevenson v. City of Seat Pleasant, Md., 743 F.3d 411, 422
(4th Cir. 2014).
b.
Based on "[c]ommon sense and prudence," however, the majority finds yet again that the
district court clearly erred — this time by finding that "potentially coercive" affidavits
supported Nucor to some small degree. Maj. op. at 42. The majority's naked credibility
determination is exactly the sort of decision we are not meant to undertake on appellate
review. "[W]hen a trial judge's finding is based on his decision to credit the testimony of [a
witness who] . . . has told a coherent and facially plausible story that is not contradicted by
extrinsic evidence, that finding, if not internally inconsistent, can virtually never be clear
error." Anderson, 470 U.S. at 575.
The majority nevertheless adopts a self-contradictory credibility rule: statements made in
support of an employer must be rejected when the employer ["143] obtains them, while
statements made against the employer will be given "significant weight given the
circumstances in which they were made." Maj. op. at 43. The majority draws this
distinction by assuming that an employer exercises coercive power in most any interaction
with its employees. "However, it is well settled that not every interrogation of employees by
Company officials constitutes coercion[.]" NLRB v. Lexington Chair Co., 361 F.2d 283, 289
(4th Cir. 1966). And one must not lose sight of the practical effect of the majority's novel
approach: employers now have no incentive to investigate and remedy claims of
discrimination. Employers will well understand that investigations can no longer benefit
them -- at most, facts developed during an investigation will only be used against the
employer. Even an employer with a supportive workforce will be unable to defend itself
with beneficial employee testimony, lest it be accused of unproven coercion. Informal
resolution, p952] Congress' preferred course, will therefore become even more difficult.
See West v. Gibson, 527 U.S. 212, 218-19, 119 S. Ct. 1906, 144 L. Ed. 2d 196 (1999)
(noting Congress's intention that Title VII claims would be resolved informally).
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One is further left to wonder where the majority's new imagined-coercion-based rule
comes from. Generally, the purportedly ["144] "coercive nature of the employer-
employee relationship . . . is insufficient to demonstrate that . . . [employer-employee]
interviews were improper." Slavinski v. Columbia Ass'n, Inc., No. CCB-08-890, 2011 U.S.
Dist. LEXIS 33729, 2011 WL 1310256, at *4 (D. Md. Mar. 30, 2011) (collecting cases);
accord Maddock v. KB Homes, Inc., 248 F.R.D. 229, 237 (C.D. Cal. 2007); McLaughlin v.
Liberty Mut. Ins. Co., 224 F.R.D. 295, 298 (D. Mass. 2004); cf. Gulf Oil Co. v. Bernard, 452
U.S. 89, 104, 101 S. Ct. 2193, 68 L. Ed. 2d 693 (1981) ("[T]he mere possibility of abuses
does not justify routine adoption of a communications ban[]"). Certainly it cannot be found
in the cases the majority cites, which all raised questions about defendants who contacted
putative class plaintiffs after a class action had been filed. Here, Nucor investigated and
obtained affidavits before any lawsuit was filed, so it could not have been attempting to
break up the class -- the class did not even exist yet. The majority's cases also involved a
level of egregious misconduct not found in this case, suggesting that those cases were
directed at a problem that does not exist here. See, e.g., Kleiner v. First Nat'l Bank of
Atlanta, 751 F.2d 1193, 1197-98 (11th Cir. 1985) (finding unilateral contacts improper
where counsel violated direct court order and conducted a vast "selling job" seeking class
opt-outs in "[s]ecrecy and haste" during "the district judge's vacation"); see also Burrow v.
Sybaris Clubs Intl Inc., No. 13 C 2342, 2014 U.S. Dist. LEXIS 148576, 2014 WL 5310525,
at *4-5 (N.D. III. Oct 17, 2014) (summarizing many of the same cases and concluding that
they "depict[ed] communications so extreme that they actually cut against [the ["145]
majority's present] position").
We also need not speculate about "potential" coercion, as the circumstances make plain
that Nucor did not coerce its employees into making positive statements. No employee has
claimed that the affidavits were coercive. No employee has suggested that Nucor
retaliated against employees who complained of discrimination. And the contents of the
affidavits do not imply coercion either. Employees evidently felt free to speak honestly, as
the affidavits were not universally favorable to Nucor. See, e.g., J.A. 10950 (district court
noting that the affidavits "actually bolstered the plaintiffs' claims of a common hostile work
environment"). Some employees also chose not to give statements at all. See, e.g., J.A.
6911. And still other employees made handwritten corrections to their typed affidavits,
indicating that the employees had complete control over their statements. See, e.g., J.A.
6120.
What is more, Nucor gave each employee a written notice explaining that the interview
was voluntary, that the interviews were being taken on behalf of the company, that
employees could decline to participate, and that they would not face any retaliation for
what they said. ["146] See, e.g., J.A. 6003. In other contexts, the Court has said that
disclosures like these prevent coercion. See, e.g., Overnite Transp. Co. v. NLRB, 280 F.3d
417, 434 (4th Cir. 2002). Each employee who chose to participate then signed an
acknowledgement and noted in his or her affidavit that Nucor did not coerce the employee.
See, e.g., J.A. 6003.
The majority nevertheless condemns Nucor for not informing the employees that the
company might use their statements p953] in litigation. This novel requirement -- a sort of
"civil Miranda rule" — seems an odd one given that litigation had not been filed. Instead,
interviewees were accurately informed that "[t]here ha[d] been a few charges of
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discrimination filed by African-American employees at Nucor," and the interview was
meant to "determine what happened." J.A. 6003.
The district court did not clearly err in affording some weight to these many contrary
affidavits.
6.
In addition to the affidavits supporting Nucor's view, Plaintiffs' affidavits must also be
weighed against the company's announced anti-discrimination policy. In Wal-Mart, the
Supreme Court found that a "general policy of discrimination" was harder to find given the
company's "announced policy forbid[ding] .. discrimination and . impos[ing] penalties
run
for denials of equal opportunity." Id. at 2553. The same holds true here. Nucor is
an equal-opportunity employer with an express anti-discrimination policy that harshly
penalizes employees engaging in discriminatory conduct. Nucor policies even punish
supervisors who fail to put an end to their subordinates' discriminatory conduct. The record
also contains accounts of instances in which Nucor's general manager condemned
discriminatory acts and punished employees for using offensive language. This
countervailing evidence supports the district court's conclusion that, as a whole, the
anecdotal evidence favored Nucor rather than Plaintiffs.
7.
a.
Aside from the qualitative and quantitative deficiencies in Plaintiffs' anecdotal evidence, it
also does not tell a plant-wide story. In Wal-Mart, plaintiffs' anecdotal evidence failed in
part because "[m]ore than half of the[] reports [we]re concentrated in only six States." 131
S. Ct. at 2556. As a result, even if one assumed that "every single one of these accounts
[were] true, that would not demonstrate that the entire company operate[d] under a general
policy of discrimination." Id.
The lack of dispersion that proved fatal to the class in Wal-Mart presents itself here.
Eleven of the sixteen declarations — again, ["148] more than half -- come from
employees in a single department: the beam mill. No cold mill or maintenance employees
are represented, while only one shipping employee and one melt shop employee appear.
And as the district court recognized, when one examines the individual instances of
discrimination alleged in Plaintiffs' declarations, most of them concern just one manager
and three supervisors who all worked in the beam mill. See J.A. 10951. As one black
employee put it, "Whatever [wa]s happening in the beam mill [wa]s not a plant wide
problem." J.A. 6109.
b.
The majority somehow finds clear error in the district court's finding that Plaintiffs' accounts
were concentrated in the beam mill. But it proves easy to see why the district court found
what it did: Plaintiffs do not cite useful, relevant evidence from outside the beam mill.
Some anecdotes fall outside the class period. See, e.g., J.A. 1085. Others involve
promotions that did in fact go to a black employee. See, e.g., J.A. 1110-11. Some involve
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transfers, not promotions. See, e.g., J.A. 1063. Still others trace back to beam mill
supervisors, not supervisors in other departments. See, e.g., J.A. 1079-80. Plaintiffs count
six other instances r1491 twice. See Appellant's Br. 9-10. And some of the cited
["954]
"instances of alleged promotions discrimination" amount to no evidence at all. See,
e.g., id. at 9 (citing J.A. 7237 -- an application for transfer -- as one instance of "promotion
discrimination"). Most incredibly, Plaintiffs' argument — which the majority appears to adopt
— assumes that one can find evidence of discrimination in every single instance where a
black employee does not receive a promotion for which he applies. That concept finds no
support in any part of our jurisprudence. Indeed, it turns the Teamsters framework into a
circular absurdity. Plaintiffs presume that each denied promotion evidences a
discriminatory policy or practice, even though -- under Teamsters — Plaintiffs must prove
that a discriminatory policy or practice existed before the court may presume that a
particular denied promotion was discriminatorily made. See Teamsters, 431 U.S. at 362.
The district court recognized, as it should have, that the anecdotal evidence was more
substantial when it came to the beam mill. For that reason, the district court explained that
it was willing to certify a class of those applying out of and into the beam mill. J.A. 10953-
54 & n.16. Plaintiffs ["i50] never accepted the invitation, so they remain responsible for
proving plant-wide commonality. That effort requires a substantial showing beyond a single
department. See, e.g., Bennett, 656 F.3d at 816 (holding that the district court properly
declined to certify a hostile work environment class where anecdotal evidence was
concentrated in a single department).
Outside the beam mill, Plaintiffs at best present a few scattered anecdotes in each
department. That's not enough. "[A] class plaintiffs attempt to prove the existence of . . . a
consistent practice within a given department[] may fail even though discrimination against
one or two individuals has been proved." Cooper, 467 U.S. at 878; accord Ste. Marie v. E.
R.R. Ass'n, 650 F.2d 395, 406-07 (2d Cir. 1981). The district court might very well have
clearly erred had it accepted such evidence. One can hardly say that it clearly erred in
doing just the opposite.
8.
In a last effort to save their class-wide claim, Plaintiffs make much of other facts that do not
relate directly to promotions. They seem to give special attention to the facts underlying
their already-certified hostile work environment claim. The majority agrees that such
evidence provides a "cultural backdrop" that renders an "equitable promotions system"
["im]
essentially impossible. Maj. op. at 38. Notably, that view never appeared in Brown
I, but references to Plaintiffs' hostile work environment claims now appear at least a dozen
times in the majority opinion. The majority also finds evidence of a "culture" in the alleged
fact that Nucor hired only one black supervisor before the EEOC investigation, even
though "[t]he mere absence of minority employees in upper-level positions does not suffice
to prove (even) a prima facie case of discrimination without a comparison to the relevant
labor pool." Carter, 33 F.3d at 457.
We have never held that class plaintiffs may establish a common, classwide policy of
discrimination with mere evidence of company "culture." Other decisions, including Wal-
Mart, reject the notion that "culture" is enough. See Wal-Mart, 131 S. Ct. at 2553; Davis,
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717 F.3d at 487-88. The majority would nevertheless "sweep many individual plaintiffs and
sets of facts into one class on the premise that all reflect illegal conduct by the defendant
in practice and culture if not in policy" -- even though that is "precisely the sort of class that
the Supreme Court recently rejected in [Wal-Mart]." Jamie S. v. Milwaukee Pub. Schs.,
668 F.3d 481, 504 (7th Cir. ["955] 2012) (Rovner, J., concurring in part). Furthermore,
simply saying that a company has a "cultural problem" does not identify any particular
("1521 employment policy or practice, McClain v. Lufkin Indus., Inc., 519 F.3d 264, 274
(5th Cir. 2008), let alone a common, uniform policy spanning the class.
We have also never held that facts establishing a hostile work environment unavoidably
relate to all other employment decisions made in the same company. Such a connection
would be hard to justify, as acts giving rise to a hostile work environment are only distantly
related to the discrete acts that underlie disparate treatment and impact claims. "The
probative value of other discriminatory acts depends . on the nature of the discrimination
charged." Hunter v. Allis-Chalmers Corp., Engine Div., 797 F.2d 1417, 1424 (7th Cir.
1986), abrogated on other grounds by Patterson v. McLean Credit Union, 491 U.S. 164,
109 S. Ct. 2363, 105 L. Ed. 2d 132 (1989). And "[h]ostile environment claims are different
in kind from discrete acts." Nat'l R.R. Passenger Corp. v. Morgan, 536 U.S. 101, 115, 122
S. Ct. 2061, 153 L. Ed. 2d 106 (2002). In contrast to acts creating a hostile work
environment, discriminatory employment decisions "inflict[] direct economic harm."
Burlington Indus., 524 U.S. at 762. They will often require "the imprimatur of the enterprise
and the use of its internal processes." Id.
The "probativeness" of items like comments, jokes, and other acts "is [also] circumscribed
if they were made [or done] in a situation temporally remote from the date of the
employment decision[s], or if they were not related to the employment decision[s] in
question or were made by nondecisionmakers." McMillan v. Mass. Soc'y for Prevention of
Cruelty to Animals, 140 F.3d 288, 301 (1st Cir. 1998). Here, Plaintiffs' evidence suffers to
("153] some degree from all three of these defects. For instance, Plaintiffs' statements
often do not tell us when the offensive conduct occurred, so we have no way of assessing
temporal proximity. None of the "cultural" evidence pertains specifically to promotions. And
most all of the relevant hostile-work-environment conduct came from non-decisionmakers,
even though it "is the perception of the decisionmaker that is relevant" in claims like
Plaintiffs'. Smith v. Flax, 618 F.2d 1062, 1067 (4th Cir. 1980); accord Mateu-Anderegg v.
Sch. Dist. of Whitefish Bay, 304 F.3d 618, 623 (7th Cir. 2002) ("[S]tatements are only
relevant if they come from a decisionmaker, someone involved in the adverse employment
decision[s]."). Lastly, to the limited extent that supervisors did involve themselves in the
incidents that Plaintiffs described, those supervisors chiefly worked in the beam mill —
undermining any inference of a common, plant-wide policy.
At bottom, the majority concludes that we should permit Plaintiffs to pursue two class
claims pertaining to promotions because they have successfully established their right to
pursue a separate, distinguishable hostile-work-environment claim. Title VII does not work
that way, and, rhetoric aside, the majority is unable to identify a single decision to support
that kind of proposition. "In the law, the absence ("154] of precedent is no
recommendation." Dukes v. Wal-Mart, Inc., 509 F.3d 1168, 1200 (9th Cir. 2007) (Kleinfeld,
J., dissenting). Moreover, to assume that a plaintiff establishes a right to class treatment
for his discrete-act class merely because he has established such a right as to a hostile-
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126 Fair Empl. Prac. Cas. (BNA) 1793; 99 Empl. Prac. Dec. (CCH) P45,306
work-environment class is to reinstate a suspect revision of the "across-the-board" rule
that the Supreme Court rejected three decades ago. See Falcon, 457 U.S. at 153, 157-59
(rejecting the idea that "an employee complaining of ['956] one employment practice"
may automatically "represent another complaining of another practice" merely because
both alleged discrimination based on the same protected trait). The district court did not
abuse its discretion in refusing to exhume that long-dead idea.
The district court did not clearly err in declining to give dispositive weight to evidence going
to Plaintiffs' hostile-work-environment claim when deciding whether to certify Plaintiffs'
separate promotions-related classes.
When closely examined, Plaintiffs' anecdotal evidence proves to be just as unconvincing
as their statistical proof. "Because [Plaintiffs] provide no convincing proof of a
companywide discriminatory . . . promotion policy, . . . they have not established the
existence of any ("155] common question." Wal-Mart, 131 S. Ct. at 2556-57. The district
court therefore did not abuse its discretion in declining to certify the class because of its
lack of commonality.
IV.
On the road to its desired result, the majority undermines well-established judicial
processes, causes a rift between this Court and a co-equal circuit court without
explanation, and brings substantial uncertainty to an area of law that begs for clarity.
As to judicial processes, the majority opinion evidences little respect for the role of the
district court and the standard of review. The district court has lived with this matter for
several years now, and it best understands how the case has developed. Its actions
bespeak a court striving to scrupulously apply Rule 23's requirements. The district court
complied with our mandate, rejected more than one request to decertify from Nucor, and
continually endeavored to respect findings that this Court has (actually) made. Yet the
majority shows no concern for that effort. And it shows just as little concern for this Court's
well-established waiver rule, which should plainly apply here.
As to our sister circuits, the majority opinion begets a circuit split. The Eighth Circuit
affirmed the denial of ("156] class certification in a case involving the same claims, the
same experts, and the same defendant. As should be clear by now, that decision cannot
be reconciled with this one. The majority never even tries to do so.
And as to cases to come, the majority's decision will offer far more questions than
answers. What standard of review really applies in this context? How much evidence must
a plaintiff summon to comply with Rule 23? Does appellate waiver matter? Does class
treatment of one cause of action necessarily warrant class treatment for another? Must
statistical evidence prove to be reliable? Does Wal-Mart reach only nationwide class
actions? Can a sufficiently "common" policy result from inaction? These are only some of
the questions that the majority opinion leaves unresolved.
We should hardly take this troubled road in the name of "simple justice." Maj. op. at 63.
"Simple justice' is achieved when a complex body of law developed over a period of years
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126 Fair Empl. Prac. Cas. (BNA) 1793; 99 Empl. Prac. Dec. (CCH) P45,306
is evenhandedly applied." San Remo Hotel, L.P. v. City & Cnty. of San Fran., Cal., 545
U.S. 323, 345, 125 S. Ct. 2491, 162 L. Ed. 2d 315 (2005). Evenhandedness is nowhere to
be found here, so justice remains unserved.
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 ["157] so soon. In the meantime, I
respectfully dissent. The district court did p957] not abuse its discretion, and its judgment
to decertify should be affirmed.
ROBERT DIGIACOMO, Plaintiff, v. STATEBRIDGE COMPANY,
LLC, et al., Defendants.
CIVIL ACTION NO. 14-6694 (JEI)
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
NEW JERSEY
2015 U.S. Dist. LEXIS 82496
June 25, 2015, Decided
June 25, 2015, Filed
CORE TERMS: mortgage, borrowers, kickback, lender, force-placed, premium, coverage,
insurer, servicer, covenant of good faith, fair dealing, breach of contract, rating-system,
hazard, contract claim, fiduciary duty, escrow funds, escrow account, citations omitted,
fiduciary, bargain, insurance premiums, excessive, authorize, rating, insurance policy,
undisclosed, lapse, insurance coverage, policy of insurance
rii ,
COUNSEL: For Plaintiff: Roosevelt N. Nesmith Esq., LAW OFFICE OF
ROOSEVELT N. NESMITH, LLC, Montclair, New Jersey.
For Defendant Statebridge Company, LLC: John M. Falzone, Ill, Esq., PARKER IBRAHIM
& BERG LLC, Somerset, New Jersey.
For Defendants American Modern Insurance Group, American Modern Home Insurance
Company, and Midwest Enterprises, Inc. d/b/a Ameritrac Business Solutions: Lesley
Mccall Grossberg, Esq., BAKER & HOSTETLER LLP, Philadelphia, Pennsylvania.
JUDGES: HONORABLE JOSEPH E. IRENAS, Senior United States District Judge.
OPINION BY: JOSEPH E. IRENAS
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OPINION
IRENAS, Senior District Judge:
Plaintiff Robert DiGiacomo ("Plaintiff') took a mortgage loan from non-party EquiFirst
Corporation ("Equifirst") on March 17, 2008, secured by real property in West Berlin, New
Jersey. (Complaint, Dkt. No. 1 ("Compl.")¶ 45)' Defendant Statebridge Company LLC
("Statebridge") serviced the loan, and pursuant to the mortgage agreement, required
Plaintiff to provide proof of insurance on his real property. (Id. 111145-46) When Plaintiff
failed to do so, Statebridge "force-placed" an insurance policy on the property through
Defendant American Modem Home Insurance Company ("American Modern"). (Id. 1147)
1 The Court recognizes that Plaintiff rzi has filed an Amended Complaint (Old. No. 58) but understands the amendments to
have no substantive effect on the instant motion.
Plaintiff filed the instant class action against Statebridge, American Modern, American
Modem's corporate parent American Modern Insurance Group ("AMIG"), and Midwest
Enterprises, Inc. d/b/a Ameritrac Business Solutions ("Ameritrac"), the wholly owned
subsidiary of AMIG that acts as the program manager for American Modern's force-placed
insurance programs. (Id. ¶¶ 3-5) Alleging that American Modern, AMIG, and Ameritrac
(collectively, "AMIG Defendants") and Statebridge "manipulated the force-placed insurance
market through collusive agreements involving kickback arrangements and other forms of
improper compensation," (id. ¶ 7), Plaintiff brings suit against Statebridge for breach of
contract, breach of implied covenant of good faith and fair dealing, violation of the New
Jersey Consumer Fraud Act ("NJCFA"), breach of fiduciary duty, and violations of the
Racketeer Influenced and Corrupt Organizations ("RICO") Act.
Presently before the Court is Statebridge's Motion to Dismiss Plaintiffs Class-Action
r3]
Complaint, Dkt. No 9 ("SMTD") for failure to state a claim upon which relief can be
granted pursuant to Rule 12(b)(6).2 For the reasons below, the motion will be GRANTED in
part and DENIED in part.
2 Plaintiff also brings suit against AMIG Defendants for tortious interference with a business relationship and violations of RICO
and the NJCFA. AMIG Defendants filed an Answer (DM. No. 25) to Plaintiffs Complaint and do not pin the instant motion.
I. Relevant Facts
Plaintiff alleges the following facts in his Complaint. Under a typical mortgage agreement,
lenders and servicers have a right to "force-place" insurance upon borrowers who fail to
obtain or maintain the requisite insurance coverage on property that secures a loan.
(Compl. ¶ 10 ) As is typical, Plaintiffs mortgage agreement with Equifirst requires in Section
5 that Plaintiff maintain insurance against loss by fire, flood, earthquake "and any other
hazards . . . for which Lender requires insurance . . . in the amounts (including deductible
levels) and for the periods Lender requires." (Compl. Ex. A, Dkt. 1-2 ("Mortgage
Agreement") at 3) "If Borrower fails to maintain any of the coverages described above,
Lender may obtain insurance coverage, at Lender's option and Borrower's expense." (Id.)
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After executing [•4] his mortgage agreement in 2008, Plaintiff appears to have made
voluntary insurance payments for some time before his coverage lapsed; in any event,
Statebridge did not seek to impose force-placed insurance until 2012. (Compl. ¶ 31)
The agreement makes it clear that borrowers are better off maintaining their own insurance
rather than being subject to any coverage that the lender may apply by force:
Lender is under no obligation to purchase any particular type or amount of coverage. Therefore, such coverage shall
cover Lender, but might or might not protect Borrower. Borrower's equity in the Property, or the contents of the
Property. against any risk, hazard or liability and might provide greater or lesser coverage than was previously in effect.
Borrower acknowledges that the cost of the insurance coverage so obtained might significantly exceed the cost of
insurance that Borrower could have obtained.
(Mortgage Agreement at 3)
However, Section 9 further provides that where Borrower "fails to perform the covenants
and agreements contained in" the agreement, "Lender may do and pay for whatever is
reasonable or appropriate to protect Lender's interest in the Property and rights under this
Security ['5] Instrument." (Id. at 4-5)
According to Plaintiffs Complaint, Statebridge arranged to purchase force-placed hazard
insurance exclusively from AMIG Defendants, even though these insurance plans provided
less coverage and cost borrowers such as Plaintiff considerably higher premiums than
voluntary insurance. (Compl. ¶¶ 8-9, 26) Statebridge then charged Plaintiff (and other
borrowers in the putative class) even higher premiums than was "reasonable or
appropriate to protect [their] interest in the Property," because it used the excess amount
collected to give itself "kickbacks disguised as 'commissions,' . . . lucrative reinsurance
arrangements which included unmerited charges, and/or . . . other financial benefits which
are not attributable to the cost of insuring the individual property." (Id. ¶ 26)
"AMIG Defendants have acknowledged that they pay 'commissions' in connection with
force-placed insurance," but Plaintiff alleges that these payments are kickbacks for
maintaining exclusive agreements with AMIG, rather than "commissions" awarded for
legitimate services. (Id. ¶¶ 35, 37) Since no individualized underwriting is required to force-
place insurance, Plaintiff alleges that acquisition ['6] expenses should be lower, not
higher. (Id. ¶ 29) Moreover, the kickbacks incentivize Statebridge "to purchase the high-
priced force-placed insurance policies from American Modern, rather than simply renew
the lower priced insurance policy obtained by the borrower in the open market," since "the
higher the cost of the insurance policy, the higher the kickbacks to Statebridge." (Id. ¶ 37)'
3 AMIG Defendants stated during oral argument that Statebridge could not actually buy Plaintiffs original insurance, because
they have no inst./able interest in Plaintiff's equity or personal effects, and individual borrowers such as Plaintiff have access to
cheaper voluntary insurance rates that are not available to commercial parties such as Defendants. (Hr'g Tr. 35-36, Apr. 23,
2015. Dd. No. 52) Because commercial borrowers have such limited options for purchasing insurance, AMIG Defendants also
argue that even if the kickback scheme alleged were shown to be true. the rate charged would have been no higher than the
rate charged without such a scheme. The Court does not reach such a fact•intensive dispute at this stage of litigation.
Plaintiff states that in addition to "commissions," AMIG Defendants [.7] returned some of
the excessive premiums to Statebridge via reinsurance agreements: "while Statebridge
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and/or its affiliates purportedly provided reinsurance, they did not assume any real risk."
(Id. 1140) Consequently, these "ceded premiums are nothing more than a kickback[.]" (Id.)
In addition to these alleged kickbacks, Plaintiff claims that Statebridge used the excess
premiums to subsidize a service AMIG Defendants provide wherein AMIG Defendants
monitor or track Statebridge's entire loan portfolio below cost.
03)e:cause insurance-lapsed mortgage property generally comprises only 1.2% of the lenders' total mortgage portfolio.
the borrowers. like Plaintiff DiCistern°. who pay these premiurns unfairly. bear the entire cost to service and monitor or
track the entire Statebridge loan portfolio.
(Id. ¶ 38)4
4 The Court understands from the Complaint that Plaintiff behaves this cost of monitoring or tracking Statebridge's loan portfolio
ought to be spread across all loans rather than just the 1-2% of loans related to insurance-lapsed mortgage property but is
otherwise a legitimate expense.
Finally, Plaintiff alleges that Defendants' overcharged borrowers by charging for time
['8]
periods when they were already protected (noting that the Standard Mortgage Clause
or the Lenders Loss Payable Endorsement ("LLPE") "typically protects the lender for a
period of at least ten days after the termination of the homeowner's voluntary insurance
policy" (id. ¶ 41)) and by imposing retroactive insurance costs to cover time periods when
the property was not insured, even though no damage occurred during the period of the
lapse (id. ¶ 30).
5 As Plaintiff explains it. "AMIG Defendants generate a premiun charge to Statebridge for thlel retroactive coverage" and
"Statebridge then charges the borrower in the amount it was billed from the AMIG Defendants" (Id 1130)
Defendants allegedly engaged in these activities with regard to many borrowers but
Statebridge informed the instant Plaintiff that it was force-placing insurance on his property
on July 6, 2012, to be applied retroactively to January 29, 2012. (Id. ¶ 31) The five months
of insurance charges were then applied to Plaintiffs escrow account, plus interest. (Id. ¶
33) While Plaintiff previously paid an annual premium of $1,165.14 through his voluntary
insurer, Defendants' policy increased his premium 17.5% to $1,368, despite dropping his
rsi
coverage from $289,000 to $152,000 and no longer covering contents, personal
effects, or liability. (Id. ¶ 47)
II. Jurisdiction
Though the parties did not address the issue of standing in their briefs, "standing is a
jurisdictional matter' raised "[p]ursuant to Rule 12(b)(1)." Ballentine v. United States, 486
F.3d 806, 810, 48 V.I. 1059 (3d Cir. 2007) (internal quotations and citations omitted).
Therefore, "we are required to raise issues of standing sua sponte if such issues exist."
Addiction Specialists, Inc. v. Twp. of Hampton, 411 F.3d 399, 405 (3d Cir. 2005) (internal
quotations and citations omitted). Prior to reaching the merits of Statebridge's motion,
however, the Court must confirm that Plaintiff has established standing to bring this suit.
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"[T]he core component of standing is an essential and unchanging part of the case-or-
controversy requirement of Article III" of the Constitution. Lujan v. Defenders of Wildlife,
504 U.S. 555, 560, 112 S. Ct. 2130, 2136, 119 L. Ed. 2d 351 (1992). Article III
constitutional standing requires that (1) plaintiff has suffered an injury in fact -- an invasion
of a legally protected interest which is (a) concrete and particularized and (b) actual or
imminent, not conjectural or hypothetical; (2) that a causal connection exists between the
injury and the conduct complained of; and (3) that it is likely, not merely speculative, that
the injury will be redressed by a favorable decision. Ballentine v. United States, 486 F.3d
806, 814, 48 V.I. 1059 (3d Cir. 2007) (internal quotations and citation omitted).
No]
Moreover, "plaintiffs in a putative class action must allege and show that they
personally have been injured, not that injury has been suffered by other, unidentified
members of the class to which they belong and which they purport to represent."
Montanez v. HSBC Mortgage Corp. (USA), 876 F. Supp. 2d 504, 512 (E.D. Pa. 2012)
(citing Klein v. Gen. Nutrition Cos., 186 F.3d 338, 345 (3d Cir. 1999)) (finding a concrete
and particularized injury where plaintiffs alleged they paid too much for force-placed
insurance, a causal connection where defendants allegedly worked to conceal kickbacks
and redundant charges, and redressability where plaintiffs sought the "very conventional
remedy" of money damages).
Here, Plaintiff states facts similar to those in Montanez: "[o]nce coverage is forced on the
property, Defendants charge the borrower, an amount they attribute to the AMIG forced-
placed premium, which is either deducted from the borrower's mortgage escrow account
by the Defendants or added to the balance of the borrower's loan." (Compl. ¶ 33) But
because "plaintiffs in a putative class action must allege and show that they personally
have been injured," Montanez at 512, it is insufficient to make general statements of injury
to the class without specifying injuries to Plaintiff himself. Plaintiff must state whether
rig
charges were deducted from his escrow account or whether his loan balance
increased in a way that made it more difficult to resolve his mortgage situation.
Regarding his own finances, Plaintiff alleges that "escrow funds of Plaintiff which were
designated to pay insurance, taxes and other items were used to pay non-designated
costs of Defendants, including kickbacks, reinsurance fees and ceded premiums, and low
cost loan tracking services." (Compl. ¶ 102) Because "general factual allegations of injury
resulting from the defendant's conduct may suffice" to state an injury at this stage of
litigation, the Court finds this allegation sufficient to state an injury and establish Article III
standing at this stage of litigation.°
6 As the Court recognized during oral argument. "the typical case here is, there is nothing left in the escrow account" from
which Defendants may deduct the premiums. Mfg Tr. 50. Instead, "Iirs very likely that [Plaintiff) wasn't paying [the excessive
premiums] directly" and that "l'lf he was going to pay [such a premium]. he was going to pay it down the line, indirectly in some
fashion, and even then, we don't know, because we don't know what equity there was in the properly." (Hr'g Tr. 30)
Nonetheless, such factual determinations are inappropriate [9 21 at this stage, and the Court restricts itself to the allegations in
Plairtiffs Complaint.
In addition, Plaintiff alleges that Defendants charged him excessive premiums, which
constitute an injury regardless of whether he ever actually paid them. For example, Plaintiff
alleges that Defendants informed him in a letter dated July 6, 2012, "that insurance
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charges will be applied to [his] account, plus interest" and that Defendants "charged his
account the prior month for the five months of insurance premiums" they claimed he owed
since the lapse of his previous policy. (Compl. ¶ 33) See also id. ¶¶ 81 and 85, describing
the application of the charge to Plaintiffs loan balance and against his escrow account.
Plaintiff does not clearly assert what portion (any or all) of these charges he actually paid.
A charged fee, though unpaid, can constitute injury. See Barrows v. Chase Manhattan
Mortgage Corp., 465 F. Supp. 2d 347, 366 (D.N.J. 2006)(finding that plaintiff had standing
to claim a breach of implied covenant of good faith and fair dealing, because "Plaintiffs
contention that Defendants had a duty to insure the propriety of any attempt to collect [the
fees charged] negates Defendants' argument that Plaintiff needed to have actually paid
such fees.")(emphasis added). ['13] Moreover, the application of allegedly unlawful
charges to Plaintiff's loan balance (Id. ¶ 81) necessarily increased his balance, and this
accumulation of debts may reduce equity, affect credit ratings, limit borrowing capacity, or
otherwise cause a concrete injury to a plaintiff, even if he never actually pays the debt
accumulated, perhaps due to foreclosure or bankruptcy.
Beyond Article III standing. this Court has statutory jurisdiction over "any civil action in
which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of
interest and costs" and where "any member of a class of plaintiffs is a citizen of a State
different from any defendant." 28 U.S.C. § 1332(d)(2). Plaintiff here, a citizen of New
Jersey, alleges against Defendants, citizens of Ohio or Colorado, an amount in
controversy exceeding $5 million. (Compl. ¶¶ 20-23)
Having confirmed jurisdiction, the Court now turns to the merits of Statebridge's motion to
dismiss.
Ill. Legal Standard
Federal Rule of Civil Procedure 12(b)(6) provides that a court may dismiss a complaint "for
failure to state a claim upon which relief can be granted." In order to survive a motion to
dismiss, a complaint must allege facts that raise a right to relief above the speculative
level. [94] Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed.
2d 929 (2007); see also Fed. R. Civ. P. 8(a)(2).
When considering a Rule 12(b)(6) motion, the reviewing court must accept as true all
allegations in the complaint and view them in the light most favorable to the plaintiff.
Phillips v. Cnty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008). In reviewing the
allegations, a court is not required to accept sweeping legal conclusions cast in the form of
factual allegations, unwarranted inferences, or unsupported conclusions. Morse v. Lower
Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997). Instead, the complaint must state
sufficient facts to show that the legal allegations are not simply possible, but plausible.
Phillips, 515 F.3d at 234. "A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged." Ashcroft v. lqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L.
Ed. 2d 868 (2009).
Finally, the Court considers "only the allegations in the complaint, exhibits attached to the
complaint, matters of public record, and documents that form the basis of a claim." Lum v.
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Bank of Am., 361 F.3d 217, 221 n.3 (3d Cir. 2004). A document forms the basis of a claim
when it is "integral to or explicitly relied upon in the complaint." Id. (citing In re Burlington
Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997)).
IV. Discussion
Statebridge moves to dismiss Plaintiffs Complaint on the grounds that a) all of Plaintiffs
claims are barred by the filed rate doctrine; b) Plaintiff cannot claim breach of contract
[-15]
because Statebridge was not a party to the contract, the contract authorized the
actions alleged to be unlawful, and Plaintiff himself violated the contract; c) Plaintiff cannot
claim breach of the implied covenant of good faith and fair dealing, because Plaintiff has
failed to allege that Statebridge deprived him of the benefit of his bargain or that
Statebridge acted in bad faith; d) Plaintiff cannot claim breach of fiduciary duty, because
no such duty exists between a mortgagor and mortgagee; e) Plaintiff cannot claim violation
of the NJCFA, because Plaintiff has failed to allege that Statebridge engaged in an
unlawful practice or that Plaintiff suffered an ascertainable loss; and f) Plaintiff cannot
claim RICO violations, because Plaintiff has failed to allege a RICO enterprise or a pattern
of racketeering activity.
The Court considers each of these arguments in turn.
A. The Filed Rate Doctrine
Statebridge first argues that all of Plaintiffs claims are barred by the filed rate doctrine,
which "provides that a rate filed with and approved by a governing regulatory agency is
unassailable in judicial proceedings brought by ratepayers." Clark v. Prudential Ins. Co. of
Am., 736 F. Supp. 2d 902, 913 (D.N.J. 2010) (citing Alston v. Countrywide Fin. Corp., 585
F.3d 753, 763 (3d Cir. 2009)).
Specifically, "[t]he filed rate doctrine bars suits that challenge ['16 ] the reasonableness of
filed rates or that would have the practical effect of causing certain consumers to pay a
rate that varies from the filed and approved rate." (SMTD at 25 (citing Smith v. SBC
Commc'ns, Inc., 178 N.J. 265, 274-75, 839 A.2d 850 (2004))) Statebridge argues that this
non-justiciability strand deprives courts of subject-matter jurisdiction over such suits and
"reflects the courts' general reluctance to substitute their judgment for the judgment of the
regulatory agency vested with primary authority to make such decisions and the courts'
limited ability to determine the reasonableness of rates." (Id. at 26 (quoting Clark v.
Prudential Ins. Co. of Am., 736 F. Supp. 2d 902, 913 (D.N.J. 2010)).
However, the filed rate doctrine does not apply to bar claims where "Plaintiffs challenge
[Defendant's] allegedly wrongful conduct, not the reasonableness or propriety of the rate
that triggered that conduct." Alston v. Countrywide Fin. Corp., 585 F.3d 753, 765 (3d Cir.
2009). In Alston, the Third Circuit considered allegations of wrongful conduct involving
unlawful kickbacks. "Plaintiffs may not sue . . . if they simply think that the price they paid
for their settlement services was unfair," the Court found, but plaintiffs "may allege a
violation of fair business practices through the use of illegal kickback payments. The filed-
r17]
rate doctrine bars suit from the former class of plaintiffs and not the latter." Id. at 764
(internal quotation marks and citation omitted).
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Here, Plaintiff alleges that Defendants engaged in an unlawful, undisclosed kickback
scheme, colluding to charge borrowers rates the borrowers believed were necessary to
cover their insurance costs but which were actually used to fund kickbacks to Statebridge,
among other improper benefits. These rates were higher than the voluntary rates
borrowers were able to obtain on the open market, but Plaintiff does not allege that they
were unreasonable in absolute terms. Rather, Plaintiff objects to Defendants' allegedly
wrongful conduct, which "was neither filed with, nor approved by, the state regulatory
agency and thus fell firmly outside the scope of the filed rate doctrine." (Plaintiffs Opp. to
SMTD. Dkt. No. 23 ("Pl.'s Opp.") at 10)
Under New Jersey law, "every insurer shall, before using or applying any rate' to any kind
of insurance, file with the commissioner a copy of the rating-system° upon which such rate
is based, or by which such rate is fixed or determined." N.J.S.A. 17:29A-6. "No insurer . .
shall give false or misleading information . . . to the commissioner, which will in any
manner affect the proper determination of [98] reasonable, adequate, and
nondiscriminatory rates." N.J.S.A. 17:29A-16.
It, after examination thereof, the commissioner shall find that such rating-systems filed by or on behalf of an insurer
provide for, result in, or produce rates that are unreasonably high or excessive. or are not adequate for the safeness
and soundness of the insurer, or are unfairly discriminatory between risks in this State involving essentially the same
hazards and expense elements, he shall issue an order to such insurer directing that such rating-systems be
altered in the manner and to the extent stated in such order, to produce rates that are reasonable and adequate, and
not unfairly discriminatory.... [Otherwise.) he shall approve such rates[.)
N.J.S.A. 17:29A-7.°
7 'Rate' means the unit charge by which the measure of exposure or the amount of insurance specified in a pokey of instance
or covered thereunder is multiplied to determine the premium." N.J.SA. 17:29A-1(a).
8 'Rating-system' means every schedule, class. classification, rule, guide, standard, manual table, rating plan, or compilation.
by whatever name described, containing the rates used by any rating organization or by any insurer, or used by any insurer or
by any rating organization in determining ['19] or ascertaining a rate and includes any policy form, or part thereof, used
therewith.' N.J.S.A 17:29A-1(d).
9 in making such determination, the commissioner shall consider the factors applied by insurers and rating organizations
generally in determining the bases for rates: the financial condition of the insurer: the method of operation of such insurer: the
loss experience of the insurer, past and prospective, including where pertinent, the conflagration and catastrophe hazards. if
any, both within and without this State: to all factors reasonably related to the kind of insurance involved: to a reasonable profit
for the insurer, and in the case of participating insurers, to policyholders' dividends.' N.J.S.A . 17:29A-11
Once a rate is approved, "[n]o insurer . . . shall knowingly charge, demand or receive a
premium for any policy of insurance except in accordance with the respective rating-
systems on file with and approved by the commissioner." N.J.S.A. 17:29A-15.
Here, Statebridge's filed rating-system was approved, and the rate that Statebridge
charged Plaintiff complied with the rate on file. However, there is no evidence that
Defendants included in their application for approval of their ratingsystem the portion of the
[°
premium devoted to kickbacks, 20] as Plaintiff has alleged. Such extraneous payments
are forbidden as follows:
No insurer ... shall pay. allow. or give. or offer to pay, allow. or give. directly or indirectly, as an inducement to
insurance, or after insurance has been effected. any rebate. discount. abatement, credit, or reduction of the premium
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named in a policy of insurance, or any special favor or advantage in the dividends or other benefits to accrue thereon.
or any valuable consideration or inducement whatever. not specified in the policy of insurance, except to the extent that
such rebate. discount. abatement, credit, reduction. favor. advantage or consideration may be provided for in rating-
systems filed by or on behalf of such insurer and approved by the commissioner. No insured named in a policy of
insurance ... shall knowingly receive or accept. directly or indirectly, any such rebate, discount. abatement. or
reduction of premium, or any such special favor or advartage or valuable consideration or inducement.
N.J.S.A. 17:29A-15.
Plaintiff DiGiacomo alleges that AMIG Defendants paid and Statebridge accepted, as an
inducement to insurance, or after insurance has been effected, kickbacks that would
p21]
qualify as the sort of payments prohibited by N.J.S.A. 17:29A-15.
The filed rate doctrine cannot offer any protection against such a charge. While the
doctrine precludes a borrower from bringing a claim challenging the rate of force-placed
insurance, Plaintiff here is not challenging the rate: a finding in his favor would establish
only that Defendants engaged in an unlawful kickback scheme that was not disclosed to
New Jersey regulators, not cast doubt on any determination such regulators made that a
certain rate is reasonable. In imposing a rate that regulators deem reasonable, Defendants
may nonetheless engage in conduct that violates, as Plaintiff alleges, the NJCFA or RICO
statutes or Defendants' contractual and fiduciary obligations.
Statebridge's motion to dismiss Plaintiff's Complaint based on the filed rate doctrine will
therefore be denied.
B. Breach of Contract
Statebridge next argues that Plaintiff cannot claim breach of contract because Statebridge
was not a party to the contract, the contract authorized the actions alleged to be unlawful,
and Plaintiff did not perform his own duties under the contract.
a. Statebridge was plausibly a party to the mortgage contract.
[*22]
Only a party to a contract can be found liable for breach of contract, and a loan
servicer is not an original party to a mortgage agreement between a lender and a borrower
as a matter of law.'° However, a loan servicer can become a party to a mortgage
agreement between a lender and a borrower via assignment, and whether or not such
assignment has occurred is a question of fact. See Ellsworth v. U.S. Bank, N.A., 30 F.
Supp. 3d 886, 913 (N.D. Cal. 2014) ("[A] servicer can stand in the shoes of the party to the
contract to the extent that rights are assigned. If rights are not assigned, then [loan
servicer] U.S. Bank is off the hook for breach of contract."). Not only is it "plausible to infer
that 'a servicer can stand in the shoes of the party to the contract to the extent that rights
are assigned[]' . . . it is somewhat implausible that the servicers acquired the rights to
enforce the lender's rights under the deed of trust without becoming parties to the
contract." Perryman v. Litton Loan Servicing, LP, No. 14-CV-02261-JST, 2014 U.S. Dist.
LEXIS 140479, 2014 WL 4954674, at *13 (N.D. Cal. Oct. 1, 2014) (quoting Ellsworth, 30 F.
Supp. 3d at 913)(emphasis in original). In Perryman, as in Ellsworth, the Court declared
the matter a fact issue for which Plaintiff would need to produce evidence of assignment
but found "nothing implausible about the allegation." Id.
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10 See Pull v. America's Servicing Co.. No. 07-0389. 2008 U.S. Dist. LEXIS 33447. 2008 WL 1833182. at '4 (W.D. Pa. Apr. 23.
2008) (-Defendant America's Servicing was not a party to the mortgage. Therefore. it cannot be held liable for breach of
contract"). [13] Cannon v. Wells Fargo Bank. N.A., 917 F. Si4pp. 2d 1025. 2013 WI. 132450'22 (N.D. Cal. 2013) CIA] breach-
of.contract claim carrrot be maintained against Wells Fargo [the loan service') as it was not a contracting party"); McKenzie v.
Wells Fargo Home Mort, Inc.. 2012 U.S. Dist. LEXIS 155480. 2012 WL 5372120'20 n.12 (N.D. Cal. Oct. 30. 2012) ("The
mortgage contract is between Lender and Borrower. It Wells was acting as servicer, and not as Lender or Lender's agent. when
it required increased insurance coverage, it could not be sued for breach of contract since it is not a party to the contract.")).
Here, Statebridge argues that Plaintiff has failed to state a claim for breath of contract,
because "a 'service only receives limited rights and obligations under the mortgage
contract relating to servicing" and Statebridge therefore "does not have the required privity
between the parties[.]" (SMTD at 29) However, this question of fact should not be resolved
at this stage. For now, the Court notes only that Statebridge is the party listed on Plaintiffs
"Evidence of Insurance" form under "Insured / Lender" (Dkt. No. 9-1 at 16) and finds that
Statebridge plausibly stands in the shoes of EquiFirst with regard to Plaintiff's mortgage
agreement with EquiFirst.
Statebridge's motion to dismiss Plaintiffs breach of contract claim on the basis that
Statebridge is not a party to the contract will therefore ['24] be denied.
b. The contract does not authorize Defendants' actions.
Statebridge also argues that the mortgage agreement authorizes Defendants' actions,
because it alerts borrower that they must maintain insurance "in the amounts .. . and for
the periods that Lender requires," and that if such coverage lapses, the Lender "is under
no obligation to purchase any particular type or amount of [force-placed] coverage" which
"shall cover Lender, but might or might not protect Borrower, Borrowers equity in the
Property, or the contents of the Property against any risk, hazard or liability and might
provide greater or lesser coverage than was previously in effect." (SMTD at 30-31) The
agreement further provides that the cost of force-placed insurance "might significantly
exceed the cost of insurance that Borrower could have obtained." (Id. at 31) Based on this
language, Statebridge concludes that the breaches that Plaintiff alleges "are in fact
contemplated by and expressly authorized by the Mortgage." (Id.)
This conclusion is not persuasive. Section 9 of the Mortgage Agreement authorizes a
Lender to "do and pay for whatever is reasonable or appropriate to protect Lender's
interest in the Property ['25] and rights under this Security Instrument." (Mortgage
Agreement at 4-5) But Plaintiff has alleged a kickback scheme that imposes costs on the
borrower beyond the costs of providing force-placed insurance. In executing the Mortgage
Agreement, Plaintiff may have agreed, in the event of a lapse in voluntary coverage, to
allow the force-placement of insurance that is more expensive and less protective of
Plaintiff's interests than the coverage that lapsed: however, the agreement in no way
evidences Plaintiffs consent to or awareness of the alleged kickback scheme driving some
portion of those additional costs. In fact, Plaintiff alleges that Defendants used the
Mortgage Agreement to suggest that excessive premiums were legitimately necessary to
cover the costs of providing force-placed insurance, masking the illegitimate profits
Statebridge collected instead. The agreement authorizes no such action, as it is neither
reasonable nor appropriate to protect the Lenders interest, and the Court will therefore
deny Statebridge's motion to dismiss Plaintiffs breach of contract claim on that basis.
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c. Plaintiff has not pled his own performance under the contract.
Finally, Statebridge asserts that p26] Plaintiff has not asserted his own performance of
the contract. Specifically, plaintiff satisfies his pleading requirements if he alleges (1) a
contract; (2) a breach of that contract; (3) damages flowing therefrom; and (4) that plaintiff
performed his own contractual duties. Pub. Serv. Enter. Grp., Inc. v. Philadelphia Elec.
Ca, 722 F. Supp. 184, 219 (D.N.J. 1989) (citing 5 Wright & Miller, Federal Practice and
Procedure, § 1235 at 189-90). In other words, "when pleading a claim for the breach of an
express contract . . . the complaint must contain some allegation that the plaintiffs actually
performed their obligations under the contract." R.H. Damon & Co. v. Softkey Software
Products, Inc., 811 F. Supp. 986, 991 (S.D.N.Y. 1993) (dismissing plaintiffs case for failure
to do so).
Here, Statebridge has alleged that "Plaintiff failed to perform his contractual duties under
the Mortgage," because he "failed to make timely payments pursuant to the Note and
Mortgage" and is thereby estopped from bringing a breach of contract claim against
Statebridge under the Mortgage Agreement. (Def.'s Reply at 12) By nature, Defendants
use force-placed insurance only when a mortgagor has failed to maintain insurance on the
property at issue, and the Court recognizes that a financially distressed borrower failing to
["27]
make insurance payments may simultaneously fail to make mortgage payments as
well. Nonetheless, Plaintiff must show his own performance in order to collect damages
under the contract itself. Finding that Plaintiff has failed to do so, the Court will dismiss
Plaintiffs breach of contract claim.
C. Breach of Implied Covenant of Good Faith and Fair Dealing
Plaintiff has, however, stated a claim for breach of the implied covenant of good faith and
fair dealing, because he has pleaded that Statebridge deprived him of the benefit of his
bargain and that Statebridge acted in bad faith."
11 Plaintiff need not plead his own performance to assert a claim for breach of implied covenant of good faith and fair dealing.
so long as plaintiff has asserted the existence of a valid contract. See DEJA Distribution Servs.. Inc. v. All Source Freight
Solutions, Inc.. No. CIV.A. 11-3901 JAP. 2012 U.S. Dist. LEAS 33697. 2012 WI 845929. at '4.5 (D.N.J. Mar. 13.
2012Xrejecting breach of contract claim for plairtifrs failure to plead its own performance but still reaching implied covenant
claim (and rejecting it on other wounds)).
The implied covenant of good faith and fair dealing, which accompanies all contracts under
New Jersey law, "mandates that neither party shall do anything which will have the effect
of destroying or injuring the right of the other party to receive the fruits of the contract."
Faistl v. Energy Plus Holdings, LLC, No. CIV.A. 12-2879 JLL, 2012 U.S. Dist. LEXIS
125334, 2012 WL 3835815, at *6 (D.N.J. Sept. 4, 2012) (quoting Seidenberg v. Summit
Bank, 348 N.J.Super. 243, 254, 791 A.2d 1068 (App. Div. 2002)).
"A party exercising its right p28] to use discretion in setting prices under a contract
breaches the duty of good faith and fair dealing if that party exercises its discretionary
authority arbitrarily, unreasonably, or capriciously, with the objective of preventing the
other party from receiving its reasonably expected fruits under the contract." Wilson v.
Amerada Hess Corp., 168 N.J. 236, 251, 773 A.2d 1121, 1130 (2001). "Essential to a
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breach of the good faith obligation is a finding of improper motive. 'Wthout bad motive or
intention, discretionary decisions that happen to result in economic disadvantage to the
other party are of no legal significance."' Bartell° v. Option One Mortgage Corp., No. A-
2492-0771, 2009 N.J. Super. Unpub. LEXIS 264, 2009 WL 137229, at *4 (N.J. Super. Ct.
App. Div. Jan. 22, 2009) (quoting Wilson, 168 N.J. at 251).
It is undisputed here that Statebridge retained discretionary authority to choose a force-
placed insurance provider. However, the implied covenant of good faith precluded
Defendants from exercising that discretion "unreasonably . . . with the objective of
preventing the other party from receiving its reasonably expected fruits under the contract."
Statebridge argues that Plaintiff cannot meet this standard, because he has failed to allege
sufficient facts showing that Statebridge deprived him of the benefit of his bargain. (SMTD
32-37)
In support of this position, Statebridge quotes Bartell°, 2009 N.J. Super. Unpub. LEXIS
264, 2009 WL 137229, at •5:
The benefit of (plaintiffis bargain under t291 the mortgage agreement was to obtain a loan to purchase a home. By
allowing the loan to remain in effect. and enabling (plaintiff] to keep his home, although paying a somewhat higher
insurance premium because he failed to keep his own insurance in effect. (defendant] can hardly be said to have taken
action depriving [plaintiff) of the benefit of his bargain.
(SMTD 32) In other words, Plaintiff signed the Mortgage Agreement to obtain a loan to
purchase a home and received that loan, so he cannot now claim a breach of the implied
covenant of good faith.
However, this characterization of Plaintiff's bargain is incomplete.0 In denying a motion to
dismiss plaintiff's claim for breach of an implied covenant, the Court in Laffan v. Santander
Bank N.A., No. CIV.A. 13-4040, 2014 U.S. Dist. LEXIS 79915, 2014 WL 2693158 (E.D.
Pa. June 12, 2014)) observed the following:
The purpose of a clause in a mortgage allowing a lender to force-place insurance is to protect the lenders interest in
the property that is collateral for the mortgage. Plaintiff claims that [Defendant] made additional profits at his expense
by force-placing insurance on his property and receiving kickbacks on that insurance. rather than placing insurance to
protect its interest in the property. While the mortgage did not require (Defendant] to place r30] the cheapest
insurance available. it was not entitled to use its discretion to obtain secret kickbacks(.1
Laffan, 2014 U.S. Dist. LEXIS 79915, 2014 WL 2693158 at *5.
12 Bartell° is also not as factually similar to the instant matter as Statebridge suggests. Despite invoking force-placed
insurance. Bartell° involved no allegations of fraud and kickbacks. as alleged here. only a dispute over the coverage the force-
placed instance provided.
Similarly here, while Statebridge was allowed to forceplace insurance "to protect the
lender's interest in the property," Statebridge "was not entitled to use its discretion to
obtain secret kickbacks." Defendants had the discretion to force-place insurance at a price
to be determined by the market, but they were required to exercise that discretion
reasonably. Artificially inflating that price to benefit themselves through undisclosed
kickbacks, as Plaintiff has alleged, would qualify as an "unreasonable" exercise of their
discretion and would therefore breach the implied covenant of good faith and fair dealing.
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Statebridge also argues that Plaintiff has failed to allege sufficient facts showing that
Statebridge acted in bad faith. (SMTD 32-34) However, Plaintiff's allegation that
[*31]
Defendants intentionally force-placed insurance upon him with a deliberately
undisclosed and unlawful profit motive extraneous to the terms agreed upon in the
mortgage contract sufficiently alleges bad faith. The Court will therefore deny Statebridge's
motion to dismiss Plaintiffs claim that Statebridge breached the implied covenant of good
faith and fair dealing.
D. Fiduciary Duty
Plaintiff alleges that Statebridge acted as a fiduciary in holding Plaintiffs escrow funds and
violated that duty by applying the funds towards undisclosed kickbacks for itself rather than
the legitimate costs of providing force-placed insurance. Statebridge claims that it engaged
Plaintiff only in a debtor-creditor relationship, which imposes upon Statebridge no fiduciary
duty. (SMTD 37) However, Statebridge's fiduciary obligation roots from its control over
Plaintiffs escrow funds, independent of its identity as Plaintiff's lender.
"Escrow agents have a fiduciary responsibility to the parties to an escrow transaction."
Lefler), 2014 U.S. Dist. LEXIS 79915,2014 WL 2693158, at *6 (citing Snyder v. Dietz &
Watson, Inc., 837 F.Supp.2d 428, 444 (D.N.J. 2011). In Laffan, the Court denied a motion
to dismiss a fiduciary duty claim:
Plaintiff pled that Defendant held funds in escrow for the purpose of paying insurance premiums and other items in
borrowers mortgages ... ('323 that Defendant was obligated to hold, manage and control any escrow funds in trust
and owed Plaintiff the highest fiduciary duty with respect to the handling of escrow funds .. . land) that Defendant
breached its fiduciary duty to him by. inter alia. abusing its discretion to buy hazard insurance by knowingly paying for
items unrelated to providing forceplaced insurance. such as kickbacks.
Id.
Similarly, the Court finds here that Plaintiff has sufficiently pled that Statebridge abused its
discretion over his escrow funds by funding undisclosed kickbacks unrelated to providing
force-placed insurance. Consequently, Statebridge's motion to dismiss Plaintiffs fiduciary
duty claim will be denied.
E. New Jersey Consumer Fraud Act ("NJCFA")
'To state a cause of action under the [NJICFA, a plaintiff must allege: (1) an unlawful
practice by the defendants; (2) an ascertainable loss by plaintiff; and (3) a causal nexus
between the first two elements -- defendants' allegedly unlawful behavior and the plaintiffs
ascertainable loss." Arcand v. Brother Intl Corp., 673 F. Supp. 2d 282, 296 (D.N.J. 2009).
In moving to dismiss Plaintiffs claims under the NJCFA, Statebridge argues that Plaintiffs
['33]
allegations were not an unlawful practice because they were consistent with the
Mortgage Agreement"; that Plaintiff cannot demonstrate an ascertainable loss pursuant to
the filed rate doctrine; and that Plaintiff has failed to plead fraud with the particularity
required by Fed. R. Civ. P. 9(b). (SMTD at 29-33)
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13 Statebridge also argues that the allegations were consistent with the notices that Statebridge provided to Plaintiff regarding
the lapse of his primary insurance. but Plaintiff did not include them with his Complaint, and the Court does not consider them at
this stage of litigation.
As discussed above, the Mortgage Agreement does not authorize the kickbacks alleged,
and the filed rate doctrine does not apply here. Rule 9(b)" requires that a plaintiff alleging
fraud "state the circumstances of the alleged fraud with sufficient particularity to place the
defendant on notice of the 'precise misconduct with which (it is] charged."' Frederica v.
Home Depot, 507 F.3d 188, 200 (3d Cir. 2007) (internal citation omitted). "To satisfy this
standard, the plaintiff must plead or allege the date, time and place of the alleged fraud or
otherwise inject precision or some measure of substantiation into a fraud allegation." Id.
14 Rule 9(b) provides: in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with
particularity. [1341 Malice, intent. knowledge and other conditions of mind of a person may be averred generally."
Plaintiff here has alleged with sufficient particularity a fraudulent scheme wherein
Defendants led Plaintiff to believe that his higher force-placed insurance premiums were
necessary to provide him coverage, when they were actually used to provide kickbacks to
Statebridge. (Compl. ¶¶ 81-82) These kickbacks were not disclosed to Plaintiff and qualify
as a material omission in Statebridge's communications with Plaintiff, such as the July 6,
2012, letter. Consequently, Statebridge's motion to dismiss Plaintiffs claims under the
NJCFA will be denied.
F. Racketeer Influenced and Corrupt Organizations ("RICO") Act
Finally, Statebridge seeks to dismiss Plaintiffs RICO claims, which allege mail and wire
fraud (Count VII) and RICO conspiracy (Count VIII) under 18 U.S.C. § 1962(c) and (d).'4
Establishing liability under (section (c)) of the RICO statute 'requires (1) conduct (2) of an enterprise (3) through a
pattern (4) of racketeering activity.' plus an injury to 'business or property.' .. . Under Section 1962(d), lip is also
unlawful for anyone to conspire to violate § 1962(c).... Section 1961(1) of RICO provides a list of the federal and state
crimes which r351 constikte 'racketeering activity and includes mail and wire fraud, and Section 1961(4) of RICO
defines the term 'enterprise' to 'include° any individual, partnership, corporation, association, or other legal entity, and
any triion or group of individuals associated in fact although not a legal entity.'
In re Ins. Brokerage Antitrust Litig., 579 F.3d 241, 269 (3d Cir. 2009) (internal citations
omitted).
15 Part (c) of the RICO statute. 18 U.S.C. § 1962. provides: it shall be unlawful for any person employed by or associated with
any enterprise engaged in. or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or
indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt." Part
(d) provides: "It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this
section'
First, Statebridge alleges that Plaintiff has failed to plead a RICO enterprise, because he
"has failed to allege wrongful actions in the conduct of the enterprise" beyond the
"procurement of insurance [which] is one of [Statebridge's] duties as a servicer of the
Mortgage." (SMTD at 44) However, Plaintiff pleads more than mere procurement of
insurance; he pleads that Defendants made material r36] omissions and
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misrepresentations regarding the purposes of the force-placed insurance premiums,
"knowingly and intentionally fosterling] the mistaken impression that the force-placed
insurance premiums that Plaintiff was charged represented the 'cost' of the policies and
that it was authorized to impose costs of the kickbacks and improper expenses under the
Loan Agreement or Mortgage." (Compl. ¶¶ 116-17) Plaintiff also alleges that Defendants
"transferred sums among themselves, including but not limited to kickbacks[.]" (Id. 11118)
These actions, as alleged, go well beyond Statebridge's duties as a loan servicer.
Second, Statebridge argues that Plaintiff has alleged insufficient facts regarding
Statebridge's participation in the enterprise alleged. But Plaintiff alleges, among other
things, that Statebridge "directed and controlled the enterprise by . . . drafting of [sic] the
language of the letters and correspondence to borrowers that were specifically designed to
deceive borrowers related to what the 'cost' of the insurance purchased for them was . . .
[and] caus[ing] debits to the borrowers [sic) escrow accounts amounts which are not the
actual or effective cost for lender placed insurance." (Compl. p37] ¶ 119)
Finally, Statebridge argues that Plaintiff has not asserted any facts that substantiate his
allegations of kickbacks. However, Plaintiff has asserted that "AMIG Defendants have
acknowledged that they pay 'commissions' in connection with force-placed insurance," (Id.
1135), that very few insurance companies control virtually the entire market for force-placed
insurance (Id. ¶ 15). and that Plaintiff's force-placed premiums were 17.5% higher than his
primary insurance (Id. 1147). The Court finds these facts sufficient to warrant discovery.
Consequently, the Court will deny Statebridge's motion to dismiss Plaintiffs RICO claims.
VI. Conclusion
For the reasons set forth above, Statebridge's motion to dismiss Plaintiffs breach of
contract claim will be granted; the remainder of its motion will be denied. An appropriate
Order accompanies this Opinion.
Date: June 25, 2015
/s/ Joseph E. IrenasJoseph E. Irenas
JOSEPH E. IRENASIRENASJOSEPH E. IRENAS, S.U.S.D.J.
ORDER
(Dkt. No. 9)
JOSEPH E. IRENASIRENASJOSEPH E. IRENAS, Senior District Judge:
This matter having appeared before the Court upon Defendant Statebridge Company
['38]
LLC's ("Statebridge") motion to dismiss (Dkt. No. 9); the Court having reviewed the
parties' submissions and having heard oral argument on April 23, 2015; for the reasons set
forth in an Opinion on even date herewith; and for good cause appearing:
IT IS on this 25th day of June, 2015,
ORDERED THAT:
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Statebridge's motion to dismiss Plaintiff's claim for breach of contract is GRANTED; the
remainder of the motion is DENIED.
/s/ Joseph E. IrenasJoseph E. Irenas
JOSEPH E. IRENASIRENASJOSEPH E. IRENAS, S.U.S.D.J.
FRATELLI COSULICH UNIPESSOAL, S.A., f/k/a FRATELLI
COSULICH CONSULTADORIA E PARTICIPACOES
UNIPESSOAL, LDA, Plaintiff, v. SPECIALTY FUELS BTU, LLC;
F. JAVIER BRITO; and BUNKERS INTERNATIONAL CORP.,
Defendants.
CA 13-00545-KD-C
UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF ALABAMA, SOUTHERN DIVISION
2015 U.S. Dist. LEXIS 86119
June 4, 2015, Decided
June 4, 2015, Filed
SUBSEQUENT HISTORY: Adopted by, Motion denied by, Motion granted by, in part,
Motion denied by, in part Fratelli Cosulich Unipessoal, S.A. v. Specialty Fuels Bunkering,
LLC, 2015 U.S. Dist. LEXIS 86117 (S.D. Ala., July 1, 2015)
PRIOR HISTORY: Cosulich v. Specialty Fuels Bunkering, LLC, 2014 U.S. Dist. LEXIS
79183 (S.D. Ala., June 11, 2014)
CORE TERMS: bunkering, undersigned, misrepresentation, suppression, deceit, duty to
disclose. financial condition, material facts, fuel, disclose, fuel oil, fraudulent, insolvency,
right of action, inducement, broker, confidence, collateral, confidential relationship,
recommendation, misrepresented, quotation, owed, fiduciary, breach of fiduciary duty,
criminal statute—, confidential, financially, misconduct, wantonness
rii
COUNSEL: For Fratelli Cosulich Unipessoal, S.A., f/k/a Fratelli Cosulich
Consultadoria E Participacoes Unipessoal, LDA, Plaintiff: Charles J. Potts, Mack B. Binion,
LEAD ATTORNEYS, Briskman & Binion, P.C., Mobile, AL.
For Specialty Fuels BTU, LLC, Defendant: James B. Newman, LEAD ATTORNEY,
Helmsing, Leach, Herlong, Newman & Rouse, P.C., Mobile, AL.
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JUDGES: WILLIAM E. CASSADY, UNITED STATES MAGISTRATE JUDGE.
OPINION BY: WILLIAM E. CASSADY
OPINION
REPORT AND RECOMMENDATION
This cause is before the Magistrate Judge for issuance of a report and recommendation,
pursuant to 28 U.S.C. § 636(b), on the motions to dismiss filed by the Defendants,
Specialty Fuels BTU, LLC, ("BTU"), F. Javier Brito ("Brito"), and Bunkers International
Corp. ("BIC") (docs. 65 and 67), the response filed by the Plaintiff, Fratelli Cosulich
Unipessoal, S.A., ("Fratelli") (doc. 73), and the replies filed by the Defendants (docs. 74
and 75). Upon consideration of the foregoing pleadings, the Magistrate Judge
RECOMMENDS that BIC's motion to dismiss (doc. 65) be DENIED and that BTU and
Brito's motion to dismiss (doc. 67) be GRANTED IN PART and DENIED IN PART, as
discussed below.
I. Background and Relevant Allegations in the Third Amended Complaint ("TAC")
2]
As alleged by the Plaintiff in the TAC (doc. 64), this matter arises from a series of
transactions involving the Plaintiff, the Defendants, and former Defendant Specialty Fuels
Bunkering, LLC, ("Bunkering")) (Id.)
1 Buttering was named as a Defendant in the original Complaint (doc. 1). Subsequently, however. Bunkering Med for Chapter
7 banknotcy protection, and the Plaintiff chose not to pursue this action against Bunkering in Plaintiff's amended pleadings.
(See doc. 30 a 6 ("As the [proposed second amended complaint] deletes Bunkering as a defendant entirely in this action.
Buttering is no longer a party to die action."): doc. 64.12.)
A. The Parties.
The Plaintiff is a foreign corporation "engaged, in part, in the business of vessel bunkering
and the trading of fuel oil and fuel oil by-products." (Id., ¶ 1.) Bunkering and BTU are
domestic limited liability companies that "were engaged in the business of wholesale
supply of fuel products." (Id., ¶¶ 2-3, 8.) Brito allegedly was the controlling member of both
Bunkering and BTU. (Id., ¶ 4.) According to the TAC, "Brito was the principal founder [and]
investor . . . and . . . the disputed managing member of Bunkering," as well as "the
['3]
principal founder [and] investor . and . . . the managing and sole member of BTU."
(Id.) The Plaintiff alleges that Bunkering and BTU
operated, jointly and/or separately, by buying fuel components, blending them to make specific types of fuel, and then
selling the finished fuel or fuel oil by-product to a buyer. This type of operation required enough capital or credit on the
part of Bunkering and BTU to enable each entity to purchase the component parts of the fuel, store them, blend them,
sell them, deliver the product and then await payment. Buttering and BTU engaged in business in such a manner. and
through representations by their representatives and [BIC). that [the Plaintiff] considered them to be essentially the
same company. "Specialty? owned, managed and controlled by one person. Brito.
(Id., ¶ 8.) BIC is a domestic corporation that served as the exclusive broker for the
Plaintiff's transactions with Bunkering and BTU from 2011 onward. (Id., ¶¶ 5, 10-11.)
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2 In the TAC the Plaintiff refers to Bunkering and BTU collectively as "Specialty." For ease of reference, the undersigned uses
that designation herein.
B. BIC's relationship with the Plaintiff and Specialty.
rig
Prior to 2011, the Plaintiff transacted directly with Bunkering and BTU. (Id., ¶ 9.) Paul
Pappaceno handled those transactions on behalf of the Plaintiff. (Id.) At the time, he was
employed by the Plaintiffs agent, Asamar, Inc. (Id.) However, Pappaceno began working
for BIC in late 2010. (Id., ¶ 10.)
Shortly thereafter at Pappacends urging, he and [the Plaintiff's] management orally agreed that [BIC] would act as [the
Plaintiffs] broker for all Bunkering and BTU transactions.
.. From the time that Pappaceno began working for (BIC] through and including one or both of the transactions that
are the subject of this lawsuit, all of [the Plaintiff's] transactions and dealings with Bunkering and BTU were conducted
solely through Pappaceno and his employer. (BIC]. as broker for [the Plaintiff], and as the exclusive representative of
Bunkering, BTU and Brito.
... In consideration for these services, [BIC] received monetary commissions from [the Plaintiff] on the transactions.
... During this time frame. Pappaceno. on behalf of IBC]. demanded that [the Plaintiff] not directly contact anyone at
Bunkering or Ecru which resulted in Pappaceno and (BIC] becoming the sole intermediary and conduit for information
fli
between (the Plaintiff] and "Specialty" (Bunkering and BTU). Because of this insistence. [the Plaintiff] was placed
into a position of having to trust that Pappaceno and [BIC] would provide it with timely and accurate information
concerning "Specialtys" financial ability to perform on the transactions, among other things.
... Over this same considerable time frame. Pappaceno and (BIC], for their own financial gain, cultivated a position of
trust and confidence with (the Plaintiff] in its dealings with all of the Defendants by reassuring (the Plaintiff) that they
could be trusted and relied upon.
(Id., ¶1110-12, 14-15.) Specifically, in the course of the Plaintiffs dealings with BIC on
transactions with Bunkering and BTU, Pappaceno sent messages to the Plaintiff stating
"[y]ou can trust me" and "[d]on't worry" to assure the Plaintiff that it would receive payment
from Bunkering and BTU. (Id., ¶¶ 15(a)-15(b).)
BIC further established a position of trust and confidence by informing the Plaintiff of its
extensive relationship with Bunkering and BTU. (Id., 1115.) Specifically, BIC disclosed to
the Plaintiff that it had participated in factoring arrangements with Bunkering and BTU,
6]
including instances where it paid Bunkering and/or BTU's financial obligations to the
Plaintiff. (Id., ¶ 15(c).) BIC also informed the Plaintiff that it participated in other
independent transactions with Bunkering and BTU where it acted as a principal and bought
and sold fuel oil on extended credit terms. (Id., ¶ 15(e).)
Additionally, Pappaceno informed the Plaintiff that he invested his personal funds in
Bunkering and/or BTU. (Id., ¶ 15(f).) Based on the aforesaid information conveyed by BIC,
the Plaintiff reasonably inferred that BIC "was not engaged in typical broker conduct"; "was
privy to detailed financial information about the business operations of Bunkering[,] BTU
and Brito"; and "was by its own conduct vouching for Bunkering and BTU's reliability as
financially sound and responsible business entities . . . when it solicited [the Plaintiff] to do
business with those entities." (Id., ¶¶ 15(c)-15(f).) Additionally, BIC conveyed the
closeness of its relationship with Brito and "Specialty" by informing the Plaintiff of BIC's
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direct conversations with Brito regarding the status of payments owed to the Plaintiff. (Id.,
1116.) Such conduct demonstrated BIC's "apparent, if not actual, insider position with
Bunkering ["7] and BTU." (Id.)
Through this conduct and course of dealings over time. (BIC) created and assumed certain duties, including the duty to
conduct its brokerage activities with reasonable skill and diligence. the duty to engage in due diligence. and the duty to
inform (the Plaintiff), its principal, of material information t acquired through the exercise of reasonable diligence, as a
result of its expansive, close individual dealings with Bunkering, BTU and Brito.
. All of this created a custom and practice over time between (BIC) and (the Plaintiff) and established a course of
dealings upon which [the Plaintiff] reasonably relied and placed its trust as was intended by (BIC) and resulted in the
creation of a "speciar or fiduciary relationship between (the Plaintiff] and (BIC),
(Id., ¶¶18-19)
C. The transactions at issue.
Central to this action are two agreements--"STEM 6277" and "STEM 6322"--involving the
sale and repurchase of oil. The Plaintiff describes these transactions "as a close-in-time
purchase (by [the Plaintiff]) and sale (by Bunkering or BTU) of oil or fuel oil by-product on
the promise that "Specialty" (i.e., Bunkering or BTU, depending on the transaction), would
["8]
buy the product back at a higher price." (Id., ¶ 13.) BIC brokered both agreements.
(Id., 1111. 29j
Pursuant to the STEM 6277 agreement, on January 11, 2013, the Plaintiff paid BTU
$2,828,322.00 for the purchase of 22,447 barrels of cutterstock,' and BTU was obligated to
purchase those barrels back in thirty days at the price of $2,857,503.10. (Id., ¶ 29(a).)
Subsequently, BTU requested, and the Plaintiff agreed, to roll over the agreement four
times such that the due date for BTU's payment for the repurchase of the fuel-oil was
extended into August 2013 and interest was added to the outstanding payment. (Id.) On
July 24, 2013, the Plaintiff received $1,500,000.00 in partial satisfaction of the outstanding
debt. (Id.) However, the remainder has not been paid. Thus, the Plaintiff alleges that it is
still owed $1,532,589.70, plus interest, under the STEM 6277 agreement. (Id.)
3 Cultentock, apparently, is a fuel-oil product.
STEM 6322 involved two payments by the Plaintiff to Bunkering for the purchase of a total
of 23,500 barrels of Number 2 diesel fuel, which Bunkering was required to purchase back.
(Id., ¶ 29(b).) Pursuant to the STEM 6322 agreement, on April 22, 2013, the Plaintiff paid
Bunkering ["9 ] $1,600,000.00 for a portion of the diesel fuel, and Bunkering was obligated
to purchase that portion back in thirty days at the price of $1,616,377.93. (Id.) On May 21.
2013, the Plaintiff paid Bunkering $1,384,500.00 for the remainder of the diesel fuel, and
Bunkering was obligated to repurchase that amount in thirty days at the price of
$1,398,671.94. (Id.) As with the STEM 6277 agreement, the STEM 6322 agreement was
rolled over multiple times such that the due date for Bunkering's payment was extended to
August 2013 and interest was added to the balance. (Id.) However, the Plaintiff received
no payments from Bunkering and, therefore, Bunkering owes the Plaintiff $3,092,527.82,
plus interest, under the STEM 6322 agreement. (Id.)
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Accordingly, the Plaintiff alleges that the grand total that Bunkering and/or BTU owes the
Plaintiff under the STEM agreements is $4,625,117.52, plus interest. (Id., ¶ 30.)
D. Warehouse Receipt and status of fuel-based product serving as collateral.
The Plaintiff alleges that, on April 8, 2013, Bunkering, BTU and Brito "issued a 'Warehouse
Receipt' to [the Plaintiff] to lead [the Plaintiff] to believe that [the Plaintiff] had and
maintained a right to possess riot the product at issue as security for the debt evidenced
by the invoices." (Id., ¶ 49.) Additionally, three days later, BIC represented to the Plaintiff
that the Plaintiffs transactions with Specialty were secured by fuel oil. (Id., ¶ 57(k)-(0.)
The Plaintiff alleges that the Warehouse Receipt was false and misleading and that the
Plaintiffs accounts were not, in fact, secured by fuel-based product. (Id., 7149, 57(1), 61.)•
Thus, the Plaintiff alleges that the Defendants misrepresented that fuel oil secured the
transactions at issue and failed to disclose the true status of that collateral. (Id., ¶¶ 64, 74.)
4 The widersigned notes that the Plaintiff also alleges elsewhere in the TAC that the transactions were secured by fuel-based
collateral. (Doc. 64,11 3.) The Plaintiffs inconsistent pleading is permissible. See Fed. R. Civ. P. 13(d); Ocean's 11 Bard Grill,
Inc. v. Indemnify Ins. Corp. or DC. No. 11-61577-CW. 2011 U.S. Dist. LOOS 95836. 2011 WL 3843931. at *3 (S.D. Fla. Aug.
26, 2011).
E. Specialty's financial condition.
The Plaintiff alleges that Specialty's financial condition began deteriorating in May 2012.
"On May 29, 2012, Bunkering commenced litigation against Brito in the Circuit Court of
Baldwin County, Alabama, in which other members of Bunkering sought, among other
things, rig to wrest control of Bunkering from Brito." (Id., ¶ 23.) Due to the management
dispute involved in that lawsuit, Bunkering could not meet its financial obligations. (Id., ¶
24.) In June 2012, Brito filed pleadings in the Baldwin County matter representing that
Bunkering's financing sources.... including [BIC). were not being paid and that Bunkering's customers' slips or
vessels were at risk of seizure by [BIC]:
Bunkering was losing the trust and good will of its customers thereby damaging Bunkering's ability to do business in the
future;
Bunkering's relationship with [BIC) (a finance source) was being "irreparably damaged". land)
Bunkering's ability to conduct business in general was being 'irreparably damaged[.]"
(Id.) The Plaintiff alleges that BIC was aware of the Baldwin County litigation and the
financial difficulties that had "irreparably damaged" its relationship with Bunkering. (Id.,
25.) The Plaintiff further alleges that Bunkering's financial difficulties "worsened over time
such that the ability of Bunkering and BTU to do business as normal became materially
impaired," (id., ¶ 26), and that BIC knew that Bunkering's and BTU's financial condition
was deteriorating, (id., ¶ ['i2] 27). "On April 29, 2013, Brito filed a Motion for Judicial
Dissolution as to Bunkering in the [Baldwin County] litigation based on allegations of
financial misconduct, misappropriation and waste." (Id., ¶ 32.)
On or about July 19. 2013. Brito filed an affidavit execued by him in support of his ... Motion for Judicial Dissolution ..
in which he testified that "Specialty Ire.. Bunkering) [was] operating at a negative equity position . . its liabilities
exceeded) its assets.... Specialty ha[d] no cash reserves, no available credit on terms that are viable to the continued
operation of the business and thus ha[d) no way to operate as it hetet] operated in the past."
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(Id., 1146.)
The Plaintiff alleges that, despite the foregoing, the Defendants failed to disclose
Specialty's precarious financial condition and misrepresented that Specialty was financially
sound. (Id., ¶¶ 64, 74.)
F. Claims asserted in the TAC.
The Plaintiff asserts thirteen counts in the TAC. (Doc. 64.) In Counts I and II, the Plaintiff
asserts breach of contract claims against BTU, only. (Id. at 30-31.) In Count III, the Plaintiff
asserts fraudulent misrepresentation claims against all the Defendants pursuant to
sections 6-5-101 and 6-5-103 of the Code of Alabama. (Id. at 31-43.) In N 3] Count IV,
the Plaintiff asserts fraudulent suppression claims against all the Defendants pursuant to
section 6-5-102. (Id. at 43-49.) In Count V, the Plaintiff asserts fraudulent deceit claims
against all the Defendants pursuant to section 6-5-104. (Id. at 49-55.) In Count VI, the
Plaintiff asserts fraud in the inducement claims against all the Defendants. (Id. at 55-58.) In
Count VII, the Plaintiff asserts fraud in insolvency claims against BTU and Brito pursuant to
section 13A-9-48 of the Code of Alabama. (Id. at 58-65.) In Counts VIII-IX, the Plaintiff
asserts negligence and wantonness claims against BIC. (Id. at 65-73.) In Counts X-XI, the
Plaintiff asserts breach of fiduciary duty claims against BIC. (Id. at 73-81.) In Count XII, the
Plaintiff asserts that the corporate veil should be pierced as to Bunkering and BTU so that
the Plaintiff may recover against Brito personally. (Id. at 82-84.) In Count XIII, mislabeled
as Count XI, the Plaintiff asserts a claim for injunctive relief against BTU and Brito. (Id. at
84-87.)
BTU and Brito moved to dismiss Counts IV and VII for failure to state a claim, and moved
to strike Count VI as redundant.' (Doc. 67.) BIC moved to dismiss all Counts asserted
against BIC (Counts VIII-XI) for failure to state a claim. (Doc. 65.) Counts I, II, XII
and XIII are not addressed in the ['14] motions to dismiss and, thus, they are not
discussed herein.
5 BTU and Brito indicate in one sentence on the first page of their motion to dismiss that Cotrit V1 should be dismissed for
failure to state a claim. (Doc. 67,11 .) However, in their bnef they provide no argument regarding the dismissal of Court VI for
failure to state a claim and failed to even reassert the statement made on the face of their motion. (Doc. 67-1.) The only
discussion of Court VI relates to their argument that it should be stricken as redundant of other claims. (1d. at 5.) Accordingly,
with respect to Count VI, the undersigned construes BTU and Bates motion as asserting the redundancy argument, only.
II. Motion to Dismiss Standard
Pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a defendant may move
to dismiss a complaint on the basis that the plaintiff has failed to state a claim upon which
relief may be granted. See Fed. R. Civ. P. 12(b)(6). A Rule 12(b)(6) motion questions the
legal sufficiency of a complaint (or portions of a complaint); therefore, in assessing the
merits of a Rule 12(b)(6) motion, the court must assume that all the factual allegations set
forth in the complaint are true. See, e.g., United States v. Gaubert, 499 U.S. 315, 327, 111
S. Ct. 1267, 1276, 113 L. Ed. 2d 335 (1991); Powell v. Lennon, 914 F.2d 1459, 1463 (11th
Cir. 1990). Moreover, all factual allegations are to be construed in the light most favorable
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r15]
to the plaintiff. See, e.g., Brower v. County of Inyo, 489 U.S. 593, 598, 109 S. Ct.
1378, 1382, 103 L. Ed. 2d 628 (1989).
Rule 8(a)(2) generally sets the benchmark for determining whether a complaint's
allegations are sufficient to survive a Rule 12(b)(6) motion. See lqbal v. Ashcroft, 556 U.S.
662, 677-678, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009) ("Under Federal Rule of
Civil Procedure 8(a)(2), a pleading must contain a 'short and plain statement of the claim
showing that the pleader is entitled to relief.' As the Court held in Twombly, . . . the
pleading standard Rule 8 announces does not require 'detailed factual allegations,' but it
demands more than an unadorned, the defendant-unlawfully-harmed-me accusation.").
Indeed, "[a] pleading that offers 'labels and conclusions' or 'a formulaic recitation of the
elements of a cause of action will not do."' Id. at 678, 129 S. Ct. at 1949 (quoting Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 1964-1965, 167 L. Ed. 2d
929 (2007)). "Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of
'further factual enhancement."' Id. (quoting Twombly, 550 U.S. at 557, 127 S. Ct. at 1955).
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true. to state a claim to
relief that is plausible on its face. A claim has facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard
is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant r103] has acted
unlawfully. Where a complaint pleads fads that are merely consistent with a defendant's liability, it stops short of the
lire between possibility and plausibility of entitlement to relief.
Two working principles underlie our decision in Twombly. First, the tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause
of action, supported by mere conclusory statements, do not suffice. Rule 8 marks a notable and generous deputise
from the hyper-technical. code-pleading regime of a prior era. but it does not unlock the doors of discovery for a plaintiff
armed with nothing more than conclusions. Second, only a complaint that states a plausible claim for relief survives a
motion to dismiss. Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task
that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded
facts do not permit the court to infer more than the mere possibility of miscondud, the complaint has alleged--but it has
not showfil-that the pleader is entitled to relief.
Id. at 678-679, 129 S. Ct. at 1949-1950 (internal r17] citations and quotation marks
omitted); see also id. at 680, 129 S. Ct. at 1950-1951 (a plaintiff must nudge his claims
"across the line from conceivable to plausible."'); see Speaker v. United States Dept of
Health & Human Services Centers for Disease Control & Prevention, 623 F.3d 1371, 1381
(11th Cir. 2010) ("[G]iven the pleading standards announced in Twombly and lqbal,
[plaintiff] must do more than recite [] statutory elements in conclusory fashion. Rather, his
allegations must proffer enough factual content to 'raise a right to relief above the
speculative level."').
Ill. Discussion
A. The TAC meets basic pleading requirements.
BIC first argues that, as a general matter, the TAC does not contain enough factual
allegations to meet the facial plausibility pleading standard explained in lqbal and
Twombly. (Doc. 65 at 2-3.) The undersigned disagrees. With respect to BIC, the Plaintiff
asserts fraud, breach of fiduciary duty, negligence and wantonness claims. The 87-page
and 164-paragraph TAC, with 20 pages of attached exhibits, contains more than enough
facts to show that those claims are plausible on their face. (See doc. 64.) The Plaintiff
alleges numerous facts to explain (1) the transactions at issue in this case through which
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the Plaintiff lost millions of dollars; (2) BIC's involvement in those transactions as the
rvi
Plaintiff's broker and agent; (3) the duties BIC owed to the Plaintiff arising from their
working relationship and course of dealings; and (4) BIC's breach of those duties through
its alleged misrepresentations and suppression of material facts, among other things. (See
id.) The Plaintiffs claims are discussed in more detail below, but the TAC clearly contains
plausible claims with much more than conclusory statements or threadbare recitals of the
elements of a cause of action.
BIC next argues that the TAC violates Rule 8(a)(2) and Rule 8(d)(1). (Doc. 65 at 3-5.) Rule
8(a)(2) provides that a complaint must contain "a short and plain statement of the claim
showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Rule 8(d)(1) provides
that "[e]ach allegation must be simple, concise, and direct." Fed. R. Civ. P. 8(d)(1). While
the TAC is somewhat sprawling, with some paragraphs appearing repetitive and
unnecessary, the undersigned acknowledges that the length and repetition is due, in part,
to the fact that the Plaintiff has restated certain allegations to cure shotgun pleading
deficiencies in the Second Amended Complaint. (Compare doc. 64, with doc. 31.) In the
Court's Order granting the Plaintiff leave to file its Proposed Second Amended Complaint
risj
("PSAC"), United States District Judge Kristi K. DuBose noted that
the PSAC is a "shotgun pleading." as it "incorporate(s) every antecedent allegation by reference into each subsequent
claim for relief ' Wagner v. First Horizon Pharrn. Corp.. 464 F.3d 1273. 1279 (11th Cir. 2006). The Eleventh Circuit
greatly disfavors such pleadings. see. e.g.. id. . . However, having reviewed the PSAC. the Court does not find it
confusing on its face and will not sue sponte deny amendment on this basis.
(Doc. 30 at 7-8.) After the Plaintiff filed the Second Amended Complaint (doc. 31), the
Defendants filed motions for a more definite statement (dots. 46 and 49), and the Plaintiff,
subsequently, filed the TAC to clarify its claims. The undersigned agrees with the Plaintiff
that, at this point, its claims are sufficiently clear. The TAC gives BIC fair notice of the
Plaintiff's claims "and the grounds upon which [they] rest," such that it allows BIC to frame
a responsive pleading. Accordingly, the undersigned finds that the TAC complies with the
pleading requirements of Rule 8.
6 See Twombly. 550 U.S. at 556. 127 S. Ct. at 1964-65 (observing that Rule l3(a)(2) requires that the pleading "'give the
defendant fair notice of what the . .. claim is and the grounds upon which it rests" (quoting Conley v. Gibson. 355 U.S. 41. 47.
78 S. Ct. 99.2 L. Ed. 2d 80 (1957))).
B. The Plaintiffs claims against BIC are properly asserted in tort.
r20]
BIC argues that all claims Plaintiff asserts against it--fraud, breach of fiduciary duty,
negligence and wantonness--arose from their contract and, thus, those claims "must be
dismissed insofar as the allegations therein assert a cause of action sounding in tort but
based on a contract." (Doc. 65 at 6.) The undersigned disagrees.
It is well settled in Alabama that "a mere failure to perform a contractual obligation is not a tort." Barber v. Business
Products Center, inc., 677 So. 2d 223.228 (Na. 1996)1. overruled on other grounds by White Sands Group, L.L.0 v.
PRS Il, LLC. 32 So. 3d 5. 14 (Na. 2009)]. It is also true, however, that Alabama courts have recognized exceptions to
this rule. See. e.g.. Powers v. CSX Transp.. Inc.. 190 F. Supp. 2d 1284. 1295 (S.D. Na. 2002) (collecting cases). The
Eleventh Circuit has construed Alabama law on this point as providing that, while ordinary breach of contract does not
constitute a tort. lilt is possible for a tort to arise in Alabama out of a breach of a duty implied by or arising out of a
contract." Brown-Marx Associates. Ltd. v. Emigrant Say. Bank, 703 F.2d 1361. 1371 (11th Cir. 1983); see also Hamner
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v. Mutual of Omaha Ins. Co., 49 Ala. App. 214.270 So. 2d 87.90 (Ala. Civ. App. 1972) (similar). The Brown-Marx
panel distinguished between claims for breach of an obligation expressly set forth in the contract (which are not
actionable in tort under Alabama law) and claims for breach of a duty implied by or arising out of the contract (which
may be actionable in tort). See Brown-Marx. 703 F.2d at 1371.
Hardy v. Jim Walter Homes, Inc., Civil Action No. 06-0687-WS-B, 2008 U.S. Dist. LEXIS
26842, 2008 WL 906455, at *14 (S.D. Ala. April 1, 2008) (footnote omitted). See Eastern
Shore Marine, Inc. v. M/V Mistress, 717 F. Supp. 790, 792 (S.D. Ala. 1989) ("If a cause of
p21]
action arises from a breach of a promise, the action is ex contractu; if it arises from a
breach of a duty which grows out of the relationship of the parties because of the contract,
the action is in the form ex delicto. . . . Therefore, a contract for the performance of an act
which contains no contractual provision that the act will be done in a proper manner or free
from negligence, by law, creates a duty but does not imply a contract, that the act will be
done in a proper manner when its performance is undertaken, and a breach of this legally
created duty will give rise to an action ex delicto."(citing C & C Products, Inc. v. Premier
Indus. Corp., 290 Ala. 179, 275 So. 2d 124, 129-30 (Ala. 1972)); Brooks v. Hill, 717 So. 2d
759, 763 (Ala. 1998) ("[W]here the parties have entered into a contract, if the cause of
action arises from a breach of duty arising out of the contract, rather than from a breath of
a promise of the contract itself, the claim is ex delicto."(citations omitted)); Sanford v. W.
Life Ins. Co., 368 So. 2d 260, 263 (Ala. 1979) (concluding that the plaintiff's fraud claim
sounded in tort even though it arose from a contract because "the contract merely
establishes the relationship from which such a legally imposed duty could spring."
(citations omitted)); Great N. Land & Cattle Inc. v. Firestone Tire & Rubber Co., 337 So. 2d
1323, 1327-28 (Ala. Civ. App. 1976) ("When the contract does not in terms require
[•
reasonable care in doing the act stipulated to be done, the law imposes a duty--But 22]
does not imply a contract—to exercise due care in doing the act; and, therefore, when
negligence exists in doing that act an action in tort only is available because there is No
express or implied contract which is breached." (citations and internal quotation marks
omitted)); see also Mechler v. John Hancock Life Ins. Co., Civil Action No. 07-0724-CB-M,
2008 U.S. Dist. LEXIS 75955, 2008 WL 4493230, at •4 (S.D. Ala. Sept. 30, 2008)
(concluding that, under Alabama law, the plaintiff could pursue tort actions for fraud and
fraudulent suppression against insurer, where the defendant argued that said tort claims
were foreclosed because they arose from a breach of the terms of the insurance policy).
In Hardy this Court, applying Alabama law, considered whether plaintiffs could bring tort
claims arising from a Purchase and Sale Agreement for the construction of a house.
Hardy. 2008 U.S. Dist. LEXIS 26842, 2008 WL 906455, at *1-2. The plaintiffs, the
purchasers of the home, asserted negligence actions against the builder for its failure to
apply for construction permits, failure to communicate with the plaintiffs regarding the
construction status, and failure to begin construction in a timely manner. 2008 U.S. Dist.
LEXIS 26842, [WL] at *13. The builder moved for summary judgment on the negligence
claims arguing that the plaintiffs improperly transformed breach of contract [•23] claims
into tort claims. 2008 U.S. Dist. LEXIS 26842, [WL] at *14. This Court rejected the builder's
argument, noting that the builder had not identified any provision in the contract requiring
the builder to perform the acts at issue. Id. This Court concluded that, "[bjecause [the
plaintiffs'] negligence claims concern duties arising from the Purchase and Sale
Agreement rather than breach of express contractual obligations in that agreement, . . .
[those] claims are cognizable in tort under Alabama law." Id.
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In this case, the Plaintiff asserts fraud, breach of fiduciary duty, negligence and
wantonness claims against BIC. (Doc. 64 at 31-81.) The Plaintiff alleges, among other
things, that BIC misrepresented and failed to disclose Specialty's financial condition and
that BIC acted negligently and recklessly when it vouched for Specialty and failed to advise
the Plaintiff as to Specialty's financial troubles. (Id.) The Plaintiffs claims are firmly
grounded in tort, even more so than in Hardy, because the claims here involve duties
arising primarily from the circumstances of the working relationship between the parties.
See infra § III.C.4.a. While the relationship between the Plaintiff and BIC arose, in part,
r24]
from the oral agreement whereby BIC agreed to serve as the Plaintiffs broker, it is
clear from the TAC that the Plaintiffs claims did not arise from a breach of a specific
promise in a contract with BIC. The only reference in the TAC to the agreement between
the Plaintiff and BIC is the allegation that "[Pappaceno] and [Plaintiff]'s management orally
agreed that [BIC] would act as [Plaintiff]'s broker for all Bunkering and BTU transactions."
(Doc. 64, ¶ 10.) Like the defendant in Hardy, BIC has pointed to no provisions of the
agreement with the Plaintiff imposing the duties alleged by the Plaintiff in the TAC. (Doc.
65 at 5-6.)
Furthermore, in Ex parte Certain Underwriters at Lloyd's of London, the Alabama Supreme
Court analyzed this issue by considering the distinction between nonfeasance and
misfeasance and looking to the gravamen of the complaint. See Ex parte Certain
Underwriters at Lloyd's of London, 815 So. 2d 558, 562-63 (Ala. 2001) ('The theory on
which the cases have been decided is often difficult to discern, but basically [it] may be
stated that if there is [a] failure or refusal to perform a promise the action is in contract; if
there is a negligent performance of a contractual duty or the negligent breach of a duty
implied by law, such duty being not expressed in the contract, r25] but arising by
implication of law from the relation of the parties created by the contract, the action may be
either in contract or [in) tort. In the latter instance, whether the action declared is in tort or
[in] contract must be determined from the gist or gravamen of the complaint. Basically, the
line of division between (an action in contract and an action in] tort in such instances is (the
line between] nonfeasance and misfeasance." (quoting Hamner, 270 So. 2d at 90-91)).
Applying that analysis to this case, the undersigned has confirmed that the Plaintiff's
claims against BIC are properly asserted in tort. First, the allegations in the TAC present a
case of misfeasance, as opposed to nonfeasance, because the Plaintiff alleges that, while
BIC brokered numerous transactions with Specialty, as agreed by the parties, BIC handled
those transactions in a wrongful manner. Second, the gravamen of the Plaintiffs claims
against BIC sounds in tort. As discussed above, the Plaintiff alleges that BIC violated
duties imposed by law based on the relationship between the parties. (Doc. 64 at 31-81.)
The only reference to an agreement between the parties is found in a single paragraph of
r26]
the 164-paragraph TAC. (Id., ¶ 10.)
C. Misrepresentation, suppression, deceit and fraud in inducement claims (Counts
III-VI).
1. With respect to Counts III-VI the Plaintiff has satisfied the heightened pleading
requirements of Rule 9(b).
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BIC argues that the fraud claims asserted against BIC do not meet the heightened
pleading standard of Rule 9(b), which provides that "[i]n alleging fraud or mistake, a party
must state with particularity the circumstances constituting fraud or mistake. Malice, intent,
knowledge, and other conditions of a person's mind may be alleged generally." Fed. R.
Civ. P. 9(b).'
Rule 9(b) is satisfied if the complaint sets forth '(1) precisely what statements were made in what documents or oral
representations or what omissions were made, and (2) the time and place of each such statement and the person
responsible for making (or. in the case of omissions, not making) same, and (3) the content of such statements arid the
manner in which they misled the plaintiff. and (4) what the defendants obtained as a consequence of the fraud.' Brooks
v. Blue Cross and Blue Shield of Florida. Inc.. 116 F.3d 1364. 1371 (11th Cir. 1997) (internal quotation omitted).
Ziemba v. Cascade Intl, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001). However, the
application of this rule "must not abrogate the concept of notice pleading." Id. (citation and
internal quotation marks omitted). Furthermore, "[t]here is no 'one size fits all' checklist
p271
for satisfying [the Rule 9 pleading] requirement. Claybar v. Huffman, 54 F. Supp. 3d
1284, 1288 (S.D. Ala. 2014) (citing Tello v. Dean Witter Reynolds, Inc., 494 F. 3d 956,
972-73 (11th Cir. 2007) ('While allegations of date, time or place satisfy the Rule 9(b)
requirement that the circumstances of the alleged fraud must be pleaded with particularity,
we have acknowledged that alternative means are also available to satisfy the rule in
substantiating fraud allegations."); Mechler, 2008 U.S. Dist. LEXIS 75955, 2008 WL
4493230, at *3 ("Plaintiffs' fraud/fraudulent suppression claim could be better pled;
however, the complaint, taken as a whole, sufficiently alerts the defendant to the
misconduct with which it is charged.")).
7 BIC also argues that the Plaintiff's fraud claims fail to meet the pleading requirements of Rule 9(f); however. BIC fails to
clearly articulate this argument or distinguish it from BIC's argument under Rule 9(b). (Doc. 65 at 6-7.) Rule 9(0 provides that
"[ski allegation of time or place is material when testing the sufficiency of a pleading." Fed. R. Civ. P. 9(f). The oNy case cited
by BIC with regard to Rule 9(I) is MiCOl Indus_ Inc. v. C2JS Holdngs. Inc.. in which the Northern District of Alabama briefly
summarized the allegations in the complaint before it and found that it satisfied the requirements of Rules 9(b) and 9(t). Miser
Indus., Civil Action No. 12-S42654-NE, 2012 U.S. Dist. LEAS 167300, 2012 WL 5931707, at '7 (N.D. Ala. Nov. 26. 2012). The
court in Mica Indus. did not conduct any discussion of Rule 9(f) or otherwise r28) provide support for BIC's assertion that the
TAC does not comply with that Rule. In any event, "pleadings that are specific enough to satisfy Rule 9(b) are also specific
enough to satisfy Rule 9(f)." Orix Real Estate Capital Markets. LLC v. Superior Bank FSB, 127 F. Supp. 2d 961, 986 (N. D. M.
2000). Thus, because the undersigned finds below that the TAC complies with Rule 9(b), the undersigned also finds that the
TAC does not rim afoul of Rule 9(1).
After reviewing Counts the undersigned concludes that the Plaintiff has met the Rule
9 pleading requirements. With respect to the misrepresentation claim, the Plaintiff alleges,
in paragraph 57 of the TAC, that BIC misrepresented Specialty as being financially sound.
(Doc. 64, 1157.) Paragraph 57 contains numerous subparagraphs setting forth multiple
representations with varying degrees of particularity. Although certain subparagraphs do
not contain clear statements described with particularity, some statements are alleged with
sufficient detail. For example, the Plaintiff alleges that, on February 6, 2013, Pappaceno
sent the Plaintiff an instant message stating, with respect to Specialty, that "Business is
good," and that "[Specialty] should have [the Plaintiffs] invoice paid within 10 business
['29]
days." (Id., ¶ 57(i) (emphasis omitted).)° Additionally, the Plaintiff alleges that BIC
misrepresented the status of fuel oil securing the Plaintiffs transactions with Specialty
when, on April 11, 2013, Pappaceno sent the Plaintiff an instant message proposing that
the Plaintiff enter into another purchase agreement with Specialty and stating that the
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purchase "gives [the Plaintiff] title to fuel." (Id., 1157(k) (emphasis omitted).) The Plaintiff
alleges that it relied on those statements when it continued to transact business with
Specialty, including rolling over Specialty's debts, and that, as a result of those
transactions, the Plaintiff lost millions of dollars. (Id., ¶ 65-66.) Furthermore, the Plaintiff
alleges that, as a consequence of BIC's fraud, "[BIC] was able to secure millions of dollars
worth of extended credit from [the Plaintiff] for Bunkering and BTU and secure brokerage
commissions for itself." (Id., 1163.) The Plaintiff alleges that "[BIC] may have also lessened
direct financial risk to itself for any credit which it may have extended to Bunkering and
BTU during the same time period by securing for Bunkering and BTU the ability to perform
debt service to [BIC] through the receipt of funds provided by [the Plaintiff]." (Id.) Based on
these r30] allegations, and considering the TAC as a whole, the undersigned finds that
the Plaintiff has satisfied the Rule 9 pleading standard. See Claybar, 54 F. Supp. 3d at
1288 ("Examining the Second Amended Complaint in toto, the Court readily concludes that
it adequately pleads the circumstances constituting the alleged fraud for Rule 9(b)
purposes. . . . In light of those particularized factual allegations, no viable argument can be
made that defendants have not been alerted to the 'precise misconduct with which they
are charged,' . . which is, after all, the purpose of the particularity rule."). Although the
Plaintiff failed to identify Pappaceno's location when he made the aforementioned
statements, (see doc. 64, ¶ 57), that detail is unnecessary given that Pappaceno's
statements were transmitted electronically and the Plaintiff alleged numerous other details
that alert BIC to the misconduct charged. See Claybar, 54 F. Supp. 3d at 1288 n.4 ("That
the pleading does not enumerate 'where it was made' is not fatal to the sufficiency of
Count IV. Again, the Rule 9(b) requirement that fraud be pleaded with particularity is not a
rigid, inflexible checklist.").
8 SIC also argues that these statements do not constitute misrepresentations of material facts. That issue is discussed r311
below. See infra § III C.2
The undersigned likewise finds that the Plaintiff has met the Rule 9 pleading standard with
respect to its suppression, deceit, and fraudulent inducement claims found in Counts IV, V
and VI. Those fraud claims are essentially variations of the misrepresentation claim arising
from the same events. (See doc. 64, 1174 (alleging that BIC "suppress[ed] material facts . .
. as to (a) the true state of the financial condition of Bunkering and BTU and (b) the status
of fuel based product serving as security or collateral"); id., ¶ 85 (alleging that BIC
deceived the Plaintiff when it "intentionally misrepresented . (a) the true state of the
financial condition of Bunkering and BTU and (b) the status of fuel based product serving
as security or collateral"); id., ¶¶ 90-92 (alleging that BIC fraudulently induced the Plaintiff
to continue to transact business with Specialty and roll over debts when BIC
misrepresented (a) the true state of the financial condition of Bunkering and BTU and (b)
the status of fuel based product serving as security or collateral").) BIC has failed to
demonstrate how the TAC provides inadequate notice of those claims.
2. Misrepresentation and deceit claims p32] against BIC (Counts III and V).
The Plaintiffs misrepresentation and deceit claims are brought pursuant to sections 6-5-
101, 6-5-103, and 6-5-104 of the Code of Alabama. (Doc. 64 at 31-43, 49-55.) Section 6-5-
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101 provides that "[m]isrepresentations of a material fact made willfully to deceive, or
recklessly without knowledge, and acted on by the opposite party, or if made by mistake
and innocently and acted on by the opposite party, constitute legal fraud." Ala. Code § 6-5-
101 (1975). Sections 6-5-103 and 6-5-104 address actions for deceit. Pursuant to section
6-5-103,
(wlillful misrepresentation of a material fact made to induce another to act, and upon which he does act to his injury, will
give a right of action. Mere concealment of such a fact. unless done in such a manner as to deceive and mislead, will
not support an action. In all cases of deceit, knowledge of a falsehood constitutes an essential element. A fraudulent or
reckless representation of facts as true. which the party may not know to be false, if intended to deceive, is equivalent
to a knowledge of the falsehood.
§ 6-5-103.° Furthermore, section 6-5-104 provides as follows:
(a) One who wilfully deceives another with intent to induce him to atter his position to his spry or risk is fable for any
damage which he thereby suffers.
r33]
(b) A deceit within the meaning of this section is either:
(1) The suggestion as a fact of that which is not true by one who does not believe it to be true;
(2) The assertion as a fact of that which is not true by one who has no reasonable ground for believing
it to be true:
(3) The suppression of a fact by one who is bound to disclose it or who gives information of other facts
which are likely to mislead for want of communication of that fact: or
(4) A promise made without any intention of performing it.
§ 6-5-104.
9 The uidersigned notes that, although section 6-5-103 provides for an action for deceit, the Plaintiff refers to that section within
Count Ill in which the Plaintiff asserts a claim for misrepresentation. (Doc. 64, 1 66.) As stated below, actions for
misrepresentation and deceit are very similar.
"The elements of a misrepresentation claim are 1) a misrepresentation of material fact, 2)
made willfully to deceive, recklessly, without knowledge, or mistakenly, 3) which was
reasonably relied on by the plaintiff under the circumstances, and 4) which caused
damage as a proximate consequence." Bryant Bank v. Talmage Kirkland & Company, Inc.,
155 So. 3d 231, 238 (Ala. 2014) (citations omitted). A claim for deceit
is extremely similar to (a misrepresentation claim], except that "aln] action for deceit. under ... § 6.5103 and § 6-5-
104. results from either ['34] a willful or reckless misrepresentation or a suppression of material facts with an intent to
mislead: Whitlow v. Bruno's Inc.. 567 So. 2d 1235. 1241 (Ala. 1990). while an action for misrepresentation of material
fact can be based on an uninterdional misrepresentation. (§ 6-5-101].
Montgomery Rubber & Gasket Co. v. Belmont Machinery Co., 308 F. Supp. 2d 1293, 1299
(M.D. Ala. 2004).
With respect to the Plaintiffs misrepresentation and deceit claims, BIC asserts the same
argument--that the Plaintiff failed to allege a misrepresentation of a material fact. (See doc.
65 at 10, 15.)
(A] misrepresentation requires an affirmative statement or misrepresentation. Mann v. Adams Realty Co.. 556 F.2d
268.296 (5th Cir. 1977). . . The representation normally must be of a present fact not a future fact. Sty v. First
National Bank. 387 So. 2d 198 (Ala. 1980)1] nor an opinion, promise, or prophesy. Fidelity & Casualty Co. v. J. D.
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Pittman Tractor Co.. 244 Ala. 354, 358. 13 So. 2d 669 (1943), unless the statement was expressed such that the other
person may reasonably treat it as a fact. id at 368, 13 So. 2d at 672, or if 'There are circumstances tending to show
fraudulent intent at the time of the promise or representation." Ringer v. First National Bank. 291 Ala. 364. 368. 281
So.2d 261.265 (1973).
Whether a given representation rs an opinion or a fact "depends upon all the circumstances of the particular case, such
as the form and subject matter of the representation and the knowledge. intelligence and relation of the respective
a.
parties." Fidelity B Casualty Co. 244 Ala. (at] 358. 13 So. 2d (at] 672 When parties deal at arm's length and the
recipient ('35] of a statement is not fraudulently induced to forbear inquiries that a competent person would make for
his own protection. "expressions of opinion as to matters which lie in opinion merely—opinions as to current market
values furnishing the most common example—" will not be grounds for a misrepresentation claim because the recipient.
knowing the nature of such expressions. has no right to rely on them. Id. Even an opinion on value is actionable.
however, if the recipient states his ignorance and invites the opinion, and the speaker understands the recipient relies
on the speaker's opinion as a fact so that the onus of a confidential relation results: if the recipient forbears
independent inquiry because of an opinion elicited under these circumstances of confidence, Alabama courts will treat
the statement as a fact reasonably relied upon. Id.
Kaye v. Pawnee Const. Co., Inc., 680 F.2d 1360, 1367-68 (11th Cir. 1982) (footnote
omitted); see Bryant Bank, 155 So. 3d at 239-40 (citing Kaye, 680 F.2d at 1368).
As discussed above, the Plaintiff alleges that BIC misrepresented that Specialty was
financially sound and able to pay the Plaintiff when it stated that Iblusiness is good" and
that "[Specialty] should have [the Plaintiff's] invoice paid within 10 business days." (Id., ¶
57(i) (emphasis omitted).)rn The Plaintiff also alleges p36] that BIC misrepresented that
fuel oil served as collateral securing the Plaintiffs accounts with Specialty when BIC stated
that entering into the STEM agreements with Specialty "gives [the Plaintiff] title to fuel."
(Id., ¶ 57(k) (emphasis omitted).) Standing alone, these statements appear that they could
be mere opinions rather than representations of fact. However, when viewed in conjunction
with all the circumstances of this case, the Court could ultimately determine that these
statements should be treated as facts. See Ringer, 281 So. 2d at 265 ("[A] representation
of an opinion or a prediction of a future event can be an actionable fraud, but such
opinions or predictions are not actionable unless 'there are circumstances tending to show
an actual fraudulent intent at the time of the promise or representation' is made." (quoting
Scholz Homes, Inc. v. Hooper, 287 Ala. 628, 254 So. 2d 328, 332-33 (Ala. 1971)); Scholz
Homes, 254 So. 2d at 332 ("[I]t is often fallaciously assumed that a statement of opinion
cannot involve the statement of a fact. . . If the facts are not equally known to both sides,
then a statement of opinion by the one who knows the facts best involves very often a
statement of a material fact, for he impliedly states that he knows facts which justify his
opinion." (quoting Shepherd v. Kendrick, 236 Ala. 289, 181 So. 782, 784 (Ala. 1938));
Fidelity & Casualty Co., 13 So. 2d at 672 ("Whenever a person [`37] states a matter which
might otherwise be only an opinion, not as a mere expression of his own opinion but as an
existing fact material to the transaction, so that the other party may reasonably treat it as a
fact, the statement clearly becomes a statement of fact.").
10 "Under Alabama law a misrepresentation of financial condition can be actionable." Ringer. 281 So. 2d at 264.
"An unbending rule can not be laid down for all cases, where. upon the representations of an uninterested
person, one trusts another, and suffers loss. Much must depend on the circumstances of the particular case.
But when, as in this case, the person recommending knows that the object of the party procuring the
recommendation is to obtain credit at a distance: knows that the proposed seller is unacquained with the
financial condition and credit of the proposed buyer, the law, in harmony with good morals and good
neighborhood. requires that the same shall be faithfully and truthfully given. A representation, as fact. of that
which the party knows to be false: or, of that. of the truth of which he has no knowledge or well-founded belief.
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falls below the standard of legal requirement. And if it turn out in fact that the representation is false. ['38] and
the seller is deceived and suffers loss in consequence of the sale he made on the strength of it. the party
recommending must make good the loss...."
Id. (quoting Einstein. Hirsch & Co. v. Marshal) 8 Conley. 58 Ala. 153 (1877)).
Here, the Plaintiff alleges that BIC was in a position of superior knowledge regarding
Specialty's business operations and that BIC knew that the Plaintiff relied on its statements
when making determinations as to whether to transact business with Specialty. (Doc. 64,
§§ 14-16, 57-59, 80-84.)" Furthermore, the Plaintiff alleges that BIC knew the statements
were untrue when it made them and that BIC made them with a fraudulent intent to induce
the Plaintiff to continue transacting business with Specialty. (Doc. 64, §§ 23-25, 60-64, 85.)
Therefore, when viewed within the context of the entire TAC, the undersigned cannot find
that the Plaintiff has not sufficiently alleged misrepresentations of material" facts. See
Ringer, 281 So. 2d at 263-64 (finding that, within the context of all the circumstances
alleged, the representation that a potential buyer is "better and more dependable" could be
sufficient to be given to the jury, provided that the allegations were supported by the
evidence); Mason & Dixon Lines, Inc. v. Byrd, 601 So. 2d 68, 72-73 (Ala. 1992)
(concluding that the representations that one party would give "100 percent support" and
[`
that 39] equipment would be available were properly considered by the jury within the
context of the other facts of the case).
11 For example. the Plaintiff alleges that BIC had a close relationship with Specialty amounting to an "apparent. it not actual.
insider position"; that BIC insisted that the Plaintiff trust and rely on BIC's representations regarding Specialty; and that the
Plaintiff not contact Specialty directly. (Doc. 64. §§ 14-16.)
12 As aleged. the facts at issue were clearly material. "A material fact is one which would induce the plaintiff to take action."
Lawson v. Cagle. 504 So. 2d 226, 227 (Ala. 1987) (citing Bank of Red Bay v. King. 482 So. 2d 274. 282 (Ala. 1985)). and the
Plaintiff alleges that BIC's misrepresentations "induced [the Plaintiff) to provide credit terms exceeding several millions of dollars
and to roll over that indebtedness." (Doc. 54. ¶ SO)
The Plaintiff also alleges that BIC's misrepresentations were willful, intentional and
reckless," that the Plaintiff reasonably relied on BIC's representations when it continued to
transact business with Specialty and rolled over its agreements, and that it sustained
significant financial losses as a result. (Doc. 64, ¶¶ 64-66, 85-87.) Therefore, the
undersigned finds that the Plaintiff has stated a plausible claim for misrepresentation. NO]
See Bryant Bank, 155 So. 3d at 238." Because the Plaintiff also alleges that BIC made the
aforesaid misrepresentations with the intent to mislead and induce the Plaintiff to continue
to transact business with Specialty, (doc. 64, §§ 80-81, 85), the Plaintiff has stated a
plausible claim for deceit.'t See § 6-5-104(a); Whitlow, 567 So. 2d at 1241. Accordingly,
the undersigned RECOMMENDS that BIC's motion to dismiss be denied with respect to
Plaintiff's misrepresentation and deceit claims.
13 BIC argues that the Plaintiff has not alleged any facts showing that BIC's alleged misrepresentations were made willfully or
recklessly. (Doc. 65 at 11.) The Plaintiff, however, need not allege additional facts to democvstrate knowledge. willfulness or
recklessness on the part of BIC. Such allegations may be made generally. Fed. R. Civ. P. 9(b).
14 BIC, relying on Dewitt Apparel. Inc. v. F.D.1.C.. Civil Action No. 94-1009-AH.M. 1996 U.S. Dist. LEYJS 8593. at '21 (S.D. Ala.
June 7, 1996). argues that the Plaintiff has failed to make a sufficient showing of fraud. (Doc. 65 at 11.) However, in Dewitt
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Apparel the Court considered a motion for strnmary judgment and determined whether the plaintiff had produced substantial
evidence swooning the elements of its fraud claim. Dewitt Apparel, 1996 U.S. Dist. LEXIS 8593. at '21. Thus: the Court's
analysis in Dewitl Apparel is not applicable to the determination of whether the r41] Plaintiff in this case has failed to state a
claim.
15 The undersigned also notes that, even if the Plaintiff failed to sufficiently allege a material misrepresentation of fact. the
Plaintiffs deceit claim would still survive based on the allegations that BIC suppressed information regarding Specialty's
financial condition with the intent to mislead the Plaintiff. (doc. 64. Q¶ 79-88). See § 6-5-103 (Were concealment of such a fact.
unless done in such a mamer as to deceive and mislead, will not support an action!): § 6-5-104 ("A deceit within the meaning
of this section (includes) ... [tlhe suppression of a fact by one who is bound to disclose it"); Whitlow. 567 So. 2d at 1241 ("An
action for deceit ... results from ... a suppression of material facts with an intent to mislead.").
3. Fraud in the inducement claim against BIC, BTU and Brito (Count VI).
The Defendants all argue that the Plaintiffs fraud in the inducement claim should be
stricken or dismissed for being redundant of the Plaintiffs misrepresentation and deceit
claims. (Doc. 65 at 16; doc. 67-1 at 5.) First, the undersigned notes that the Defendants
improperly seek the dismissal of Count VI on redundancy grounds. "[M]otions to dismiss
["42]
made under Rule 12(b)(6) only test the validity of a claim, not its redundancy; a
redundant claim should not be dismissed as long as it is valid." tMchael v. Wal-Mart Stores
East, LP, No. 6:14-cv-579-Orl-40DAB, 2014 U.S. Dist. LEXIS 153908, 2014 WL 5502442,
at *2 (M.D. Fla. Oct. 30, 2014) (citing Bangkok Crafts Corp. v. Capitolo Di San Pietro in
Vaticano, No. 03 Civ. 15(RWS), 2007 U.S. Dist. LEXIS 42639, 2007 WL 1687044, at '10
(S.D.N.Y. June 11, 2007)); see id. (finding that a duplicative negligence claim cannot be
dismissed for being redundant). Thus, the Defendants' motions with respect to Count VI
are properly understood as motions to strike pursuant to Fed. R. Civ. P. 12(f). Rule 12(f)
provides that "Mlle court may° strike from a pleading . . . any redundant, immaterial,
impertinent, or scandalous matter." Fed. R. Civ. P. 12(f) (emphasis added).
The purpose of a motion to strike is to clean up the pleadings. streamline litigation, and avoid unnecessary forays into
immaterial matter. A court wit not exercise its discretion under the rule to strike a pleading unless the matter sought to
be omitted has no possible relationship to the controversy. may confuse the issues. or otherwise prejudice a party.
Because striking a portion of a pleading is a drastic remedy and because it often is sought by the movant simply as a
dilatory tactic, motions under Rule 12(f) are viewed with disfavor and are inlrequenth, granted.
Principal Bank v. First American Mortgage, Inc., No. 2:10-cv-190-FtM-29DNF, 2014 U.S.
Dist. LEXIS 41001, 2014 WL 1268546, at *1 (M.D. Fla. Mar. 27, 2014) ['43] (intemal
citations, quotation marks, and brackets omitted)); see also TracFone Wireless, Inc. v. Zip
Wireless Products, Inc., 716 F. Supp. 2d 1275, 1290 (N.D. Ga. 2010) ("Rule 12(f) reflects
the inherent power of the Court to prune down pleadings so as to expedite the
administration of justice and to prevent abuse of its process. Motions to strike are generally
viewed with disfavor and are often considered time wasters. A motion to strike is a drastic
remedy to be resorted to only when required for the purposes of justice . . . and should be
granted only when the pleading to be stricken has no possible relation to the controversy."
(internal citations, quotation marks, and brackets omitted)). Indeed, stated more succinctly,
"(i]n addressing a Motion to Strike, 'a court will not exercise its discretion . . unless the
matter sought to be omitted has no possible relationship to the controversy, may
confuse the issues, or otherwise prejudice a party."' Hepp v. Paul Revere Life Ins. Co., No.
8:13-CV-02836-EAK-TBM, 2014 U.S. Dist. LEXIS 107393, 2014 WL 3865389, at '7 (M.D.
Fla. Aug. 5, 2014) (emphasis supplied); see also Tracfone Wireless, Inc. v. Access
Telecom, Inc., supra, 642 F. Supp. 2d at 1361 ("'A motion to strike will usually be denied
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unless the allegations have no possible relation to the controversy and may cause
prejudice to one of the parties."' (citations omitted)).
16 "The Court has broad discretion in considering a ("44] motion to strike under Federal Rule of Civil Procedure 1210.-
Trecfone Wireless. Inc. v. Access Telecom. Inc.. 642 F. Supp. 2d 1354, 1360 (St. Fla. 2009) (citations omitted).
In support of their motion to strike the Plaintiff's fraud in the inducement claim, asserted in
Count VI, the Defendants solely argue that the elements of that claim mirror the elements
of the Plaintiffs misrepresentation and deceit claims. (Doc. 65 at 16; doc. 67-1 at 5.) The
Defendants assert no argument that Count VI somehow prejudices the Defendants, that it
confuses the issues, or that it has no relation to this controversy, (doc. 65 at 16; doc. 67-1
at 5), and the undersigned's review of Count VI reveals that it does not suffer from those
flaws. While the undersigned acknowledges that the fraud in the inducement claim is very
similar to the Plaintiffs misrepresentation and deceit claims," the similarity of claims in the
TAC does not warrant the drastic remedy sought. Accordingly, the undersigned
RECOMMENDS that the Defendants' motions to dismiss or strike Plaintiffs fraud in the
inducement claim be denied.''
17 Indeed. la] claim of fraudulent inducement under Alabama law is similar to one of misrepresentation." Whitney Bank v.
Murphy. Civil Action No. 11-00614-KI340, 2013 U.S. Dist. LEXIS 40046. 2013 WL 1191235. at '11 (S. D. Ala. Mar. 22 2013).
18 The undersigned notes that BIC also argues in a single sentence that Plaintiffs t•45) fraud in the inducement claim fails for
the same reasons that Plaintiffs misrepresentation. suppression and deceit claims are due to be dismissed. (Doc. 65 at 16.)
However, as discussed herein, the undersigned finds that Plaintiffs misrepresentation, suppression and deceit claims are
sufficiently stated and are not due to be dismissed. Therefore, the indersigned rejects this undeveloped argument from BIC.
4. Suppression claims against BIC, BTU and Brito (Count IV).
The Plaintiff alleges that BIC, BTU and Brito concealed and suppressed material facts in
violation of section 6-5-102 when they failed to disclose facts "as to (a) the true state of the
financial condition of Bunkering and BTU and (b) the status of fuel based product serving
as security or collateral." (Doc. 64, ¶ 74.) Section 6-5-102 provides as follows:
"Suppression of a material fact which the party is under an obligation to communicate
constitutes fraud. The obligation to communicate may arise from the confidential relations
of the parties or from the particular circumstances of the case." § 6-5-102. 'The elements
of a suppression claim are '(1) a duty on the part of the defendant to disclose facts; (2)
concealment or nondisclosure of material facts by the p46] defendant; (3) inducement of
the plaintiff to act; (and] (4) action by the plaintiff to his or her injury."' Freightliner, L.L.C. v.
Whatley Contract Carriers, L.L.C., 932 So. 2d 883, 891 (Ala. 2005) (quoting Lambert v.
Mall Handlers Benefit Plan, 682 So. 2d 61, 63 (Ala. 1996)).
BIC, BTU and Brito have all moved to dismiss the Plaintiffs suppression claim on the
grounds that there are no allegations supporting a duty to disclose. (Doc. 65 at 12-14; doc.
67-1 at 1-3.) The undersigned first considers this argument with respect to BIC.
a. Suppression claim against BIC.
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To adequately allege a duty to disclose, the Plaintiff must allege facts upon which that duty
may arise. See Fowler v. Goodman Mfg. Co. LP, No. 2:14-CV-968-RDP, 2014 U.S. Dist.
LEXIS 172114, 2014 WL 7048581, at *9-10 (N.D. Ala. Dec. 12, 2014); Shedd v. Wells
Fargo Home Mortgage, Inc., Civil Action No. 14-00275-CB-M, 2014 U.S. Dist. LEXIS
160997, 2014 WL 6451245, at *5 (S.D. Ala. Nov. 17, 2014).
A duty to disclose often arises when there is a confidential or fiduciary relationship between the parties. [Ellis v. tuck,
409 F. Supp. 1151, 1157 (RD. Ala. 1976), WM, 546 F.2d 643 (5th Cir. 1977).] The Alabama courts do not seem to
lotus on the "designation of the relationship, such as vendor-vendee, etc., but instead look to the relative bargaining
positions of the parties." Id. (citing (Hall Motor Co. v.] Furman. 285 Ata. 499.234 So. 2d [37.] 41 [(Ala. 1970)].
Metropolitan Life Mt Co. v. James. 238 Ala. 337. 191 So. 352 (1939)) (cited with approval in Jim Walter Homes. Inc. v.
Waldrop. 448 So. 2d 301, 305 (Ala. 1983) (per curiam)): Jim Short Ford Sales(. Inc.. v. Washington]. 384 So. 2d [83.]
87 [(Ala. 1960)].” Even when a confidential relationship between the parties does not exist, the particular
Nn
circumstances of a situation can give nse to an obligation to disclose. Mann (v. Adams Realty Co.). 556 F.2d
[2881 297 [(5th Cir. 1977)). lg 6-5-102]. When the accused has supenw knowledge or expertise not shared by the
plaintiff, the obligation to disclose is compelling. Mann, 556 F.2d at 297 (citing Chapman v. Rivers Constr. Co., 284 Ala.
633.227 So. 2d 403.410-13 (1969)). Ellis. 409 F. Supp. at 1167-58. In order to determine whether a duty to disclose
exists, we must examine the facts of each individual case: "a rigid approach is impossible. and. indeed. the words of
the statute itself counsel flexibility.' Jim Short Ford Sales. 384 So. 20 at 87. Finally, even if one is not under a duty to
speak. if he decides to do so. "he must make a full and fair disclosure." without concealing any facts within his
knowledge. Ellis. 409 F. Supp. at 1158 (citing Jackson Co. v. Faulkner. 55 Ala. App. 354. 315 So. 2d 591 (1975)).
First Ala. Bank of Montgomery, N.A. v. First State Ins. Co., 899 F.2d 1045, 1059 (11th Cir.
1990).
19 Jim Walter Homes and Jim Short Ford Sales were overruled on other grounds by State Farm Fire and Casualty Co. v.
Owen, 729 So. al 634, 838-42 (Ala. 1998). where the Alabama Supreme Court held that the duty to disclose is a question of
law to be determined by the Court. Id. ("[W]e hereby overrule that line of cases that gives to the jury the responsibility of
determining the existence of a duty on the defendant's part.").
After reviewing the TAC, the undersigned has concluded that the Plaintiff has alleged facts
giving rise to a confidential and fiduciary relationship between the Plaintiff and BIC.
triggering a duty to disclose. The Alabama Supreme Court has defined a confidential or
fiduciary relationship as follows: p48]
A confidential relationship is one in which one person occupies toward another such a position of adviser or counselor
as reasonably to inspire confidence that he will act in good faith for the other's interests. or when one person has
gained the confidence of another and purports to act or advise with the other's interest in mind; where trust and
confidence are reposed by one person in another who, as a result. gains an influence or superiority over the other: and
it appears when the circumstances make it certain the parties do not deal on equal terms, but, on the one side, there is
an overmastering influence. or. on the other, weakness. dependence. or trust, justifiably reposed: in both an unfair
advantage is possible. It arises in cases in which confidence is reposed and accepted, or influence acquired, and in all
the variety of relations in which dominion may be exercised by one person over another.
DGB, LLC v. Hinds, 55 So. 3d 218, 231-32 (Ala. 2010) (quoting Bank of Red Bay, 482 So.
2d at 284) (internal quotation marks omitted).
The Plaintiff alleges that BIC was the Plaintiffs exclusive broker and agent with respect to
its dealings with Specialty, (doc. 64, §§ 15(c), 18, 71); that BIC "insisted that [the Plaintiff]
not contact 'Specialty' directly and required [the Plaintiff] ["149] to use [BIC] as the sole
intermediary between the parties," (id., P72(g)); that, consequently, the Plaintiff bec[a]me
dependent and reliant on [BIC] for all current and accurate information" as to whether
Specialty was financially able to perform the transactions at issue, (id.): that BIC informed
the Plaintiff of BIC's independent dealings with Specialty, including transactions involving
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extended credit arrangements, which suggested to Plaintiff that Specialty was financially
reliable, (id., ¶¶ 72(c)-(d)); that BIC communicated directly with Brito regarding Specialty's
transactions, further demonstrating BIC's superior position of knowledge and leading the
Plaintiff to place more confidence and trust in BIC, (id., ¶ 16); and that when the Plaintiff
directed inquiries to BIC regarding Specialty's ability to make payments, BIC advised the
Plaintiff not to worry and reminded the Plaintiff that it could trust BIC, (id., ¶ 72(a)-(b)).
Based upon this alleged course of dealings, the Plaintiff has sufficiently alleged a fiduciary
or confidential relationship between the Plaintiff and BIC. See Express Oil Change, LLC v.
ANB Ins. Services, Inc., 933 F. Supp. 2d 1313, 1351-52 (N.D. Ala. 2013) (finding that a
confidential relationship existed between the plaintiff and its insurance broker when the
broker NO] "inspired confidence in [the plaintiff] that [it] would act in good faith for its
interests"). Furthermore, the Plaintiff has adequately alleged that BIC owed a duty to
disclose arising from their fiduciary or confidential relationship. See Hinds, 55 So. 3d at
231-34 (concluding that the plaintiffs sufficiently alleged that the defendants owed a duty to
disclose arising from their confidential and fiduciary relationship with the defendants when
they alleged, among other things, that they "entrusted [the defendants] with the negotiation
of [the transaction] based on [the defendants'] superior experience and knowledge"); State
Farm Mut. Auto. Ins. Co. v. Ling, 348 So. 2d 472, 474-76 (Ala. 1977) (holding that an
insurer owed a duty to disclose arising from its confidential relationship with the plaintiff
where the plaintiff developed trust and confidence in his insurer through their course of
dealings in which the insurer made assurances that it would take care of the plaintiff's
interests).
Moreover, even if a confidential relationship did not arise from the alleged facts, the
undersigned finds that a duty to disclose on the part of BIC could arise from the particular
circumstances of this case. When determining whether a duty arises under the particular
[-51]
circumstances of a case, the court shall consider the following factors: "(1) the
relationship of the parties; (2) the relative knowledge of the parties; (3) the value of the
particular fact; (4) the plaintiffs' opportunity to ascertain the fact; (5) the customs of the
trade; and (6) other relevant circumstances." Freightliner, 932 So. 2d at 891 (quoting
Armstrong Bus. Services, Inc. v. AmSouth Bank, 817 So. 2d 665, 677 (Ala. 2001)) (internal
quotation marks omitted).
The first four factors identified in Freightliner all weigh in favor of finding a duty, should the
proof ultimately support the Plaintiffs allegations?' The relationship of the parties weighs in
favor of finding a duty because the Plaintiff alleges that BIC is the Plaintiffs exclusive
broker and agent, that Pappaceno had handled the Plaintiff's transactions with Specialty
for several years and that Pappaceno and BIC fostered a relationship whereby the Plaintiff
trusted and relied on Pappaceno and BIC's representations regarding Specialty. The
knowledge of the parties supports the finding of a duty because the Plaintiff has alleged
that BIC had far superior knowledge based on its direct access to Specialty's business
operations and BIC's insistence that the Plaintiff not contact Specialty. Similarly, the
Plaintiff was less likely to ascertain the facts at ['52] issue because BIC had established
that the Plaintiffs inquiries regarding Specialty should be directed to BIC. The value of the
facts at issue--Specialty's financial instability and the lack of collateral securing
transactions with Specialty—supports the finding of a duty because the Plaintiff alleges
that, had it known those facts, it would have ceased doing business with Specialty and
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immediately sought to collect the funds owed. Thus, the circumstances of this case could
give rise to a duty to disclose the information at issue. See First Ala. Bank of Montgomery,
899 F.2d at 1059 (concluding that, despite the fact that the plaintiff was a sophisticated
financial institution, its insurer owed a duty to disclose under the particular circumstances
of the case, including the insurer's superior knowledge regarding the dealings at issue);
Independent life & Accident Ins. Co. v. Harrington, 658 So. 2d 892, 896-97 (Ala. 1995)
(concluding that, under the circumstances of the case, including the plaintiffs reliance on
the defendant's superior knowledge, the defendant owed a duty to disclose).
20 The parties have not provided the Court with any information regarding the customs of the trade with respect to this issue.
Therefore, the urdersigned cannot make a determination as to whether the fifth factor supports a duty in this ['SS] case.
Because the Plaintiff has alleged that BIC had a duty to disclose Specialty's poor financial
condition and the lack of fuel oil securing plaintiff's transactions with Specialty, that BIC
failed to disclose those facts, that BIC solicited the Plaintiff to enter into purchase
agreements with Specialty, and that the Plaintiff sustained serious financial losses as a
result of those transactions, the Plaintiff has stated a claim against BIC for suppression.
Therefore, the undersigned RECOMMENDS that BIC's motion to dismiss should be denied
with respect to Plaintiffs suppression claim.
b. Suppression claim against BTU and Brito.
With respect to BTU and Brito, the Plaintiff did not allege a confidential relationship or
special circumstances giving rise to a duty on the part of BTU and Brito to disclose its poor
financial condition or the status of fuel oil securing the purchase agreements with the
Plaintiff. (Compare doc. 64, ¶ 72, with id., ¶¶ 68-77.) Furthermore, the Plaintiff asserts no
argument in that regard." (See doc. 73 at 22-23.) Instead, the Plaintiff argues that BTU's
and Brito's duty to disclose arose from a criminal statute--section 13A-9-48 of the Code of
Alabama. (Doc. 73 at 23.) As discussed p54] below, the Plaintiffs reliance on a criminal
statute is unconvincing. While the Plaintiff concedes that section 13A-9-48 does not give
rise to a private right of action, it argues that the statute, nevertheless, imposes a duty
satisfying a critical element in the Plaintiffs fraudulent suppression claim brought pursuant
to section 6-5-102. (Doc. 73 at 23.) The Plaintiff provides no authority supporting this
argument, and the undersigned does not find it persuasive. See infra §
21 The undersigned notes that. lvdhen the parties to a transaction deal with each other at arm's length, with no confidential
relationship, no obligation to disclose information arises when the information is not requested.- Freightliner. 932 So. 2d at 892
(citing Meson v. Chrysler Corp.. 653 So. 2d 951, 954-56 (Na. 1995)).
Nevertheless, the undersigned finds that a duty for BTU and Brito to disclose the facts at
issue could arise from BTU and Brito's alleged misleading representations. See CNH Am.,
LLC v. Ligon Capital, LLC, 160 So. 3d 1195, 1111204, 2013 WL 5966782, at *5 (Ala.
2013) (1Oince a party elects to speak, he or she assumes a duty not to suppress or
conceal those facts that materially qualify the facts already stated."' (quoting Freightliner,
932 So. 2d at 895)). The Plaintiff alleges that, by May 2012, Specialty's financial condition
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["55]
was deteriorating, (doc. 64, ¶¶ 23-24); that, in July 2012, while the Plaintiff was
touring Specialty's facilities in Mobile, Alabama, BTU and Brito represented to the Plaintiff
that their business was growing, (id., ¶ 22); that, on May 10. 2013, during a meeting at
BTU's office in Mobile, BTU and Brito represented to the Plaintiff that they were financially
sound and that business was proceeding as usual, (id., ¶¶ 41-42); and that, at that time,
Specialty was in financial distress, (id., 111132, 46)." Thus, based on the allegations in the
TAC, the Court could determine that, by making the aforesaid representations, BTU and
Brito assumed a duty to disclose facts regarding Specialty's alleged deteriorating financial
condition." Similarly, the Court could determine that BTU and Brito assumed a duty to
inform the Plaintiff as to the lack of fuel oil securing their transactions when they sent the
Plaintiff the April 8, 2013 Warehouse Receipt, which, allegedly, was false and misled the
Plaintiff into believing that fuel oil served as collateral for their repurchase agreements, (id.,
¶¶ 49, 57(I)). Accordingly, the allegations in the TAC support the duty to disclose element
['56]
of the Plaintiffs suppression claim with respect to BTU and Brito. BTU and Brito
make no other argument with respect to Plaintiffs suppression claim, (doc. 67-1 at 1-3),
and the undersigned finds that said claim is sufficiently stated in the TAC. Thus, the
undersigned RECOMMENDS that BTU and Brito's motion to dismiss be denied with
respect to Plaintiffs suppression claim.
22 Specifically, the Plaintiff alleges that. loin April 29. 2013. Brito filed a Motion for Judicial Dissolution as to Bizikering .
based on allegations of financial misconduct' and. on July 18 2013. St filed an affidavit in support of that motion in which he
stated that
"Specialty [i.e.. Bunkering] (was) operating at a negative equity position . .. its liabdities exceedfedi its assets.
. Specialty hald) no cash reserves. no available credit on terms that are viable to the continued operation of
the business and this ha(d) no way to operate as it held( operated in the past."
(Doc. 64. ¶11 32 46.) On November 14 2013 Bunkering filed for bankivptcy protection. (Id.. ¶ 2.)
23 The undersigned notes that "(the Alabama Supreme Court) has recognized() (that) the law generally allows a business to
keep confidential its internal operating procedures and data unless that information is specifically requested' r57] Freightliner.
932 So 2d at 892 (citing Ex parte Ford Motor Crock Co., 717 So. 2d 781. 787 (Ala. 1997)). However, as stated above. the
moment a party speaks it "assumes a duty not to suppress or conceal those facts that materially qualify the facts already
stated." Id at 895.
D. Plaintiffs "Fraud in Insolvency" Claim (Count VII) against BTU and Brito should
be dismissed because there is no private right of action under the criminal statute
that BTU and Brito allegedly violated.
In Count VII, the Plaintiff alleges that, by concealing their insolvency, BTU and Brito
violated section 13A-9-48 of the Alabama Criminal Code. (Doc. 64 at 58-65.) Specifically,
the Plaintiff states that it "claims a private right of action against BTU and/or Brito for
violation of [that section)." (Id., ¶ 113.) However, loine claiming a private right of action
within a statutory scheme must show clear and convincing evidence of legislative intent to
impose civil liability for a violation of the statute." Liberty Nat'l Life Ins. Co. v. Univ. of Ala.
Health Set-vs. Found., P.C., 881 So. 2d 1013, 1025 (Ala. 2003) (quoting Blockbuster, Inc.
v. White, 819 So. 2d 43, 44 (Ala. 2001)) (internal quotation marks and other citations
omitted); accord Woods Knoll, LLC v. City of Lincoln, Ala., 548 F. App'x 577, 581 (11th Cir.
2013).
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Section 13A-9-48 is a criminal statute that provides as follows:
§ 13A-9-48. Fraud in Insolvency.
(a) A person commits the crime of fraud in insavency if. with the intent to defraud a creditor and with knowledge or
reason to believe either that proceedings have been or are about rS81 to be instituted for the appointment of a
receiver or that a composition agreement or other arrangement for the benefit of creditors has been or is about to be
made, he:
(1) Conveys. transfers. removes. conceals, destroys. encumbers or otherwise disposes of any part of
or any interest in the debtor's estate: or
(2) Presents to any creditor or to the receiver any writing or record relating to the debtor's estate, riot
otherwise within the coverage of Sections 13A-10-101, 13A-10-102 or 13A-10-109, knowing or having
reason to believe that it contains a false material statement; or
(3) Misrepresents or refuses to disclose to the receiver, under circumstances not amounting to a
violation of Section 13A-10-4. the existence. amount or location of any part of or an interest in debtor's
estate. or any other irdormation that he is legally required to furnish to the administrator.
(b) Receiver" means an assignee or trustee for the benefit of creditors, a conservator, a liquidator or any other person
legally entitled to administer property for the benefit of creditors.
(c) Fraud in insolvency is a Class B misdemeanor.
Ala. Code § 13A-9-48 (1975). The language of the statute provides no indication that the
["
Legislature intended to create a private right of action, or otherwise 59] impose civil
liability, id., and the Plaintiff has made no showing regarding the Legislature's intent, (see
doc. 64 at 58-65; doc. 73 at 23).
In Dysart v. Trustmark Nat'l Bank, the Northern District of Alabama considered a motion to
dismiss a claim for "deed forgery" asserted pursuant to a criminal forgery statute, section
13A-9-3, found within the same chapter of the Criminal Code—Chapter 9 (Forgery and
Fraudulent Practices)--that contains the fraud in insolvency statute. Dysart v. Trustmark
Nat'l Bank, No. CV-13-BE-2092-S, 2014 U.S. Dist. LEXIS 59877, 2014 WL 1765120, at
*11-12 (N.D. Ala. Apr. 30, 2014). After reviewing the plaintiffs deed forgery claim, the
Northern District found that
(the plaintiff) is attempting to assert a violation of a criminal statute. § 13A-9-3(a)(1) in [a] civil case.... However, the
Alabama statute upon which she relies appears to be designed for the protection of the public. and no language in it
indicates that it creates a private right of action, [The plaintiff's] reliance on the criminal statute to create a private right
of action is misplaced. See Linda R.S. v. Richard JOT 410 U.S. 614, 619, 93S. Ct. 1146, 35 L. Ed. 2d 536 (1973) ("(Al
private ctizen lacks a judicially cognizable interest in the prosecuion or nonprosecution of another."); see also Love v.
Delta Air Lines. 310 F.3d 1347. 1352-53 (11th Cir. 2002) ((concluding that ][c]riminal statutes generally do NO] not
provide a private cause of action()); Gibson v. Gains. [No. 05-159973 2006 U.S. App. LEXIS 8111. 2006 WL 858336j.
at '3) (11th Cir. [April 4.) 2006) (finding that lo the extent that [the plaintif§ raises criminal allegations against the
defendants. (he) lacks standing to raise such claims and the district court properly dismissed them."). Accordingly. the
motions to dismiss are due to be GRANTED WITH PREJUDICE as to [the deed forgery) claim against all Defendants.
Id. at 12.
Like the forgery statute in Dysart, the fraud in insolvency statute "appears to be designed
for the protection of the public" without any imposition of civil liability through a private right
of action. Compare § 13A-9-3, with § 13A-9-48. Furthermore, the Plaintiff has not provided
the Court with any authority demonstrating that a fraud in insolvency claim is actionable in
Alabama, (see doc. 73 at 23),'4and the undersigned has not found any support for such a
claim. Accordingly, the undersigned finds that the Plaintiff has not stated a plausible claim
for fraud in insolvency. See Liberty Nat'l, 881 So. 2d at 1025 (concluding that the plaintiff
could not bring a private action for an alleged breach of a statutory provision where the
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plaintiff failed to show that the statutory provision implied or created a private right of
action); see ['61] also Chen ex. rel. V.D. v. Lester, 364 F. App'x 531, 536 (11th Cir. 2010)
("Criminal statutes generally do not provide a private cause of action. . . . Because these
are all criminal statutes, the district court did not err in dismissing those claims." (citation
omitted)); Muhammad v. Bethel-Muhammad, Civil Action No. 11-0690-WS-B, 2012 U.S.
Dist. LEXIS 70330, 2012 WL 1854315, at *7 (S.D. Ala. May 21, 2012) ("'We have been
quite reluctant to infer a private right of action from a criminal prohibition alone. . . ."'
(quoting Central Bank v. First interstate Bank, N.A., 511 U.S. 164, 190, 114 S. Ct. 1439,
128 L. Ed. 2d 119 (1994)). As such, the undersigned RECOMMENDS that BTU and Brito's
motion to dismiss be granted with respect to Plaintiffs fraud in insolvency claim (Count VII)
and that said claim be dismissed with prejudice.
24 The Plaintiff cites Rawlings v. Dovenmuehie Mon., Inc.. 64 F. Supp. 2d 1156 (M.D. Ala. 1999). and Gowens v. Tys. S. ex
rel. Davis, 948 So. 2d 513.527-28 (Ala. 2006). for the general proposition that "a legal duty may arise from statute." (Doc. 73 at
23.) However, the Plaintiff fails to discuss meaningfully the statute at issue or provide any authority relating to the claim Plaintiff
seeks to assert. (W.)
E. Negligence, wantonness and breach of fiduciary duty claims against BIC (Counts
VIII-XI).
BIC argues that the Plaintiffs negligence, wantonness and breach of fiduciary duty claims
fail because they arise in contract, rather than tort. (Doc. 65 at 16-18.) This argument has
already been rejected above. See supra § III.B. As previously discussed, [e62] the Plaintiff
claims that BIC breached duties arising from its relationship with the Plaintiff and course of
dealings over multiple years. (See doc. 64, ¶¶ 14-20.) The Plaintiff does not allege that
BIC violated a promise contained within a contract with the Plaintiff. (See doc. 64 at 65-
81.) Accordingly, the Plaintiffs negligence, wantonness and breach of fiduciary duty claims
do not fail for being brought as tort claims. See, e.g., Hardy, 2008 U.S. Dist. LEXIS 26842,
2008 WL 906455, at *14.
BIC also argues that the Plaintiff has not alleged sufficient facts to support a fiduciary
relationship between BIC and the Plaintiff. (Doc. 65 at 17-18.) That argument was rejected
above as well. See supra § III.C.4.a. (citing Express Oil Change, 933 F. Supp. 2d at 1351-
52; DGB, 55 So. 3d at 233-34; Hinds, 55 So. 3d at 231-34). Therefore, the undersigned
RECOMMENDS that BIC's motion to dismiss be denied with respect to Counts VIII-XI.
IV. Conclusion
For the reasons stated above, it is hereby RECOMMENDED that BIC's motion to dismiss
(doc. 65) be DENIED and that BTU and Brito's motion to dismiss (doc. 67) be GRANTED
IN PART and DENIED IN PART. BTU and Brito's motion should be granted with respect to
Plaintiffs fraud in insolvency claim (Count VII), which should be DISMISSED WITH
PREJUDICE for failure to state a claim. Their motion should be DENIED [`63] in all other
respects.
NOTICE OF RIGHT TO FILE OBJECTIONS
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A copy of this report and recommendation shall be served on all parties in the manner
provided by law. Any party who objects to this recommendation or anything in it must,
within fourteen (14) days of the date of service of this document, file specific written
objections with the Clerk of this Court. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b);
S.D. Ala. L.R. 72.4. The parties should note that under Eleventh Circuit Rule 3-1, "[a] party
failing to object to a magistrate judge's findings or recommendations contained in a report
and recommendation in accordance with the provisions of 28 U.S.C. § 636(b)(1) waives
the right to challenge on appeal the district court's order based on unobjected-to factual
and legal conclusions if the party was informed of the time period for objecting and the
consequences on appeal for failing to object. In the absence of a proper objection,
however, the court may review on appeal for plain error if necessary in the interests of
justice." 11th Cir. R. 3-1. In order to be specific, an objection must identify the specific
finding or recommendation to which objection is made, state the basis for the objection,
and specify the place in the Magistrate Judge's report and recommendation where the
['64]
disputed determination is found. An objection that merely incorporates by reference
or refers to the briefing before the Magistrate Judge is not specific.
DONE this the 4th day of June 2015.
/s/ WILLIAM E. CASSADY
UNITED STATES MAGISTRATE JUDGE
ADRIAN STEADMAN, Plaintiff, v. GREEN TREE SERVICING,
LLC, Defendant.
CASE NO. C14-0854JLR
UNITED STATES DISTRICT COURT FOR THE WESTERN
DISTRICT OF WASHINGTON
2015 U.S. Dist. LEXIS 58928
May 5, 2015, Decided
May 5, 2015, Filed
CORE TERMS: modification, modification agreement, statute of frauds, assignee,
modified, summary judgment, deceptive, unfair, part performance, servicing, assignor,
reply, independent duty, foreclosure, monthly payments, hearsay, duty of good faith,
negligence claim, apparent authority, contractual, assigned, notice, real property, out-of-
court, mortgage, consumer, default, duty of care, economic loss, nonmoving
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COUNSEL: For Adrian Steadman, Plaintiff: Kathleen Sophia Box. LEEN &
O'SULLIVAN, SEATTLE, WA.
For Greentree Servicing, LLC, Defendant: William G Fig, LEAD ATTORNEY, SUSSMAN
SHANK, PORTLAND, OR; Susan S Ford, SUSSMAN SHANK WAPNICK CAPLAN &
STILES, PORTLAND, OR.
JUDGES: JAMES L. ROBART, United States District Judge.
OPINION BY: JAMES L. ROBART
OPINION
ORDER GRANTING IN PART AND DENYING IN PART SUMMARY JUDGMENT
I. INTRODUCTION
This matter comes before the court on Defendant Green Tree Servicing, LLC's ("Green
Tree") motion for summary judgment. (See Mot. (Dkt. # 24).) This action arises out of
Green Tree's servicing of Plaintiff Adrian Steadman's loan. Having considered the
submissions of the parties, the balance of the record, and the relevant law, and deeming
oral argument unnecessary, the court grants in part and denies in part the motion.
II. BACKGROUND
In March 2003, Mr. Steadman obtained a loan for $190,000.00, which was secured by the
property at 9015 171st Ave NE, Redmond, WA, 98052, and evidenced by a Note and
Deed of Trust. (See Hamm Decl. (Dkt. # 25) Ex. 1 ("Note"), Ex. 2 ("Deed of Trust").) This
loan required Mr. Steadman to pay the noteholder monthly payments of $1109.79 for 30
r4
years. (Id.) The servicing rights for the loan were eventually transferred to Bank of
America, N.A. ("BoA"). (See generally Ford Decl. (Dkt. # 26) Ex. 2 at 67-82 ("Mod.
Agreement").)
In 2010 and 2011, Mr. Steadman struggled to make payments on the loan. (See Ford
Decl. Ex. 2 at 45-49.) Beginning early 2012, Mr. Steadman worked with BoA
representative Eric Ngo to apply for a loan modification under the federal Home Affordable
Modification Program ("HAMP"). (Ford Decl. Ex. 3 ("2d Steadman Dep.") at 13:1-14:21,
Ex. 4 at 180-87 (1/17/12 email from Mr. Ngo requesting that Mr. Steadman provide
documents necessary to apply for a loan modification), Ex. 2 at 50-53 (final HAMP
application signed by Mr. Ngo and Mr. Steadman).) At the time, Mr. Ngo's title was
Assistant Vice President, Mortgage Service Specialist II, at BoA's downtown Seattle
branch office. (See id. at Ex. 4 at 180-87.)
In April 2012, BoA offered Mr. Steadman the opportunity to participate in a Trial Period
Plan ("Trial Period") to determine whether Mr. Steadman was eligible under HAMP. (Id. at
55-65 ("Trial Offer").) The Trial Period consisted of three monthly modified payments of
$732.86. (Id.) If Mr. Steadman successfully completed the payments, BoA would send him
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['3]
a modification agreement offering new terms for his loan. (Id.) BoA wrote to Mr.
Steadman:
Once you have successfully made each of the payments above by their due dates, you have submitted two signed
copies of your modification agreement. and we have signed the modification agreements your mortgage will be
permanently modified in accordance with the terms of your modification agreement.
(Id.)
Mr. Steadman accepted the offer for a Trial Period and successfully completed the Trial
Period payments. (Steadman Dep. at 92:10-14; Mod. Agreement.) On August 18, 2012,
BoA approved Mr. Steadman's application for a loan modification and sent him a
modification agreement. (Id. ("Thank you for applying for a loan modification. We are
pleased to inform you that you have been approved and your mortgage will soon be
permanently modified to provide you with an affordable monthly payment.").) Among other
things, the modification agreement reduced Mr. Steadman's monthly payments to $724.00.
(Id.)
BoA's offer letter stated: 'The enclosed Modification Agreement reflects the new terms of
your modified mortgage that will go into effect once you complete and return the enclosed
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documentation." (Id.) BoA's offer letter included the following instructions on how to
accept the offer of modification:
How to Accept This Offer:
To accept this modification offer. you must sign two copies of the Modification Agreement and retum both copies to use
by 08/28/2012. Please sign and return both copies to us. using the enclosed pre-paid envelope to mail the documents
to:
Baric of America. N.A
11802 Ridge Parkway, Ste 100 HRM
HOME RETENTION
Broomfield. CO 80021
(Id.)
Mr. Steadman did not comply with the acceptance instructions: he did not sign and mail
two copies of the modification agreement to the specified address by August 28, 2012.
(Ford Decl. Ex. 1 ("Steadman Dep.") at 104:2-106:20.) Instead, he signed the modification
agreement and delivered it to Mr. Ngo at the BoA Seattle office on August 27, 2012.' (Id. at
105:2-7.) Mr. Steadman claims that Mr. Ngo "told [him that he] could submit the final loan
modification documents by bringing them to his office in downtown Seattle." (Steadman
Decl. (Dkt. # 32) at 2.) He claims that Mr. Ngo "informed [him] that [his] actions were
sufficient to accept the loan modification offer." (Id.) It was his understanding that Mr. Ngo
faxed the documents to the appropriate location. (Steadman r5] Dep. at 105:17-22.) It
was also his understanding that Mr. Ngo would sign the final modification paperwork on
behalf of BoA. (Steadman Decl. at 2.)
1 The parties dispute when Mr. Steadman signed and delivered the modification agreement. Mr. Steadman testifies that he
delivered the modification on August 27. 2012. (Steadman Dep. at 105:2-21.) On reply. Green Tree provides a copy of the
modification agreement apparently signed by Mr. Steadman on August 29. 2012. (See Dkt. *34 Ex. 2.) New issues and
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evidence may not be raised in reply briefs. See 8azuaye v. 79 F.3d 118. 120(9th Cu. 1996); Proven v. Miller, 102 F.3d
1478. 1483 (9th Cir. 1996). Accordingly, the court STRIKES the new evidence filed in support of Green Tree's reply brief. See
Toyer v. U.S. Postal SON.. 3 F.3d 1271. 1273 (9th Cir. 1993) (striking portions of a reply brief that presented new information);
Nautilus Grp.. Inc. v. Icon Health S Fitness. Inc.. 306 F. Supp. 2d 1208. 1214 (VV.D. Wash. 2003) (striking a declaration with
new evidence submitted in reply). Even it the count did consider Green Tree's new evidence the court is required to resolve all
disputed facts in favor of the non•movirg party on summary judgment. Reeves v. Sanderson Plumbing Prods.. Inc.. 530 U.S.
133. 150, 120 S. Ct. 2097. 147 L. Ed. 2d 105 (2000). Therefore, for purposes of this motion only. the court relies on Mr.
Steadman's testimony that he delivered the modification agreement on August 27, 2012.
After delivering the signed modification agreement, Mr. Steadman began paying the
r6]
modified monthly loan payments to BoA. (Steadman Decl. at 1-2.) He submitted
timely payments in the amount of $724.00 from September 2012 through May 2012 by
calling BoA and paying over the phone. (Id. at 2; Steadman Dep. at 116:11-16.)
On October 18, 2012, Mr. Steadman received a letter from BoA stating that it was "no
longer considering your request for a modification because . . you notified us on October
3, 2012, that you did not wish to accept the offer." (Steadman Dep. at 113:19-25; Ford
Decl. Ex. 2 at 84-85.) Mr. Steadman denies declining the offer. (Steadman Dep. at
113:25.) On October 23, 2013, Mr. Steadman received another letter from BoA stating that
the payment it had recently received "was less than the total amount needed to bring your
loan up to date," and if BoA did not receive the total amount by the specified acceleration
date, "foreclosure proceedings may begin." (Steadman Dep. at 116:18-117:8; Ford Decl.
Ex. 2 at 87-88.)
Mr. Steadman states that after he received these letters, he called and visited Mr. Ngo and
other BoA representatives multiple times to inquire as to the status of his modification.
(Steadman Dep. at 113:13-117:11; Steadman Decl. at 2-3.) Mr. Steadman claims that the
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BoA representatives reassured him that his modification had been approved, and he
was only receiving the letters because their system was behind in formally processing the
approval. (Steadman Dep. at 113:13-117:11; Steadman Decl. at 2-3.) Mr. Steadman
claims that the representatives advised him to keep making payments on the loan, which
he did. (Steadman Dep. at 116:11-16.) Nonetheless, on May 15, 2013, BoA sent Mr.
Steadman a letter informing him of his homeowner's rights and stating, "If you do not
respond within 30 days, a notice of default may be issued and you may lose your home in
foreclosure." (Ford Decl. Ex. 2 at 95-96; Steadman Dep. at 135:16-25.)
On June 1, 2013, BoA transferred the servicing of Mr. Steadman's loan to Green Tree.
(Ford Decl. Ex. 2 at 90-93 ("1st Transfer Letter"), 100-01 ("2d Transfer Letter").) Green
Tree's notice of the transfer stated that, according to its records, Mr. Steadman's monthly
payment was $1,165.08. (2d Transfer Letter.) Mr. Steadman attempted to make a payment
to Green Tree in June 2012, but was informed that Green Tree was unable to locate his
loan and "could not accept payments" on his account at that time. (Steadman Decl. at 3.) It
r8]
was September before Mr. Steadman was able to submit payments to Green Tree.
(Steadman Decl. at 3.) Mr. Steadman made payments in the modified amount to Green
Tree from September 2013 to December 2013. (Id.)
In December 2013, Green Tree initiated foreclosure action against Mr. Steadman's
property. (Ford Decl. Ex. 2 at 129, 134-36.) Mr. Steadman received a notice of foreclosure
and a notice of a trustee's sale, which indicated that the amount outstanding on his loan
was over $20,000.00. (Ford Decl. Ex. 2 at 138-39, 141-144.) When Mr. Steadman
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contacted Green Tree, he was informed that Green Tree did not have a copy of the loan
modification agreement. (Steadman Decl. at 3.) Mr. Steadman submitted his copy of the
modification agreement, but Green Tree would not accept it because it was not signed by
BoA. (Id.; Steadman Dep. at 30:1-34:25.) Mr. Steadman contacted Mr. Ngo and other BoA
representatives by phone and email and requested that they provide him or Green Tree
with a signed copy of the modification agreement. (Steadman Decl. at 3.; Steadman Dep.
at 30:1-34:25;Ford Decl. Ex. 4 at 191-197 (emails).) BoA never provided a signed
9]
modification agreement; the copies it did provide were missing the last page that
contained the place for a signature by a BoA representative. (Steadman Decl. at 3; Ford
Decl. Ex. 4 at 191-197; Steadman Dep. at 35:1-17.) BoA also did not provide a signed
copy in response to Mr. Steadman's discovery requests. (Steadman Dep. at 35:1-17.)
Because Green Tree would not acknowledge his alleged loan modification, Mr. Steadman
filed this action. (See Compl. (Dkt. # 1).) Mr. Steadman brings claims against Green Tree
for breach of contract, breach of the implied duty of good faith and fair dealing, negligence,
violation of the Washington Consumer Protection Act ("CPA"), RCW 19.86 et seq., and
violation of the Washington Mortgage Loan Servicing Act ("MLSA"), RCW 19.148.030.
(See Am. Compl. (DKt. # 29).) Green Tree moves for summary judgment on all claims.
Green Tree's motion is now before the court.
III. ANALYSIS
A. Summary Judgment Standard
Federal Rule of Civil Procedure 56 permits a court to grant summary judgment where the
moving party demonstrates (1) the absence of a genuine issue of material fact and (2)
entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322,
106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986); see also Galen v. Cnty. of L.A., 477 F.3d 652,
658 (9th Cir. 2007). The moving party bears the initial burden of showing the absence of a
genuine issue of material fact. Celotex, 477 U.S. at 323.
no]
If the moving party does not bear the ultimate burden of persuasion at trial, it can
show the absence of an issue of material fact in two ways: (1) by producing evidence
negating an essential element of the nonmoving party's case, or (2) by showing that the
nonmoving party lacks evidence of an essential element of its claim or defense. Nissan
Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1106 (9th Cir. 2000). If the moving
party meets its burden of production, the burden then shifts to the nonmoving party to
identify specific facts from which a factfinder could reasonably find in the nonmoving
party's favor. Celotex, 477 U.S. at 324; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252,
106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). In determining whether the factfinder could
reasonably find in the nonmoving party's favor, "the court must draw all reasonable
inferences in favor of the nonmoving party, and it may not make credibility determinations
or weigh the evidence." Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150,
120 S. Ct. 2097, 147 L. Ed. 2d 105 (2000).
B. Proper Defendant
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Before turning to the merits of Mr. Steadman's claims, the court addresses the parties'
dispute over whether Green Tree is a proper defendant to Mr. Steadman's claims. First,
Mr. Steadman's assertion that Green Tree assumed BoA's liability in tort or under
consumer protection laws is meritless. Ordinarily, an assignee does not become
vicariously liable for its predecessors torts or breaches without an explicit contractual
agreement to assume ['11] such liability. See Lewis v. Boehm, 89 Wash. App. 103, 107,
947 P.2d 1265, 1268 (1997) ("[T]he assignee of an executory contract is not liable on the
contract in the absence of an express assumption of the obligations contained therein.");
see also Kucheynik v. Mort. Elec. Registration Sys., Inc., No. C10-451Z, 2010 U.S. Dist.
LEXIS 132547, 2010 WL 5174540, at *4 (W.D. Wash. Dec. 15, 2010) (disagreeing that
"the mere assignment of contract, without more, automatically exposes the assignee to
liability . . . for allegedly fraudulent conduct of the assignor" because "[u]nder Washington
contract law, an assignment of contract does not impose on the assignee the liabilities of
the assignor unless the assignee assumes those liabilities.").' Mr. Steadman identifies no
such contractual agreement by Green Tree. And Mr. Steadman advances no other viable
theory of successor liability. See Hall v. Armstrong Cork, Inc., 103 Wn.2d 258, 692 P.2d
787, 789-90 (Wash. 1984). As such, Mr. Steadman may not hold Green Tree liable for
prior improper acts by BoA. To the extent Mr. Steadman's claims are predicated on such
acts, rather than on Green Tree's acts, they are not viable.
2 See also Johnson v. Fed Home Loan Mort. Corp.. No. C12-1712 TSZ. 2013 U.S. Dist. LEXIS 10485. 2013 WL 308957. at '4
(W.D. Wash. Jan. 25. 2013) ("IAN assignee is liable for past breaches of the assignor only if he has expressly assumed any
duties correlative with the right assigned, there [12] being no implication of assumption by the mere assignment") (internal
quotation and alterations omitted); Chavets v GMAC Mod.. LW. No. 2:11-CV-01097-00W SS. 2012 U.S. Dist. LEXIS 85505.
2012 WI. 2343202. at '4 (C.D. Cal. June 20. 2012) ("Plaintiff has offered no authonty, however, to support her position that a
loan servicer, trustee, assignee, nominee beneficiary. or even a successor in interest can be liable vicariously for the actions of
an originator."); Au v. Republic State Mod. Co., No. CIV. 11.00251 JMS, 2012 U.S. Dist. LEAS 106439. 2012 WL 3113147. at
'11 (D. Haw. July 31. 2012) ('lAIn assignee cannot be liable for unfair or deceptive acts that may have occurred when loan was
consummated. and ... liability for damages does not attach merely because one is an assignee") (internal alterations and
quotations omitted): Uy v. Wells Fargo Bank N.A.. No. CIV. 10-00204 ACK. 2011 U.S. Dist. LEAS 33629. 2011 WL 1236590.
at •10 (D. Haw. Mar. 28. 2011) (1Cpaims of fraud and violations of consumer protection laws are inappropriate to assert against
an assignee where there are no allegations that the assignee had any contact with the mortgagor or made any representations
to the mortgagor and the tactual basis for the clams occurred prior to assignment of the mortgage loan?), U.S. v Thompson
and Georgeson. Inc.. 346 F.2d 865. 889 (9th Cir. 1965) ("Merely as assignee ore does not become affirmatively sable for a
deficit in the accounts between his assignor and the other party to the assigned contract. Any such (93] liability would have to
be based upon an affirmative assumption. by the assignee, of the obligations of his assignor on the contract. Of won some
independent contractual arrangement?).
Second, Green Tree's assertion that it is not the proper party to Mr. Steadman's claims for
breach of contract and breach of the implied duty of good faith is mistaken. Contrary to
Green Tree's assertions, it is irrelevant that Green Tree was "not a party to the alleged"
loan modification agreement between Mr. Steadman and BoA. (Reply (DKt. # 33) at 8.)
BoA assigned to Green Tree "all beneficial interest under [Plaintiff's] Deed of Trust . . .
together with the note(s) and obligations therein described and the money due and to
become due thereon with interest and all rights accrued under said Deed of Trust." (Box
Decl. (Ex. 1) ("Assignment").) To the extent BoA and Mr. Steadman had previously
contracted to modify the note's terms, those modified terms were what Green Tree was
assigned. (See Mod. Agreement); Morse Elec. Prod. Corp. v. Beneficial Indus. Loan Co.,
90 Wn.2d 195, 579 P.2d 1341, 1342 (Wash.1978) (holding that an assignee cannot
acquire any rights in excess of what the assignor has the ability to transfer); Fed. Fin. Co.
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v. Gerard, 90 Wn. App. 169, 949 P.2d 412, 417 (1998) ("Our courts have consistently held
that an assignee's rights are coextensive with r14] those of the assignor at the time of
assignment."). And to the extent Green Tree's actions subsequent to the assignment
violate those modified terms, Green Tree is a proper defendant to a claim for breach of
contract.
Additionally, contrary to Green Tree's assertion, the fact that Freddie Mac owns the
underlying loan does not mean "there is no contract of any kind between Green Tree and
[Mr. Steadman]." (See Reply at 8.) Certain rights and obligations under that loan--most
pertinently, the rights to collect Mr. Steadman's monthly payments and, in the event of
default, to accelerate the loan and initiate foreclosure on Mr. Steadman's property, as—
have been assigned to Green Tree. (See Assignment; Box Decl. Ex. 2 (declaration by
Green Tree under penalty of perjury that it holds the promissory note evidencing Mr.
Steadman's loan).) As such, Mr. Steadman is contractually obligated to make monthly
payments to Green Tree--and Green Tree is contractually obligated to collect those
payments--in accordance with the terms of the Note and Deed of Trust. (See Note 116
(requiring Mr. Steadman to remit monthly payments to the note holder and authorizing the
note holder to accelerate the amount due if r15] a payment is missed), ¶ 8 (obligating Mr.
Steadman to "keep all of the promises made in this Note"), ¶ 10; Deed of Trust 1122
(permitting the lender to foreclose in the event of a default); (Ford Decl. Ex. 2 at 104-05
(notice of default identifying Green Tree as the "creditor' and stating that, if Mr. Steadman
failed to cure his default, the "creditor' could exercise remedies due under the loan
agreement, including foreclosure).) Green Tree--not BoA or Freddie Mac--is the entity that
allegedly foreclosed on Mr. Steadman's property in violation of the modified loan terms.
Green Tree--not BoA or Freddie Mac--has allegedly violated the servicing obligations as
set forth in the Note and Deed of Trust. Because Mr. Steadman is suing Green Tree for
violations of Green Tree's servicing obligations as set forth under the Note and Deed of
Trust, Green Tree is a proper defendant to Mr. Steadman's breach of contract and duty of
good faith claims.
C. Breach of Contract
Mr. Steadman contends that he entered into a loan modification agreement with BoA
before his loan was assigned to Green Tree, and that Green Tree's subsequent initiation of
ris]
foreclosure proceedings violated the modified terms of his loan. Green Tree raises
two arguments in response: (1) no valid modification agreement exists because Mr.
Steadman cannot prove that he accepted BoA's offer, and (2) the alleged modification
agreement is barred by the Statute of Frauds.
1. Acceptance
A valid contract requires an offer, acceptance and consideration. See Yakima Cnty. Fire
Protection Dist. No. 12 (West Valley) v. Yakima, 122 Wn.2d 371, 858 P.2d 245 (Wash.
1993). Acceptance of an offer must be identical to the offer or no contract is formed. Sea-
Van lnvs. Assocs. v. Hamilton, 125 Wn.2d 120, 881 P.2d 1035 (Wash. 1994). Therefore,
where the offeror specifies the manner of acceptance, no contract is formed if the
specification is not followed. See Nw Props. Agency, Inc., v. McGhee, 1 Wn. App. 305, 462
P.2d 249, 253 (1969); Corbit v. J. I. Case Co., 70 Wn.2d 522, 424 P.2d 290, 299 (Wash.
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1967) (finding no contract formation because the "offer clearly specifie[d] the time and
manner in which acceptance . .. was to be consummated" and the offeree had not
complied with the specifications); Johnson v. Safeco Ins. Co. of Am., 178 Wn. App. 828,
316 P.3d 1054, 1060 (2013) (finding no contract formation because the plaintiffs putative
acceptance did not meet the plain language of the offers requirements). Ordinarily,
whether there was mutual assent to the terms of an offer is a question of fact for the jury.
Keystone Land & Dev. Co. v. Xerox Corp., 152 Wn.2d 171, 94 P.3d 945, 949 (Wash.
2004).
Here, there is no dispute that Mr. Steadman did not comply with BoA's specified manner of
acceptance. (Steadman Dep. at 104:2-106:20.) Ordinarily, this failure would prevent
formation of a contract. ['17]See Corbit, 424 P.2d at 299. Mr. Steadman, however, claims
that Mr. Ngo waived the specified requirements when he told Mr. Steadman he "could
submit the final loan modification documents by bringing them to [Mr. Ngo's] office in
downtown Seattle" and "informed [Mr. Steadman] that [his] actions were sufficient to
accept the loan modification offer.'" (Steadman Decl. at 2.)
3 Green Tree moves to strike Mr. Steadman's testimony about Mr. Ngo's statements as hearsay. (See Reply at 2.) However, in
general, "oUr-of-court statements that are offered as evidence of legally operative verbal conduct are not hearsay.' United
States v. Pang. 362 F.3d 1187. 1192 (9th Cir. 2004). Because such statements have independent legal significance. they are
considered "verbal acts," and are exempted from the definition of hearsay. Id: see also Viall v. Scott. 943 F.2d 56 (9th Cr.
1991). Specifically. 'proof of oral utterances by the parties in a contract suit constituting the offer and acceptance which brought
the contract into being, are not evidence of assertions offered testimorially but rather of utterances verbal conduct to which the
law attaches duties and liabilities.' N.L.R.8. v. H. Koch 8 Sons. 578 F.2d 1287. 1290-91 (9th Cir. 1978): see also United States
v. Rubier. 651 F.2d 628. 630 (9th Cr. 1981) (-Facts of independent legal significance constituting a contract which is at issue
are not hearsay.") Accordingly, the Ninth Circuit held that ('18) testimony that a third party accepted a contract during an out-
of-court telephone conversation was not hearsay because it was not introduced to prove the truth of the third party's assertion,
but rather "only to show that [the third party] uttered words of assent. regardless of their truth.' H. Koch 8 Sons. 578 F.2d at
1290-91. The Ninth Circuit reasoned that "the truth of (the third party's] words was completely irrelevant, for to lead a person
reasonably to suppose that you assert to an oral agreement is to assent to it. contrary intentions notwithstanding." Id. internal
quotations and alterations omitted): see also Calif. Trucking Ass n v. Bhd of Teamsters 8 Auto Truck Drivers. Local 70. 679
F.2d 1275. 1291 (9th Cir. 1981) ('The out-of-court statement of the (company) representative was not offered for the truth of the
matter asserted; rather, the statement had an operative effect n the nature of a contract rejection wholly apart from the truth of
the assertion").
Similarly. here, Mr. Ngo's out-of-court statements are not introduced for their 'truth,' but rather to show that Mr. Ngo uttered
legally operative words that brought a contract into being. See H. Koch 8 Sons. 578 F.2d at 1290-91. Because Mr. Ngo's
representation that Mr. Steadman could tender acceptance in a different manner effectively modified or re-stated BoA's offer to
RN. Steadman. they r19] are utterances of verbal conduct. See id. The truth of the words is irrelevant, for to lead Mr.
Steadman to supposed that BoA assented to his different form of acceptance was to assent to it, contrary intentions (or
mistaken impressions) notwithstanding. See id. As such, Mr. Ngo's statements are rot hearsay. Therefore. the court denies
Green Tree's motion to strike. See Adair v. Safeco Ins. Co.. No. CV-O9-31-BUSEH-RKS. 2010 U.S. Dist. LEXIS 51185, 2010
WL 2079542. at '4 (D. Mont. May 24. 2010) ("Evidence of the alleged statement is evidence of a verbal act, an utterance that is
itself an operative fact giving rise to legal consequences. The statement is admitted to show that it actually occurred, not for the
truth of the statement's contents."). In so ruling, the court does not pass on Mr. Ngo's actual or apparent authority to make such
representations, or the extent to which the statements bind BoA See id.
An agent can bind his or her principal to a contract when the agent has either actual or
apparent authority. King v. Riveland, 125 Wn.2d 500, 886 P.2d 160, 165 (Wash. 1994).
"Both actual and apparent authority depend upon objective manifestations made by the
principal." Id. 'With actual authority, the principal's objective manifestations are made to
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the agent; with apparent authority, they are made to a third person." Id. "Such
manifestations will support a finding of apparent authority only if they have two effects." Id.
"First, they must cause the one claiming apparent authority to actually, or subjectively,
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believe that the agent has authority to act for the principal." Id. "Second, they must be such
that the claimant's actual, subjective belief is objectively reasonable.Nd.
4 "Actual authority may be express or implied." King. 886 P.2d at 165. "Implied authority is actual authority. cXcumstantialty
proved, which the principal is deemed to have actually intended the agent to possess." Id For example. lalUlhority to perform
particutar services for a principal carries with it the implied authority to perform the usual and necessary acts essential to carry
out the authorized services." Id. Because, at this stage. Mr. Steadman does not advance any facts or argument supporting a
finding of actual authority, the court does not address that theory in this order.
The court finds that a genuine issue of material fact exists as to whether BoA made
objective manifestations that caused Mr. Steadman to subjectively and reasonably believe
that Mr. Ngo had authority to either modify BoA's specified terms of acceptance or to
['21]
accept the modification agreement on BoA's behalf. One of the ways in which a
principal can cloak a person in apparent authority is "by appointing a person to a position,
such as that of manager or treasurer, which carries with it generally recognized duties; to
those who know of the appointment there is apparent authority to do the things ordinarily
entrusted to one occupying such a position." King, 886 P.2d at 165. BoA appointed Mr.
Ngo to the position of Assistant Vice President, Mortgage Specialist II. (See Ford Decl. Ex.
4 at 180-87.) When Mr. Steadman requested to participate in a loan modification program,
Wells Fargo assigned Mr. Ngo to assist him. (2d Steadman Dep. at 13:8-16.) Mr. Ngo was
Mr. Steadman's "main contact person" with respect to his loan modification. (2d Steadman
Dep. at 31:14-16.)
"One dealing in good faith with an agent who appears to be acting within the scope of his
authority is not bound by undisclosed limitations on the agent's power." King, 886 P.2d at
165. Mr. Ngo met with Mr. Steadman and helped Mr. Steadman submit a HAMP
application with proper documentation. (Steadman Decl. at 2; Steadman Dep. at 82:4-83:4;
2d Steadman Dep. at 13:1-14:21; Ford Decl. Ex. 4 at 180-87 (email from Mr. Ngo
arranging a meeting with Mr. ('22] Steadman and instructing him which documents to
bring), Ex. 2 at 50-53 (final HAMP application signed by Mr. Ngo and Mr. Steadman).)
When Mr. Steadman contacted Mr. Ngo regarding how to deliver his acceptance and Mr.
Ngo told him to bring the documents to his office, it could have reasonably appeared to Mr.
Steadman that Mr. Ngo was acting within the scope of his authority.
Mr. Steadman testifies that he subjectively believed Mr. Ngo had the authority to act on
behalf of BoA. (Steadman Decl. at 2-3; Steadman Dep. at 105:1-25.) And a jury viewing
these facts in the light most favorable to Mr. Steadman, Reeves, 530 U.S. at 150, could
reasonably find that Mr. Steadman's belief was objectively reasonable. See King, 886 P.2d
at 165. As such, summary judgment on the questions of acceptance and contract
formation is inappropriate. See Keystone Land, 94 P.3d at 949.
2. Statute of Frauds
Agreements that "by their terms are not to be performed in one year" fall within the statute
of frauds. RCW 19.36.010. So do contracts creating or evidencing any encumbrance on
real estate. RCW 64.04.010; RCW 64.04.020. Under the statute of frauds, such contracts
are unenforceable unless they are set forth in writing and signed by the party to be bound.
Family Med. Bldg., Inc. v. State, Dept of Soc. & Health Servs., 104 Wn.2d 105, 702 P.2d
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459, 461 (Wash. 1985); RCW 19.36.010; RCW 64.04.010; RCW 64.04.020. Full
performance by one party removes the case from the operation p23] of the statute.
Becker v. Lagerquist Bros., 55 Wn.2d 425, 348 P.2d 423, 430 (Wash. 1960). With respect
to contracts regarding real property, sufficient part performance can remove the agreement
from the statute of frauds. Berg v. Ting, 125 Wn.2d 544, 886 P.2d 564, 571 (Wash. 1995).
However, the doctrine of part performance does not apply to contracts that by their terms
are not to be performed in one year. Trethewey v. Bancroft-Whitney Co., 13 Wn. App. 353,
534 P.2d 1382, 1386 (Wash. 1975) ("[W]here the statute is directed solely to the time of
performance and not to the character or subject-matter of the contract, part performance
could not remove the ban of the statute without in effect repealing the statute.")
In the same vein, modifications of contracts falling within the statute of frauds must also be
made in writing and signed by the party against whom enforcement is sought. Anderson v.
Anderson, 128 Wash. 504, 223 P. 323, 324 (Wash. 1924). However, contract modifications
that have been executed, as well as executory modifications that have been sufficiently
partially performed, are exempt. Id.; see also Canso!. Elec. Distribs., Inc. v. Gier, 24 Wn.
App. 671, 602 P.2d 1206, 1210 (Wash. 1979); Oregon & W. R. Co. v. Elliott Bay Mill &
Lumber Co., 70 Wash. 148, 126 P. 406, 407 (Wash. 1912) (finding that an oral agreement
between a lessee and a sublessee to modify the terms of the lease was valid because it
was partially performed).
Here, it is undisputed that Mr. Steadman is unable to supply a copy of the modification
agreement signed by BoA.5 (See Steadman Dep. at 35:1-17.) As a result, the statute of
["
frauds would ordinarily render the alleged 24] modification of Mr. Steadman's loan
unenforceable. However, after examining the controlling law, the court concludes that, in
this situation, there is a question of fact as to whether Green Tree is estopped from
asserting the statute of frauds as a defense.
5 The cart notes that the absence of a Modification Agreement signed by BoA does not rule out a finding of a valid contract
See Jacob's Meadow Owners Ass'n v. Plateau 44 !LC, 139 Wn. App. 743. 162 P.3d 1153, 1165-66 (Wash. Ct. App. 2007)
(finding that signatures of the parties were not essential to a finding of mutual assert to enter into a contract): Carvallo v. Wells
Fargo Bank, NA 728 F.3d 878, 883 (9th Cir. 2013), as amended on rehg in part (Sept. 23. 2013) (disagreeing with a bank's
argument that, even upon successful completion of a Trial Period, there could be no loan modification contract unless and unit
the bank sect the borrower a signed copy of the Modification Agreement because the barks position "made the existence of
any obligation conditional solely on action of the bard and "allowed banks to avoid their obligations to borrowers merely by
choosing not to send a signed Modification Agreement. even though the borrowers made both accurate representations and the
required payments").
The statute of frauds applies for two reasons. To begin, it appears at first glance that Mr.
Steadman's loan, p25] by its terms, is not to be performed within one year. See RCW
19.36.010; Turning Point Cmty. Church of God in Christ v. Lee, 152 Wash. App. 1014, at
*3-4 [published in full-text format at 2009 Wash. App. LEXIS 2336] (2009).° After all, the
loan binds Mr. Steadman to make monthly payments to the lender over the course of 30
years. (See Note); Lectus, Inc. v. Rainier Nat. Bank, 97 Wn.2d 584, 647 P.2d 1001, 1003
(Wash. 1982) (finding that a contract calling for monthly payments over a period of five
years was within the statute of frauds). Because the doctrine of part performance is
inapplicable to contracts of this type, Trethewey, 534 P.2d at 1386, and Mr. Steadman
does not provide an agreement signed by BoA, the alleged oral modification would
ordinarily be unenforceable.
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6 See Emps. Ins. of Wausau v. Granite State ins. Co.. 330 F.3d 1214. 1220 (9th Cir. 2003) (stating that federal courts "may
consider unpublished state decisions. even though such opinions have no precedential value").
Upon further examination, however, the outcome is less clear-cut. In Washington, the test
for applying the statute of frauds is whether a contract "cannot be performed within one
year from its making." Winslow v. MeII, 48 Wn.2d 581, 295 P.2d 319, 322 (Wash. 1956)
(emphasis added). Courts "will examine the surrounding circumstances to ascertain the
terms of the contract and to determine whether, by those terms, the contract must of
necessity require more than one year to perform." Id.; see also Gronvold v. Whaley, 39
Wn.2d 710, 237 P.2d 1026, 1030 (Wash. 1951) ("We merely look[] to the circumstances to
['26]
ascertain whether the events required by the terms of the contract could not possibly
take place within a year."). 'That the contract was not performed within a year is of no
significance; nor does it matter that it was highly improbable that the contract could be
performed within one year." Gronvold, 237 P.2d at 1030.
Here, Mr. Steadman's loan permits him to prepay the amount due. (See Note ¶ 4.) As
such, it may be possible, albeit improbable, that the contract could be performed within
one year. See Wells Fargo Bank v. Main, 160 Wash. App. 1005, at *3 [published in full-text
format at 2011 Wash. App. LEXIS 369] (2011) (finding that a loan for $103,000.00 was
exempt from the statute of frauds because it was possible, no matter how improbable, that
it could be paid back within one year); Gronvold, 237 P.2d at 1031-32 ("Although it
appears highly improbable that the contract could be performed within one year, we cannot
say that the terms of the contract made performance impossible within that period;
therefore it is our opinion that this contract is not void.") Therefore, the court turns to the
second basis for applying the statute of frauds.'
7 Because, at the end of the day, the statute of frauds is applicable to the loan modification under both theories, the court does
not address the interplay between the theories.
The second reason Mr. Steadman's loan falls within the statute of frauds is that it is an
encumbrance on real property. p27] RCW 64.04.010; RCW 64.04.020; Algaier v. CMG
Mon., Inc., No. 13-CV-0380-TOR, 2014 U.S. Dist. LEXIS 112363, 2014 WL 3965180, at
*7 (E. D. Wash. Aug. 13, 2014) (finding that a loan secured by real property falls within the
statute of frauds under Washington law because it is an encumbrance on real property);
Turning Point Cmty. Church of God in Christ, 152 Wash. App. 1014, at *34 [published in
full-text format at 2009 Wash. App. LEXIS 2336] (same). Although the doctrine of part
performance is applicable, Mr. Steadman's evidence of part performance is insufficient to
remove the alleged modification from the operation of the statute.
"Where specific performance of [an] agreement is sought, the contract must be proven by
evidence that is clear and unequivocal and which leaves no doubt as to the terms,
character, and existence of the contract." Berg, 886 P.2d at 571. Courts consider three
elements to determine if there has been part performance of the agreement so as to
remove it from the statute of frauds: "(1) delivery and assumption of actual and exclusive
possession; (2) payment or tender of consideration; and (3) the making of permanent,
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substantial and valuable improvements, referable to the contract." Id. The burden is on the
party asserting the part performance to show acts "unequivocally referring to, and resulting
from, [an alleged) agreement." Fried! v. Benson, 25 Wn. App. 381, 609 P.2d 449, 455
(Wash. Ct. App. 1980).
Mr. Steadman's only evidence of part performance is that he made payments in the
modified amount r28] to BoA for eight months after the contract modification allegedly
occurred, and BoA accepted those payments. (Steadman Decl. at 3; Steadman Dep. at
116:11-16.) However, the Washington Supreme court has held that, of the three factors,
"consideration alone is insufficient evidence of part performance to take [a contract] out of
the statute of frauds." Berg, 886 P.2d at 571. More important, the court cannot say that
BoA's performance does not "leave no doubt as to the . . . existence of the contract." See
id. BoA notified Mr. Steadman twice after he began making modified payments that the
payments were insufficient, and he was in danger of defaulting. (Ford Decl. Ex. 2 at 78-88,
95-96; Steadman Dep. at 116:18-117:8,135:16-25.) BoA also specified that, by accepting
lower payments, BoA did not waive its right to full payment." (Ford Decl. Ex. 2 at 87-88.)
Because the acts allegedly constituting part performance do not "point unmistakably and
exclusively to the existence of the claimed agreement," the statute of frauds applies. See
Miller v. McCamish, 78 Wn.2d 821, 479 P.2d 919, 922 (Wash. 1971).
8 Mr. Steadman claims that BoA representatives told him to disregard the notices of default because his modification had been
p29)
approved, and he was only receiving the notices because their system was behind in formally processing the approval.
(Steadman Dep. at 113:13-117:11; Steadman Decl. at 2-3.) However, these out•ofcotrt statements are not admissible to prove
the truth of the matter asserted. Fed. ft Evid. 801(c), 802. Mr. Steadman has not established that any hearsay exception
applies. Therefore, Mr. Steadman cannot rely on these statements to show that his modification had in tact been approved.
The final question, then, is whether Green Tree may assert the statute of frauds defense in
this action. It is well-established that an "assignee steps into the shoes of the assignor,
and has all of the rights of the assignor." Mut. of Enumclaw Ins. Co. v. USF Ins. Co., 164
Wn.2d 411, 191 P.3d 866, 874-75 (Wash. 2008); Fed. Fin. Co., 949 P.2d at 417 ("[A]n
assignee's rights are coextensive with those of the assignor at the time of assignment.").
By corollary, "an assignee takes subject to defenses assertible against the assignor." Mut.
of Enumclaw Ins. Co., 191 P.3d at 875, n.10 (quoting Lonsdale v. Chesterfield, 99 Wn.2d
353, 662 P.2d 385, 389 (Wash. 1983)). As such, Green Tree can only enforce the loan
terms to the same extent as BoA was able to at the time of the assignment.
The Washington Supreme Court has held that "[a] party who promises, implicitly or
explicitly, to make a memorandum of a contract in order to satisfy the statute of frauds, and
r3O]
then breaks that promise, is estopped to interpose the statute as a defense to the
enforcement of the contract by another who relied on it to his detriment." Klinke v. Famous
Recipe Fried Chicken, Inc., 94 Wn.2d 255, 616 P.2d 644, 647 (Wash. 1980); see also Lige
Dickson Co. v. Union Oil Co. of Calif, 96 Wn.2d 291, 635 P.2d 103, 105 (Wash. 1981)
([D]efendant's failure to reduce the agreement with plaintiff to a writing, and plaintiff's
reliance on such promise, estopped defendant from asserting the statute of frauds as a
defense.") The court concludes that a genuine question of material fact exists as to
whether BoA implicitly promised Mr. Steadman that it would sign the loan modification
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delivered by Mr. Steadman, such that BoA would be estopped from asserting the statute of
frauds as a defense. See Klinke, 616 P.2d at 647.
Specifically, for the same reasons as discussed in the previous section regarding
acceptance, a jury could reasonably find that Mr. Ngo's representations to Mr. Steadman
constitute an express or implied promise on behalf of BoA make a written memorandum of
the loan modification. See supra § III.C.1; (Steadman Dep. at 105:1-106:20; 2d Steadman
Dep. 22:13-27:17; 28:7-29:8 (stating that he expected Mr. Ngo to sign the loan
modification agreement when he delivered it to him, and thought that he did sign it);
Steadman Decl. at 2 ("It was my understanding that Mr. Ngo signed the final modification
p31]
paperwork after he accepted it from me.").) The subsequent continued assurances
by BoA representatives to Mr. Steadman that BoA was in the process of finalizing his loan
approval also support such a finding.° (See Steadman Dep. at 113:13-117:11; Steadman
Decl. at 2-3).) Moreover, a jury could reasonably find that Mr. Steadman detrimentally
relied on BoA's promise to sign the contract in that he continued making modified
payments to BoA and Green Tree for over a year, and also apparently installed a new roof
and painted his house. (See Steadman Decl. at 3; Steadman Dep. at 116:11-16; Ford Ex.
4 at 192 (3/27/14 email from Mr. Steadman).) Because there is a genuine issue of material
fact as to whether BoA—and by extension, Green Tree--can assert the statute of frauds
defense, summary judgment on Mr. Steadman's breach of contract claim is inappropriate.
See Celotex, 477 U.S. at 323.
9 These out-of-court statements are admissible in this context because they are not offered to show the truth of the matter
asserted (namely, that Mr. Steadman's modification had been approved). Rather, they are offered to show (1) that the
statements occurred and (2) the effect the statements had on the listener, specifically. that Mr. Steadman could have
detrimentally relied cc the statements. r32] regardless of their truth. As such, they are admissible. See H. Koch 6 Sons. 578
F.2d at 1290-91: L.A. News Sew v. CBS Broad, Inc.. 305 F.3d 924. 935 (9th Cir.) opinion emended end superseded. 313 F.3d
1093 (9th Cir. 2002) ("Out-of- court declarations introduced to show the effect on the listener are not hearsay.") Accordingly, the
court DENIES Green Tree's motion to strike Mr. Steadman's account of those statements (see Reply at 2). For the same
reasons. Mr. Ngo's alleged statements to Mr. Steadman concerning the finalization of the contract are admissible.
D. Duty of Good Faith
"A duty of good faith and fair dealing is implied in every contract." Badgett v. Sec. State
Bank, 116 Wn.2d 563, 807 P.2d 356, 360 (Wash. 1991); see also Rekhter v. State, Dep't
of Soc. & Health Servs., 180 Wn.2d 102. 323 P.3d 1036. 1041 (Wash. 2014). This duty
obligates the parties to cooperate with each other so that each may obtain the full benefit
of performance. Badgett, 807 P.2d at 360. As discussed previously, Green Tree's
assertion that Mr. Steadman's claim for breach of the implied duty of good faith must fail
because there is no "direct" contractual relationship between Green Tree and Mr.
Steadman is incorrect. See supra § III.B; (Reply at 7.) The contractual rights and
obligations to collect payments from Mr. Steadman and to service the loan have been
assigned to Green Tree. (See Assignment.) As Mr. Steadman points out, Green Tree has
an implied duty to exercise those rights and perform those obligations fairly ['33] and in
good faith. See Rekhter, 323 P.3d at 1041. Therefore, the court denies Green Tree's
motion for summary judgment on Mr. Steadman's claim for breach of the duty of good
faith.
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In doing so, the court reiterates that Green Tree is not liable under this claim for alleged
breaches by BoA. In addition, the court notes that there is no "free-floating" duty of good
faith. Id. Instead, "the duty to cooperate exists only in relation to performance of a specific
contract term." Id. In other words, the duty of good faith "requires only that the parties
perform in good faith the obligations imposed by their agreement." Id. Therefore, in order
to ultimately prevail on this claim, Mr. Steadman must point to a specific contract term that
Green Tree did not perform in good faith.
E. Negligence
Green Tree argues that the economic loss rule bars Mr. Steadman's negligence claim.
(Mot. at 13.) "Historically, Washington applied the economic loss rule to bar a plaintiff from
recovering tort damages when the defendant's duty to the plaintiff was governed by
contract and the plaintiff suffered only economic damages. Donatelli v. D.R. Strong
Consulting Engineers, Inc., 179 Wn.2d 84, 312 P.3d 620, 623 (Wash. 2013). That rule
"attempted to describe the dividing line between the law of torts and the law of contracts."
['34]
Id. In 2010, however, Washington Supreme Court, "concluded that the term
'economic loss rule' was a misnomer and renamed the rule the 'independent duty doctrine'
to more accurately describe how [the] court determines whether one contracting party can
seek tort remedies against another party to the contract." Id. (citing Eastwood v. Horse
Harbor Found., Inc., 170 Wn.2d 380, 241 P.3d 1256, 1262 (Wash. 2010). Today, the
"independent duty doctrine continues to 'maintain the boundary between torts and contract'
in the place of the economic loss rule." Id. (quoting Elcon Constr., Inc. v. E. Wash. Univ.,
174 Wn.2d 157, 273 P.3d 965, 969 (Wash. 2012)). Accordingly, the court applies the
independent duty rule, rather than the economic loss rule, to Mr. Steadman's claims.
Under the independent duty doctrine, "an injury is remediable in tort if it traces back to the
breach of a tort duty arising independently of the terms of the contract." Eastwood, 241
P.3d at 1262. "When no independent tort duty exists, tort does not provide a remedy." Id.
The Washington Supreme Court has limited the application of the independent duty
doctrine to a "narrow class of cases" limited to "claims arising out of construction on real
property and real property sales." Donatelli, 312 P.3d at 623-24.
Additionally, the Washington Supreme Court has prohibited lower state courts from
applying the independent duty doctrine to bar tort claims "unless and until" p351 the
Washington Supreme Court decided that the doctrine applies to the particular tort claim at
issue. Elcon, 273 P.3d at 969.
Here, Mr. Steadman's negligence claim is predicated on allegations that Green Tree
inappropriately serviced his loan. Mr. Steadman obtained the loan to purchase his
residence, and the loan is secured by his residence. (See Not. Deed of Trust.) Therefore,
this claim "arises out of the purchase of real property. See Donatelli, 312 P.3d at 623-24.
The elements of a negligence claim are: (1) the existence of a duty, (2) breach of that duty,
(3) resulting injury, and (4) proximate cause. Degel v. Majestic Mobile Manor, Inc., 129
Wn.2d 43, 914 P.2d 728, 731 (Wash. 1996). Whether the independent duty doctrine
applies to negligence claims depends on whether the plaintiff identifies an alleged duty of
care separate and distinct from the parties' contractual duties. See Donatelli, 312 P.3d at
623-24.
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With respect to claims for negligence, the "existence of a duty is a question of law and
depends on mixed considerations of logic, common sense, justice, policy, and precedent."
Snyder v. Med. Sent Corp. of E. Wash., 145 Wn.2d 233, 35 P.3d 1158, 1162 (Wash.
2001). The "existence of a duty may be predicated upon statutory provisions or on
common law principles." Degel, 914 P.2d at 731.
Here, Mr. Steadman advances two bases for finding that Green Tree owed him a duty of
care. First, Mr. Steadman claims that Green Tree owed a duty to "properly r36] service
[Mr. Steadman's] loans in congruence with any contracts that exist related to [his] loan."
(Resp. at 15.) Because this duty, by definition, is identical to Green Tree's contractual
duties, the independent duty doctrine bars a negligence claim predicated on this duty. See
Eastwood, 241 P.3d at 1262
Second, Mr. Steadman claims that Green Tree owed a duty to "conduct a reasonable and
fair investigation in to [sic] the servicing history before taking over servicing of [Mr.
Steadman's] loan and whenever any disputes arise involving the loan's servicing." (Resp.
at 15.) Mr. Steadman does not identify any statutory provisions or common law principles,
let alone any precedent, supporting his position. (See id.); see also Degel, 914 P.2d at
731. Neither does he identify how the considerations of logic, common sense, justice, and
policy militate in favor of his position. See Snyder, 35 P.3d at 1162. Mr. Steadman's only
argument is that it would be "unreasonable" if Green Tree was not required to honor
contracts formed between Mr. Steadman and prior services. (Resp. at 15.) That argument,
however, does not address whether Green Tree owes a duty independent of those
contracts. Faced with a vacuum of authority, the court is unprepared and unwilling to rule
["37] that such a duty existed as a matter of law.'° Therefore, because Mr. Steadman is
unable to establish the existence of a duty of care, let alone a duty of care that is
independent from Green Tree's contractual duties, summary judgment on Mr. Steadman's
negligence claim is appropriate.
10 The determination of the existence of an alleged duty of care for the purposes of a negligence claim is similar. if not identical.
to the determination of the source of an alleged duty of care for the purposes of the independent duty doctrine. See Eastwood.
241 P.3d at 1262 ('Where this court has stated that the economic loss rule applies, what we have meant is that considerations
of common sense. justice, policy, and precedent in a particular set of circumstances led us to the legal conclusion that the
defendant did not owe a duty."). Therefore, in the akernative, and regardless of whether the independent duty doctrine applies
to Mr. Steadman's negligence claim. the court finds that Mr. Steadman's claim fails for an inability to establish a duty of care
owed by Green Tree to Mr. Steadman.
F. CPA
To a establish a CPA claim, a plaintiff must show: (1) an unfair or deceptive trade practice;
(2) that occurs in trade or commerce; (3) p38] an impact on the public interest; (4) injury
to the plaintiff in his or her business or property; and (5) a causal link between the unfair or
deceptive act and the injury suffered. Hangman Ridge Training Stables, Inc. v. Safeco Title
Ins. Co., 105 Wn.2d 778, 719 P.2d 531, 535 (Wash. 1986). Green Tree argues first that
Mr. Steadman cannot show an unfair or deceptive trade practice, and second that Mr.
Steadman cannot show damages caused by Green Tree's actions.
To begin, either unfair or deceptive conduct can form the basis for a CPA action. Klem v.
Wash. Mut. Bank, 176 Wn.2d 771, 295 P.3d 1179, 1187 (Wash. 2013). To base a claim on
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deceptive action, a "plaintiff need not show the act in question was intended to deceive,
only that it had the capacity to deceive a substantial portion of the public." Panag v.
Farmers Ins. Co. of Wash., 166 Wn.2d 27, 204 P.3d 885, 899 (Wash. 2009). Although the
Washington Supreme Court has not provided an explicit definition for "unfair acts," Klem,
295 P.3d at 1187, it has held that "an act is unfair if it . . . is unethical, oppressive, or
unscrupulous," id. at 1186. One federal interpretation, to which Washington courts
interpreting the CPA may look for guidance, states that a "practice is unfair if it causes or is
likely to cause substantial injury to consumers which is not reasonably avoidable by
consumers themselves and is not outweighed by countervailing benefits." Id.
Mr. Steadman contends that Green Tree's initiation of foreclosure r39] proceedings was
deceptive because it misrepresented that Mr. Steadman had defaulted on his loan
payments. (Resp. at 18.) Mr. Steadman also contends that Green Tree's failure to help him
finalize and process a loan modification to which Mr. Steadman's previous servicer had
agreed was unscrupulous. (Resp. at 19.) Because the CPA is to "be liberally construed
that its beneficial purposes may be served," RCW 19.86.920, the court concludes that Mr.
Steadman's allegations adequately support a finding of a deceptive or unfair trade
practice."
11 Ordinarily. whether undisputed conduct is unfair or deceptive is a question of law, not a question of fact. Lyons v. U.S. Bank
Net. Ass'n. 181 Wn.2d 775. 336 P.3d 1142. 1148 (Wash. 2014). However. where the allegedly deceptive conduct is disputed.
the material questions of fact must be resolved by a factfinder. Id Here. Green Tree disputes Mr. Steadman's allegations.
Therefore, whether GreenTree's conduct was unfair or deceptive is a question for the trier of fact. See id.: see also 6A Wash.
Prac.. Wash. Pattern Jury Instr. Civ. WPI 310.08 (6th ed.) (setting forth the definition of an unfair or deceptive act or practice for
the jury's determiretion).
Next, the court finds that Mr. Steadman has adequately raised a material issue of fact
regarding r40] damages. Under the CPA, "the injury requirement is met upon proof the
plaintiffs property interest or money is diminished because of the unlawful conduct. Panag,
204 P.3d at 899. Additionally, "plaintiff must establish that, but for the defendant's unfair or
deceptive practice, the plaintiff would not have suffered an injury." Indoor BillboarcWVash.,
Inc. v. Integra Telecom of Wash., Inc., 162 Wn.2d 59, 170 P.3d 10, 22 (Wash. 2007).
Personal injuries such as "mental distress, embarrassment, and inconvenience are not
recoverable under the CPA." Panag, 204 P.3d at 899.
Here, Mr. Steadman testifies that he has been charged default fees and foreclosure fees
as a result of Green Tree's allegedly invalid foreclosure on his property that he would not
have been charged otherwise. (See Steadman Decl. at 3.) "The injury element will be met
if the consumers property interest or money is diminished because of the unlawful conduct
even if the expenses caused by the statutory violation are minimal." Mason v. Mort. Am.,
Inc., 114 Wn.2d 842, 792 P.2d 142, 148 (Wash. 1990). Because Mr. Steadman provides
evidence that his money has been diminished because of Green Tree's allegedly unlawful
conduct, there is a question of fact regarding this element. Therefore, summary judgment
on Mr. Steadman's CPA claim is inappropriate.'2
Ng
12 In support of his CPA claim. Mr. Steadman attaches as evidence six consumer complaints filed with the Washington
State Attorney General against Green Tree for failing to credit loan modifications entered into prior to assignment. (See Box
Decl. Ex. 3.) Green Tree moves to strike this evidence as unauthenticatecl, hearsay, and impermissible character evidence.
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2015 U.S. Dist. LEXIS 58928, *
(See Reply at 2 ) Because the court does not rely on that evxlence is deciding this motion, the court DENIES Green Tree's
motion to strike as moot.
G. MLSA
Plaintiff concedes that his claim under the MLSA is preempted by the federal Real Estate
Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 et seq., because Green Tree
issued a timely, RESPA-compliant notice to Plaintiff when Green Tree began servicing
Plaintiff's loan. (See Resp. at 19); see also 12 U.S.C. § 2605(c)(2)(A); 12 C.F.R.
1024.33(d). Therefore, the court grants summary judgment on Plaintiffs MLSA claim.
IV. CONCLUSION
For the foregoing reasons, the court GRANTS in part and DENIES in part Defendant's
motion for summary judgment (Dkt. # 24).
Dated this 5th day of May, 2015.
/s/ James L. Robert
JAMES L. ROBART
United States District Judge
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