On June 1, 2022, the Third Circuit affirmed the certification of a class under the Employee Retirement Income Security Act of 1974 (“ERISA”), holding that three named plaintiffs had Article III standing and satisfied the typicality requirement of Rule 23(a) of the Federal Rules of Civil Procedure even though they had only invested in seven of the plan’s thirty-seven investment options.Boley v. Universal Health Servs., Inc., No. 21-2014, 2022 WL 1768984, – F.4th – (3d Cir. June 1, 2022).

In Boley, three participants in a defined-contribution retirement plan brought a putative class action lawsuit alleging that the plan sponsor, Health Services, Inc., and the plan’s investment committee (collectively, “Universal”) breached fiduciary duties by including a Fidelity Freedom Fund suite of investment options in the plan (a collection of thirteen target-date funds), charging excessive recordkeeping and administrative fees, and employing a flawed process for selecting and monitoring the plan’s investment options, resulting in the selection of expensive investment options instead of readily-available, lower-cost alternatives. The named plaintiffs also allege that certain defendants breached their fiduciary duty by failing to monitor the committee appointed to manage the plan.

The U.S. District Court for the Eastern District of Pennsylvania (Kearney, J.) denied Universal’s motion to dismiss based on standing and subsequently certified a class under Rule 23(b)(1).  Universal appealed the class certification order.

In affirming class certification, the Third Circuit first addressed the named plaintiffs’ standing under Article III of the Constitution sua sponte.Although the named plaintiffs had only invested in seven of the plan’s thirty-seven investment options, the Court held that “Article III does not prevent the Named Plaintiffs from representing parties who invested in funds that were allegedly imprudent due to the same decisions or courses of conduct.”The Court rejected Universal’s contention that the named plaintiffs’ “allegations are really thirty-seven separate claims challenging thirty-seven separate investment options included in the Plan,” holding that “the Named Plaintiffs do not allege thirty-seven individual breaches of fiduciary duty, but rather several broader failures by Universal affecting multiple funds in the same way.”

The Court also noted that its decision was consistent with the U.S. Supreme Court’s recent decision in Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020), which held that, in the absence of a personal loss to a plaintiff’s account, an abstract breach of fiduciary duty or a diminishment in a plan’s assets is insufficient to confer standing.According to the Third Circuit, the named plaintiffs had “alleged the kind of concrete, personalized injuries traceable to the challenged conduct by defendants that Thole requires.”

Having satisfied itself of the named plaintiffs’ standing, the Court next rejected Universal’s challenge to class certification based on the typicality of the named plaintiffs’ claims, holding that the “Named Plaintiffs’ claims relating to the funds in which they invested are typical of the claims relating to the funds in which they did not.” The Court acknowledged that there may be factual differences between the thirty-seven funds but concluded that “these differences relate to degree of injury and level of recovery” and did not prevent a finding of typicality “because the common allegation for each class member—Universal’s alleged imprudence in managing the Plan’s funds—is comparably central to the claims of the named plaintiffs as to the claims of the absentees” (internal quotation marks omitted).

While acknowledging that “there may be some situations where typicality for an ERISA class would not be satisfied unless the class representative invested in each of the challenged funds,” the Third Circuit nonetheless broke with the Seventh Circuit and declined to adopt “a per se rule as to whether a class representative must have invested in each of the challenged funds” because “the typicality inquiry is best served done on a case-by-case basis.” 

The Third Circuit’s decision in Boley departs from recent opinions like Thole that had underscored the barriers to participants and beneficiaries seeking to assert claims for breach of fiduciary duty on behalf of an ERISA class.By tying alleged injuries to root decisions or broader courses of conduct, participants and beneficiaries may more readily be able to challenge a defined-contribution plan’s investment lineup on a class basis, even if those participants and beneficiaries have not invested in each of the options about which they seek to complain.  

ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm whose lawyers practice throughout a network of offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.