Wednesday, May 18, 2011

401(k) Class Actions for Fiduciary Breach Still Alive

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Plaintiffs bringing class actions on behalf of their defined contribution pension plans may be breathing a sigh of relief after the Seventh Circuit Court of Appeals did not agree with the argument that fiduciary breach claims brought against plan fiduciaries are never suitable for class action treatment. Spano v. Boeing Co., No. 09-3001 (7^th Cir. 1/21/11); Beesley v. Int'l Paper Co., No. 09-3018 (7^th Cir. 1/21/11).

Although the 3-judge panel vacated class certification orders against Boeing and International Paper, in so doing the court was clear that it was not ruling that ERISA §502(a)(2) lawsuits brought by defined contribution plan participants can never be brought as class actions.

The appeals court concluded that the district court defined the class too broadly. The class definitions in both cases, the court said, were of such “breathtaking” scope that they would not satisfy Federal Rule of Civil Procedure 23. The court gave some guidance for the plaintiffs’ bar on what 401(k) plan participants must do to satisfy the typicality requirement of Rule 23 by saying that, at a minimum, the named plaintiffs would need to have invested in the same investment funds as other class members. Each plan permitted participants to make their own investment choices.

The court was cautious, however, to say that nothing in its decision should be understood as ruling out the possibility that the Boeing and International Paper plaintiffs could not obtain class certification once the cases are remanded to the lower court.

These cases raise the issue of whether class certification is appropriate where fiduciary breaches allegedly cause losses to individual accounts, as opposed to systemic breaches that cause losses to the entire plan. Beware of litigators who try to include every participant or beneficiary who ever had an account in the plan.

-- Sharon F. Fountain, Esq.
Managing Editor (Compensation Planning)

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