August 28, 2014 Articles

Recent ERISA Decisions Favor Certification

Courts have had little trouble finding commonality satisfied in these cases, even post-Dukes

by Mark G. Boyko

Momentum in class actions involving the Employee Retirement Income Security Act (ERISA) has been undoubtedly in favor of certification. Within the past year, defendants have either chosen not to seek appellate review of orders granting class certification or have been unsuccessful in seeking interlocutory review of class-certification decisions under Rule 23(f). Krueger v. Ameriprise Fin., Inc., No. 11-2781 (D. Minn. May 23, 2014), ECF No. 384 (defendants did not file a Rule 23(f) motion following class certification); Tussey v. ABB, Inc., 746 F.3d 327 (8th Cir. 2014) (defendants appealed judgment for plaintiff class following trial but chose not to appeal earlier class certification); Spano v. Boeing Co., 294 F.R.D. 114 (S.D. Ill. Sept. 19, 2013) (defendants’ Rule 23(f) motion denied by Seventh Circuit).

Courts granting Rule 23(b)(1) certification have recognized the natural logic to certifying classes in ERISA cases brought by plan participants. ERISA authorizes a plan participant to bring a civil suit against plan fiduciaries for breaches of the fiduciaries’ duties of loyalty and prudence. See ERISA § 502(a)(2). The plan participant, however, cannot seek to recover personal damages for misconduct and must instead seek recovery that “inures to the benefit of the plan as a whole.” Fuller v. SunTrust Banks, Inc., 744 F.3d 685, 695 (11th Cir. 2014) (quoting Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 140 (1985)).

In fact, participants are required to bring fiduciary duty claims for money damages under ERISA section 409(a) “in a representative capacity on behalf of the plan as a whole.” Ramos v. Maxine Ltd., 401(k) Plan, 2010 U.S. Dist. LEXIS 119497, 2010 WL 4688990 (N.D. Ill. Nov. 10, 2010). For these reasons, certification under Rule 23(b)(1) has been widely accepted. See, e.g., In re Schering Plough, 589 F.3d 585, 604 (3d Cir. 2009) (“In light of the derivative nature of ERISA §502(a)(2) claims, breach of fiduciary duty claims brought under §502(a)(2) are paradigmatic examples of claims appropriate for certification as a Rule 23(b)(1) class”); In re Northrop Grumman Corp. ERISA Litig., 2011 U.S. Dist. LEXIS 94451, 51 Empl. Benefits Cas. (BNA) 1315 (C.D. Cal. Mar. 29, 2011) (citing additional authority).

Courts have had little trouble finding commonality satisfied in ERISA class cases, even post-Dukes. See, e.g., Krueger v. Ameriprise Fin., Inc., No. 11-2781 (D. Minn. May 23, 2014), ECF No. 384. There are two reasons for this: ERISA class actions almost universally focus on fiduciary decisions that were made on either a plan-wide basis (Should Fund A be in the plan or not? How much should the plan record keeper be paid?) or at least a fund-wide basis (Should the Company Stock Fund continue to invest in company stock? Should illiquid securities be included in a stable value portfolio?), and a fiduciary’s duties are to the plan as a whole. Even in Spano v. Boeing, a Seventh Circuit case widely relied on in contesting class certification in defined contribution cases, the Seventh Circuit found commonality was satisfied for a plan-wide class, and on remand, the district court certified classes more precisely defined for each claim. Spano v. Boeing Co., 633 F.3d 574, 585 (7th Cir. 2011); Spano v. Boeing Co. (Spano II), 294 F.R.D. 114, 120 (S.D. Ill. Sept. 19, 2013).

Defined contribution ERISA participant classes alleging excessive fees have been particularly successful at obtaining certification. Fees for each participant are uniform either as a percentage of assets (like the expense ratio of a mutual fund) or per participant (such as certain record-keeping arrangements). Even where the record-keeping fees are asset-based, such that high-account-balance participants pay proportionately more than low-balance participants, courts have rejected defense arguments that the low-balance participants are in conflict with the high-balance participants. Rather, courts have agreed with plaintiffs’ argument that the reasonableness of fees is determined by looking at all compensation the service provider received; therefore, all participants have a common interest in recovering the excess for their plan. Spano II, 294 F.R.D. at 120. In other words, if the highest reasonable fee for a given service for a plan is $500,000 and the total compensation package is excessive by $100,000, any participant—certainly any participant who paid part of the fee—has standing to bring an action on behalf of the plan and commonality with his or her fellow participants in that regard.

For defined contribution ERISA participant classes alleging a particular investment was imprudent for reasons other than fees, defendants had argued that class certification would be improper because each participant could have a different “optimal breach date” given that, as the theory goes, participants would have invested in the funds at different rates and over different times. Therefore, defendants have contended, classes cannot be certified because of conflicting interests among the class members when arguing for the dates to include in the class period or the proper measurement of damages. That argument has been rejected by numerous courts, most recently in Krueger v. Ameriprise Financial, Inc., No. 11-2781 (D. Minn. May 23, 2014), ECF No. 384, at 29. See also Shanehchian v. Macy’s, Inc., No. 07-828, 2011 U.S. Dist. LEXIS 24376, at *19–23 (S.D. Ohio Mar. 10, 2011) (Rule 23(f) petition denied, In re Macy’s Inc., No. 11-303 (6th Cir. May 18, 2011)); In re Nortel Networks Corp. ERISA Litig., No. 03-1537, 2009 U.S. Dist. LEXIS 130143, at *38 (M.D. Tenn. Sept. 2, 2009); Jones v. Novastar Fin., Inc., 257 F.R.D. 181, 188–89 (W.D. Mo. 2009); Lively v. Dynegy, Inc., No. 05-63, 2007 U.S. Dist. LEXIS 14794, at *39–47 (S.D. Ill. Mar. 2, 2007); Brieger v. Tellabs, Inc., 245 F.R.D. 345, 350 (N.D. Ill. 2007).

The Seventh Circuit, in Abbott v. Lockheed Martin Corp., implicitly rejected that argument as well by reversing the denial of certification for a proposed class of plan participants who invested in an allegedly imprudent stable value fund within Lockheed’s 401(k) plan. 725 F.3d 803 (7th Cir. 2013). Although some defendants have succeeded in limiting classes to exclude participants who purportedly benefited from the alleged imprudent fund because it performed well when they invested in it, the practical result of excluding such participants from the class is simply to increase the net loss of the class members who did experience a personal loss.

ERISA actions have also been brought by plan administrators and plan participants on behalf of multiple plans. Preliminary approval was recently granted in a class action brought by plan administrators in Healthcare Strategies v. ING Life Insurance and Annuity Co. Meanwhile a spate of multi-plan cases brought concerning stable value funds across numerous unrelated plans have been filed over the past two years and are working their way through the courts.

Here too, early signs are that class certification will not be a significant barrier. In Board of Trustees of the Southern California IBEW-NECA Defined Contribution Plan v. Bank of N.Y. Mellon Corp., 2013 U.S. Dist. LEXIS 42950, 2013 WL 1189681 (S.D.N.Y. Mar. 21, 2013), Judge Berman found that all requirements but numerosity were satisfied for a proposed class of ERISA plans that invested in a product that included certain floating rate notes issued by Lehman Brothers.

Thus, counsel need to understand the nature of the claim when crafting or opposing a class definition, but also understand that strategies to oppose class certification have recently been unsuccessful for most ERISA claims.

Keywords: litigation, class actions, ERISA, class certification, breach of fiduciary duty, excessive fees, defined contribution plan

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