Participants may join ERISA class-action even if they didn't invest in every fund
"This allegedly excessive annual fee would represent a concrete and personal injury to a plaintiff regardless of the funds in which he or she invested," the judge said.
The U.S. Court of Appeals for the Third Circuit has upheld a district court decision granting class certification to a group of retirement plan participants who alleged breach of fiduciary responsibility in their suit against plan administrators.
The fiduciaries of the retirement plan had argued for partial dismissal of the participants’ claims, stating that they “lacked constitutional standing to pursue claims relating to funds in which they did not personally invest.” Universal Health Services Inc., Universal Inc. and the UHS Retirement Plans Investment Committee, the named defendants in the suit, argued that since the named plaintiffs in this appeal did not invest in 30 of the funds available, they lacked standing to sue as typical members of the class.
However, the Third Circuit panel’s June 1 opinion upheld the district court decision and denied the fiduciaries’ motion for dismissal, and held that the plaintiffs had standing because their injuries resulted from plan-wide misconduct.
The decision stated that “the focus of the participants’ claims is on [Universal’s] conduct as to all plan participants rather than about the individual investment choices made by participants and putative class members.” The court found that the participants who were plaintiffs were typical of the class regardless of the funds they chose within the plan.
The complaint by the participants alleged Universal breached its fiduciary duty under ERISA by offering a very expensive option, the Fidelity Freedom Fund suite, which was designated as the plan’s Qualified Default Investment Alternative. If a participant did not choose a fund, one of the Fidelity Freedom Funds became the automatic investment. The plaintiffs alleged that Universal failed to “monitor and reduce the excessively high recordkeeping and administrative fees” for the plan and failed to provide a “prudent investment evaluation process.”
The complaint further alleged Universal failed to monitor the performance of the Investment Committee, which resulted in the costly investment choices.
Judge Anthony J. Scirica, in his written opinion for the court, stated that the defendants’ decision to offer the suite of Fidelity Freedom Funds can be directly traced to “concrete injuries” suffered by the plaintiffs. Scirica added, “We recognize that allowing class representatives to bring claims relating to funds in which they did not invest may result in some inefficiency at the damages stage. But these concerns do not bar certification of this (b)(1) class.”
Universal conceded that the plaintiffs have standing on the issue of recordkeeping and administrative fees. Scirica stated that since the fees in question were flat annual fees, all plan participants were affected in the same way.
“This allegedly excessive annual fee would represent a concrete and personal injury to a plaintiff regardless of the funds in which he or she invested,” Scirica said.
James E. Miller of Miller Shah, counsel for the class of retirement plan participants stated, “We are very pleased with the decision by the Third Circuit Court of Appeals.” He added, ”In our view, the decision will be very helpful in defeating arguments by defendants in such cases that attempt to prevent retirement plans and their participants from vindicating important legal rights.”
Michael E. Kenneally of Morgan, Lewis & Bockius represented Universal and could not be reached immediately for comment.