Opinion
Case No. C-3-98-391
March 3, 2000
Ann L. Lugbill, Reuben A. Guttman, Thomas W. Osburne and Mary Ellen Signorille for plaintiff.
Jack F. Fuchs, Peter K. Newman and Stephen L. Richey for defendant.
In 1997, EGG Mound Applied Technologies, Inc. ("EGG"), which was then the United States Department of Energy's ("DOE") contractor for the Mound nuclear weapons facility, decided that it did not want to continue in that position. As a consequence, the DOE selected the Defendant to become its contractor for the Mound. The Plaintiffs, who had been employed at the Mound by EGG, were not hired by the Defendant. They bring this litigation, on behalf of themselves and a class of similarly situated former Mound employees, alleging that the Defendant declined to hire them on the basis of their age and because they would have become vested in the employee benefit plans if they had been hired by the Defendant. In their Complaint, the Plaintiffs set forth two claims under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001, et seq.; a claim under the Age Discrimination in Employment Act, 29 U.S.C. § 621, et seq.; and a state law claim of age discrimination under Chapter 4112 of the Ohio Revised Code.
According to the Plaintiffs, the Defendant was contractually obligated to continue the employee benefit plans, which were in existence before it became the Mound contractor. The Defendant has not contested that assertion.
The Plaintiffs' two claims under ERISA, which are quite similar, are based upon the theory that the Defendant decided not to hire certain workers, because they would, in the near future, vest in certain employee benefit plans (Plaintiffs' First Claim for Relief) and employee welfare benefit plans (Plaintiffs' Second Claim for Relief). Under ERISA, the terms "employee benefit plan" and "employee welfare benefit plan" are defined in the same manner. See 29 U.S.C. § 1002(1). Therefore, this Court will utilize only the phrase "employee benefit plan."
Pursuant to Rule 23 of Federal Rules of Civil Procedure, the Plaintiffs moved to certify this as a class action with two subclasses. See Doc. #13. On August 30, 1999, Magistrate Judge Michael Merz issued a Report and Recommendations (Doc. #99), recommending that this Court overrule the Plaintiffs' motion requesting class certification. In particular, that judicial officer concluded that the Plaintiffs had failed to demonstrate the commonality and typicality requirements contained in Rule 23(a)(2) and (3). This case is now before the Court on the Plaintiffs' Objections to the Magistrate Judge's Report and Recommendations (Doc. #114). As a means of analysis, the Court will initially review the legal standards which are applicable to motions requesting that a court certify a lawsuit as a class action, following which it will turn to the Plaintiffs' Objections to the Magistrate Judge's conclusion.
One would be an "age" class (i.e., those who were denied employment by the Defendant because of their age), while the other would be an "ERISA" class (i.e., those who were denied employment by the Defendant in order to prevent them from vesting for benefits under the existing employee benefit plans).
This Court must conduct a de novo review of Judge Merz' Report and Recommendations. See U.S. Fidelity and Guaranty Co. v. Thomas Solvent Co., 955 F.2d 1085, 1088 (6th Cir. 1992) (noting that District Court must conduct a de novo review of dispositive motions, such as those mentioned in 28 U.S.C. § 636(b)(1)(A)). Motions to certify a class action are included among the motions mentioned in § 636(b)(1)(A).
A party, seeking to maintain a lawsuit as a class action, must initially establish the four prerequisites of Rule 23(a).See e.g., Sprague v. General Motors Corp., 133 F.3d 388, 397 (6th Cir.) (en banc), cert. denied, 118 S.Ct. 2312 (1998); In re American Medical Sys., Inc., 75 F.3d 1069, 1079 (6th Cir. 1996). Rule 23(a) provides:
Unquestionably, the burden of establishing the four prerequisites contained in Rule 23(a) is upon the party seeking class certification. See e.g., In re Medical Sys., 75 F.3d at 1079 ("The party seeking the class certification bears the burden of proof."). See also, General Telephone Co. v. Falcon, 457 U.S. 147, 161 (1982) (Class actions "may only be certified if the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied."). Although many other reported decisions state that the party seeking certification carries this burden, research has found only one reported case which defines that burden, whether as being the preponderance of evidence or otherwise. In Ilhardt v. A.O. Smith Corp., 168 F.R.D. 613, 617 (S.D.Ohio 1996), Judge Weber indicated that the party seeking certification had burden of proving those four prerequisites by the preponderance of the evidence. This Court agrees with Judge Weber that the appropriate burden to impose upon the Plaintiffs herein is the preponderance of the evidence standard. There is no basis for imposing a higher standard, such as proof by clear and convincing evidence, than that which is applicable to the underlying claim or claims of the party requesting certification. One might argue that a lesser burden, such as establishing a prima facie case that the prerequisites of Rule 23(a) have been satisfied, is applicable, particularly when, as in this litigation, the issue has been decided on papers without an evidentiary hearing having been conducted. This Court does not err, however, by requiring the Plaintiffs to establish the prerequisites of Rule 23(a) by the same measure of proof that is applicable to their underlying claims, given that the preponderance of the evidence standard merely requires that they demonstrate that it is more likely than not that a particular requirement of Rule 23(a) has been satisfied. However, it bears emphasis that, "`[i]n determining the propriety of a class action, the question is not whether the plaintiff or plaintiffs have stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met.'" Eisen v. Carlisle Jacquelin, 417 U.S. 156, 178 (1974) (quoting Miller v. Mackey Int'l, 452 F.2d 424, 427 (5th Cir. 1971)). See also, Redditt v. Mississippi Extended Care Centers, Inc., 718 F.2d 1381, 1387-88 (5th Cir. 1983) (concluding that District Court had erred in denying motion to certify in employment discrimination case, because that decision was seemingly based upon conclusion that plaintiff had failed to establish by the preponderance of the evidence that the defendant had engaged in discrimination). Thus, this Court must determine whether the Plaintiffs have established the four prerequisites of Rule 23(a) by the preponderance of the evidence and not whether they have established their claims for relief by that quantum of proof.
(a) Prerequisites to a Class Action. One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
As is indicated, Judge Merz recommended that this Court deny the Plaintiffs' request to certify this litigation as a class action, because they had failed to demonstrate either commonality or typicality. In Sprague, the Sixth Circuit discussed those two components of Rule 23(a):
Judge Merz recommended that this Court find that the Plaintiffs had met the other two requirements of Rule 23(a), numerosity and adequacy of representation. In its Memorandum in Opposition to the Plaintiffs' Objections (Doc. #128), the Defendant suggests that the flagrant misrepresentation by Plaintiffs' counsel in those Objections serves as the basis for concluding that the Plaintiffs will not adequately represent the class. Since the Defendant did not object to the Magistrate Judge's recommendation, this Court declines to address the Defendant's argument concerning adequacy of representation. See Thomas v. Arn, 474 U.S. 140 (1985); United States v. Walters, 638 F.2d 947, 949-50 (6th Cir. 1981). Moreover, if it were to address that assertion, it would reject same, since it cannot agree with the Defendant that Plaintiffs' Objections contain misrepresentations.
The commonality requirement deals with shared questions of law or fact. Although Rule 23(a)(2) speaks of "questions" in the plural, we have said that there need only be one question common to the class. American Med. Sys., 75 F.3d at 1080. It is not every common question that will suffice, however; at a sufficiently abstract level of generalization, almost any set of claims can be said to display commonality. What we are looking for is a common issue the resolution of which will advance the litigation.
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The class of early retirees fails the typicality test of Rule 23(a) as well. This test "limit[s] the class claims to those fairly encompassed by the named plaintiffs' claims." American Med. Sys., 75 F.3d at 1082 (citation and quotation omitted).
"Typicality determines whether a sufficient relationship exists between the injury to the named plaintiff and the conduct affecting the class, so that the court may properly attribute a collective nature to the challenged conduct. . . . A necessary consequence of the typicality requirement is that the representative's interests will be aligned with those of the represented group, and in pursuing his own claims, the named plaintiff will also advance the interests of the class members." Id. (citing 1 Herbert B. Newberg and Alba Conte, 1 Newberg on Class Actions, § 3-13, at 3-75, 76 (3d ed. 1992) (internal quotations omitted)).133 F.3d at 397, 399. The Supreme Court has noted that the commonality and typicality requirements "tend to merge," because "[b]oth serve as guideposts for determining whether . . . the named plaintiff's claim and the class claims are so inter-related that the interests of the class will be fairly and adequately protected in their absence." General Telephone Co. v. Falcon, 457 U.S. 147, 157 n. 13 (1982). Applying these standards, de novo, to the evidence, this Court concludes that the Plaintiffs have established, by the preponderance of the evidence, the commonality and typicality requirements. Accordingly, for reasons which follow, this Court sustains the Plaintiffs' Objections to the Magistrate Judge's Report and Recommendations denying class certification.
In Sprague, the plaintiffs alleged that their former employer was liable to them, as a result of its having altered their retiree health insurance benefits. Among other claims, the plaintiffs asserted promissory estoppel claims under ERISA, which the District Court certified under Rule 23. The Sixth Circuit reversed, concluding that the commonality and typicality elements had not been met, since promissory estoppel claims require individualized proof. Herein, the Plaintiffs have not asserted any type of estoppel claims; therefore, the Sixth Circuit's precise holding in Sprague (i.e., its conclusion that estoppel claims do not meet the commonality and typicality requirements of Rule 23(a)) is not relevant in this matter.
As Judge Merz noted, the Plaintiffs contend that the commonality and typicality elements are met by the presence of one overarching fact question in this litigation, to wit: did the Defendant create and carry out a scheme to discriminate against them and the class they seek to represent on the basis of their age and because they would, before long, vest for benefits under the employee benefit plans. See Doc. #99 at 5. In particular, the Plaintiffs have alleged that the Defendant sought to reduce its costs by seeking to hire younger workers, who would not retire or otherwise become eligible to participate in one of the employee benefit plans during the time that it was the DOE's contractor.See Doc. #1 at ¶ 33. According to the Plaintiffs, before making offers of employment to any employees of EGG, the Defendant deliberately set out to obtain confidential information about those employees, including their age, compensation and eligibility for benefits under the employee benefit plans. Id. at ¶ 34. The Plaintiffs also allege that the Defendant employed that confidential information to discriminate against the Plaintiffs and the class they seek to represent, when it made the hiring decisions. Id. at ¶ 36. That judicial officer noted that the question of whether such a scheme existed was "obviously" an important question of fact and that the claims of the named Plaintiffs, with respect to the harm they suffered as a result of that scheme, appeared to be typical of the claims of the class members. Id. However, Judge Merz recommended that this Court find that the commonality and typicality requirements were not met, because the evidence did not support a finding that the alleged company-wide policy or scheme existed. In large measure, he based that recommendation upon the affidavit of Sharon Hairston ("Hairston"), an employee of the Defendant. In her affidavit, Hairston explained that Defendant had sent a team of managers to the Mound to select a workforce and that those managers made decentralized and individualized hiring decisions within their respective work areas. Judge Merz concluded that Hairston's affidavit provided evidence that the Defendant's "decisions to hire or not hire EGG employees at the Mound, whether or not discriminatory on the basis of age or ERISA plan qualification, were not made by any one person or pursuant to any policy." Id. Concluding that the Plaintiffs had not presented sufficient evidence to rebut Hairston's affidavit, that judicial officer recommended that this Court find that the Plaintiffs had failed to demonstrate commonality and typicality. Id. at 5-6. This Court rejects that recommendation, because it respectfully concludes that Judge Merz placed too much credence upon Hairston's affidavit and dismissed the Plaintiffs' evidence to the contrary.
Section 510 of ERISA makes it unlawful to "discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary [of an employee benefit plan] . . . for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan." 29 U.S.C. § 1140.See also, Inter-Modal Rail Employees Assn. v. Atchison, Topeka Santa Fe Railway Co., 520 U.S. 510 (1997).
In the relevant portions of her affidavit, which were quoted by Judge Merz, Hairston stated:
3. BWO [Defendant] sent a transition team of managers to Mound to select [its] workforce.
4. These BWO Managers made decentralized hiring decisions regarding positions within their respective work areas.
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14. BWO made its hiring decisions between August 1, 1997 and September 30, 1997.
15. In making its hiring decisions, BWO employed a decentralized decision making process whereby multiple managers made individual determinations in filling their staffing needs.See Doc. #21.
The Plaintiffs argue that Judge Merz improperly decided the merits of their claims in his Report and Recommendations. As the Supreme Court has indicated, a court may not "conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action." Eisen v, Carlisle Jacquelin, 417 U.S. 156, 177 (1974). See also,Weathers v. Peters Realty Corp., 499 F.2d 1197, 1201 (6th Cir. 1974) ("when determining the maintainability of a class action, the district court must confine itself to the requirements of Rule 23 and not assess the likelihood of success on the merits"). The Sixth Circuit has explained that Eisen and Weathers "merely stand for the proposition that when a district court is determining whether a class action may properly be maintained under Federal Rule of Civil Procedure 23, the relative merits of the underlying dispute are to have no impact upon the determination of the propriety of the class action." Marx v. Centran Corp., 747 F.2d 1536, 1552 (6th Cir. 1984). For reasons set forth below in the text, this Court rejects the Magistrate Judge's recommendation and concludes that the Plaintiffs have established commonality and typicality; therefore, it is not necessary to decide whether that judicial officer improperly addressed the merits of the Plaintiffs' claims when recommending against class certification.
In addition, the Plaintiffs have argued that they were denied a fair opportunity to present their request for class certification, because of the failure of the Defendant to comply with its obligations to provide discovery. Once again, since the Court determines that the Plaintiffs have established the commonality and typicality requirements contained Rule 23(a), it is not necessary to decide whether the Defendant's asserted failure to provide discovery denied them such an opportunity.
Hairston's affidavit does not foreclose the possibility that the Defendant decided which of the Mound employees to hire on the basis of age or temporal proximity to becoming vested in the employee benefit plans. The statements in that affidavit simply do not establish the absence of the alleged company-wide policy or scheme. Although Hairston has stated that a number of the Defendant's managers made decentralized and individualized decisions, when determining which of EGG's employees to hire, she has not indicated that they made those decisions without reference to the company-wide scheme or policy in which the Defendant is alleged to have participated. She has also not indicated whether those managers had access to information, concerning the age and temporal proximity to vesting of the Mound employees, when they were making the hiring decisions. Merely because the hiring decisions were made by a number of the Defendant's managers on a localized basis, does not mean that those decisions were not in accordance with a company-wide policy or scheme to discriminate against potential employees on the basis of their age and because they would soon become vested in the employee benefit plans. Despite the statements of Hairston in her affidavit, it is entirely possible that, as part of the decentralized and individualized decision making process, the Defendant's managers put the alleged policy or scheme into effect, by considering the age and the closeness to vesting of the potential employees when deciding which of the Mound employees to hire.
Moreover, the Plaintiffs have presented circumstantial evidence, supporting their proposition that such a company-wide policy or scheme existed. For instance, the Plaintiffs have presented affidavits of William Feinberg ("Feinberg"), their statistician, in which he opines that Mound employees over the age of 40 had a statistically significant likelihood of not being hired by the Defendant and that the likelihood of that result increased with an employee's age. Feinberg also opined that those Mound employees who were close to becoming vested in the employee benefit plans had a statistically significant likelihood of not being hired by the Defendant. In addition, the Plaintiffs have presented deposition testimony from William Pack ("Pack"), who was employed by the Defendant in its Government Group and worked on the bid to obtain the DOE contract at the Mound. Pack was questioned about documents that he had written to his superiors before Defendant became the contractor at the Mound. In those documents, which Pack conceded he had written, he discussed the costs which the Defendant would incur for early retiree health benefits after it became the contractor at the Mound. In one document, Pack explained that his July, 1997, estimate of such costs was considerably higher than a previous estimate. See Pack Dep. at 117-18 and Ex. 240-41. Pack based his computations on future costs on certain assumptions concerning the number of employees, eligible for early retiree health benefits, who would be laid off during the course of the contract between the Defendant and the DOE. Id. Pack also explained during his deposition that the Defendant would not be responsible for paying such benefits of those employees who were laid off, before it became the contractor. Id. at 120. This evidence convinces the Court that the Defendant had a significant concern about the future cost of early retirement benefits. One manner by which the Defendant could have eliminated or minimized such costs would have been to decline to hire employees who would soon become vested in the plans under which those benefits were to be provided. In addition, the Plaintiffs presented other circumstantial evidence to support their theory that the Defendant had a company-wide plan or scheme to decline to hire older workers and those who were near the age of vesting. For instance, Plaintiff Donna Shepard testified during her deposition that Hairston had told her that the Defendant was targeting, for non-hiring, older workers and those workers with more than 30 years of service. See Shepard Dep. at 128. Drucilla Pollard, who was employed at the Mound on personnel matters, testified that she had seen two lists of potential employees, which contained their ages and their number of years of service. Pollard Dep. at 30-34, 110, 121 and 123.
The foregoing evidence causes this Court to find that the Plaintiffs have established commonality and typicality by the preponderance of the evidence. As is indicated above, those two components of Rule 23(a) tend to merge. General Telephone,supra. Commonality is established when there is a common issue of fact or law, the resolution of which will advance the resolution of a lawsuit. Sprague, 133 F.3d at 397. The typicality requirement focuses upon "whether a sufficient relationship exists between the injury to the named plaintiff and the conduct affecting the class, so that the court may properly attribute a collective nature to the challenged conduct." Id. at 399. The Plaintiffs allege that the Defendant engaged in a common, company-wide scheme of discriminating against potential employees on the basis of their age and because they would soon become vested in the employee benefit plans, and set forth in their Complaint how that scheme was allegedly put into effect (i.e., by obtaining confidential information about the employees at the Mound and using that information when deciding which Mound employees to hire). The Plaintiffs' allegations have been buttressed with the circumstantial evidence discussed above. Therefore, this Court is not faced with a case in which the named plaintiffs merely allege that the common issues of fact or law exist between their claims and those of the class they seek to represent. Whether such a company-wide scheme existed is a question that is common to the claims of the named Plaintiffs and the members of the class they seek to represent, and deciding whether such a scheme existed will advance the resolution of this litigation. Based upon the circumstantial evidence presented by the Plaintiffs herein, this Court concludes that the Plaintiffs have established, by the preponderance of the evidence, the requisite commonality between their claims and those of the putative class. In addition, since the Plaintiffs allege that they and the class they seek to represent were all injured by the implementation of the alleged company-wide scheme, a sufficient relationship between their injury and the conduct affecting the class exists for this Court to conclude that the typicality requirement has been met.
In sum, the Court rejects the recommendation of Judge Merz that the Plaintiff's request for certification be denied, because, based upon Hairston's affidavit, they have failed to establish commonality and typicality, as required by Rule 23(a)(2) and (3). In addition, this Court concludes that the Plaintiffs have established, by the preponderance of the evidence, both the typicality and commonality requirements. Accordingly, this Court sustains the Plaintiffs' Objections (Doc. #114) to the Magistrate Judge's Report and Recommendations (Doc. #99).
The Plaintiffs have cited the recent decision by the Second Circuit in Caridad v. Metro-North Commuter Railroad, 191 F.3d 283 (2nd Cir. 1999). According to the Defendant, that decision can be distinguished from the instant litigation. In reaching its conclusion that the Plaintiffs have established the commonality and typicality requirements, this Court has applied the Sixth Circuit's standards for ascertaining whether those two requirements have been met to the facts and circumstances of this litigation, rather than attempting to analogize those facts and circumstances to a decision by another court. Therefore, the Court declines to resolve the parties' dispute over whetherCaridad is distinguishable.
The Plaintiffs have devoted a portion of their Objections to discussing § 3161 of the National Defense Authorization Act for 1993, codified at 42 U.S.C. § 7247h. As the Defendant points out, that legislation is irrelevant, since the Plaintiffs have not set forth a claim thereunder. In ruling on the Plaintiffs' Objections, this Court has not relied in any regard upon the Plaintiffs' arguments concerning § 3161.
Since the Defendant has not objected to Judge Merz's recommendation that this Court find that the numerosity and adequacy or representation components of Rule 23(a) have been met, this Court adopts same. Consequently, this Court concludes that the Plaintiffs have met, by the preponderance of the evidence, all of the requirements of Rule 23(a). Of course, that conclusion, alone, does not mean that this litigation must be certified. Rather, the Plaintiffs must also meet one of the conditions set forth in Rule 23(b), in order for this litigation to be maintainable as a class action. See Sprague, 133 F.3d at 397. Since he concluded that the Plaintiffs had failed to establish commonality and typicality, Judge Merz did not decide whether the Plaintiffs had met one of the conditions set forth in Rule 23(b). Given that this Court has referred this litigation to Judge Merz for the purpose of conducting pretrial proceedings, including issuing reports and recommendations on dispositive motions, it is appropriate for that judicial officer initially to address maintainability of the suggested classes under Rule 23(b). In addition, this Court notes, at least according to the Plaintiffs' counsel, that a number of discovery disputes have hampered the smooth progress of this litigation. Indeed, as is indicated above, the Plaintiffs have argued that they were denied the opportunity to present fairly their request for class certification, as a result of the Defendant's failure to provide discovery. Since the Plaintiffs claim that they have not received the discovery necessary to present their request for certification in a fair manner, those discovery disputes should be resolved, before a ruling on maintainability under Rule 23(b) is made.
In his Report and Recommendations, Judge Merz indicated that the manner in which the Plaintiffs have defined the class was ambiguous. See Doc. #99 at 4. In their Objections, the Plaintiffs dispute that such an ambiguity exists. See Doc. #114 at 16. However, they also note that they are seeking leave to amend their Complaint, to cure any possible ambiguity. Id. at 17. This Court leaves it to the Magistrate Judge to decide, in the first instance, whether the Plaintiffs' proposed amendment cures the perceived ambiguity.
Although this Court is loathe to tell the Magistrate Judge how to proceed in this litigation, it seems that the most appropriate method would be initially to schedule a discovery conference, during which the parties' contentions over discovery could be resolved. Since many of the pending motions in this litigation, including Plaintiffs' request to certify this litigation as a class action, are dependent upon the completion of discovery, those motions should be overruled, without prejudice to renewal when the discovery disputes have been resolved.
Of course, when the class certification motion is renewed, given that this Court has concluded that the prerequisites of Rule 23(a) have been satisfied, the Magistrate Judge's attention should be focused only on whether Plaintiffs have demonstrated the maintainability of the defined class pursuant to subsection (b) of Rule 23.
Of course, as an alternative, the Magistrate Judge could immediately rule upon those motions which are not dependent upon the completion of discovery.