## Facts

- African American financial advisors employed by Merrill Lynch brought a putative class action on behalf of roughly 700 Black brokers.
- Brokers’ compensation depended heavily on “production credits” tied to client assets and transactions.
- Plaintiffs challenged two firm-wide policies as creating a disparate impact on Black brokers’ compensation and opportunities:
  - A “teaming” policy permitting brokers to form teams that pooled clients and revenues; plaintiffs alleged Black brokers were disproportionately excluded from teams and their benefits.
  - An account-distribution policy reallocating accounts when a broker departed using a corporate formula emphasizing past production; plaintiffs alleged this compounded disadvantages linked to teaming and related practices.
- Plaintiffs alleged these facially neutral policies systematically steered lucrative opportunities away from Black brokers and entrenched pay disparities.
- The district court denied class certification, reasoning that compensation and account-allocation outcomes depended on decentralized discretion by local and regional managers.
- Plaintiffs sought interlocutory review of the certification denial.

## Issues

1. Whether claims alleging disparate impact from two uniform, company-wide policies present common questions suitable for class treatment despite local managerial discretion.
2. Whether the case could be certified at least for particular common issues under Rule 23(c)(4) and for injunctive and declaratory relief under Rule 23(b)(2), even if individualized determinations might remain later.

## Decision

- The Seventh Circuit reversed the denial of class certification and remanded.
- The court held that certification was appropriate in part to litigate, on a class basis, whether the teaming and account-distribution policies caused a disparate impact on Black brokers.
- The court approved use of Rule 23(c)(4) to certify the common disparate-impact liability issue and Rule 23(b)(2) to pursue injunctive and declaratory relief.
- The court rejected the view that the possibility of individualized damages determinations necessarily defeats certification of common liability and injunctive issues.

## Legal Principles

- A disparate-impact challenge to standardized employer policies may satisfy Rule 23 commonality when the policies are uniform and their effects can be evaluated through common proof (including statistical and policy evidence).
- Managerial discretion does not automatically preclude class certification when discretion operates within, and is shaped by, a corporately designed framework alleged to produce discriminatory effects.
- Rule 23(c)(4) permits certification of discrete issues (such as a common liability question) even when other components of the case may require individualized proceedings.
- Rule 23(b)(2) certification is appropriate where plaintiffs primarily seek class-wide injunctive or declaratory relief directed at the challenged practices.
- Manageability concerns can be addressed by phased adjudication: resolving common liability questions first, then determining how to handle any remaining individual issues.

## Conclusion

The Seventh Circuit held that the challenged teaming and account-distribution policies were centralized practices whose disparate impact could be tested with common evidence, so the district court erred by denying certification solely because local discretion played a role; the case was remanded for issue certification and injunctive/declaratory class treatment.


McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 672 F.3d 482 (7th Cir. 2012)