Well, it happened. The biggest employment discrimination class action settlement of 2013 is now in the books. On December 6, 2013, Judge Robert Gettleman of the U.S. District Court for the Northern District of Illinois gave final approval to the $160 million settlement of Plaintiffs’ class claims in McReynolds, et al. v. Merrill Lynch, Case No. 05-CV-6583 (N.D. Ill. Dec. 6, 2013). Considering the 8-year legal battle that resulted in the settlement, the approval order – all 7 sentences of it – was anti-climactic.

The backstory is more complex and nuanced. In support of their motion to approve the settlement and their petition for an award of attorneys’ fees, Plaintiffs submitted an expert declaration of Professor John Coffee of Columbia University School of Law, one of the foremost academic authorities on Rule 23. Professor Coffee opined that Plaintiffs’ counsel achieved exceptional success in securing the settlement. Professor Coffee termed the settlement “a recovery that sets both an aggregate record and per capita record that is a truly remarkable achievement.”

Citation To The Seyfarth Shaw Workplace Class Action Report

Professor Coffee cited Seyfarth Shaw’s Annual Workplace Class Action Report in his declaration in asserting his opinion (at paragraphs 11, 12, and 13 of his declaration). In comparing the settlement numbers in the McReynolds case to other major employment discrimination class action settlements, Professor Coffee opined that the settlement provided per capita benefits of approximately $111,000 to the 1,433 class members. Further, he opined that Plaintiffs’ fee request for 21.25 percent of the adjusted common fund – a figure of approximately $40 million in attorneys’ fees – was justified and in line with analogous fee awards.

As Judge Gettleman’s order of December 6 both gave both final approval of the $160 million settlement, as well as Plaintiffs’ request for attorneys’ fees, McReynolds is now the largest employment discrimination class action settlement of 2013. It dwarfs the largest employment discrimination class action settlement in 2012 – of $22 million in Womack, et al. v. Dolgencorp, Inc., Case No. 06-CV-465 (N.D. Ala. July 23, 2012) – by $138 million.

Context And The “Wal-Mart” Effect

Our Annual Workplace Class Action Report analyzes the top ten settlements each year in various categories of complex workplace litigation, including employment discrimination, wage & hour, ERISA, and governmental enforcement litigation. As analyzed in Chapter 2 of our Annual Reports, employment discrimination settlements have waned since Rule 23 certification standards were heightened with the U.S. Supreme Court’s ruling in 2011 in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011).

In 2010, the last year prior to Wal-Mart, the top ten employment discrimination settlement totaled $346 million. Conversely, in 2012, the first year after Wal-Mart, the top ten employment discrimination settlements totaled $45 million. Clearly, employers have been more successful in opposing employment discrimination class actions, and to the extent they settle such litigation, they are doing so for fewer dollars.

So what happened here? As Professor Coffee opined in paragraph 18 of his declaration, Plaintiffs’ counsel “triumphed based on an ingenious and creative use of partial certification under Rule 23(c)(4) and extraordinary tenacity…”

As we have blogged about previously here and here, the Seventh Circuit’s decision in McReynolds, et al. v. Merrill Lynch, 672 F.3d 482 (7th Cir. 2012), is a head-scratcher in the post-Wal-Mart world. Many see McReynolds as an aberration, where certification of a narrow “issue” class on liability only under Rule 23 (c)(4) runs contrary to the teachings of Wal-Mart.

In McReynolds, the Seventh Circuit reversed the district court’s decision to deny certification of a race discrimination class claim challenging the impact of two Merrill Lynch policies — one that allowed brokers to decide to work in “teams” and one that suggested success-based criteria for distribution of departing brokers’ accounts — even though managers had discretion regarding implementation of both policies. In permitting such a class certification theory, the Seventh Circuit drew a fine distinction between the situation that gave rise to the Supreme Court’s decision in Wal-Mart and the one before the Seventh Circuit. According to Judge Posner, the author of the panel opinion, only “company-wide” policies at issue in Wal-Mart forbade discrimination and delegated employment decisions to local managers. In McReynolds, by contrast, Judge Posner reasoned that “company-wide” policies permitted individuals to exercise discretion in a certain way — a way that, according to plaintiffs, caused the alleged disparate impact on African-American employees.

Subsequently, over a year later, plaintiffs’ counsel brokered a class action settlement.

The Implications For Employers

Any large settlement of this ilk is significant. Success often begets copy-cats, so Plaintiffs success in McReyolds is apt to influence other members of the class action plaintiffs’ bar in taking on employment discrimination class actions and “rebooting” certification theories through the “issue certification” approach endorsed by Judge Posner. As we blogged previously (here and here), this approach encourages Plaintiffs angle to certify something – even one issue – and then posit a settlement demand that details a parade of horribles for the employer to defend – a tangent on the “pay us or else…” theory. While a stage II damages proceeding is not apt to be certified, plaintiffs then cite Teamsters v. United States, 431 U.S. 324 (1977), for the notion that individual class members (after a stage I liability finding) are entitled to a presumption that that were discriminated and their individual damages can be heard in mini-trials per Teamsters. They then argue that the mere transaction costs will bury the employer – fees and costs for each hearing; the time spent by company witnesses in preparing and testifying at each mini-hearing; the additional attorneys’ fees plaintiffs’ counsel will earn for each successful hearing; and on and on. They even go so far as to say “we can win this war of attrition” by hiring contract attorneys to do all the preparation work.

So the bottom line is corporate counsel can expect to see this theory and approach more frequently as the plaintiffs’ bar looks to 2014.