Gillian Miller v. Countrywide Bank, N.A. (In re Countrywide Fin. Corp. Mortg. Lending Practices Litig.)

Decision Date15 January 2013
Docket NumberNo. 12–5250.,12–5250.
Citation708 F.3d 704
PartiesIn re COUNTRYWIDE FINANCIAL CORP. MORTGAGE LENDING PRACTICES LITIGATION. Gillian Miller et al., Plaintiffs–Appellants, v. Countrywide Bank, N.A. et al., Defendants–Appellees.
CourtU.S. Court of Appeals — Sixth Circuit

OPINION TEXT STARTS HERE

ARGUED:Gary Klein, Klein, Kavanagh & Costello, LLP, Boston, Massachusetts, for Appellants. James W. McGarry, Goodwin Procter LLP, Boston, Massachusetts, for Appellees. ON BRIEF:Gary Klein, Klein, Kavanagh & Costello, LLP, Boston, Massachusetts, Wendy J. Harrison, Bonnett, Fairbourn, Friedman & Balint, P.C., Phoenix, Arizona, for Appellants. James W. McGarry, Goodwin Procter LLP, Boston, Massachusetts, Thomas M. Hefferon, Goodwin Procter LLP, Washington, D.C., for Appellees.

Before: MOORE, GILMAN, and KETHLEDGE, Circuit Judges.

OPINION

KAREN NELSON MOORE, Circuit Judge.

Eleven individuals (“the plaintiffs) who obtained home loans from DefendantAppellee Countrywide Bank, N.A. (Countrywide) seek class certification to challenge alleged racial disparities dating back to 2002 and resulting from Countrywide's loan-pricing policy for home mortgages. In re Countrywide Fin. Mortg. Lending Practices Litig., No. 08–MD–1974, 2011 WL 4862174, at *1 (W.D.Ky. Oct. 13, 2011) [hereinafter In re Countrywide ]. The only issue before this panel is whether the district court abused its discretion in finding that the plaintiffs' proposed class failed to satisfy Federal Rule of Civil Procedure 23(a)'s commonality requirement. We conclude that the district court did not abuse its discretion, and we AFFIRM.

I. BACKGROUND AND PROCEDURE

At issue is Countrywide's loan-pricing policy, which dictated how its home loans were priced across three channels of loan origination.1 The cost of a borrower's loan is expressed as an annual percentage rate (“APR”), which is measured in basis points, or hundredths of a percent. Countrywide established a borrower's APR through its loan-pricing policy, which has two components. The first, objective component determined an applicable “par rate” based on objective factors about the borrower and about the loan sought. 2 The plaintiffs present no complaints relating to Countrywide's objective calculation of par rates. R. 54 (Pls.' Mot. for Class Cert. at 5) (Page ID # 811).

The second, subjective component permitted local agents—be they loan officers, mortgage brokers, or correspondent lenders—to deviate from the par rate as follows. Loan officers and mortgage brokers could increase or decease a borrower's interest rate, and could charge borrowers with fees, provided that the total deviation fell within a specified range of the par rate. Appellee Br. at 6–9. Countrywide compensated loan officers and brokers for securing loans, and in some instances increased their compensation when a loan had a higher interest rate or additional fees.3 As to correspondent lenders, Countrywide purchased only those loans that satisfied its underwriting requirements, and paid a premium for loans with higher interest rates or extra fees. In re Countrywide, 2011 WL 4862174, at *1. Plaintiffs allege that, in all channels, Countrywide's agents had broad discretion to deviate from par rate, provided that they stayed within the applicable boundaries dictating the range of acceptable deviations from par. Appellant Br. at 6–7.

The plaintiffs challenge the subjective component of Countrywide's loan-pricing policy, which they claim disparately impacts minority borrowers. Id. at 5. They allege that vesting local agents with discretion to deviate from objective par rates led Countrywide to charge African–American borrowers on average 11.64 basis points and Hispanic borrowers 12.50 basis points over the APR paid by their white counterparts. R. 54 (Pls.' Mot. for Class Cert. at 12) (Page ID # 818). Plaintiffs seek to certify a class consisting of [a]ll African–American and Hispanic borrowers to whom Countrywide originated a residential-secured loan, including correspondent loans, between January 1, 2002 and the present.” Id. at 18 (Page ID # 824). They seek damages, injunctive relief, and declaratory relief for alleged violations of the Equal Credit Opportunity Act, 15 U.S.C. § 1691, the Fair Housing Act, 42 U.S.C. § 3601, and the Civil Rights Act, 42 U.S.C. §§ 1981–82. Id. at 24–25 (Page ID # 830–31); Appellant Br. at 2.

Under the Federal Rules of Civil Procedure, a plaintiff seeking to certify a class must satisfy four requirements under Rule 23(a) and at least one of several requirements under Rule 23(b). Fed.R.Civ.P. 23. Our attention here is on whether the plaintiffs have established that “there are questions of law or fact common to the class.” Fed.R.Civ.P. 23(a)(2). The district judge found that the proposed class cannot satisfy Rule 23(a)(2)'s commonality requirement in light of Wal–Mart Stores, Inc. v. Dukes, –––U.S. ––––, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011) (discussing Fed.R.Civ.P. 23(a)(2)). The district court denied certification, for which the plaintiffs sought an interlocutory appeal pursuant to Federal Rule of Civil Procedure 23(f). We exercised our discretion to hear the appeal.

II. STANDARD OF REVIEW

‘The district court maintains substantial discretion in determining whether to certify a class.’ Beattie v. CenturyTel, Inc., 511 F.3d 554, 559 (6th Cir.2007) (quoting Reeb v. Ohio Dep't of Rehab. & Corr., 435 F.3d 639, 643 (6th Cir.2006)), cert. denied,555 U.S. 1032, 129 S.Ct. 608, 172 L.Ed.2d 457 (2008). A district court's decision ‘will be reversed only upon a strong showing that the district court's decision was a clear abuse of discretion.’ Gooch v. Life Investors Ins. Co. of Am., 672 F.3d 402, 417 (6th Cir.2012) (quoting Beattie, 511 F.3d at 559–60). “An abuse of discretion occurs if the district court relies on clearly erroneous findings of fact, applies the wrong legal standard, misapplies the correct legal standard when reaching a conclusion, or makes a clear error of judgment.” Young v. Nationwide Mut. Ins. Co., 693 F.3d 532, 536 (6th Cir.2012).

III. COMMONALITY CLAIM

The plaintiffs' core contention is that the district court abused its discretion by failing to distinguish their challenge to Countrywide's subjective loan-pricing policy from the failed challenge to Wal–Mart's subjective pay-and-promotion practices in Dukes.4 The Supreme Court in Dukes faced a proposed class of 1.5 million women—all current or former Wal–Mart employees—alleging systematic discrimination on matters of pay and promotion in violation of Title VII of the Civil Rights Act. Subject to boundaries on the size of salary increases and on the minimal eligibility qualifications for promotion, “pay and promotion decisions at Wal–Mart are generally committed to local managers' broad discretion, which is exercised in a largely subjective manner.” Dukes, 131 S.Ct. at 2547 (internal quotation marks omitted).

To demonstrate “questions of law or fact common to the class,” Fed.R.Civ.P. 23(a)(2), a plaintiff must show that the claims in the proposed class “depend upon a common contention ... of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” Dukes, 131 S.Ct. at 2551. For a suit seeking to address “millions of employment decisions at once,” demonstrating a common contention means showing that “some glue hold[s] the alleged reasons for all those decisions together.” Id. at 2552 (emphasis in original). A companywide policy could serve as glue if it affected all class members and caused a disparate impact. But in the context of a broad delegation of decisionmaking to the discretion of local managers, the Court observed the following:

The only corporate policy that the plaintiffs' evidence convincingly establishes is Wal–Mart's “policy” of allowing discretion

by local supervisors over employment matters. On its face, of course, that is just the opposite of a uniform employment practice that would provide the commonality needed for a class action; it is a policy against having uniform employment practices.

Id. at 2554 (emphasis in original). Instead, the Court considered whether there was some other glue—“a common mode of exercising discretion that pervades the entire company”—holding these individual decisions together. Id. at 2554–55. Stating that “it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction,” id. at 2555, the Court concluded that the plaintiffs had not identified a common contention—one uniting millions of individual discretionary actions by local managers—that was suitable for classwide resolution.

The district court did not abuse its discretion in finding that Dukes forecloses the instant proposed class from establishing commonality. Both cases challenge policies that grant broad discretion to local agents: Countrywide to local agents who varied home-loan prices, and Wal–Mart to managers who made pay-and-promotion decisions. In both cases, the exercise of discretion is cabined inside clear boundaries: Wal–Mart managers could grant pay raises only of a certain amount and could promote only pre-qualified employees, while Countrywide agents could vary home loans only within a specified range of the predetermined par rate. In neither case do plaintiffs allege that local actors exceeded these boundaries. And in neither case is it asserted that, for acts of discretion taken within these boundaries, a uniform policy or practice guides how local actors exercise their discretion, such that the corporate guidance caused or contributed to the alleged disparate impacts. The plaintiffs claim that [t]he discretion Countrywide has given its sales force is exercised in a common way—by limited variation of the par rate.” Appellant Br. at 7. This statement conflates range with mode. Both Wal–Mart and Countrywide...

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