PLANADVISER - September/October 2019 - 55

fiduciary fitness
Class Certification
Sometimes a plaintiff can file breach of duty claims directly
FREQUENTLY, actions for breach of fiduciary duty under
the Employee Retirement Income Security Act (ERISA) are
filed by plaintiffs as class-action lawsuits. Therefore, before
any of the substantive issues in the case are addressed,
the court rules on whether the putative class satisfies the
requirements for certification under Federal Rules of Civil
Procedure Section 23, to proceed as a class-action suit.
Yet, a recent Colorado District Court case, Ramos v. Banner
Health, raises the issue of whether, in the defined contribution
(DC) plan context, there may be circumstances where
filling those requirements can be avoided.
Although breach of fiduciary claims are
more frequently brought against plan
sponsors and committees with fiduciary
responsibilities under the plan than against
advisers, advisers are potential defendants.
To the extent that plaintiffs can avoid
having to be certified as a class in a breach
of fiduciary duty case, the likelihood of an
expensive settlement of the case increases.
By way of background, a 2008 Supreme
Court decision, LaRue v. DeWolf, Boberg &
Associates Inc., relying upon the nature of a DC plan, held that
ERISA Section 502 authorized recovery for fiduciary breaches
that impair the value of plan assets in an individual's account,
although it does not allow remedies for individual injuries
-e.g., if the participant's vested percentage was calculated
incorrectly-distinct from plan injuries. However, LaRue
did not address whether participants in a DC plan may seek
remedies only for their own accounts or for all plan injuries.
District courts considering the issue have reached opposite
conclusions in interpreting LaRue, as did courts in the 9th
Circuit in addressing the implications of individualized arbitration
in lieu of class actions. Courts that allow direct action
claims reason that ERISA Section 409 makes a plan liable to
repay itself for losses that have resulted from a breach of fiduciary
duty and that ERISA Section 502(a)(2) allows a participant
to bring an action for relief of such a violation.
For example,
in Waldron v. Dugan,
the district court
concluded that " neither ERISA itself nor the Federal Rules of
Civil Procedure require ERISA participants to bring Section
502 claims derivatively " or as a class action. Other courts
have expressed skepticism about the ability of plaintiffs to
proceed on behalf of the plan absent class certification and
have voiced concerns about whether the action is appropriately
structured to bind all plan participants: Some may be
unaware of the litigation and about the possibility of inconsistent
rulings, should the defendants face multiple lawsuits.
Another district court in Illinois also expressed this
concern, in Fish v. Greatbanc Tr. Co.: " [T]o permit the action to
go forward without the type of protections provided by Rule
23 or Rule 23.1 or their equivalent would be overly myopic. "
The District Court in Ramos v. Banner indicated that each
There may be
circumstances
where filling those
requirements
can be avoided.
of the aforementioned approaches was unsettling in its own
way. To allow plaintiffs to proceed in a direct action for all
plan losses attributable to the defendant, rather than only
their individual losses, would create significant due process
concerns about whether and how potential plaintiffs would
be bound by resolution of the case, whether
by settlement or by trial. It also would raise
the question as to why any plaintiff bringing
an action under Section 502(a)(2) would ever
seek class certification. However, to require
a plaintiff to obtain class certification in
order to recover planwide losses is inconsistent
with the language of ERISA Section 409
and does not reflect the Supreme Court's
historic interpretation as set forth in Mass
Mutual Life Insurance Co. v. Russell.
To resolve this, the Colorado District
Court looked to the opinion of the 2nd Circuit in Coan v.
Kaufman. In that case, the 2nd Circuit concluded that a participant
is not always required to satisfy the Federal Rules of
Civil Procedure to obtain class certification to act in a representative
capacity. Still, the participant bringing an action
under ERISA Section 502 would most likely be acting in a
representative capacity, and therefore must " take adequate
steps under the circumstances properly to act in a representative
capacity on behalf of the plan. " The 2nd Circuit indicated
that Congressional silence as to the appropriate safeguards
" does not mean Congress intended to allow individual
participants and beneficiaries to bring suit on behalf of an
employee benefit plan without observing procedural safeguards
for other interested parties. "
Applying that standard, in Ramos v. Banner, the court
concluded that plaintiffs had failed to take adequate steps
to act in a representative capacity. However, the extent to
which a plaintiff can satisfy those procedural requirements
remains an open issue that advisers should monitor.
Marcia Wagner is an expert in a variety of employee benefits and
executive compensation areas, including qualified and nonqualified
retirement plans and welfare benefit arrangements. She is a summa
cum laude graduate of Cornell University and Harvard Law School
and has practiced law for 32 years. She is a frequent lecturer and has
authored numerous books and articles.
planadviser.com September-October 2019 | 55
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