Fringe Benefit Group fails to stop class action certification over excessive fees on 401(k)s, health plans

A team of California and Texas law firms overcame a challenge to a certified class action against Fringe Benefit Group for about 300,000 participants across thousands of retirement and health benefits plans in two trusts.

Plaintiffs seek to disgorge Fringe Benefit Group companies of “ill-gotten profits” realized through excessive fees charges against employees that contributed to the trusts through their employer, according to the opinion authored by Circuit Judge Carl E. Stewart of the U.S. Court of Appeals for the Fifth Circuit.

Lead plaintiff is Heriberto Chavez. Plaintiffs were employees of San Antonio-based Training, Rehabilitation & Development Institute Inc. Chavez alleges fees taken from his health and welfare account were “depleted more than it otherwise would have been if the fees had been reasonable.”

In July 2017, plaintiffs sued FBG for alleging that it mismanaged two trusts at issue in the case by collecting excessive fees in violation of the Employee Retirement Income Security Act, and later amended the claim to allege FBG handpicked providers to maximize its profits, controlled disbursements from the trusts for its own benefit, and unlawfully procured indirect compensation.

Stewart said when the trial court reached the class certification issue and encountered a question of first impression: whether plaintiffs had standing to sue FBG on behalf of unnamed class members from different contribution plans.

The trial court ruled in plaintiffs’ favor but FBG appealed to the Fifth Circuit and a previous panel of the court vacated and remanded with instructions that a “rigorous analysis” was needed under the Federal Rules of Procedure for class actions—Rule 23.

This was done and the trial court certified two classes: participants and beneficiaries of the health and welfare benefits trust or CPT; and participants and beneficiaries of the employee retirement trust or CERT.

“As of February 2021, the class included ’224,995 participants and 2,994 plans in CERT as well as 68,066 participants and 350 plans in CPT,’” Stewart noted.

The court recognized that the defendants raise important questions about the order and depth in which the Fifth Circuit grapples with constitutional standing and Rule 23 inquiries.

“There is a split on this very question that exists across the circuits,” Stewart noted, adding it stems from the notion there cannot be a disconnect between the harm plaintiffs suffer and the relief sought.

Stewart discussed the court’s own relevant caselaw, Angell v. Geico Advantage Insurance Co., and caselaw from the Second and Eleventh Circuits, and concluded the plaintiffs established standing to sue and moved on to an analysis of Rule 23.

Structuring the class action

Rule 23, through its subsections, provides several methods for proceeding with a class action.

Jackson Walker, for the defendants, argued the trial court abused its discretion by allowing plaintiffs the option of suing without giving non parties notice or a right to opt out.

A mandatory class status under Rule 23(b)(1), Stewart wrote, “is inappropriate because this is primarily an action for damages and it is not evident that individual adjudications would substantially impair the interests of members not parties to the individual adjudications.”

“The ability of individual class members to opt out and pursue separate remedies should be preserved despite the claim for damages in the class complaint,” the opinion states.

Related: Bechtel employees file ERISA lawsuit over 401(k) plan excessive fees

The Fifth Circuit then offered guidance, suggesting Judge Yeakel address the variables of individualized damages.

“A class may be divided into subclasses for adjudication of damages,” Stewart said. “The district court should consider whether liability and damages should be resolved commonly and whether injury, causation, and actual damages should be resolved individually.”