ISBN Number: 978-1-964020-15-0 © Duane Morris LLP 2025. All rights reserved. No part of this book may be reproduced in any form without written permission of Duane Morris LLP.
DISCLAIMER The material in this Review is of the nature of general commentary only. It is not meant as or offered as legal advice on any particular issue and should not be considered as such. The views expressed are solely those of the authors. In addition, the authors disclaim any and all liability to any person in respect of anything and of the consequences of anything done wholly or partly in reliance on the contents of this Review. This disclaimer is from the Declaration of Principles jointly adopted by the Committee of the American Bar Association and a Committee of Publishers and Associations.
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CITATION FORMATS All citations in the ERISA Class Action Review are designed to facilitate research. If available, the preferred citation of the opinion included in the West bound volumes is used, such as Mator, et al. v. Wesco Distribution , 102 F.4th 172 (3d Cir. May 16, 2024). If the decision is not available in the preferred format, a Lexis or Westlaw cite from the electronic database is provided, such as Luense, et al. v. Konica Minolta Business Solutions U.S.A., Inc ., 2024 U.S. Dist. LEXIS 96412 (D.N.J. May 30, 2024). If a ruling is not available in one of these sources, the full case name and docket information is included, such as Durnack, et al. v. Retirement Plan Committee Of Talen Energy Corp., Case No. 20-CV-5975 (E.D. Penn. June 4, 2024). E-BOOK HIGHLIGHTS The ERISA Class Action Review is available for use on a smartphone, laptop, tablet, or any personal electronic reader by using any e-book reader application. E-book reading allows users to quickly scroll, highlight important information, link directly to different sections of the Review, and bookmark pages for quick access at a later time. The e-book is designed for easy navigation and quick access to informative data. The e-book is available by scanning the below QR code:
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NOTE FROM THE EDITOR Class action litigation generally involves high stakes that can keep corporate counsel and senior management awake at night. These cases can impact a company’s market share and reputation in a significant manner, creating substantial pressure on decision-makers who must navigate the associated risks and exposures. The ERISA Class Action Review serves multiple purposes. It aims to clarify the complexities of class action litigation and provide corporate counsel with up-to-date insights into the evolving nuances of Rule 23 and other types of representative proceedings. Through this publication, we seek to offer an analysis of emerging trends and key rulings, empowering our clients to make informed decisions when managing complex litigation risks. Defense of ERISA class actions is a hallmark of the litigation practice at Duane Morris. We hope this book – manifesting the collective experience and expertise of our class action defense group – will assist our clients by identifying developing trends in the case law and offering practical approaches in dealing with class action litigation.
Sincerely,
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CONTRIBUTORS
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GLOSSARY AND KEY U.S. SUPREME COURT DECISIONS Adequacy Of Representation – Plaintiffs must show adequacy of representation per Rule 23(a)(4) to secure class certification. It requires representative plaintiffs and their counsel to be capable of fairly and adequately protecting the interests of the class. Amchem Products, Inc. v. Windsor, et al. , 521 U.S. 591 (1997) – Windsor is the U.S. Supreme Court decision that elucidated the requirements in Rule 23(b), insofar as common questions must predominate over any questions affecting only individual class members and class resolution must be superior to other methods for the adjudication of the claims. Ascertainability – Although not an explicit requirement of Rule 23, some courts hold that the members of a proposed class must be ascertainable by objective criteria. Comcast Corp. v. Behrend, et al. , 569 U.S. 27 (2013) – Comcast is the U.S. Supreme Court decision that interpreted Rule 23(b)(3) to require that, for questions of law or fact common to the class, the plaintiffs’ damages model must show damages are capable of resolution on a class-wide basis. Commonality – Plaintiffs must show commonality per Rule 23(a)(2) to secure class certification. This requires that common questions of law and fact exist as to the proposed class members. Class – A group of individuals that has suffered a similar loss or alleged illegal experience on whose behalf one or more representatives seek to bring suit. Class Action – The civil action brought by one or more plaintiffs in which they seek to sue on behalf of themselves and others not named in the suit but alleged to have suffered the same or similar harm. Class Certification – The judicial process in which a court reviews the submissions of the parties to determine whether the plaintiffs have met their burden of showing that class treatment is the most appropriate form of adjudication. Collective Action – A type of representative proceeding governed by 29 U.S.C. § 216(b) where one or more plaintiffs seeks to bring suit on behalf of others who must affirmatively opt-in to join the litigation. It is applicable to claims under the Fair Labor Standards Act, the Age Discrimination in Employment Act, or the Equal Pay Act. Cy Pres Fund – In class action settlement agreements, this is the money set aside for distribution to a § 501(c) organization when class members do not return a settlement claim form and money is left over after distribution to the class. Decertification – Following an order granting conditional certification of a collective action or certification of a class action, a defendant can move for decertification based on the grounds that the members of the collective action are not actually similarly-situated or that the requirements of Rule 23 are no longer satisfied for the class action. Epic Systems Inc. v. Lewis, et al. , 138 S. Ct. 1612 (2018) – Epic Systems is the U.S. Supreme Court decision holding that arbitration agreements requiring individual arbitration and waiving a litigant ’ s right to bring or participate in class actions are enforceable under the Federal Arbitration Act. Opt-In Procedures – Under 29 U.S.C. § 216(b), a collective action member must opt-in to join the lawsuit before he or she may assert claims in the lawsuit or be bound by a judgment or settlement. Opt-Out Procedures – If a court certifies a class under Rule 23(b)(3), class members are bound by the court ’ s judgment unless they opt-out after receiving notice of the lawsuit. Numerosity – Plaintiffs must show that their proposed class is sufficiently numerous that adding each class
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member to the complaint would be impractical. This is a requirement for class certification imposed by Rule 23(a)(1). Ortiz, et al. v. Fibreboard Corp., 527 U.S. 815 (1999) – Ortiz is the U.S. Supreme Court ruling that interpreted Rule 23(b)(3) to require personal notice and an opportunity to opt-out of a class action where money damages are sought in a class action. Predominance – The Rule 23(b)(3) requirement that, to obtain class certification, the plaintiffs must show that common questions predominate over any questions affecting individual members. Rule 23 – This rule from the Federal Rules of Civil Procedure governs class actions in federal courts and requires that a party seeking class certification meet four requirements of section (a) and one of three requirements under section (b) of the rule. Rule 23(a) – It prescribes that a class meet four requirements for purposes of class certification, including numerosity, commonality, typicality, and adequacy of representation. Rule 23(b) – To secure class certification, a class must meet one of three requirements of Rule 23(b)(1), Rule 23(b)(2), or Rule 23(b)(3). Rule 23(b)(1) – A class action may be maintained if Rule 23(a) is satisfied and if prosecuting separate actions would create a risk of inconsistent or varying adjudications with respect to individual class members or adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests. Rule 23(b)(2) – A class action may be maintained if Rule 23(a) is satisfied and the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole. Rule 23(b)(3) – A class action may be maintained if Rule 23(a) is satisfied and questions of law or fact common to class members predominate over any questions affecting only individual members and a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. Similarly-Situated – Under 29 U.S.C. § 216, employees may bring suit on behalf of themselves and others who are similarly-situated. The standard is not clearly defined in the statute and many courts have found that, if plaintiffs make a preliminary showing that they are similarly-situated to those they seek to represent, conditional certification is appropriate. A finding in this regard is usually not based on the merits of the claims. Superiority – The Rule 23(b)(3) requirement that a class action can be permitted only if class resolution is the superior method of adjudicating the claims. Typicality – The plaintiffs’ claims and defenses must be typical to those of proposed class members’ claims. This is required by Rule 23(a)(3). Wal-Mart Stores, Inc. v. Dukes, et al., 564 U.S. 338 (2011) – Wal-Mart is the U.S. Supreme Court ruling that tightened the commonality requirement of Rule 23(a)(2) and held that judges must conduct a “rigorous analysis” to determine whether there is a “common” contention central to the validity of the claims that is “capable of class-wide resolution.”
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TABLE OF CONTENTS
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I. Executive Summary ............................................... ............................................ 1 II. Significant Rulings In ERISA Class Actions In 2024 ....................................... 2 1. Rulings On Class Certification. ..................................................................... 2 2. Rulings On Motions To Dismiss For Failure To State A Claim................... 6 3. Rulings On Challenges To Standing............................................................. 9 4. Cases Challenging The Denial Of Health Benefits. ................................... 11 5. Cases Involving The Application Of Time Bars ......................................... 13 6. Rulings On The Enforceability Of Mandatory Arbitration And Class Action Waiver Provisions ................................................................................ 15 7. Rulings On Jury Demands Under The ERISA ............................................ 17 III. New Developments In 2024.............................................................................. 17 1. 401(k) Forfeitures ......................................................................................... 17 2. The Application Of The ERISA To Socially And Environmentally Conscious Investment Practices ................................................................... 19 IV. Top ERISA Class Action Settlements In 2024 ................................................ 20 Index Of 2024 ERISA Class Action Rulings ............................................................. 22
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ERISA Class Actions I. Executive Summary
The surge of class action litigation filed under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001 et seq ., over the last decade persisted in 2024. Class action litigators in the plaintiffs’ bar continuing to focus on challenges to ERISA fiduciaries’ management of 401(k) and other retirement plans. As in recent years, the lion’s share of these cases alleged that ERISA fiduciaries breached their duties of prudence and loyalty by, among other things, offering expensive or underperforming investment options and charging participants excessive recordkeeping and administrative fees. Hundreds of “fee and expense” class actions have been filed since 2020, driven by ERISA plaintiffs’ class action law firms alongside some new entrants to the space. Class certification remains challenging to defeat outright in these and other ERISA cases given the nature of the claims. Because plaintiffs in ERISA cases frequently allege that defendants violated the law through actions that impacted large numbers of plan participants in similar ways, class certification is frequently easy to achieve for the plaintiffs. Indeed, courts often reject challenges to standing and compliance with the requirements of Rules 23(a) and (b), concluding that factual differences in the type of benefits or investments at issue are merits or damages issues less relevant to class certification than to allegations that the defendants’ conduct produced similar, broad-based injuries. Understandably, defendants pour significant resources into attacking these cases in their infancy. Both sides know that early dismissal may be the defendants’ best hope of avoiding the burden and expense of the protracted discovery that will come before and after class certification, which is often viewed as a foregone conclusion in ERISA litigation. In fact, this dynamic is central the strategy of the plaintiffs’ bar in many of these cases. If the plaintiffs can overcome initial challenges, they can then leverage the prospect of substantial defense costs to obtain an early seven-figure settlement that still costs less than defending the case through summary judgment and trial. To defeat these claims, many defendants argue that putative class action complaints fail to state plausible claims under Rule 12(b)(6). Specifically, defendants often contend that plaintiffs simply label any plan ’ s failure to select cheaper or better performing investment options as a purported breach of fiduciary duty, but do so without alleging anything to support a plausible inference that the fiduciaries’ decision-making process was flawed. For their part, the plaintiffs’ bar argues that their lack of access to confidential information about the relevant fiduciary processes unfairly handicaps their ability to offer the more detailed allegations that the defendants demand. Historically, the results of these disputes have been mixed, and they were in 2024 as well. This past year courts also issued conflicting decisions on the enforceability of mandatory arbitration and class action waiver provisions with respect to ERISA claims. On the whole, these decisions were heavily slanted toward denying motions to compel arbitration and not enforcing class action waiver provisions despite the spate of recent U.S. Supreme Court decisions upholding the enforceability of such provisions in employment and other contexts. There were several important developments in the ERISA class action space last year. For example, 2024 witnessed the emergence of a novel variety of claims. These claims center on allegations that fiduciaries have misused employer contributions to 401(k) plans that were forfeited by former employees. Plaintiffs have argued that forfeited funds should be used to reduce workers’ administrative expenses rather than benefiting plan sponsors. Likewise, 2024 witnessed the first shots in what may be a coming battle over the propriety of environmentally and socially conscious investments by ERISA fiduciaries. ERISA class action litigation remains an active area with significant financial upside for the plaintiffs’ bar and high defense and settlement costs for defendants. Based on developments in 2024, it is likely to remain so.
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II. Significant Rulings In ERISA Class Actions In 2024, the plaintiffs’ bar was successful in obtaining class certification 67% of the time, with 24 of 36 total motions being granted by the courts.
The significant ERISA decisions in 2024 can be grouped in several categories, including rulings on class certification, rulings on motions to dismiss for failure to state a claim, rulings on challenges to standing, rulings involving the denial of health benefits, rulings involving the application of time bars, and rulings on the enforceability of mandatory arbitration and class action waivers. 1. Rulings On Class Certification In most class actions, class certification under Rule 23 is considered to be the “holy grail” for plaintiffs’ lawyers. If a plaintiff is able to achieve certification, then a lucrative settlement often follows. In the ERISA context, however, motions for class certification generally play a diminished role. Because the plaintiffs in these cases typically allege that discrete types of alleged plan mismanagement led to common injuries that affected large numbers of plan participants in similar ways, class certification is often seen as a foregone conclusion. However, this is not always the case, and in 2024 there were several notable decisions that turned on the interpretation of the Rule 23(a) requirements of numerosity, commonality, typicality, and adequacy of representation. Luense, et al. v. Konica Minolta Business Solutions U.S.A., Inc ., 2024 U.S. Dist. LEXIS 96412 (D.N.J. May 30, 2024), demonstrates the ease with which plaintiffs generally are able to satisfy Rule 23(a)’s requirements of numerosity, commonality, typicality, and adequacy of representation. In that case, the plaintiffs alleged that their 401(k) plan’s administrators had breached fiduciary duties of loyalty and prudence by including and retaining mutual funds that were unnecessarily expensive, failing to establish an adequate review system for fees, and failing to leverage the plan’s size to negotiate lower costs for participants. Id. at *4-5. The plaintiffs also argued that many funds were not only unnecessarily costly but also underperformed in comparison to cheaper alternatives. Id. Finally, the plaintiffs asserted that the plan committee failed to properly monitor recordkeeping fees, which increased significantly during the class period. The plaintiffs sought class certification for all individuals who participated in or were beneficiaries of the 401(k) plan during the class period. Id. at *6. The court quickly marched through the Rule 23(a) factors and found that all were satisfied. Id. at *9. The general
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rule is that a putative class of 40 or more individuals presumptively satisfies the numerosity requirement. Id. In Luense , there were over 8,000 401(k) participants, so the court concluded that numerosity was easily shown. Id. at *10. The commonality standard requires plaintiffs to demonstrate that there are common questions of law and fact. Id. at *11-12. In Luense this standard was met because the claims of all members of the putative class centered on the same decisions made by the same people with the same effects. Id. Finally, the court held that the named plaintiffs were adequate representatives because their interests did not conflict with other members of the putative class and because they had retained experienced counsel. Id. at *19-20. The court also held that the proposed class was certifiable under Rule 23(b)(1) because separate actions could lead to inconsistent rulings or substantially impair the interests of absent class members. Id. at *21-22. Accordingly, the court granted the plaintiffs’ motion for class certification. Id. at *22. Luense is a highly typical case that demonstrates the ease with which plaintiffs in ERISA cases generally are able to achieve class certification. Nonetheless, there are exceptions to this rule, and in 2024, there were a number of cases in which defendants successfully opposed Rule 23 certification. In Zimmerman, et al. v. Cedars-Sinai Medical Center , Case No. 23-CV-1123 (C.D. Cal. Dec. 18, 2024), the plaintiffs filed a class action alleging the defendants violated their fiduciary duties under the ERISA in managing the employees’ 401(k) plan by: (i) allowing the Plan to pay excessive fees to service providers; (ii) investing in costly share classes; (iii) retaining underperforming funds; and (iv) keeping a high-cost, high-risk stable value fund. The plaintiffs filed a motion for class certification, and the court denied the motion. The court ruled that the plaintiffs failed to meet the typicality requirement of Rule 23(a). The court ruled that, with the exception of individuals who invested in the Stable Value Fund, the plaintiffs could not demonstrate that their claims were typical to those of other class members who may have paid excessive recordkeeping fees or invested in high- expense share class funds. Regarding the recordkeeping fees claim, the court determined that the plaintiffs failed to show actual injury, as they paid fees lower than the $42 per participant rate they consider reasonable. From 2017 to 2022, the plaintiffs paid fees ranging from $22.10 to $38.31, well below the alleged reasonable fee. As a result, the court concluded that the plaintiffs could not demonstrate harm from excessive recordkeeping fees. Additionally, the court was not convinced that the plaintiffs' claims arose from the same course of events as those of the rest of the class. The allegations regarding the Stable Value Fund, in which the plaintiffs invested, differed significantly from those related to other challenged funds, such as the revenue- sharing funds. The court found that the factual bases for the claims against the Stable Value Fund were distinct from those for the other funds, and the plaintiffs failed to proffer evidence to suggest that the alleged deficiencies in the defendants’ evaluation process were the same across all funds. For these reasons, the court denied the plaintiffs’ motion for class certification. Lucero, et al. v. Credit Union Retirement Plan Association , 2024 U.S. Dist. LEXIS 5329 (W.D. Wis. Jan. 9, 2024), was an interesting case where class certification failed precisely because the 401(k) plan at the center of the dispute did not operate like many other such plans. Id. at *1-2. Rather than uniformly imposing recordkeeping fees, the plan allowed individual employer participants to negotiate their fees. Id. at *2. As the court explained, claims related to excessive fees are suitable for class certification in most ERISA cases because fees are typically charged to all participants using the same formula. Id. at *1. However, in this case, instead of applying a set fee schedule for all plan participants, individual employers were allowed to negotiate their own fees with the recordkeeper, thereby resulting in disparate fees among the potential class members. Id. at *2. In fact, three out of the four named plaintiffs admitted that the fees that their employer had negotiated were reasonable. Id. The court denied class certification, holding that the proposed class failed to meet the commonality, typicality, and adequacy requirements of Rule 23(a). Id. at *10-14. The court noted that the defendants’ alleged conduct harmed some participants and helped others, and thus the differences in harm among participants prevented the class from meeting the necessary criteria for certification. Id. at *14-15. The court also reasoned that all the plaintiffs were not adequate representatives of individuals employed by different employers because they paid different fees. Id. at *18-19. The court subsequently denied the plaintiffs’ motion for reconsideration in Lucero, et al. v. Credit Union Retirement Plan Association , 2024 U.S. Dist. LEXIS 31455 (W.D. Wis. Feb. 22, 2024). In McDonald, et al. v. Laboratory Corp. Of America Holdings , 2024 U.S. Dist. LEXIS 188739 (M.D.N.C. Oct. 17, 2024), the plaintiff, a current employee of LabCorp and participant in the Laboratory Corp. of America Holdings Employees’ Retirement Plan (the Plan), alleged that LabCorp breached its fiduciary duty under the ERISA as a
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statutory fiduciary of the Plan. The Plan, a 401(k) defined contribution plan with over $3.8 billion in assets and more than 55,000 participants, provides retirement income to many LabCorp employees. The plaintiff asserted two primary claims, including: (i) LabCorp selected imprudent, high-cost investment options for the Plan, despite availability of lower-cost alternatives; and (ii) LabCorp failed to prudently manage and control recordkeeping fees paid to Fidelity, the third-party service provider. Specifically, the plaintiff contended that the Plan paid excessive recordkeeping fees of $43 per participant, instead of the appropriate rate of $25 per participant, and that LabCorp paid Fidelity additional compensation through indirect methods, such as revenue sharing and interest on participant funds. The plaintiff filed a motion for class certification pursuant to Rule 23, and the court granted the motion. The court determined that with over 55,000 participants in the Plan, the class was sufficiently large to make individual joinder impractical, and therefore the numerosity requirement was easily satisfied. The court also ruled that there were common issues for the class, including whether LabCorp breached its fiduciary duties and whether the Plan suffered financial losses as a result. The court stated that the plaintiff’s claims were typical to other class members because they all stemmed from LabCorp’s alleged breaches of fiduciary duty related to the Plan’s investments and recordkeeping fees. The court found no conflict of interest between the plaintiff and the class members and that class counsel would adequately represent the class interests. Finally, the plaintiff sought class certification under Rule 23(b)(1). The court determined that given the potential for inconsistent rulings if the case were to proceed individually, class certification under Rule 23(b)(1) was appropriate. For these reasons, the court granted the plaintiff’s motion for class certification. The plaintiffs, a group of defined contribution plan participants in Schissler, et al. v. Janus Henderson US (Holdings) Inc., Case No. 22-CV-2326 (D. Colo. Oct. 22, 2024), filed a class action alleging that the defendants breached their fiduciary duties in violation of the ERISA by including proprietary investment products in the plan while non-proprietary offerings were subject to a rigorous selection and review process. The plaintiffs filed a motion for class certification, and the court granted the motion. The plaintiffs sought to certify a class consisting of “all participants and beneficiaries of the Janus 401(k) and Employee Stock Ownership Plan that were invested in the Janus Henderson Funds at any time on or after September 9, 2016, excluding persons with responsibility for the Plans administrative functions or investments." Id. at 1. The court stated that there was no dispute that the plaintiffs were members of the proposed class, the proposed class was numerous but ascertainable, the plaintiffs’ claims were typical of the class claims, and that the plaintiffs and proposed class counsel would be capable of adequately representing the class interests at stake. Id. at 2. The court also determined that the prosecution of separate actions by individual class members would create a risk of inconsistent or varying adjudications and that the fiduciary duties at issue pertained to all members of the proposed class. Id. Finally, the court ruled that that common questions of law and fact predominated over any individual issues. Id. For these reasons, the court granted the plaintiffs’ motion for class certification. The court also granted the plaintiffs’ motion for class certification in Whipple, et al. v. Southeastern Freight Co., Case No. 23-CV-4583 (D.S.C. Oct. 21, 2024). The plaintiff filed a class action under the ERISA alleging that the defendant, a transportation company, violated its fiduciary duties by retaining an excessively costly asset manager to provide the company’s 401(k) plan administrative services. The plaintiff filed a motion for class certification pursuant to Rule 23, and the court granted the motion. The plaintiff specifically asserted that the defendant failed to renegotiate the fees paid to the recordkeeper for its retirement plan, T. Rowe Price RPS Inc., which led participants to pay more than $50 annually for recordkeeping, while participants in similarly sized plans paid about $25. The plaintiff contended that participants in the 401(k) plan had collectively paid nearly $5 million in administrative fees for services that should have cost closer to $1.5 million over the prior six years. The plaintiff sought to certify a class consisting of approximately 10,000 plan participants and beneficiaries who invested in the defendant’s 401(k) plan since January 1, 2018. The court opined that there were common question of fact and law that applied to each class member, including: (i) whether the defendant breached its fiduciary duty with respect to the plan: (ii) whether the plan suffered losses from the breaches; (iii) how to calculate the plan’s losses; (iv) the equitable relief that should be imposed to remedy the breaches; and (v) whether the defendant can establish that it acted in an objectively prudent manner. Id. at 14. The court also ruled that the plaintiff’s claims stemmed from a single course of action, i.e ., the defendant’s management of the plan, and in particular its alleged failure to properly monitor and manage recordkeeping fees for plan participants, and therefore were typical to all class members. The court also determined that class certification was appropriate under Rule 23(b)(1) because the judgement would apply to all class members, and as a fiduciary the defendant was required to treat all members of the class alike. The court, however, declined to expand the class beyond the 2018 date to include participants beginning in September of 2017, finding that the
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scope of the class should not be expanded beyond the temporal scope of the class originally included in the complaint. Accordingly, the court granted the plaintiff’s motion for class certification on narrower grounds than sought in the Rule 23 motion. The plaintiff in Klawonn, et al. v. Board Of Directors For The Motion Picture Industries Pension Plans , 2024 U.S. Dist. LEXIS 33715 (C.D. Cal. Jan. 18, 2024), was a participant in the Motion Picture Industry Individual Account Plan (the Plan), who filed a class action alleging that the Board of Directors for the Motion Picture Industry Pension Plans (the Board) and 50 current or former members of the Board (Individual Directors) engaged in imprudent monitoring of the Plan in violation of the ERISA. The plaintiff asserted that the Board and Individual Directors made poor investment choices that affected the overall performance of the Plan. The plaintiff filed a motion for class certification, and the court granted the motion. The defendant argued that the diversity of participant portfolios and investment preferences meant that different members may have different outcomes depending on the investment strategy used, and therefore the class failed to meet the commonality requirement. The plaintiff asserted that the class met the commonality requirement because the alleged fiduciary breaches related to the management of a single pooled investment, impacting all participants similarly. The court agreed with the plaintiff. It determined that the key issue in the case is whether the defendants breached their fiduciary duties, which applied to all class members. The court also ruled that since the plaintiff’s claims involved injury to the Plan itself, the claims were typical of those of other participants. The court concluded that class treatment would be the best method to adjudicate the action, and that the plaintiff’s proposed class met the requirements of Rule 23(a) and Rule 23(b)(1). Accordingly, the court granted the plaintiff’s motion for class certification. In Parmenter, et al. v. Prudential Insurance Company Of America , 2024 U.S. Dist. LEXIS 150941 (D. Mass. Aug. 22, 2024), the defendants were able to defeat class certification by demonstrating plaintiffs’ failure to establish commonality. Id. at *4. There, the plaintiff sued on behalf of a putative class of insureds, alleging that Prudential breached its fiduciary duties to policyholders when it failed to receive approval from the Massachusetts Commissioner of Insurance before increasing its premiums, despite language in the plans’ terms saying that premium increases were “subject to the approval” of the Commissioner. Id. at *2-3. The plaintiff moved to certify the case as a class action and proceed with two overlapping putative classes, including a damages class and an injunctive relief class. Id. at *3. The district court denied the plaintiff’s motion for class certification based on a failure to demonstrate commonality. Id. at *4. The court emphasized that what really matters to class certification is the capacity of a class-wide proceeding to generate common answers. Id. at *5. Because the court found the “subject to” clause to be ambiguous in this case, it asserted that the question could not be answered universally for the classes. Id. Extrinsic evidence would need to be admitted to interpret this ambiguous term, and that extrinsic evidence would be different for different parties. Id. at *5-7. The court pointed out that different employer sponsors negotiated their plans at different times and might have had distinct views on the meaning of the “subject to” clause. Id. at *6. Parmenter shows that even if a common question exists among all the class members, class certification may be denied if adjudication of the class action will not arrive at a common answer for all class members. In short, where different evidence will be relevant to different class members’ claim, then class certification may be inappropriate. Davis, et al. v. Magna International of America, Inc. , 2024 U.S. Dist. LEXIS 13557 (E.D. Mich. Jan. 25, 2024), turned on the adequacy of representation prong of Rule 23(a). There, the plaintiffs initially failed to achieve class certification, but ultimately succeeded when they swapped class representatives. Id. at *5-9. The plaintiffs alleged that plan fiduciaries breached the duty of prudence by investing in poorly performing funds and by charging excess fees, which ultimately cost the plan and its participants millions of dollars. Id. The original named plaintiffs, however, failed to clear the low bar for adequacy because they had criminal records and did not appear to comprehend the nature of their claims. Id. at *5-6. When the new named plaintiffs who were more reputable and better-versed on the case took their place, the court allowed the action to proceed. Id. at *6-9. Although the defendants attempted to highlight the risks of intra-class conflict by pointing out that some members of the putative class had actually profited from their investments, the court rejected these arguments, noting that any potential relief would not require those members to disgorge their profits. Id. at *9-12. Finally, in Frankenstein, et al. v. Host International, Inc. , 2024 U.S. Dist. LEXIS 120678 (D. Md. July 10, 2024), the court denied class certification based on the conclusion that the plaintiff represented a so-called “class of one.” Id. at *32. There, the defendant was a national corporation that operates restaurants and bars, many of which are located in airports. Id. at *2. The company had a longstanding practice of paying out credit card tips in
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cash at the end of workers’ shifts. Id. at *4. While employees tended to support this policy, it had one unintended effect, as an employee aiming to contribute a large percentage of their income to a 401(k) account was not able to do so using pre-tax earnings. Id. One employee, bartender Dan Frankenstein, objected to this policy, claiming that his inability to contribute these pre-tax earnings to his retirement account prevented him from meeting his retirement goals. Id. at *8. This policy, he argued, constituted a breach of fiduciary duties. The plaintiff also claimed that defendant’s refusal to permit employees to defer credit card tips amounted to discrimination against tipped-employee participants, and that its decision to prevent such deferrals was arbitrary and capricious. Id. at *10. Although the plaintiff’s claims survived a motion to dismiss, he failed to secure class certification. The court opined that the fatal flaw in the plaintiff’s case was that he appeared to be the only employee in the country who objected to receiving tips in cash. Although the court provided the plaintiff with a full year to locate other aggrieved employees, he was unable to do so. Id. at *28. At the same time, the defendant offered numerous witnesses who testified that many employees and the unions that represented them supported the tips-in-cash policy. Id. at *18. According to the court, the existence of an “intraclass conflict” was fatal to the plaintiff’s motion for class certification. Id. at *22. Considering that Frankenstein appeared to present what the court described as a “class of one,” he could not establish numerosity. Id. at *32. Further, due to his inability to identify other workers who shared his grievances, the court concluded that he could not establish commonality or typicality. Id. at *28. Finally, considering that Frankenstein’s views differed from those shared by other members of the putative class, the court ruled that he could not adequately represent the interests of the class. Id. at *25. While defeating a motion for class certification will remain difficult, the cases discussed above demonstrate the importance of considering all possible defenses to a putative ERISA class action. Where the facts depart from a “standard” breach of fiduciary duties claim, it may be possible to show that class certification under Rule 23 is not appropriate. 2. Rulings On Motions To Dismiss ERISA Class Action Claims For Failure To State A Claim In 2024, federal courts frequently addressed motions to dismiss ERISA class action complaints for failure to state a viable claim under Rule 12(b)(6). Although these rulings do not directly address class certification, they are central to both sides’ litigation strategy and, as a practical matter, can be outcome-determinative. A loss for the defendant at this stage will open the door to extensive and costly discovery. Capitalizing on that prospect, the plaintiffs’ bar often may seek to settle the matter quickly for less than the defendants’ costs to defend the class action. As noted above, claims concerning breaches of the fiduciary duties of prudence and loyalty represent the largest category of ERISA class actions. These claims generally allege one or more theories, such as that defendants chose poor investments, that they retained underperforming actively managed funds, that they charged excessive recordkeeping fees, or that they inappropriately invested in retail shares when cheaper institutional shares were available. Plaintiffs who raise such claims face a conundrum. One the one hand, courts have consistently held that, to survive a Rule 12(b)(6) motion, it is not enough to merely point out that a plan has underperformed relative to the market or to rely on unadorned cost comparisons. Rather, because breach of the duty of prudence claims focus on the existence of a deficient process and not just the end result, the plaintiffs must point to some defect in the process by which the defendants selected or managed investments or plan service providers. On the other hand, without the benefit of discovery, plaintiffs rarely have access to information about that decision- making process. As a result, at the motion to dismiss stage, plaintiffs frequently attempt to convince courts to infer poor decision- making by presenting comparisons between defendants’ plans and plans operated by competitors. The key question thus becomes whether a proper “apples-to-apples” comparison has been made. Courts have struggled to develop and apply a clear pleading standard for such cases and, consequently, their rulings are sometimes difficult to reconcile. While there was widespread hope across both sides of the ERISA bar that the U.S. Supreme Court would offer a measure of clarity in Hughes, et al. v. Northwestern University, 142 S. Ct. 737
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(2022), it ultimately issued a very narrow 8-0 opinion in that case that offered only nominal guidance to lower federal courts. The continuing fallout from the Supreme Court’s decision to punt can be seen in a number of cases decided in 2024. For example, in Mator, et al. v. Wesco Distribution , 102 F.4th 172 (3d Cir. May 16, 2024), the Third Circuit ruled that the plaintiffs could proceed with a case involving allegations that 401(k) plan managers had breached their fiduciary duties under the ERISA by, among other things, paying excessive recordkeeping fees. Id. at 178. According to the plaintiffs, their plan paid an average of $153 to $154 per participant, while the industry average was in the $40 to $60 range. Id. at 180. A responsible fiduciary, they argued, would have periodically evaluated fees and switched recordkeepers where appropriate. Id. The plaintiffs introduced a number of comparisons to other plans, but they had to extrapolate figures from publicly available data to make these comparisons. Id. at 181. The district court held that the plaintiffs had failed to provide the “apples-to-apples” comparison required at the motion to dismiss stage. Id. at 182. The Third Circuit, however, reversed and remanded. According to the Third Circuit, the plaintiffs had made out a sufficient claim by demonstrating that the comparator plans offered a similar, though not identical, range of services, that the comparator plans were similar in size, and that the fee comparisons based on publicly available data, though imperfect, were adequate. Id. at 185-188. In Guyes, et al. v. Nestle United States Inc. , 2024 U.S. Dist. LEXIS 9801 (E.D. Wis. Jan. 9, 2024), the court reached the opposite conclusion. There, the court accepted a Magistrate Judge’s recommendation to dismiss a case based on the absence of adequate comparators. Like the plaintiffs in Mator, the plaintiff in Guyes complained about allegedly excessive recordkeeping. And, like in Mator , the plaintiff in Guyes lacked insight into the decision-making process itself, and therefore had to rely on comparisons to other plans based on publicly available data. Id. at *6. In contrast with the court in Mator , however, the Magistrate Judge in Guyes focused on the differences between the plaintiff’s proposed comparators rather than the similarities. He concluded that the plaintiff failed to demonstrate that the comparator plans offered the same services or that they were similar in size. Id. at *14-15. Moreover, the Magistrate Judge took issue with the manner in which the plaintiff had calculated fees. All of this meant that no apples-to-apples comparison could be made. Accordingly, the plaintiff was, in the eyes of the Magistrate Judge and the court, unable “to cross the line from possibility to plausibility.” Id. at *16. Where exactly that line should be drawn, though, remained unresolved. The Second Circuit in Singh, et al. v. Deloitte LLP , 2024 U.S. App. LEXIS 31219 (2d Cir. Dec. 10, 2024), affirmed the district court’s ruling granting the defendant’s motion to dismiss and denying the plaintiffs’ motion to file an amended complaint. The plaintiffs were participants in the defendant’s 401(k) Plan, where employees could contribute a portion of their salary, and the defendant would make a matching contribution. Vanguard provided recordkeeping and administrative services for the Plan, and the Plan incurred fees for these services, including both direct fees and indirect fees through revenue sharing. The plaintiffs alleged that the Plan’s recordkeeping fees were excessive compared to other similar plans. They argued that the Plan’s fiduciaries violated the ERISA because they failed to negotiate favorable rates, and that the Plan could have obtained comparable services for a lower cost by soliciting competitive bids at reasonable intervals. The district court dismissed the complaint, ruling that the plaintiffs had failed to adequately allege that the recordkeeping fees were excessive relative to the services provided for purposes of stating a viable claim under the ERISA. The plaintiffs had compared only the direct costs of the Plan with the direct costs of other plans, omitted indirect costs, and had not provided enough detail on the quality of services received by the Plan or the comparator plans. The district court noted that to allege a plausible claim for excessive fees, the plaintiffs would need to show that the services and fees were comparable or provide additional context supporting the claim of imprudence. The plaintiffs filed an amended complaint with additional allegations, including expert opinions and additional comparisons, but the district court again dismissed the plaintiffs’ complaint. The district court ruled that the plaintiffs failed to specify the type and quality of services provided by the Plan or the comparator plans, and their comparison of costs was incomplete, because it compared only direct costs for some plans without considering other factors such as indirect fees or differences in services provided. The district court concluded that the plaintiffs did not provide enough context to make their claim plausible. On appeal, the Second Circuit agreed with the district court’s ruling. It determined that the plaintiffs’ allegations were too general and lacked sufficient detail to support a claim of imprudence. The Second Circuit noted that comparing costs alone, without context on the services provided or other relevant factors, was not enough to raise a plausible claim of excessive fees under the ERISA. Finally, the plaintiffs also alleged that the defendant and its Board failed to monitor fiduciaries adequately, but the Second Circuit determined that the claim was derivative of the prudence
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claim, and since that claim had been dismissed, the failure to monitor claim also failed. For these reasons, the Second Circuit affirmed the district court’s dismissal of both the prudence and failure to monitor claims. The Sixth Circuit in Johnson, et al. v. Parker-Hannifin Corp ., 2024 U.S. App. LEXIS 29500 (6th Cir. Nov. 20, 2024), reversed the district court’s ruling granting the defendant’s motion to dismiss. The plaintiffs were among approximately 32,000 participants in the Parker Retirement Savings Plan (the Plan), a defined contribution pension plan governed by the ERISA. The Plan, with $4.3 billion in assets, is one of the largest defined contribution plans in the U.S. It offers various investment options, including the Northern Trust Focus Funds (Focus Funds), a suite of target date funds. These funds, launched in 2009, were intended to provide a diversified investment strategy with a glide path that adjusts the asset allocation as the participant nears retirement. However, the Focus Funds significantly underperformed compared to industry benchmarks and had high turnover rates, causing additional transaction costs. Despite the underperformance and high turnover, the funds remained in the Plan until 2019. The plaintiffs alleged that Parker-Hannifin, as the Plan’s fiduciary, breached its duty by retaining the underperforming Focus Funds and failing to negotiate for lower-cost share classes of the funds. The plaintiffs asserted that Parker-Hannifin’s decision to invest in higher fee share classes resulted in millions of dollars in unnecessary fees, which harmed participants’ retirement savings. Parker- Hannifin contended that the plaintiffs only compared the Focus Funds to better-performing alternatives without demonstrating a flaw in the fiduciaries’ process. The defendants also argued that the plaintiffs failed to establish a meaningful benchmark. As to the plaintiffs’ claim that Parker-Hannifin breached its duty of prudence when it retained the Focus Funds, the district court found that the plaintiffs did not state a viable claim of breach of fiduciary duty because they did not identify other plans that could serve as meaningful benchmarks. Id. at *10- 11. As to the plaintiffs’ second claim that Parker-Hannifin breached its duty of prudence by obtaining higher-cost shares, the district court ruled that the plaintiffs’ “lone allegation that the investment thresholds would have been waived upon request is speculative and conclusory,” and thus insufficient to state a claim. Id. at *11. The plaintiffs then appealed. The Sixth Circuit determined that a prudent fiduciary would have considered the funds’ performance, including high turnover and underperformance, when deciding whether to retain them after 2015. The Sixth Circuit also found that the plaintiffs’ comparison of the funds to the S&P target date fund benchmark was valid, as the Focus Funds were designed to track such benchmarks. The Sixth Circuit therefore concluded that the plaintiffs’ allegations, if proven true, could show that Parker-Hannifin failed in its fiduciary duty to prudently monitor and remove the Focus Funds. The Sixth Circuit further opined that the plaintiffs’ claims that Parker-Hannifin failed to negotiate effectively or even ask for lower-cost shares were sufficient to allege a breach of the duty of prudence. The Sixth Circuit held that at this stage of the litigation, the plaintiffs need not provide exhaustive details, as such information is typically gathered during discovery. For these reasons, the Sixth Circuit reversed and remanded the district court’s ruling granting the defendants’ motion to dismiss. Binder, et al. v. PPL Corp. , 2024 U.S. Dist. LEXIS 43927 (E.D. Penn. Mar. 12, 2024), speaks to the varying pleading standards that different federal circuits have applied at the motion to dismiss stage. In Binder , the plaintiffs were participants in retirement plans sponsored by defendants. They alleged that the defendants failed to prudently monitor and remove underperforming investments, paid excessive transaction costs, and purchased higher-cost shares when substantially identical lower-cost alternatives were available. Id. at *2-4. To support their claims, the plaintiffs drew comparisons between their plans’ performances and the performances of rival plans administered by Vanguard, T. Rowe Price, and TIAA-CREF. Id. at *8. The defendants argued that these comparisons were inapt and urged the court to apply the “meaningful benchmark” standard developed by the Eighth Circuit in Meiners v. Wells Fargo & Co. , 898 F.3d 820, 822 (8th Cir. 2018) (holding that in order to demonstrate that a “prudent fiduciary in like circumstances” would have selected a different fund, a plaintiff must provide a “meaningful benchmark” that offers “a sound basis for comparison.”). Although the court in Meiners was somewhat vague in clarifying the requirements for a benchmark to be meaningful, the opinion suggested that a close correspondence between the features of the challenged investment and the comparator investment would be required. Id. at 823. But while the court in Binder acknowledged that a number of other courts had also applied the meaningful benchmark standard, it noted that this is not the standard in the Third Circuit. In that circuit, courts apply a somewhat looser “holistic” standard that merely requires plaintiffs to “provide substantial circumstantial evidence” of a breach. Binder, LEXIS 43927 at *10 (quoting Sweda v. University of Pennsylvania, 923 F.3d 320, 322 (3d Cir. 2019)). The plaintiffs’ claims, the court held, passed muster under this standard.
In other circuits, courts apply a still-looser “totality of the circumstances” test. For example, in Daggett, et al. v.
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