Fifth Circuit Permits Class Action to Proceed in ERISA Lawsuit Alleging Mismanagement of Benefit Plans

The Fifth Circuit Court of Appeals recently decided Chavez v. Plan Benefit Servs., Inc., No. 22-50368, __F.4th__, 2024 WL 3409147 (5th Cir. July 15, 2024). This case is a class action brought by Plaintiffs against multiple defendants associated with Fringe Benefit Group (collectively “FBG”) for the mismanagement of funds the class members contributed through their employer. The district court granted class certification under Rule 23(b)(1) and 23(b)(3). Defendants appealed. The Fifth Circuit affirmed the district court’s certification under Rule 23(b)(3) but reversed the certification under Rule 23(b)(1).

Plaintiffs alleged that FBG helps employers design and administer employee benefit programs that offer retirement and health and welfare benefits for their employees though two trusts: (1) the Contractors and Employee Retirement Trust (“CERT”), which covers retirement plans; and (2) the Contractors Plan Trust (“CPT”), which covers health and welfare benefits. Plaintiffs’ employer contracted with FBG for services related to its employees’ benefits and granted FBG the power to impose fees and other charges on the plans, direct investment and disbursement of the funds, direct the payment of its own fees, and appoint and remove the Trustee. Plaintiff Chavez alleges that FBG deducted fees from the monthly contributions his employer made on his behalf that were unreasonable and resulted in no money being contributed to his retirement account. Plaintiffs Escarcega and Moreno allege that FBG deducted excessive fees from their individual fringe benefit accounts for FBG’s compensation. Plaintiffs then sued FBG for mismanaging their benefit plans by collecting excessive fees in violation of ERISA.

Plaintiffs moved for class certification seeking to represent a class of “all participants in and beneficiaries of employee benefit plans that provide benefits through CERT and CPT, … from six years before the filing of this action [July 6, 2011] until the time of trial.” Answering a question of first impression, the district court found that Plaintiffs had constitutional and statutory standing to sue FBG on behalf of unnamed class members from different contribution plans. Following FBG’s appeal to the Fifth Circuit, where a panel of this court held that the district court failed to engage in the rigorous analysis necessary for certifying a class action under Rule 23, the district court considered Plaintiffs’ amended motion for class certification and certified the following two classes:

• 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
• 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.

Following certification of the above classes, FBG appealed again on the basis that Plaintiffs lack standing to represent the class. The court analyzed the class certification approach and the standing approach, utilizing the analytical framework set forth in Angell v. Geico Advantage Ins. Co., 67 F.4th 727 (5th Cir. 2023). The court declined to adopt either approach because it determined that Plaintiffs have standing under both theories. Under the class certification approach, Plaintiffs established standing to sue FBG by: (1) demonstrating injury in fact by alleging FBG abused its authority under the Master Trust Agreement by hiring itself to perform services paid with funds from the trusts which devalued the trusts and retirement benefits, (2) establishing their injury is traceable to FBG’s conduct by showing FBG had direct control over the CERT and CPT trusts and the underlying contractual agreement with their employer, and (3) showing that their injury is redressable in this court by awarding monetary damages or other relief. Under the standing approach, Plaintiffs satisfied both the Lewis test and the Gratz test for Article III standing. Under Lewis, Plaintiffs alleged harm that is not unique to them. Under Gratz, Plaintiffs alleged they have suffered the same kind of loss as the unnamed class members due to FBG’s misconduct. In short, under each possible methodology for analyzing standing, Plaintiffs have satisfied their standing to sue FBG under Article III.

With respect to class certification under Rule 23(b)(1)(B), the court disagreed with the district court and found that it “is improper here because this is primarily an action for damages, and it is not evident that individual adjudications would substantially impair the interests of members not parties to the individual adjudications.” With respect to Rule 23(b)(3), the court found that the district court did not abuse its discretion in determining that there are questions of law or fact common to class members that predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The court affirmed certification only under Rule 23(b)(3) and determined that the litigation may proceed as a class-action lawsuit.

On remand, the court instructed the district court to “consider whether liability and damages should be resolved commonly and whether injury, causation, and actual damages should be resolved individually. In doing so, we note that the district court has a number of options at its disposal, each of which may or may not be appropriate depending on how the case develops. We express no view on the district court’s ultimate decision whether to divide this large, complex litigation into smaller, more manageable pieces in light of today’s opinion, nor do we opine on the ultimate merits of the substantive claims.”