They are the words in-house counsel dread to see in the caption of a new lawsuit: “on behalf of themselves and all others similarly situated.” ERISA class actions present special challenges and risks to plan sponsors and fiduciaries. A defense strategy focused on dismissing the lawsuit or narrowing the class at the earliest opportunity will help to reduce the pain. Raising some of the following arguments in a motion to dismiss or in opposition to a motion for class certification may advance that strategy.
The Employee Retirement Income Security Act of 1974 (ERISA) is a perennial favorite of the plaintiff-side class action bar, as illustrated by the proliferation of 401(k) “excessive fee” cases over the last decade. Plaintiffs’ lawyers like to bring ERISA claims as class actions because of the potential for an enhanced fee award. Although an individual action under ERISA § 502(a)(2) or (3) on behalf of the plan could achieve similar results and allow the plaintiff’s lawyers to recover their fees under ERISA § 502(g), 29 U.S.C. § 1132(g), courts have held that such fee awards cannot be enhanced for contingency. See, e.g., Murphy v. Reliance Standard Life Ins. Co., 247 F.3d 1313, 1315 (11th Cir. 2001) (collecting cases). Class action fee awards, whether measured as a percentage of the fund or lodestar with multiplier, typically exceed the fees billed by the plaintiff’s lawyers and, thus, account for the risk of taking a case on contingency.
Given that the potential exposure, defense costs and negative media attention all are greater in the class action context, plan sponsors or fiduciaries will want to dismiss or narrow any class action litigation as early as possible. The following four arguments may help do just that.
To have Article III standing to sue, a plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision. Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016). The Supreme Court in Spokeo clarified that the injury must be both “concrete” and “particularized.” Id. at 1548. Additionally, in a class action, the named plaintiff(s) must personally have standing; they cannot rely on injury allegedly suffered by unidentified members of the putative class. Id. at 1547 n.6.
Counsel defending an ERISA class action should consider whether the named plaintiff has suffered an injury sufficient to confer standing. For example, following Spokeo, violations of ERISA without any impact on or risk to benefits may not meet the injury requirement. See Lee v. Verizon Commc’ns, Inc., 837 F.3d 523, 530 (5th Cir. 2016) (“bare allegation” of ERISA noncompliance did not satisfy Article III standing requirement). A motion to dismiss for lack of standing could end the lawsuit at the outset. If the case proceeds to the class certification stage, counsel could use any lingering questions about the proposed class representative’s Article III standing to argue that she fails the adequacy and typicality requirements of Rule 23(a).
2. Statute of Limitations
For certain breach of fiduciary duty claims, ERISA prescribes a limitations period of six years (three years if the plaintiff had actual knowledge of the breach). ERISA § 413, 29 U.S.C. § 1113. For benefit claims, ERISA does not specify a limitations period, and courts look to the most analogous statute of limitations of the forum state. Schroeder v. Phillips Petroleum Co., 970 F.2d 419, 420 (8th Cir. 1992). Alternatively, a contractual limitations period contained in the plan limiting benefit claims will be enforced so long as it is reasonable. See Heimeshoff v. Hartford Life & Acc. Ins. Co., 571 U.S. 99, 105–06 (2013).
Counsel should determine at the beginning of the litigation which limitations period applies and whether the named plaintiff and the putative class members have timely claims. If the named plaintiff’s claim is time-barred, a motion to dismiss on that ground would dispose of the entire case. If some absent class members’ claims are time-barred, the defendants could argue at the class certification stage that individualized questions regarding timeliness precludes certification or requires the class to be narrowed based on time.
Courts have consistently read an administrative exhaustion requirement into ERISA and will enforce plan provisions that mandate exhaustion. See, e.g., Wert v. Liberty Life Ins. Co. of Boston, 447 F.3d 1060, 1063 (8th Cir. 2006).
If the named plaintiff failed to exhaust his administrative remedies, that would be a basis for a motion to dismiss. Such a dismissal would be without prejudice, however, so the victory may be short lived. See, e.g., Brennan v. Cheli & Lyshak, P.L.C., 2006 WL 2645004, at *1 (E.D. Mich. Sept. 14, 2006) (dismissing ERISA claims without prejudice to re-filing after administrative remedies are exhausted). (Nevertheless, compelling the plaintiff to exhaust administrative remedies may have the additional advantage of building the record for discretionary interpretations that may be subject to deferential review by the court. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989).)
If the issue is not raised until class certification, the defendants potentially could argue that the proposed class representative’s failure to exhaust renders him atypical of the class and should prevent certification.
4. Rule 23(b)(3)
At the class certification stage, the plaintiff will need to show that at least one subpart of Rule 23(b) is satisfied (in addition to all four subparts of Rule 23(a)). Plaintiffs often try to certify ERISA class actions under Rule 23(b)(1)(A), which applies where prosecuting separate actions would create a risk of inconsistent outcomes, or Rule 23(b)(2), which applies where the plaintiff is seeking injunctive relief that applies generally to the class.
Defendants should resist certification under Rule 23(b)(1)(A) or Rule 23(b)(2) and argue that, if a class is to be certified at all, it should be under Rule 23(b)(3). Rule 23(b)(3) applies where common questions predominate over individual ones. The Supreme Court has said that this predominance requirement is more demanding than the commonality requirement of Rule 23(a). Comcast Corp. v. Behrend, 569 U.S. 27, 34 (2013). Thus, applying Rule 23(b)(3) affords an advantage to defendants seeking to avoid certification based on individualized issues.