By Mark Casciari and Alexius O’Malley

Synopsis: Supreme Court has agreed to decide the fate of class waiver provisions in mandatory arbitration agreements, which may spark a new trend in ERISA benefits litigation. 

On January 13, 2017, the United States Supreme Court agreed to decide whether employment agreements mandating individual arbitration of employment disputes, and prohibiting class actions, are enforceable under the Federal Arbitration Act. The issue presented in the three cases consolidated for review, as stated in NLRB v. Murphy Oil USA, Inc., No. 16-307, is:

Whether arbitration agreements with individual employees that bar them from pursuing work-related claims on a collective or class basis in any forum are prohibited as an unfair labor practice under 29 U.S.C. § 158(a)(1), because they limit the employees’ right under the National Labor Relations Act [NLRA] to engage in “concerted activities” in pursuit of their “mutual aid or protection,” 29 U.S.C. § 157, and are therefore unenforceable under the savings clause of the Federal Arbitration Act, 9 U.S.C. § 2.

The consolidated cases do not involve ERISA-governed plans and employees covered by the NLRA, but the Court’s decision could have broader applications in the ERISA context.

It is no secret that plaintiff’s attorneys view plan participants as prime candidates, as well-defined groups of individuals, to bring ERISA class action lawsuits—where it can be said in many cases that the challenged fiduciary action presents common questions with common answers for similarly situated plan participants.

The stakes are high once an ERISA class is certified. Indeed, tens of millions of dollars are often at stake in class action settlements. See our sister Workplace Class Action blog, as to ERISA class action settlement amounts in recent years,  here.

And while defendants have solid arguments against class certification following recent Supreme Court decisions cutting back on certification, it may be appealing for plans to avoid class certification litigation altogether, and the associated high costs in attorney’s fees, by mandating individual arbitration of ERISA claims.

If the Supreme Court endorses arbitration in Murphy Oil, as it has in the recent past, see AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2011); American Express Co. v. Italian Colors Restaurant, 570 U.S. ––, 133 S. Ct. 2304 (2013), ERISA plan sponsors might reconsider mandating individual arbitration of ERISA claims.

Indeed, in Munro v. University of Southern California, No. 16-cv-06191 (C.D. Calif.), plaintiffs  seek ERISA class certification to challenge 401(k) plan fees, and the defendant countered by moving to compel individual arbitration, by relying on the mandatory arbitration agreements. The court has yet to rule on the motion.

Even if arbitration is the desired course, there are procedural issues to consider, including whether and how to share the cost of arbitration, how to select the arbitrator, how to define the scope of the authority of the arbitrator, and how to structure discovery.

On the substantive front, there also are several advantages and disadvantages to arbitration of ERISA claims to consider:

Advantages:

  • Avoids expensive class action litigation and potentially expensive class action settlements
  • Discourages plaintiff class action counsel from pursuing the claim
  • Facilitates early resolution of disputes
  • Enhances confidentiality

Disadvantages:

  • Nullifies appeal rights, absent fraud or an arbitrator’s exceeding his authority
  • Risks decision-making by an individual who less understanding of ERISA nuances than does a typical federal judge
  • Creates the possibility of numerous, simultaneous arbitrations, with fiduciaries facing arguably inconsistent decisions
  • Does not negate the possibility of litigation by the U.S. Department of Labor

Plan sponsors should pay close attention to the impending Supreme Court decision on class action waivers and mandatory employment arbitration.

By: Mark Casciari

On May 12, 2015, we reported at here on a non-ERISA case accepted for review by the Supreme Court in the 2015-16 Supreme Court Term that has ERISA Litigation implications.  Now, as that Term is set to begin on October 5, 2015, we report on a second non-ERISA case with ERISA Litigation implications that soon will be decided by the Court.

On June 8, 2015, the Supreme Court agreed to hear Tyson Foods Inc. v. Bouaphakeo, No. 14-1146, which presents these questions for review:

  1. Whether differences among individual class members may be ignored and a class action certified under Federal Rule of Civil Procedure 23(b)(3), or a collective action certified under the Fair Labor Standards Act (FLSA), where liability and damages will be determined with statistical techniques that presume all class members are identical to the average observed in a sample.2.   Whether a class action may be certified or maintained under Rule 23(b)(3), or a collective action certified or maintained under the Fair Labor Standards Act, when the class contains hundreds of members who were not injured and have no legal right to any damages.

Oral argument will be heard in Bouaphakeo on November 10, 2015.  A number of amicus curiae briefs have been filed in the case addressing the likely impact of the Bouaphakeo decision well beyond its unique facts and the FLSA legal context.

The first question presented for decision might not have direct application to putative ERISA class actions as ERISA class counsel do not have a history of proving damages based on statistical samples.  But the second question presented for decision could have far-reaching application to putative ERISA class actions.  Many courts do not now require that a class definition exclude the possibility that a class member suffers no injury.  For example, the Court of Appeals for the Seventh Circuit will certify classes for liability purposes under Fed. R. Civ. P. 23(c)(4) without regard to any consideration of damages.  See e.g., McReynolds v. Merrill Lynch, 672 F. 3d 482 (7th Cir. 2012) (Title VII disparate impact context).  And, while ERISA class action filings are in decline, Courts still allow ERISA certifications that address damages in a hypothetical fashion.  See e.g., Spano v. Boeing Co., 633 F.3d 574 (7th Cir. 2011), where the Court allowed certification even though the reference point for the damage analysis could prove to have no bearing on actual damages.

A Tyson win therefore could mean that a putative ERISA class challenging a defective Summary Plan Description that applied to a class of plan participants will not be certified unless class counsel can trace the defect, in roadmap fashion, to a common injury for each class member.  It could mean that a putative ERISA class challenging allegedly excessive fees for a plan investment in a defined contribution plan will not be certified unless class counsel can show how each class member will receive a common increase in benefits should the claim succeed.  It could mean that a putative ERISA class challenging an investment decision for a defined benefit plan will not be certified unless class counsel can show that each class member likewise will receive a common increase in benefits should the claim succeed.  A Tyson win would build upon the Supreme Court’s focus in Comcast Corp. v. Behrend, 133 S.Ct. 2013 (2013), on frontloading the damage analysis in putative class actions, and would likely result in fewer ERISA class certifications or certifications of classes with fewer members.  Fewer or smaller certifications mean a better settlement bargaining position for ERISA class action defendants.  Defendants could further enhance their settlement positions by pursuing a quick resolution of the class certification question, in line with the Fed. R. Civ. P. 23 (c)(1)(B) mandate that the district court resolve the class question “[A]t an early practicable time after” the action is commenced.

We will keep you advised of further Supreme Court developments on the class action front in non-ERISA contexts, to the extent that they are likely to affect ERISA class action law.

By: Mark Casciari and Michelle Scannell

ERISA class actions can drag on for years.  Defending them is costly, so expensive nuisance settlements are tempting, regardless of the merits. 

Compounding the problem, ERISA actions often are ripe for class certification because ERISA plans, by definition, each apply to a class of people. 

But before you grab your wallet when faced with a putative ERISA class action, consider this admittedly partial, but helpful, list on how to attack a certification motion on the basis of Fed. R. Civ. P. 23(a) elements of commonality and typicality:

  • Can the would-be class members even sue under ERISA? (See Penn. Chiropractic Ass’n v. Blue Cross Blue Shield Ass’n, No. 1:09-cv-05619 (N.D. Ill. Dec. 28, 2011) (finding that providers suing for reimbursement lacked commonality on issues including whether they could invoke ERISA)).  
  • Did would-be class member claims accrue at different times, and are some untimely? (See In re Unisys Corp. Retiree Med. Benefits Litig., 29 EBC 2473 (E.D. Pa. Feb. 4, 2003) (decertifying class because individualized inquiries were required on many issues, including whether individual fiduciary breach claims of class were timely)).
  • Have would-be class members exhausted their administrative remedies? (See Stephens v. U.S. Airways Grp., Inc., No. 1:07-cv-01264-RMC (D. D.C. Dec. 7, 2012) (finding no typicality because named plaintiff was only class member who exhausted administrative remedies)).
  • Do different standards of review apply to different would-be class members? (See Lipstein v. UnitedHealth Grp., No. 1:11-cv-01185-JBS-JS (D. N.J. Sept. 26, 2013) (finding that proposed class of participants in more than 1,000 plans administered by insurer lacked commonality because different levels of discretion could have applied under different plans)).
  • Did would-be class members adopt different investment strategies? (See Groussman v. Motorola, Inc., 2011 U.S. Dist. LEXIS 134769 (N.D. Ill. Nov. 15, 2011) (finding no commonality due to individualized investment strategies of class members, and lack of typicality for failure to show that class members were allegedly deceived in a uniform fashion)).
  • Did would-be class members uniformly rely on any alleged misrepresentations? (Hudson v. Delta Air Lines, Inc., 90 F.3d 451, 457 (11th Cir. 1996) (finding no commonality due to individualized issues of reliance)).
  • In short, ask yourself this questionHave the putative class action representatives provided the court with a credible and formulaic roadmap to damages for a group of people with standing to sue under ERISA? 
  • If the answer involves a number of detours, you are on to something!

On February 24, 2012, Judge Richard Posner of the Court of Appeals for the Seventh Circuit authored a significant post-Wal-Mart Stores, Inc. v. Dukes class certification decision.  In McReynolds v. Merrill Lynch, No. 11-3639, the Seventh Circuit reversed the denial of class certification under Fed. R. Civ. P. 23(b)(2).  A detailed discussion of the McReynolds opinion appears here on our sister publication, the Workplace Class Action Blog.   Although McReynolds is not an ERISA case, we expect to see it cited by plaintiffs’ counsel in ERISA cases.  We summarize  below  the key aspects of the case from an ERISA litigation perspective. 

 We find it noteworthy that the Seventh Circuit first found that the Fed. R. Civ. P. 23(f) appeal was timely.  Plaintiff appealed within the 14-day period after the denial of his amended motion for class certification in light of Dukes, even though he did not appeal within 14 days of the denial of his original motion for certification (which predated Dukes).  The Seventh Circuit found that the appeal was timely in large part because of the importance of motions for class certification to modern federal jurisprudence.  The court noted that:  “[a] denial of class certification often dooms the suit—the class members’ claims may be too slight to justify the expense of individual suits. Conversely, because of the astronomical damages potential of many class action suits, a grant of certification may place enormous pressure on the defendant to settle even if the suit has little merit.” Slip op. at 3 (citation omitted). 

 The Seventh Circuit then proceeded to the facts, which we summarize to provide context.  Plaintiff alleged that Merrill Lynch discriminates against 700 African-American brokers by virtue of its company-wide “teaming” and “account distribution” policies.  The teaming policy permits brokers in the same office to form teams.  Many brokers prefer to work by themselves, but others prefer to work as a team.  The teams are formed by brokers, and once formed, a team decides whom to admit as a new member.  Account distributions are transfers of customer accounts when a broker leaves Merrill Lynch.  Accounts are transferred within a branch office, and the brokers in that office compete for the accounts.  Merrill Lynch distributes accounts on the basis of broker records of revenue generated, and of the number and investments of clients retained.  Plaintiff claimed that these corporate policies exclude African-Americans in greater proportions than whites from teams and account distributions.  In contrast to the plaintiffs in Dukes, the McReynolds plaintiff did not accuse Merrill Lynch of intentional discrimination and argued that level of managerial discretion in implementing the corporate policies was less than that present in Dukes.  

 The Seventh Circuit held that certification was appropriate under Fed. R. Civ. P. 23(b)(2) as to liability, even though damage issues would be individualized.  The court drew support for this hybrid model from Fed. R. Civ. P. 23(c)(4).  This rule provides:  “When appropriate, an action may be brought or maintained as a class action with respect to particular issues.”   Whether the class will be awarded pecuniary relief, the court said, will turn on individualized suits for backpay, or for compensatory or punitive damages if  the members of the class can then show intentional discrimination, perhaps aided by issue or claim prelusion against Merrill Lynch.   

 McReynolds’ significance extends to ERISA cases (and beyond).  It now may be easier for a plaintiff in the Seventh Circuit to certify a class adversely affected by a plan communication or term under Fed. R. Civ. P. 23(b)(2),  seeking only injunctive or declaratory relief, even if there are individualized issues, such as individualized damage issues.   McReynolds creates new, uncharted  territory by appearing to support the idea that individualized issues may now be decided in separate proceedings involving each and every class member after a certified class issue is decided in plaintiff’s favor.   It is unclear, however, how the court would address situations where the individual issues such as causation and harm are imbedded in the core merits issues.  For example, the Seventh Circuit has held that a breach of fiduciary duty finding requires a finding that the act or omission at issue caused harm. 

By: Mark Casciari and Ada Dolph

On February 6, 2012, the Court of Appeals for the Second Circuit in Nationwide Life Ins. Co. v. Haddock, Case No. 10-4237-cv, vacated and remanded for reconsideration a district court’s ERISA class action certification issued pre-Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011).  The court vacated the district court certification order, which relied on  Fed. R. Civ. P. 23(b)(2).  The court reasoned that, if the plaintiffs were awarded money pursuant to ERISA Section 502(a)(3), the court would nonetheless be required to conduct “non-incidental, individualized proceedings for monetary awards.” 

The plaintiffs, in their role as pension plan trustees, alleged under  ERISA Section 502(a)(3) that Nationwide, an investment provider, breached its alleged fiduciary duties by collecting revenue sharing payments from the mutual funds that Nationwide selected and offered to the plaintiffs’ plans.  The plaintiffs sought as relief a declaratory judgment that Nationwide’s revenue sharing violated ERISA, an injunction barring Nationwide from receiving revenue sharing payments, and disgorgement of the revenue sharing payments received by Nationwide. 

The plaintiffs moved for class certification pursuant to Rule 23(b)(2) and (b)(3).  In 2009, the district court certified the class pursuant to Rule 23(b)(2), concluding that plaintiffs’ claims for general injunctive or declaratory relief predominated over their claims for individualized monetary relief.  The district court did not decide whether the class could be certified pursuant to Rule 23(b)(3).

On appeal, the Second Circuit found that Dukes means that claims for individualized monetary relief are not suitable for Rule 23(b)(2) certification unless they are “incidental” to the requested declaratory or injunctive relief.   The Second Circuit found that if the plaintiffs were successful, the court would be required to determine the separate monetary recoveries of each defendant from the disgorged funds.  “This process,” it concluded, “would require the type of non-incidental, individualized proceedings for monetary awards that Wal-Mart rejected under Rule 23(b)(2).”  The Second Circuit then remanded the case to the district court to consider whether the class could be certified under Rule 23(b)(3). 

This case provides two lessons.  First, it will be difficult after Dukes to certify an ERISA action under Rule 23(b)(2) because many such actions have a primary focus of recovering money.  Second, because Rule 23(b)(3) certification requires the court to provide notice about the action and a right to opt out of any certified class, and because there is little history of ERISA Rule 23(b)(3) certifications, there will much to say in the future about the ramifications of such certifications.

By:  Amanda Sonneborn and Meg Troy

In the first case to rely substantially on Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011), to deny class certification in a putative ERISA class action, the Northern District of Illinois recently rejected the plaintiffs’ motion for class certification of a stock drop claim.  In Groussman et al. v. Motorola, Inc., No. 1:10-cv-00911, the court explained that after Dukes, class certification should only be granted after a “‘rigorous analysis’ by the court” and plaintiffs must show “more than that other courts certified classes in other ERISA cases based on different facts” to meet their burden under Rule 23.

In Groussman, plaintiffs alleged that defendants imprudently offered Motorola stock as a 401(k) plan investment option.  Plaintiffs sought to certify a class consisting of “all persons who were participants in, or beneficiaries of, the Plan at any time between July 1, 2007 and December 31, 2008 and whose account included investments in Motorola stock.”  The plaintiffs asserted claims that Motorola stock was an imprudent investment, that the defendants had failed to make adequate disclosures about Motorola’s business, and various claims derivative of those theories.

In refusing to certify plaintiffs’ proposed class, the Court first concluded that the proposed class did not meet the Rule 23(a) commonality requirement, because plaintiffs failed to show that members of the proposed class suffered the same injury or that key common issues of fact or law were capable of resolution in a class action.  The Court noted that the assessment of damages for each proposed class member would become “a massive series of individualized analyses,” in-appropriate for class treatment after Dukes because class members must all “have suffered the same injury.”  The Court also concluded that the plaintiffs’ proposed class did not meet the Rule 23(a) typicality requirement, noting “[i]t is not enough for the typicality requirement that Plaintiffs will present the same legal theories as the proposed class members.”  The Court agreed with defendants that each proposed class member would want to argue that it became imprudent to invest in Motorola stock on different dates based on their unique investment strategies, and that plaintiffs failed to identify the specific alleged misrepresentations and misleading statements that they relied upon to show they were deceived in a uniform fashion.  The Court noted that “among just Plaintiffs, there is a difference as to what each Plaintiff understood at any given time, and that Plaintiffs did not rely upon the same information or statements in making their investment decisions.”  The Court also found that plaintiffs failed to meet the Rule 23(a) adequacy requirement, because no one plaintiff could fairly and adequately represent the class, given that each proposed class member would want to tailor the liability and damages arguments in order to maximize his or her individual recovery.  

The Court also concluded that the class could not be certified under Rule 23(b)(1), because there was no risk of varying or inconsistent decisions.  In addition, the Court found that the class could not be certified under Rule 23(b)(3), because common questions of law or fact do not predominate.

The Groussman decision highlights the difficulty of obtaining class certification post-Dukes and shows that motions to certify classes in ERISA cases will receive higher scrutiny in the future.  Dukes and recent appellate court decisions are forcing district court judges to carefully examine whether cases truly involve uniform issues suited for class treatment or whether individual issues such as proof of causation, harm, and reliance predominate.

By:  Mark Casciari and Ada Dolph

On an issue it described as “undecided,” the Second Circuit held on November 3, 2011 that a pensioner’s ERISA Section 502(a)(3) claim of an underpayment of benefits under an ERISA plan accrues “when there is enough information available to the pensioner to assure that he knows or reasonably should know of the miscalculation.”  Novella v. Westchester County, No. 09-4061-cv(L), 09-3826-cv(XAP) (2d Cir. Nov. 3, 2011).

In arriving at what it termed a “case-by-case reasonableness” standard and “third approach,” the Second Circuit first rejected the defendants’ approach that the claim accrued upon the first incorrect payment of benefits.  The court found that placing the burden on a potentially less-sophisticated pensioner to determine the correctness of a complicated pension award upon receipt of the first payment of benefits would be “too harsh.”  The Second Circuit then rejected the plaintiffs’ approach, adopted by the district court, that the claim accrued once “a prospective class member inquires about the calculation of his benefits and the Plan rejects his claim” because it imposed no obligation on the participant to inquire regarding whether a benefit calculation was correct and would undermine the purpose of the statute of limitations. 

The Second Circuit also rejected the application of the continuing violation doctrine, which it characterized as involving claims “based on a single decision that results in lasting negative effects” as distinguished from “separate violations of the same type, or character, [] repeated over time.” 

Because a participant generally must first bring a claim for the benefit under the plan’s claims procedures before filing suit, plan sponsors should consider adding certainty by including a definition of when the claim accrues in the plan’s procedures. 

The Second Circuit then vacated the related class certification order because it could not determine if the class members’ respective claims were timely, and whether numerosity existed, absent individualized determinations “whether, and if so when, each class member had information by which he knew or should have known of the miscalculation.”  The court recognized that its approach in the context of class certification could result in a “resource-intensive, claimant-by-claimant inquiry,” which “may in turn, lessen the value, and indeed the availability, of class actions in this kind of litigation.”  The Second Circuit also suggested that the “fact-intensive nature” of its approach could make it difficult for class representatives to meet the typicality requirement in Fed. R. Civ. P. 23(a)(3), but declined to address the issue on the record before it.

Although this opinion was issued in the context of a small purported class of 24, it will provide a basis to oppose class certification in ERISA cases on individualized limitations grounds. 

As discussed in our October 22, 2011 post,  it also appears that the Second Circuit has joined a growing number of courts that consider the “clear repudiation” limitations accrual standard a flexible one.  It is noteworthy that the Second Circuit stated that its “know or reasonably should know” standard was “consistent” with the clear repudiation standard set forth in Miller v. Fortis Benefits Insurance Co., 475 F.3d 516 (3d Cir. 2007) because even the Third Circuit contemplated that its rule “would vary in its application to the facts of any individual case.”  (Why Novella was styled as an ERISA Section 502(a)(3), as opposed to 502(a)(1)(B), case is beyond the purview of this article.)