Bloomberg News

Costco Women’s Bias Suit May Be Imperiled by Wal-Mart Decision

June 23, 2011

June 23 (Bloomberg) -- Costco Wholesale Corp. may be able to block women accusing it of gender bias from suing as a group because of the U.S. Supreme Court’s decision in a discrimination suit against Wal-Mart Stores Inc.

The women sued Costco in 2004, accusing the largest U.S. warehouse-club chain of limiting promotions of female employees to assistant general manager and general manager by failing to post such job openings. They won the right to sue as a group in a class action in 2007. Costco’s appeal of that order was put on hold while the Supreme Court considered Dukes v. Wal-Mart.

Parts of the Costco decision conflict with the Supreme Court’s June 20 ruling barring women suing Wal-Mart from pursuing their claims in a nationwide class action, according to legal experts. Michael Harper, a professor at Boston University School of Law, predicted the U.S. Court of Appeals in San Francisco will send the Costco case back to the trial judge for reconsideration.

“Bottom line: Under Dukes, a class cannot be certified for this case as framed,” Harper said of the 2007 order granting the Costco workers class status. “If I were Costco, I would be feeling pretty good about this decision.”

The Supreme Court said lawyers for women suing Bentonville, Arkansas-based Wal-Mart failed to point to a common corporate policy that led to gender discrimination at thousands of its U.S. stores. Lawyers for the women said they will reframe their legal arguments and, if necessary, pursue smaller group or individual suits.

‘Fatally Flawed’

The lawsuit against Costco features “the same lawyers using the same theories, but more importantly, the same experts to conjure up this guilt by statistical evidence,” Joel Benoliel, spokesman for Issaquah, Washington-based Costco, said yesterday in a phone interview.

“I think that our case will be dismissed by the Ninth Circuit for exactly the same reasons,” Benoliel said, referring to the San Francisco appeals court. “The case is fatally flawed and has been from the beginning.”

The Dukes decision provides an additional hurdle to class actions, requiring plaintiffs to show that a common issue “predominates,” Harper said. This will affect the Costco case because the original decision was made under a less stringent standard, which required only that employment lawyers show evidence of a common issue, he said.

Corporate Culture

The Supreme Court wasn’t convinced by arguments that the corporate culture at Wal-Mart harmed women, Harper said. That part of the Wal-Mart ruling may doom the Costco class as well, he said.

The Wal-Mart women’s “only evidence of a general discrimination policy was a sociologist’s analysis asserting that Wal-Mart’s corporate culture made it vulnerable to gender bias,” the Supreme Court found. The plaintiffs needed to provide significant proof that the company operated under a general policy of discrimination, Justice Antonin Scalia wrote for the majority, reversing the lower-court ruling.

“Because respondents provide no convincing proof of a companywide discriminatory pay and promotion policy, we have concluded that they have not established the existence of any common question,” Scalia said.

Harper said the appeals court is unlikely to reject or approve the 2007 decision granting the Costco women class-action status, which makes litigation less costly for plaintiffs and gives them more leverage in settlement talks.

Remand ‘More Likely’

“More likely they’ll remand it,” sending it back to the trial court, he said.

The Costco women should still be able to sue as a group, said Brad Seligman, a lead attorney for plaintiffs in both suits. Costco is a “much narrower case,” covering two types of managers who were affected by decisions made above the store level, Seligman said.

Dukes involved as many as 1.5 million current and former workers at Wal-Mart and Sam’s Club stores in the U.S. The potential class in Costco is less than 1,000 women, he said.

“We candidly conceded in Dukes that it could be unmanageable to do individual damages hearings for every class member,” Seligman said in an interview. Costco is “much smaller and much more manageable of a case,” he said.

“Overall, the Costco class action and their theories look a whole lot like the theories in the Wal-Mart case,” said Justin Page, a lawyer with Bass, Berry & Sims in Nashville, Tennessee. “They use some of the exact same experts. The evidence they used to show a common practice is very similar,” he said.

‘Uphill Battle’

“These plaintiffs will have an uphill battle,” said Page, who represents corporations in employment litigation and isn’t involved in the Wal-Mart or Costco cases.

The part of the Costco judge’s decision certifying a class for injunctive relief is vulnerable because it applies a section of the federal rules of procedure that the Supreme Court found in Wal-Mart was inadequate for allowing a class, Page said. “The Supreme Court in Dukes rejected that 9-0, and said the request had to be evaluated under another section that is more stringent,” he said.

The part of the Costco judge’s decision certifying the class for injunctive relief under one section of the federal rules of procedure is similar to the initial decisions allowing the Wal-Mart class, Page said. “The Supreme Court in Dukes rejected that 9-0, and said the request had to be evaluated under another section that is more stringent,” he said.

In the 2007 decision that allowed the Costco class action, U.S. District Judge Marilyn Hall Patel in San Francisco wrote that “the court finds that plaintiffs have presented strong evidence of a common culture at Costco which disadvantages women.”

Central Management

Plaintiffs will need to show a direct connection to discrimination beyond a common culture, Harper said.

“How does that common culture play out at the regional decision-making level?” Harper asked. “It looks like central management at Costco has little role to play” in making decisions on promotions to assistant general manager and general manager, he said.

“There is evidence that officers are involved but the key question is how involved are they,” he said. Under the Dukes decision, “you have to have some significant proof that the problem is centralized,” he said.

All cases alleging employer bias and seeking class certification, including the Costco suit, will be affected by the Wal-Mart decision, said Sara Kane, a New York lawyer who represents workers and isn’t involved in the Wal-Mart or Costco actions.

Next Steps

“People are saying there’s no hope, but there are ways to proceed,” she said. The appellate court will either send the Costco case back to the trial judge or ask the parties to submit new filings on whether the Dukes decision applies, she said.

The Wal-Mart workers complained that the company’s policy allowing discretion to local managers over pay and promotions harmed women. The Supreme Court found that the effect of such discretion couldn’t be considered a common question, a requirement for a class action.

“In a company of Wal-Mart’s size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction,” Scalia said.

Costco doesn’t use postings or an application process for open assistant and general manager positions, according to court papers. Costco contends decisions to promote a lower-level manager to an assistant manager are made by warehouse general managers with the involvement of district vice presidents, Patel said in her decision approving the Costco class. The company said upper management isn’t involved, Patel said.

Headquarters Sign-Off

The women suing the company disagree. The chief executive officer of Costco “signs off on every store manager position,” Seligman said. “The decisions for both positions are made at Costco headquarters.”

The Costco plaintiffs may be able to keep their class certification if a court agrees that “signing off” on promotions is enough to establish centralized decision-making, Kane said.

“The fact that the overall number is so much smaller may make it easier to present the more rigorous statistical evidence the Supreme Court required in Dukes,” said Page, the Nashville lawyer. “But that may not be enough because the evidence looks so similar.”

Costco in 2000 investigated the disparity of promotions of women into management and began posting jobs for lower-level manager positions. “There was a conscious decision made not to post vacancies for GM and AGM,” Patel said in her decision granting the class action.

Disparity’s Obligation

This gives plaintiffs an opening for winning a revised attempt at class certification by meeting the standard requiring predominance of a common issue, Harper said.

Recognizing disparity imposes an obligation on the company to do something about it and could provide a common question for purposes of a class action, he said.

The questions for Costco would be, “Did they know or should they have known there was a problem? Did they not properly respond to that in the central offices?” he said.

This may show negligence as a common question, he said. Lawyers for the women would have to “talk not only about commonality, but predominance” under the new rules, he said.

“It requires some development of the substantive law,” he said. “But that’s their best shot.”

The case is Ellis v. Costco Wholesale Corp., 04-03341, U.S. District Court, Northern District of California (San Francisco). The Wal-Mart case is Wal-Mart Stores v. Dukes, 10-00277, U.S. Supreme Court (Washington).

--With assistance from Greg Stohr in Washington. Editors: Michael Hytha, Peter Blumberg

To contact the reporters on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net; Karen Gullo in San Francisco federal court at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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