By Gerald L. Maatman, Jr., Brian W. Sullivan, and Jesse S. Stavis
Duane Morris Takeaways: On August 2, 2023, Judge Clay Land of the U.S. District Court for the Middle District of Georgia granted a motion to certify a class of participants in an ERISA class action involving an employer-sponsored defined contribution plan in Goodman v. Columbus Regional Healthcare System, Inc., No. 21-CV-15, 2023 WL 4935004 (M.D. Ga. Aug. 2, 2023). The Court rejected defense arguments to deny certification of one large class in favor of smaller sub-classes based on differences in the investment choices and resulting injuries of putative class members. Instead, the Court concluded that allegations that the asserted injuries were caused by Defendant’s common conduct warranted class certification without regard to such differences. For these reasons, the Goodman decision is instructive for ERISA plans and fiduciaries defending putative class claims under the ERISA.
Case Background
Plaintiffs were participants in a defined contribution plan (the “Plan”) sponsored by their employer, Defendant Columbus Regional Healthcare System, Inc. Plaintiffs alleged that Defendant violated its fiduciary duties under the ERISA by failing to prudently monitor and control the Plan’s investments and expenses and because it caused the Plan to engage in prohibited transactions with the Plan’s record-keeper and investment advisor (together, the “Service Providers”). Goodman, 2023 WL 4935004, at *1-2. Plaintiffs moved to certify a class under Rule 23(b)(1) consisting of all plan participants or beneficiaries of the plan with an account balance on or after February 2, 2015 through the termination of the Plan. Id.
Class Certification Granted
Plaintiffs sought to certify a class with respect to their three ERISA claims that Defendant violated its duty to prudently monitor investments and expenses and had engaged in prohibited transactions. Id. at *3. Defendant opposed certification on the grounds that “the class proposed by Plaintiffs is so broad that Plaintiffs did not meet their burden to establish standing, commonality, and typicality” as required by Rule 23. Id. at *4.
Addressing Defendant’s standing challenge first, the Court acknowledged that, to have standing, Plaintiffs and other Plan participants “must have suffered a decrease in value of their defined contribution accounts due to a breach of fiduciary duty.” Id. The Court rejected Defendant’s argument that “it is possible that some members of the putative class as presently defined did not suffer any loss due to the alleged breaches of fiduciary duties.” The Court reasoned that “this is not a standing problem but a liability issue.” Id. It explained that “[t]he possibility that some putative class members may not ultimately make a recovery does not eliminate standing for class certification purposes,” particularly where evidence of specific losses “should be readily ascertainable.” Id.
The Court likewise rejected Defendant’s arguments that Plaintiffs failed to establish the commonality or typicality requirements of Rule 23(a). The Court explained that commonality requires a showing that class members have suffered “the same injury” and that their claims depend on “common questions or law or fact” with common answers. Id. at *5. Typicality, the Court explained, requires evidence of “a sufficient nexus” between the claims of the Plaintiffs and those of the putative class as shown by claims or defenses arising “from the same event or pattern or practice” and “based on the same legal theory.” Id. Together, the Court opined that commonality and typicality require Plaintiffs and the class members to have the same interest and suffer the same injury, even though the Plaintiffs need not have suffered injury “at the same place and on the same day as the class members.” Id.
Applying these principles, the Court rejected Defendant’s suggestions “that there must be a separate sub-class for each allegedly imprudent investment and that the named Plaintiffs cannot establish typicality for allegedly imprudent investments options in which they did not invest.” Id. Instead, the Court held that this “level of granularity” was not “required at the class certification stage” where Plaintiffs had alleged that Defendant employed “flawed selection and monitoring practices” that were the same for class members across all investment options. Id. The same was true of “the excessive fee and prohibited transaction claims,” which were based on Defendant’s “alleged failure to insist” that the Service Providers charge “no more than reasonable fees, which resulted in harm to Plan participants” invested in relevant funds.
As such, the Court concluded that “the alleged cause of the injury remains the same across all funds.” Id. On these allegations, the Court found that there were common questions capable of class-wide resolution and for which Plaintiffs’ claims were typical of the class – whether Defendant breached its fiduciary duties by offering imprudent investments and by allowing the Service Providers to collect unreasonable fees. The Court determined that more granular issues concerning the specific investments and injuries of particular class members “relate to the degree of injury and level of recovery” such that the Court did “not see the benefit of dividing the proposed class into sub-classes by investment option.” Id. at 5-6. For these reasons, the Court granted Plaintiffs’ motion to certify the class.
Implications for Employers and Plan Administrators
Goodman is typical of federal court decisions in the last several years addressing motions to certify classes in cases asserting breach of fiduciary duty claims under the ERISA. The ruling underscores that the focus for class certification of such claims remains on the existence of common, injury-producing conduct rather than the similarity of the resulting injuries. Courts generally will not decline to certify a class based on differences in the investment options chosen or injuries suffered by class members so long as those investments or injuries are linked by a defendant’s common conduct, at even high levels.