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Home > Blog > Blog > Defined Contribution Plans > Third Circuit Affirms Class Certification: Named Plaintiffs Have Standing to Bring Claims for Plan Funds in Which They Did Not Personally Invest

Third Circuit Affirms Class Certification: Named Plaintiffs Have Standing to Bring Claims for Plan Funds in Which They Did Not Personally Invest

Boley v. Universal Health Servs., Inc., No. 21-2014, __F.4th__, 2022 WL 1768984 (3d Cir. June 1, 2022) is a matter involving ERISA breach of fiduciary duty claims against the fiduciaries of the Universal Health Services, Inc., Retirement Savings Plan, a defined contribution plan. The defendants (collectively referred to as “Universal”) allegedly breached their fiduciary duties “by including the Fidelity Freedom Fund suite in the plan, charging excessive recordkeeping and administrative fees, and employing a flawed process for selecting and monitoring the Plan’s investment options, resulting in the selection of expensive investment options instead of readily-available lower-cost alternatives.” Universal moved for partial dismissal of the Named Plaintiffs’ claims on the basis that the Named Plaintiffs lacked constitutional standing to pursue claims relating to funds in which they did not invest. The district court denied the motion by finding that the Named Plaintiffs had standing to pursue their claims because they alleged concrete injuries from the fiduciaries’ Plan-wide misconduct. The Named Plaintiffs then moved to certify a class under Federal Rule of Civil Procedure 23(b)(1) to include current and former Plan participants. Universal opposed the motion, arguing that the Named Plaintiffs lacked standing to bring claims for thirty of the Plan’s funds in which they did not personally invest, which made their claims atypical to those of the Class. Universal also argued that the Named Plaintiffs’ claims were atypical of the class because they did not have an incentive to demonstrate reasonable alternatives to funds in which they did not invest. The district court rejected Universal’s arguments and certified the class. Universal petitioned for leave to appeal the class certification decision on an interlocutory basis, which the Third Circuit granted.

The Third Circuit considered “whether the typicality requirement of Federal Rule of Civil Procedure 23(a) is satisfied when the class representatives did not invest in each of a defined contribution retirement plan’s available investment options.” The court affirmed the district court’s decision “[b]ecause the class representatives allege actions or a course of conduct by ERISA fiduciaries that affected multiple funds in the same way, their claims are typical of those of the class.” The Third Circuit first determined that the Named Plaintiffs had Article III standing to pursue their claims. Universal conceded that the Named Plaintiffs have standing for their second claim challenging recordkeeping and administrative costs because the challenged conduct of charging a flat annual fee affected all participants in the same way. With respect to the imprudent selection of the Fidelity Freedom Fund suite, the Named Plaintiffs’ allegations are that all the funds in the suite are imprudent for the same reasons. If true, they suffered a concrete injury traceable to Universal’s imprudent choice to include the suite in the Plan rather than a suite consisting of target date funds that invested in less expensive index funds. With respect to the excessive fee claim, because each class representative invested in at least one fund with allegedly excessive fees, the Named Plaintiffs adequately alleged they suffered an injury from Universal’s imprudent investment evaluation process and have standing to bring that claim. The court rejected Universal’s bid to see the Named Plaintiffs’ allegations as thirty-seven separate claims challenging thirty-seven separate investment options.

On the issue of class certification, the Third Circuit found that the district court did not abuse its discretion in certifying the class. The court rejected Universal’s incentive argument because their allegations are the same for participants across all the Plan’s thirty-seven funds. While there may be factual differences between any of the individual thirty-seven funds, these differences relate to degree of injury and level of recovery. “Typicality does not require the class representatives’ claims be coterminous with those of the class.” The Named Plaintiffs’ interests are sufficiently aligned with those of the class because the common allegation for each class member—Universal’s alleged imprudence in managing the Plan’s funds—is central to the claims of the Named Plaintiffs and absent class members. The court declined to adopt a per se rule as to whether a class representative must have invested in each of the challenged funds. The court noted there could be situations where typicality for an ERISA class would not be satisfied unless the class representative invested in each of the challenged funds. The typicality inquiry should be done on a case-by-case basis. Issues with respect to individualized proof for recovery are not a reason to prevent certification of a (b)(1) ERISA class. Judgement affirmed.

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