A group of Hispanic and African-American borrowers sued the National City Bank, alleging that its "Discretionary Pricing Policy" for home mortgages had resulted in higher borrowing costs for racial minorities. During discovery, the parties engaged in a mediation and reached a $7 million settlement, which a trial court in the Eastern District of Pennsylvania preliminarily approved.

Between preliminary and final approval, however, the Supreme Court decided Wal-Mart Stores, Inc. v. Dukes, which held that a discretionary promotion policy could not support a finding of commonality. The trial court decided that the same reasoning would apply to a discretionary pricing policy, and so refused to certify the class for settlement. The plaintiffs appealed.

Several weeks ago, the Third Circuit affirmed the trial court in Rodriguez v. National City Bank. The reasoning in its opinion is a fairly straightforward application of Dukes. Nonetheless, the opinion is still useful to defendants for several other reasons. Among them:

  • It marks a retreat from Sullivan v. DB Investments. Readers may recall that the Third Circuit had recently affirmed an antitrust class settlement against a commonality challenge in Sullivan, even though, in that case, numerous class members had not suffered any harm at all. The Third Circuit explicitly stood by Sullivan, but its announcement here that its policy favoring settlements is subordinate to Rule 23 marks that case as an outlier rather than the beginning of a trend.
  • It forcefully restates the plaintiffs' burden. "One cannot say, in effect, 'we could show you commonality, if we had to,'" said the Third Circuit. "The short answer is, 'you do have to.'" In other words, "[t]he mere possibility that evidence of commonality could have been produced does not satisfy that burden."
  • It frames the commonality standard in terms of absent class members. As I've mentioned before, the most persuasive arguments against certification are those that explain why it would harm the interests of the class. As the Third Circuit explains here, certifying a class without a common issue means that individuals who do not suffer the same harm will still collect a share of any recovery, diluting the compensation for those who were actually harmed.

Settlement classes are often not good precedent for adversarial class actions, because the drive to settle often leads (in effect, if not in law) to a less rigorous scrutiny of Rule 23's requirements. Rodriguez offers defendants a rare exception to that rule.