Appeals Court Rejects Gender Bias Class Action Against Costco, Remands

The 9th District Court of Appeals rejected the lower court’s decision to grant Class Action Status to claimants in a gender discrimination suit filed against Costco.  and remanded the case back to the lower for further review. 

SAN FRANCISCO—A federal appeals court’s rejection of class action status in a gender discrimination case against Costco Wholesale Corp., which is based on a landmark U.S. Supreme Court ruling, is a victory for employers, but only a partial one, legal experts say.

The ruling by the 9th U.S. Circuit Court of Appeals is the first major class action case to be decided since the Supreme Court’s June decision in Wal-Mart Stores Inc. vs. Betty Dukes et al., where the high court ruled against a proposed class of some 1.5 million members.

Employers had hoped that in light of Wal-Mart, the 9th Circuit would dismiss Shirley “Rae” Ellis et al. vs. Costco Wholesale Corp. While it did reverse the lower court’s grant of class certification, the appeals court remanded the case for further consideration, thus keeping it alive, observers say.

Kevin M. McGinty, a member of law firm Mintz Levin Cohn Ferris Glovsky & Popeo P.C. in Boston, said the ruling in Ellis “is typical, I think, of what you’ll be seeing in a lot of circumstances, where cases that were certified (as class actions) prior to the Wal-Mart decision are sent back down” to the district court to apply the principles set by the Supreme Court.

Not just from an employment law perspective, but from “a class action standpoint, it’s an interesting and potentially significant case as the lower courts try to flesh out and apply what the Supreme Court tried to do,” said Sean P. Wajert, a partner with Dechert L.L.P. in Philadelphia.

The plaintiffs accused Issaquah, Wash.-based Costco of promotional practices that discriminated against women. The district court issued its decision in the case in 2007, before the Supreme Court ruled in Wal-Mart.

“This complicated case requires us to consider a number of issues relating to class verification,” the three-judge 9th Circuit panel said in its unanimous Sept. 16 ruling. “Several of these issues have recently been clarified by the Supreme Court’s decision” in Wal-Mart.

Under Rule 23(a) of the Federal Rules of Civil Procedure, standards that are required for cases to become certified as class actions include whether there are questions of law common to the class, and whether the claims of the representative parties are typical of the class as a whole.

In its ruling in Ellis, the appeals court said the district court “abused its discretion by applying the wrong legal standard in its analyses of commonality and typicality” under Rule 23(a). “Accordingly, we vacate the district court’s findings on those issues and remand for application of the correct standard,” it ruled (see related story).

“The most significant takeaway is that the Wal-Mart decision is going to make it very difficult of for nationwide class actions in employment law to proceed,” said D. Gregory Valenza, a partner with San Francisco-based Shaw Valenza L.L.P. “It’s quite clear that the nationwide promotion practices of Costco are not going to be able to be litigated in a single class action.”

Anthony J. Oncidi, a partner with Proskauer Rose L.L.P. in Los Angeles, said he was pleased “that the 9th Circuit heard the Supreme Court loud and clear and applied across the board the most important aspects of the Wal-Mart decision in the similarly situated Costco litigation, so we now have an important holding from the 9th Circuit” on the issues of typicality and commonality in class action suits.

“It’s comforting to see that the 9th Circuit does accept that the Supreme Court has fundamentally changed the analysis that the district courts have to go through in California in the 9th Circuit,” said Marcia E. Goodman, a partner with Mayer Brown L.L.P. in Chicago.

However, Rae T. Vann, general counsel for the Washington-based Equal Employment Advisory Council, which submitted an amicus brief on behalf of Costco, said she is “somewhat disappointed” by the decision.

“I still think that the case should have been decertified altogether. I don’t see how the Costco plaintiffs can establish common issues of fact or law that are subject to single, classwide remedy, which is now the standard post-Dukes,” she said.

However, “I think it’s good that the court clearly now has directed the district court to conduct the type of rigorous analysis that’s always been called for, within the parameters set by the Supreme Court,” Ms. Vann said.

While his overall reaction is positive, Gregory V. Mersol, a partner with Baker & Hostetler L.L.P. in Cleveland, said the downside is “they remanded the case to the trial court for a second bite at the apple.”

Brad Seligman, executive director of the Berkeley, Calif.,-based Impact Fund, represented the Ellis and Wal-Mart plaintiffs. The plaintiffs knew that Ellis would have to be reconsidered “because the (Supreme Court) changed the rules” and asked that the case be remanded “for consideration in light of Dukes.” He said he is “quite confident” that Ellis will meet the standards needed to establish a class action.

However, Costco attorney Gerald L. Maatman Jr., a partner with Seyfarth Shaw L.L.P. in Chicago, said, “Plaintiffs’ theory met with a horrendous loss at the 9th Circuit.” While the 9th Circuit had no choice but remand the case, the Supreme Court’s guidelines in Wal-Mart “essentially doom any chances the plaintiffs would have of moving forward on the theories both as to the facts and as to the new legal standards,” he said.

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