Fifth Circuit Allows Multi-Plan ERISA Class Action to Proceed Against Fringe Benefit Group

The Fifth Circuit Court of Appeals decided a class certification dispute in Chavez v. Plan Benefit Services, Inc., et al, No. 22-50368, __F.4th__, 2023 WL 5160393 (5th Cir. Aug. 11, 2023). Plaintiffs in this suit are participants in the Contractors and Employee Retirement Trust (“CERT”) and the Contractors Plan Trust (“CPT”). Defendants Plan Benefit Services, Fringe Insurance Benefits, and Fringe Benefit Group (collectively “FBG”) are the Master Plan Sponsor and Recordkeeper for both plans. FBG enters into agreements with non-union employers to provide benefits for their workers so that they can qualify for government contracts. Plaintiffs were employees of the Training, Rehabilitation & Development Institute, Inc. (“TRDI”), which contracted with FBG for various services, including providing retirement plans under CERT and health and welfare plans under CPT. Plaintiffs sued FBG for mismanaging their employee benefit plans by collecting excessive fees in violation of ERISA, specifically, charging different rates for identical services and charging an excessive base fee.

At issue in Defendants’ appeal is the district court’s certification of the following two classes:

(1) All participants and beneficiaries of plans that provide employee benefits through CPT—other than [FBG’s] officers, directors, or relatives—from July 6, 2011, until trial; and

(2) All participants and beneficiaries of plans that provide employee benefits through CERT—other than (a) participants and beneficiaries of custom plans, and (b) [FBG’s] officers, directors, or relatives—from August 31, 2014, until trial.

FBG argued that Plaintiffs lack standing to represent the class and sought reversal of the district court’s decision that Rules 23(b)(1)(B) and (b)(3) are proper vehicles for class certification.

The Fifth Circuit noted that there is a circuit split in how to address constitutional standing and the Rule 23 inquiry due to the notion there cannot be a “disjuncture” between the harm that the plaintiff suffered and the relief that she seeks. The court cited Newberg on Class Actions in explaining the two methods that appellate courts have used to resolve the disjuncture issue. The first method, which the court refers to as the class certification approach, is where some courts determine that the class representative has standing to pursue her own claims, move on from the standing inquiry and approach the disjuncture as an issue of class certification. The second method, which the court refers to as the standing approach, is where some courts find that the class representative lacks standing to pursue the class members’ claims because she did not suffer their injuries. The U.S. Supreme Court has not declared which approach is correct, but the Fifth Circuit examined this case under both approaches and concluded that it may proceed to Rule 23 under either theory.

The court found that under the class certification approach, Plaintiffs have established their standing to sue FBG. “First, they have demonstrated injury in fact by alleging that FBG abused its authority under the Master Trust Agreement by hiring itself to perform services paid with funds from the CERT and CPT trusts, effectively devaluing the trusts and retirement benefits that Plaintiffs otherwise would have accrued with their employer. Second, they have established that their injury is traceable to FBG’s conduct by providing evidence of FBG’s direct control over the CERT and CPT trusts and the underlying contractual agreement with their employer. Finally, their injury is redressable in this court by awarding monetary damages or other relief.” The court noted that under the standing approach, there are three different avenues for evaluating Plaintiffs’ Article III standing. The Lewis test requires the court to consider whether Plaintiffs’ harm is so unique that it warrants an isolated remedy that would be inappropriate if extended to other class members. The Gratz test requires the court to evaluate if Plaintiffs’ injury implicates “a significantly different set of concerns” from the other potential class members. The Second or Eleventh Circuit tests for class representative standing are hybrid versions of the Lewis and Gratz tests. The court analyzed Plaintiffs’ standing under each possible methodology in the Supreme Court and Fifth Circuit’s jurisprudence and found that Plaintiffs have established their standing to sue FBG under Article III.

The court then turned to the question of whether the district court appropriately determined that Plaintiffs are proper class representatives under Rule 23. The district court “concluded that Plaintiffs satisfied all of Rule 23(a)’s adequacy-of-representation requirements and further demonstrated that this case can be certified under either Rule 23(b)(1) or (b)(3).” FBG challenged the district court’s Rule 23(b)(1) and (b)(3) determinations, arguing that the district court abused its discretion by failing to account for the wide variety of plans included in the class and sanctioning hundreds of mini-trials because of the individualized nature of the class claims. The Fifth Circuit disagreed, finding that Plaintiffs have standing, and certification is appropriate under Rule 23(b)(1)(B) or (b)(3). The court concluded that the district court correctly determined that this litigation may proceed as a class-action lawsuit.