In this eight-year-old gender bias class action against Goldman Sachs, a federal district court agreed with plaintiffs’ objections to a magistrate’s report and recommendation, which had denied class action status, and certified a Rule 23(b)(3) class action on the women’s disparate impact and disparate treatment claims. The district court found, however, that individualized proof by Goldman Sachs would be required to rebut the claim that the employer maintained a boy’s club culture that discriminated against women, and considerations and intentions of individual managers or business units would “overwhelm” the common issues. Given that the magistrate, who recommended against class certification, had not considered superiority, the court explicitly found that a class action was superior to other available methods for fairly and efficiently adjudicating the employees’ surviving disparate impact and disparate treatment claims on behalf of a class estimated to encompass 1,700-2,300 members. The court also overruled various objections to the magistrate’s memorandum and order as to expert testimony on class certification (Chen-Oster v. Goldman, Sachs & Co., March 30, 2018, Torres, A.).
Class claims. The court’s 49-page opinion cited the case’s “long and circuitous history” and recounted it in some detail. The class covers employees at Goldman Sachs and its predecessors in the United States from September 10, 2004, through the resolution of this action (for New York City employees, beginning July 7, 2002) and is estimated at between approximately 1,762 and 2,300 persons. Alleging discrimination against class members in evaluation, compensation, and promotion, the plaintiffs generally claimed that Goldman Sachs (1) employs multiple facially neutral policies that have a disparate impact on women, (2) continues to employ those policies despite knowledge of their disparate impact on women, and (3) maintains a “boy’s club” culture that discriminates against women.
Procedural note on injunctive and declaratory relief. Much of the case has involved a dispute over whether former Goldman Sachs employees can obtain injunctive and declaratory relief against the firm, which was ultimately resolved in the plaintiffs’ favor. The court reasoned that because a former employee may face the same allegedly discriminatory policy after she is reinstated, she has standing to sue for injunctive and declaratory relief. On August 29, 2017, the Second Circuit denied Goldman Sachs’ petition for interlocutory review on this issue. The opinion here addressed only the portion of the employees’ motion that seeks class certification under Rule 23(b)(3). Class claims for injunctive and declaratory relief under Rule 23(b)(2) and (c)(4) are now being pursued on a separate track—scheduled to be fully submitted in late 2018.
Although the magistrate’s R&R determined that all factors of Rule 23(a)—numerosity, commonality, typicality, and adequacy—had been satisfied, the judge ultimately recommended against certifying a class pursuant to Rule 23(b)(3) because individual causation issues would predominate over class-wide issues. However, the court disagreed as to the disparate impact and disparate treatment claims.
“Common mode of exercising discretion.” Arguing against class certification, Goldman Sachs contended that Dukes requires the plaintiffs to show that Goldman Sachs managers, in making compensation and promotion decisions, applied its challenged 360 review, “quartiling” (essentially forced ranking), and “cross-ruffing” (promotional) processes uniformly, which it said they could not do because the challenged processes “contained general criteria” that “individual managers applied… in highly individualized ways.” But that’s not what Dukes meant, said the court. For the purposes of a disparate impact claim, plaintiffs must first show that the defendants used “a common mode of exercising discretion,” which need not strip managers of all flexibility in compensation and promotion decisions. If “common mode” were so defined, it would divest lower-level managers of all discretion, and, as a result, would render the phrase “common mode of exercising discretion” oxymoronic. The court declined to indulge the defendants’ semantic somersaults.
In Dukes, it was “the absence of a common job evaluation procedure” that precluded class certification on the plaintiffs’ disparate impact claim. The Wal-Mart employees in that case were “subject to a variety of regional policies that all differed,” rather than common policies or processes. Other courts also have interpreted Dukes to stand for the proposition that the absence of a company-wide policy was fatal to establishing commonality. But here there was no dispute that each of the class members was subject to the 360 review and quartiling processes, or that all promotions from the vice president position were awarded through the cross-ruffing process. Nor was it disputed that 360 reviews informed those quartiling decisions, which, in turn, informed promotion decisions, and which distinguished this case from Dukes, among others.
Express company policies. Moreover, the plaintiffs’ disparate impact claims were predicated on express company policies. Those common policies included: (1) the job evaluation processes developed by a central Goldman Sachs committee and applied to every single member of the class, and (2) the cross-ruffing process applied to every single possible promotion from vice president. These processes permitted managers to exercise discretion, but Dukes specifically anticipated a case where a discretion-based policy that “pervades the entire company” would support a disparate impact claim. Whether Goldman Sachs discriminated against the class via its use of 360 reviews, quartiling, or cross-ruffing raised yes-or-no questions that can each be answered “in one stroke,” reasoned the court, finding that the company employed “common mode[s] of exercising discretion” for the purposes of Dukes.
Significant proof of discrimination. Although the company challenged whether the employees had “significant proof” that these “common modes” were discriminatory, the court found sufficient the plaintiffs’ expert report that analyzed the impact of gender on evaluation, compensation, and promotion at Goldman Sachs and found statistically significant gender disparities. It found that women are paid less than otherwise similar men, on average, and the difference in pay is statistically significant; that women are evaluated lower on the 360-degree review and are less likely to be ranked in the top quartile than otherwise similar men; that women are paid less than similar men even when they receive the same quartile score; that differences between women’s and men’s quartile and 360-degree review ratings did explain some of the pay difference; and that women were promoted from vice president to managing director at a lower rate than one would expect if they were promoted in the same pattern as men were promoted.
Similar to their argument over the admissibility of the expert’s testimony, the defendants argued again that the expert should have tested whether the gender disparities “were the result of anomalies specific to individual Business Units.” But the court found this emphasis on business units misguided, given that the units were neither stable nor permanent, and the challenged performance evaluation processes did not occur on a unit-by-unit basis. 360 reviews, including quartiling, were the product of cross-unit collaboration, and division heads enforced quality control of ranking to be consistent with those reviews. The promotional process “cross-ruffing” also was an inter-business unit undertaking; cross-ruffers are not permitted to evaluate candidates in their own business unit. No conclusive promotion decisions are made at the business unit level. Given the instability of the business unit designation, the cross-unit evaluation of class members, and the funneling of virtually all final decision-making to division heads and either division-wide or firm-wide committees, the court found the expert’s aggregate analysis to be more than adequate proof.
Disparate treatment. Goldman also argued against the commonality of the employees’ disparate treatment claims, but the court found the plaintiffs had provided “significant proof” on their disparate treatment claims via statistical and anecdotal evidence. Their expert’s report showed that the company paid female vice presidents 21 percent less and associates 8 percent less, on average, than their male counterparts; approximately 22 percent and 50 percent of the observed pay differences, respectively, could be explained by the differences in female and male 360 review and quartile ratings. These pay differences were statistically significant and were sufficient, concluded the court, to meet the “significant proof” standard at the class certification stage.
Then there was anecdotal evidence, including internal complaints, external complaints, survey answers, emails, articles, business records, and declarations from class members detailing how women at Goldman Sachs had been subject to sexual assault, sexual harassment, sexualization (including a comment that “women are no good after [age] 27″), physical endangerment, public and private verbal abuse, libel and slander (a male employee implied that a sex tape of him with an unidentified woman was actually of him and a female coworker), gender favoritism (the comment that “I have to compensate the men better. They are heads of households”), pregnancy stereotyping, motherhood stereotyping, denial of employment opportunities (a vice president asked every man in one employee’s department and neighboring groups to join him on a golf outing, but did not ask her, though she played varsity golf on her high school team), and retaliation (after one woman raised complaints of gender discrimination, her manager questioned her “work ethic” and said she “was not working hard enough”). According to the court, the employees had provided “significant proof” of discriminatory disparate treatment; whether it conclusively proved discrimination was a matter for trial.
Typicality and adequacy. Although Goldman Sachs challenged whether the plaintiffs satisfied these criteria as well, the court found the company’s arguments were based at least in part on distortions or mischaracterizations of the plaintiffs’ testimony and that the named plaintiffs, in aggregate, adequately covered each of the class claims, even though not all of them covered all of the claims. That a couple of the plaintiffs also had unique retaliation claims did not render them inadequate or atypical.
Predominance. “The predominance requirement calls only for predominance, not exclusivity, of common questions,” instructed the court, finding—in contrast to the magistrate’s R&R—that the plaintiffs had met the predominance requirements as to some, but not all of their claims. It found predominance as to (1) the disparate impact claims, and (2) the disparate treatment claim predicated on the statistical evidence of disparate impact, but not on the disparate treatment claim predicated on the “boy’s club” theory.
Disparate impact. The plaintiffs had provided statistical evidence on the 360 review and quartiling processes to demonstrate a gender disparity at the statistically significant levels of 2.7 to 5.15 standard deviations. At this first step of the McDonnell Douglas inquiry, it was clear that the generalized proof of statistical evidence is sufficient for the predominance inquiry. The magistrate had then found that Goldman Sachs could successfully rebut the causation prong of a prima facie claim because “there are countless individualized factors that influence whether [the challenged processes] cause legally cognizable injury.” Under the magistrate’s analysis, the employer’s “attack on plaintiffs’ prima facie claims would shift the balance between common and individual factors,” but the court did not agree.
Generalized proof. Instead, the court reasoned that whether the challenged processes are job related or consistent with business necessity is a question of generalized proof. The employer applied the 360 review and quartiling processes to each and every member of the class, and, the plaintiffs’ expert’s generalized statistical proof could prove that the processes produced statistically significant gender disparities. The employer’s rebuttal of that proof would require it “to explain the business necessity of the processes, and, therefore, require proof on a general level, rather than individualized proof on a claim-by-claim basis to support its company-wide pay, promotion, and performance evaluation systems,” said the court, finding this to be the fundamental error in the magistrate’s R&R. If the plaintiffs’ statistical evidence makes out a prima facie claim of disparate impact, the company need not rebut the causal link between the challenged processes and every single class member’s claim, but instead establish that the challenged processes were a business necessity. “This is an issue capable of generalized proof,” the court concluded.
At the third step of a disparate impact case, “[t]he burden then shifts back to the plaintiff ‘to establish the availability of an alternative policy or practice that would also satisfy the asserted business necessity, but would do so without producing the disparate effect.’” This step would be subject to generalized proof as well, said the court.
Disparate treatment. Applying a similar analysis to the employees’ disparate treatment pattern-or-practice claim, the court found that the plaintiffs’ statistical evidence may well be able to make out a prima facie showing of disparate treatment, and their statistical evidence of gender disparities is the type of generalized proof that satisfies the predominance requirement. Goldman Sachs may rebut this by attacking the accuracy or adequacy of the plaintiffs’ statistics, or by accepting their statistics and producing nonstatistical evidence to show that it lacked such an intent, but either way, their rebuttal evidence with respect to the plaintiffs’ statistics would be the subject of generalized proof. Accordingly, the court found that the plaintiffs have established predominance on their first claim of disparate treatment.
But not “boys’ club” theory. However, regardless of whether generalized evidence could make out the pattern-or-practice elements of a prima facie case on the employees’ disparate treatment claim that Goldman Sachs maintained a “boy’s club” culture that discriminated against women, the employer’s individualized proof on rebuttal at the second step would overwhelm the common issues. Unlike the disparate impact claim, the considerations and intentions of individual managers or business units may well be relevant to the question of intentional discrimination, reasoned the court, which would likely require individualized inquiries into each incident of sexual assault, sexual harassment, stereotyping, impunity for male misconduct, and retaliation, to properly consider Goldman Sachs’ defenses. The balance between common and individual issues would shift, and individual issues would predominate, requiring the court to find that predominance was not satisfied on the employees’ “boy’s club” disparate treatment claim.
Superiority. The court had no trouble finding that a class action was superior to other available methods for fairly and efficiently adjudicating the surviving disparate impact and disparate treatment claims, however.
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