Costco Workers’ Group Case Blocked After Wal-Mart Ruling

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(Courtesy of Bloomberg News)

Customers get shopping carts at a Costco Wholesale Corp. store in Arlington, Virginia.

Costco Wholesale Corp. (COST) won a ruling voiding a judge’s decision to expand a sex-bias suit filed by three women to include hundreds of female workers.

A federal appeals court in San Francisco today said U.S. District Judge Marilyn H. Patel applied the wrong legal standard and sent the case back to the lower court with instructions to apply the standards set by the U.S. Supreme Court in its June ruling throwing out a group gender-bias lawsuit against Wal-Mart Stores Inc. (WMT)

“The district court failed to conduct the required ‘rigorous analysis’ to determine whether there were common questions of law or fact among the class members,” U.S. Circuit Judge N. Randy Smith wrote for the appellate panel. “At best, it was unclear what standard the district court used.”

Costco, the biggest U.S. warehouse-club chain, was sued in 2004 for allegedly limiting promotions of female employees to assistant general manager and general manager by failing to post job openings. The original plaintiffs won class, or group, status for the case in 2007. Costco’s appeal of that order was put on hold while the Supreme Court considered Bentonville, Arkansas-based Wal-Mart’s appeal of a similar ruling.

‘Delighted’ With Ruling

Jocelyn Larkin, an attorney for the workers, said she was delighted with the ruling because employees had argued that the case should go back to the lower court for further consideration while Costco claimed that no national class of company employees could be certified on the evidence in the case.

“The panel rejected Costco’s position and remanded as we proposed,” said Larkin in an e-mail.

Jeff Elliott, a spokesman for Issaquah, Washington-based Costco, declined to comment on the ruling.

Costco challenged the decision to allow female workers to pursue a class action, arguing that the plaintiffs hadn’t shown there were questions of law and fact that were common to the group. Commonality is a requirement for certification of a class action.

“The district court was required to resolve any factual dispute necessary to determine whether there was a common pattern and practice that could affect the class as a whole,” the appellate judges said today. “If there is no evidence that the entire class was subject to the same allegedly discriminatory practice, there is no question common to the class.”

Proper Analysis

The trial judge “failed to engage” in a proper analysis on this point, the appeals court said. The panel sent the issue back to the trial court “for application of the appropriate legal standard.”

The appeals court also struck down class certification because it said that the lower-court judge needed to consider how Costco’s constitutional rights to due process could be preserved when the workers were asking for both an order barring Costco from discriminatory conduct and back pay and other monetary compensation.

The judge erred when she failed to consider whether money damages could be awarded without an individualized determination of whether each worker in the class was entitled to back pay or punitive damages.

The case is Ellis v. Costco, 07-15838, U.S. Court of Appeals, San Francisco.

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