D.C. Circuit Reverses Denial of Class Certification of “Fail-Safe” Class in ERISA Pension Dispute

In In re White, No. 22-8001, __F.4th__, 2023 WL 2763812 (D.C. Cir. Apr. 4, 2023), the D.C. Circuit granted interlocutory appeal under FRCP 23(f) of the district court’s denial of class certification in this action brought by Plaintiffs who alleged that the Hilton Hotels Retirement Plan wrongfully denied them vested retirement benefits. The district court denied certification on the grounds that the Plaintiffs proposed an “impermissibly fail-safe class,” that is, a class definition for which membership can only be ascertained through a determination of the merits of the case. The Plaintiffs sought class certification twice. The first motion was denied without prejudice. Plaintiffs moved again for class certification, seeking certification of the following modified proposed class:

(a) Are former or current employees of Hilton Worldwide, Inc. or Hilton Hotels Corp., or the surviving spouses or beneficiaries of former Hilton employees;

(b) Submitted a claim for vested retirement benefits from Hilton under the claim procedures ordered by the District Court and the Court of Appeals in Kifafi, et al. v. Hilton Hotels Retirement Plan, et al., C.A. 98-1517; and

(c) Have been denied vested rights to retirement benefits that have been denied by the Hilton Defendants’:

(1) [u]se of “fractional” years of vesting service under an “elapsed time” method to count periods of employment before 1976 with no resolution of whether fractions constitute a “year of service” under ERISA;

(2) [r]efusal to count “non-participating” service for vesting purposes notwithstanding that the service was with the ‘employer’ under ERISA §3(5) a hotel property that Hilton operated under a management agreement, that the Hilton Defendants counted service at the same “Hilton Properties” in Kifafi and represented to this Court and the D.C. Circuit in Kifafi that Hilton had counted “non-participating” service with Hilton for vesting, and that the “records requested and received from Defendants [do] not identify any non-participating property that is also not a Related Company”; and

(3) [d]enial of retroactive/back retirement benefit payments to heirs and estates on the sole basis that the claimants are “not the surviving spouse” of deceased vested participants.

The district court again denied class certification on the ground that the class definition remained impermissibly fail-safe. Plaintiff filed a petition under Rule 23(f) for permission to appeal the denial of class certification. The parties agreed to stay the proceedings pending resolution of the petition since the issue of whether a fail-safe class definition is permissible is an unsettled and fundamental issue of law relating to class actions.

The D.C. Circuit determined that considering this interlocutory appeal is an appropriate exercise of the court’s discretion because the appeal was timely filed, raises a question involving an important and recurring issue of law, and will likely evade end-of-case review for all practical purposes. First, the court found that White only needed to file her petition for interlocutory appeal after the second denial of class certification since appealing the first order would have been premature. The class certification motion was initially denied without prejudice. Second, the question of whether Rule 23 prohibits fail-safe classes is a fundamental issue of law relating to class actions which has not yet been considered by this court but has been considered by nine other federal courts of appeals who have issued varying opinions on this topic. District courts in this district are also divided on the issue. Third, the fail-safe question is likely to evade end-of-the-case review because if the case goes forward as an individual action and the named plaintiffs prevail, they will have little incentive to bear the risk of appealing the class certification denial. And even if they won an appeal of the class certification decision, they risk that the district court would find that their already resolved claims are not typical of other putative class members’ or that they are no longer adequate class representatives.

The D.C. Circuit held that the district court abused its discretion by denying the amended class certification motion based on a stand-alone rule against “fail-safe” classes, rather than applying the factors set forth in FRCP 23(a), including numerosity, commonality, typicality, and adequacy of representation. This rule provides strong protections against circular or indeterminate class definitions. Applying the terms of Rule 23 would eliminate most, if not all, genuinely fail-safe class definitions. The court reversed and remanded for further proceedings consistent with this opinion.