SANTOMENNO et al v. TRANSAMERICA LIFE INSURANCE COMPANY et al, No. 2:2012cv02782 - Document 354 (C.D. Cal. 2015)
Court Description: ORDER DENYING MOTION FOR CLASS CERTIFICATION 277 by Judge Dean D. Pregerson. SEE ORDER FOR FURTHER AND COMPLETE DETAILS. (jre)
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SANTOMENNO et al v. TRANSAMERICA LIFE INSURANCE COMPANY et al Doc. 354 1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 JACLYN SANTOMENNO; KAREN POLEY; BARBARA POLEY, 12 Plaintiff, 13 v. 14 15 16 TRANSAMERICA LIFE INSURANCE COMPANY; TRANSAMERICA INVESTMENT MANAGEMENT, LLC; TRANSAMERICA ASSET MANAGEMENT INC., 17 18 Defendants. ___________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 12-02782 DDP (MANx) ORDER DENYING MOTION FOR CLASS CERTIFICATION [Dkt. No. 277] 19 20 Presently before the Court is Plaintiffs’ Motion for Class 21 Certification, (Dkt. No. 277), which is opposed by the Defendants 22 on multiple grounds. 23 and heard oral arguments, the Court adopts the following order. 24 I. 25 Having considered the parties’ submissions BACKGROUND The background facts of this case have been described in 26 detail in previous orders and are condensed here, along with new 27 /// 28 Dockets.Justia.com 1 information, from Santomenno v. Transamerica Life Ins. Co., No. CV 2 12-02782 DDP MANX, 2013 WL 603901, at *1-3 (C.D. Cal. Feb. 19, 3 2013). 4 Transamerica Life Insurance Company (“TLIC”) sells a 401(k) 5 plan product targeted at small and mid-size employers. (Compl., ¶¶ 6 62, 94.) The product consists of a bundle of investment options and 7 administrative services that an employer can purchase. (Id. at ¶ 8 7.) 9 Plaintiffs and potential class members the retirement “plans” 10 that used these TLIC products and people who are or were 11 participants in or beneficiaries of the plans. 12 § III.) 13 these products were excessive, in violation of the Employee 14 Retirement Income Security Act (“ERISA”). (Compl., ¶ 1.) 15 (Mot. Class Cert., Plaintiffs allege that the fees they were charged for Employers who purchase the 401(k) plan product enter into a 16 group annuity contract (“GAC” or “the contract”) with TLIC.1 (See 17 Decl. Darcy Hatton ISO Def.'s Mot. Dismiss, Exs. D–1 and D–2.) 18 Through the GAC, TLIC provides a set of investment options to the 19 employer. 20 retirement package. (Compl., ¶ 243.) This package gives employers 21 170 investment options, from which the employer may select a 22 smaller number to offer to their employees. (Id. at ¶¶ 241–42.) The 23 401(k) plan sponsored by the former employer of Plaintiff Plaintiffs' employers selected the “Partner Series III” 24 25 26 27 28 1 The employer and TLIC also enter into an “Application and Agreement for Services” (“Services Agreement”), which sets out the various services TLIC agrees to provide for the employer's plan, including recordkeeping services, enrollment services, and website hosting. (See, e.g., Decl. Darcy Hatton ISO Def.'s Mot. Dismiss, Ex. A.) Plaintiffs do not challenge fees associated with the Services Agreements. 2 1 Santomenno, the Gain Capital Group, LLC 401(k) Plan (the “Gain 2 Plan”), selected 46 of 170 investment options. (Id. at ¶¶ 17, 3 206–08.) The plan sponsored by the employer of Plaintiffs Karen and 4 Barbara Poley, the QualCare Alliance Networks, Inc. Retirement Plan 5 (the “QualCare Plan”), selected 36 of 170 investment options. (Id. 6 at ¶¶ 16, 206–08.) 7 One of the benefits TLIC provides to client employers is the 8 “Fiduciary Warranty.” (Id. at ¶ 155.) Having entered into a GAC, an 9 employer may pick and choose from the investment options à la 10 carte, or it may choose one of TLIC's pre-selected “model” line- 11 ups. (Id. at ¶ 157.) If an employer chooses a model line-up, the 12 employer qualifies for TLIC's Fiduciary Warranty, which “provides 13 specific assurances” that the line-up will satisfy ERISA's “broad 14 range of investments” requirement and its “prudent man standards.” 15 (Id.) TLIC warrants that if employees assert a claim for breach of 16 those fiduciary duties against the employer, TLIC will indemnify 17 the employer and make the plan whole. (Id. at ¶ 159.) TLIC's 18 Fiduciary Warranty applies if an employer constructs its own line- 19 up only if the employer selects investments from specified 20 categories. (Id. at ¶ 157.) 21 TLIC structures its investment product under the GAC such that 22 each investment option is considered a “separate account.” (Id. at 23 ¶ 132.) 24 investment: a mutual fund, a collective trust, or a traditional 25 separate account. (Id. at ¶ 130.) In each separate account, TLIC 26 pools together the retirement assets of all employees who choose a 27 certain investment option, regardless of their employer. (Id.) 28 Many of the mutual funds are publicly traded and managed by Each separate account corresponds to an underlying 3 1 investment managers unaffiliated with TLIC such as Fidelity or 2 Vanguard. (See, e.g., id. at ¶ 214.) Some of the mutual funds and 3 collective trusts are managed by Transamerica Investment 4 Management, LLC (“TIM”) or Transamerica Asset Management, Inc. 5 (“TAM”), affiliates of TLIC. (Id. at ¶ 340.) 6 TLIC assesses fees for most accounts. The GAC specifies that 7 there are Investment Management Charges and Administrative 8 Management Charges (“IM/Admin Fee”) associated with each separate 9 account, which “may be withdrawn daily and will belong to [TLIC].” 10 (Hatton Decl., Exh. D–1.) 11 assets in the separate account, and the rate varies depending on 12 which separate account is in question. (Hatton Decl., Exhs. D–1 and 13 D–2.) 14 specific; it is charged uniformly to each separate account, 15 regardless of plan. 16 (deposition testimony of Eric King, VP of TLIC’s Investment 17 Solutions Group).) 18 the separate accounts but reserves the “right to change the 19 Investment Management Charge or the Administrative Charge upon 20 advance written notice to the Contractholder of at least 30 days.” 21 (Hatton Decl., Exh. D–1.) 22 These fees are a percentage of the Thus, the IM/Admin Fee is not plan-specific, but investment- (Decl. Robert Lakind, Ex. P at 21-23 The GAC provides a schedule of fees for each of Plaintiff alleges that for separate account investment options 23 invested in mutual funds, TLIC's fees are approximately 75 basis 24 points, or 0.75% of the Plan assets invested in each option. (Id. 25 at ¶ 271.) For at least 28 of the mutual fund options, plan 26 participants pay the fee charged by the mutual fund in addition to 27 a higher fee charged by TLIC. (Id. at ¶¶ 245, 248.) For instance, 28 for the separate account that invests in the Vanguard Total Stock 4 1 Market Index Ret Opt, the underlying mutual fund charged a fee of 2 18 basis points and TLIC charged an additional account fee of 93 3 basis points, for a total fee of 111 basis points or 1.11% of the 4 separate account assets. (Id. at ¶ 246.) For separate account 5 investment options invested in collective trusts, TLIC charged a 6 fee ranging from 79 basis points to 150 basis points. (Id. at ¶¶ 7 331, 333–34.) 8 9 Plaintiffs allege that Defendants' fees are excessive and are a breach of their fiduciary duty to Plaintiffs under ERISA. More 10 specifically, Plaintiffs allege that TLIC's fees on separate 11 accounts that invest in publicly available mutual funds are 12 excessive because TLIC provides no services on such accounts: the 13 underlying mutual funds' investment management fees covered “all of 14 the necessary investment management/advisory services needed for 15 the mutual fund,” and thus “the alleged management services 16 performed by TLIC were unnecessary or simply not performed.” 17 (Compl., ¶ 276.) As a result, Plaintiffs argue, the fees they paid 18 to TLIC were “excessive and unnecessary.” (Id.) “The charging of 19 any fees by TLIC to Plaintiffs that are in excess of the fees 20 charged by each of the mutual funds that underlie the overlaying 21 separate account is impermissible.” (Id. at ¶ 293.) 22 Plaintiffs further allege that TLIC has not used its 23 institutional leverage to invest their money in the lowest price 24 share class of mutual funds. (Id. at ¶ 314.) 25 allege, was a breach of TLIC’s fiduciary duty under ERISA. 26 ¶ 314.) 27 28 This, Plaintiffs (Id. at Plaintiffs also allege that TLIC affiliates TIM and TAM made transactions that are prohibited under ERISA and knowingly 5 1 participated in TLIC's violations of fiduciary duty. (Id., Count 2 IV.) 3 II. 4 LEGAL STANDARD Class action lawsuits are governed by Rule 23 of the Federal 5 Rules of Civil Procedure. 6 on putative class plaintiffs. 7 “prerequisites”: “(1) the class is so numerous that joinder of all 8 members is impracticable; (2) there are questions of law or fact 9 common to the class; (3) the claims or defenses of the Rule 23 imposes two sets of requirements First, they must establish four 10 representative parties are typical of the claims or defenses of the 11 class; and (4) the representative parties will fairly and 12 adequately protect the interests of the class.” 13 23(a). 14 Fed. R. Civ. P. Second, they must show that the action is of at least one of 15 several types that lend themselves to resolution on a class basis. 16 Fed. R. Civ. P. 23(b). 17 on a class basis if adjudication of the rights of the individual 18 plaintiffs “would be dispositive of the interests of the other 19 [class] members not parties” to the litigation, Fed. R. Civ. P. 20 23(b)(1)(b), or if “the questions of law or fact common to class 21 members predominate over any questions affecting only individual 22 members” and “a class action is superior to other available methods 23 for fairly and efficiently adjudicating the controversy.” 24 Civ. P. 23(b)(3). 25 is determined to be affects the rights of the class members to 26 notice of the suit and to non-participation in the judgment. 27 R. Civ. P. 23(c)(2)-(3). For example, the action can be administered Fed. R. Which type of action the putative class lawsuit 28 6 Fed. 1 “[T]he court must determine by order whether to certify the 2 action as a class action.” 3 III. DISCUSSION 4 Fed. R. Civ. P. 23(c)(1)(A). Plaintiffs seek an order certifying the action as a class 5 action. 6 (generally known as “numerosity,” “commonality,” “typicality,” and 7 “adequacy of representation”). 8 may be certified under either Rule 23(b)(1)(b) or Rule 23(b)(3). 9 Defendants argue, primarily, that the “commonality” prerequisite is 10 not met, because the negotiation of fees was “plan-specific” and so 11 requires individualized evidence of unreasonableness. 12 also argue that Plaintiffs cannot show proof common to all putative 13 class members of any of the following: TLIC’s fiduciary duties; the 14 charging of unreasonable fees for accounts managed by affiliates; 15 failure to use its institutional leverage to invest in low-cost 16 share classes; and the use of transactions prohibited by ERISA. 17 Defendants further argue that the named Plaintiffs are not typical 18 of the class and are not adequate class representatives. 19 Defendants argue that the action does not meet the requirements of 20 either Rule 23(b)(1)(b) or Rule 23(b)(3). 21 22 They argue that they meet Rule 23's four “prerequisites” They also argue that this action Defendants Finally, The Court addresses each of the Rule 23 requirements in turn. A. 23 Rule 23(a) Prerequisites To show that class certification is warranted, Plaintiffs must 24 show that all four prerequisites listed in Rule 23(a) are 25 satisfied. 26 1. 27 28 Numerosity Numerosity is satisfied if “the class is so numerous that joinder of all members is impracticable.” 7 Fed. R. Civ. P. 1 23(a)(1). 2 comprised of some “300,000 participants in about 7,400 plans.” 3 (Mot. Class Cert. at 17:24-25.) 4 proposed class on numerosity grounds or Plaintiffs’ figures. 5 class in the hundreds of thousands easily satisfies the numerosity 6 requirement. 7 2. 8 9 Here, Plaintiffs allege that the affected class is Defendants do not challenge the A Commonality Commonality is satisfied if “there are questions of law or fact common to the class.” Fed. R. Civ. P. 23(a)(2). Note that 10 this does not mean that all questions of law and fact must be 11 identical across the class; “[t]he requirements of Rule 23(a)(2) 12 have been construed permissively, and all questions of fact and law 13 need not be common to satisfy the rule.” 14 Corp., 657 F.3d 970, 981 (9th Cir.2011) (internal quotation marks 15 and brackets omitted). 16 fact is not enough: the “question” must be one that “will generate 17 common answers apt to drive the resolution of the litigation.” 18 Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011) 19 (quoting Richard A Nagarenda, Class Certification in the Age of 20 Aggregate Proof, 84 N.Y.U.L.Rev. 97, 132 (2009)). 21 a. 22 Ellis v. Costco Wholesale However, posing common questions of trivial Common Proof of Fiduciary Duty Plaintiffs and Defendants agree that Defendants’ liability 23 under ERISA is predicated on Defendants’ fiduciary duty to the 24 members of the proposed class. 25 a fiduciary with respect to a plan to the extent (i) he exercises 26 any discretionary authority or discretionary control respecting 27 management of such plan or exercises any authority or control 28 respecting management or disposition of its assets.” In the ERISA context, “a person is 8 29 U.S.C. § 1 1002(21)(A)(I). 2 discretionary authority or discretionary responsibility in the 3 administration of such plan.” 4 every case charging breach of ERISA fiduciary duty . . . the 5 threshold question is . . . whether that person was acting as a 6 fiduciary (that is, was performing a fiduciary function) when 7 taking the action subject to complaint.” 8 U.S. 211, 226 (2000). 9 i. 10 A person may also be a fiduciary if “he has any 29 U.S.C. § 1002(21)(A)(iii). “In Pegram v. Herdrich, 530 Duty As To Fees ERISA requires that a fiduciary “discharge his duties with 11 respect to a plan solely in the interest of the participants and 12 beneficiaries and . . . for the exclusive purpose of: (i) providing 13 benefits to participants and their beneficiaries; and (ii) 14 defraying reasonable expenses of administering the plan.” 15 U.S.C. § 1104(a)(1) (emphasis added). 16 is a fiduciary under ERISA and that its IM/Admin Fees are excessive 17 under ERISA because they do more than defray reasonable expenses. 18 29 Plaintiff alleges that TLIC TLIC enters into two sets of contracts with the retirement 19 plans to which it offers its services. 20 TRAN-00529150.) First, it enters into an “Agreement for Services” 21 with each plan. (Id.; Decl. Darcy Hatton ISO Def.'s Mot. Dismiss, 22 Ex. A.) 23 particular plan with whom TLIC is negotiating. 24 into a “Group Annuity Contract” (“GAC”) that sets, inter alia, fees 25 for the “separate accounts” – that is, each possible investment 26 option available to participants under the plan. 27 Complaint primarily focuses on the “Investment Management” and 28 “Administrative” fees, referred to collectively by both sides as (Lakind Decl., Ex. Q at The terms of this Services Agreement are limited to the 9 Second, it enters Plaintiffs’ 1 the “IM/Admin Fee.” 2 plans and thus, by definition, are not negotiated for by any plan 3 trustee. 4 its basic terms from plan to plan. 5 Fees charged under the GAC are uniform across Indeed, the GAC is a form contract that does not vary in (Lakind Decl., Ex. R.) Plaintiff argues that TLIC was an ERISA fiduciary as to the 6 IM/Admin Fees that it charged to the proposed class plans, and it 7 plans to rely on the powers granted to TLIC under the GAC as class- 8 wide proof that TLIC satisfied the definition of “fiduciary” in § 9 1002(21)(A). Plaintiff notes that the GAC gives TLIC “unilateral 10 discretion to raise and lower its ‘IM/Admin’ fee and to add or 11 delete investment options, along with the physical possesion of the 12 Plans’ invested assets from which TLIC pays itself the disputed 13 compensation.” 14 Plaintiff, TLIC exercised discretionary authority or control over 15 the management or administration of the plan, or any sort of 16 authority or control over the assets of the plan, as required by § 17 1002(21)(A). (Mot. Class Cert. at 19:20-23.) Thus, according to 18 Defendants, on the other hand, argue that the GAC cannot 19 provide class-wide proof that TLIC exercised any of those forms of 20 control or authority, for, primarily, two reasons. 21 contracts between TLIC and the plans were negotiated at arms’ 22 length with the plans’ trustees or sponsors, and it was those 23 parties that owed the plans and participants a fiduciary duty to 24 make sure that the fees charged were reasonable. 25 recognize, (Opp’n at 17:3-12), that the Court has already held that 26 a party negotiating a contract with an acknowledged fiduciary, in 27 order to assume the powers of a fiduciary, is not immunized from 28 fiduciary responsibility solely because the acknowledged fiduciary 10 First, the Defendants 1 agreed to the contract. Santomenno v. Transamerica Life Ins. Co., 2 No. CV 12-02782 DDP MANX, 2013 WL 603901, at *12-13 (C.D. Cal. Feb. 3 19, 2013) (“The contract can immunize the future fiduciary TLIC 4 from fiduciary breach no more than it can immunize the employer. 5 To hold otherwise would allow fiduciaries to contract themselves 6 out of their duties, so long as it was done prior to the assumption 7 of those duties.”). 8 negotiations were “at arm’s length” because “[c]ompetition among 9 service providers is fierce and frequent.” Defendants nonetheless argue that the contract (Opp’n at 17:13.) This 10 misses the point. 11 sponsors may have had in the market. 12 control and authority the GAC granted to TLIC in the management and 13 administration of the plan or the management and disposition of 14 plan assets. 15 TLIC is an ERISA fiduciary.2 16 It does not matter what other options the plan What matters is the level of If the contract assigns TLIC ERISA-fiduciary powers, Defendants’ second argument is that even if it had control and 17 authority, whether it “exercised” that control and authority is a 18 plan-specific, individualized inquiry not susceptible to class-wide 19 proof. 20 control and authority, Defendants reason, it can only be considered 21 a fiduciary as to those separate accounts with regard to which it 22 actually took some overt action, such as changing its fees or 23 adding or deleting investment options. 24 different separate accounts, Defendants argue, there can be no Because the ERISA statute requires that a person “exercise” Because every plan selects 25 2 26 27 28 Ed Miniat, Inc. v. Globe Life Ins. Grp., Inc., 805 F.2d 732, 737 (7th Cir. 1986) (“No discretion is exercised when an insurer merely adheres to a specific contract term. When a contract, however, grants an insurer discretionary authority, even though the contract itself is the product of an arm's length bargain, the insurer may be a fiduciary.”). 11 1 class-wide showing that TLIC “exercised” control or authority as to 2 all plans in the class. 3 This argument, however, has largely been foreclosed by the 4 Court’s previous order, which held that “in the ERISA context, 5 having and exercising discretionary authority are so close as to be 6 identical, and . . . under ERISA, a fiduciary duty attaches not 7 because a party takes a discretionary action but when that party 8 acquires the power to take a discretionary action.” 9 2013 WL 603901 at 22. Santomenno, To support their position that no fiduciary 10 duty exists until the ERISA fiduciary overtly acts, however, 11 Defendants cite to Leimkuehler v. Am. United Life Ins. Co., decided 12 two months after the Court issued its order. 13 Cir. 2013). 14 provider was a fiduciary because, like TLIC here, it had a 15 contractual discretionary right to add or delete investments. 16 at 914. 17 breached its duty, because it had not used its authority to 18 purchase less expensive share classes of the investments in 19 question. 713 F.3d 905 (7th In that case, a plaintiff alleged that a service Id. The plaintiff alleged that the service provider had The Seventh Circuit held that 20 [The plaintiff’s] theory is unworkable. It conflicts with a 21 common-sense understanding of the meaning of “exercise,” is 22 unsupported by precedent, and would expand fiduciary 23 responsibilities under Section 1002(21)(A) to entities that 24 took no action at all with respect to a plan. 25 a named fiduciary, a functional fiduciary under Section 26 1002(21)(A) owes a duty to a plan through its actions, 27 regardless of whether it chose to assume fiduciary 28 12 In contrast to 1 responsibilities or even anticipated that such 2 responsibilities might arise. 3 Id. 4 reasoning. 5 Defendants urge the Court to follow the Seventh Circuit’s There are several good reasons not to mechanically apply the 6 holding of Leimkuehler to this case, however. 7 was not decided at the class certification stage, because the 8 district court had granted summary judgment as to the issue of 9 fiduciary responsibility prior to any motion for class First, Leimkeuhler 10 certification.3 11 not to have “exercised” its authority at all. 12 therefore never considered the question of whether occasional overt 13 use of control and authority with regard to particular separate 14 accounts could act as class-wide proof of fiduciary status. 15 Court doubts, for example, that if TLIC had made unilateral changes 16 to its fee structure in 99% of separate accounts (or affecting 99% 17 of plans) that it would make sense to say there was no class-wide 18 proof of “exercise of control,” or fiduciary status, based solely 19 on the 1% of cases in which TLIC chose not to change its fees. 20 And the service provider in that case was found Id. Leimkeuhler The Moreover, the Court is not persuaded that Leimkeuhler’s 21 reasoning is sound. 22 bought no shares of any kind, then it might make sense to say that 23 it had not “exercised” its authority. 24 any kind, it could not have “perform[ed] a fiduciary function” 25 while “taking the action subject to complaint,” because it would If the service provider in that case had Having taken no action of 26 27 28 3 Leimkuehler v. Am. United Life Ins. Co., 752 F. Supp. 2d 974, 976 n.1 (S.D. Ind. 2010) (“[N]o motion for class certification has been filed yet.”). 13 1 have taken no action at all. 2 (2000). 3 “exercised” its authority to choose what sorts of share classes to 4 buy. 5 benefit of plan participants, but chose not to use its authority to 6 do so. 7 discretionary authority. 8 9 Pegram v. Herdrich, 530 U.S. 211, 226 But it did buy shares, and in doing so it implicitly It could have bought less expensive classes of shares for the This seems to be the very definition of exercising Similarly, here it is not the case that TLIC charged no fees. It did charge fees, and when it did so, it was within its 10 discretion to adjust the fee to reasonably reflect its expenses 11 and/or market conditions (subject to 30 days’ notice). 12 time it charged fees, TLIC was acting with discretionary authority 13 to set the level of those fees. 14 “exercise” requirement. Thus, every This satisfies § 1002(21)(A)(i)’s 15 Moreover, as Plaintiffs point out, Leimkuehler does not 16 consider the effect of § 1002(21)(A)(iii), which makes a fiduciary 17 of any person who has “discretionary authority or discretionary 18 responsibility in the administration of” a plan. 19 under clause (iii), the question of “exercise” falls away entirely. 20 Although the statute and the case law provide no clear definition 21 of “administration,” as separate from management or disposition of 22 assets, it seems reasonable to say that setting fees is part of the 23 administration of the plan. 24 recently held, “to the extent [a service provider] has 25 discretionary control over factors governing its fees after 26 entering into its agreement with GSI for administration of the 27 Plan, subsection (iii) is implicated . . . .” If a person falls As the District of Massachusetts 28 14 Golden Star, Inc. v. 1 Mass Mut. Life Ins. Co., No. CIV. 3:11-30235-PBS, 2014 WL 2117511, 2 at *8 (D. Mass. May 20, 2014). 3 Because TLIC could be a fiduciary to the plans and 4 participants regardless of whether it actually exercised the option 5 to adjust the IM/Admin Fee, the Court concludes that TLIC’s 6 fiduciary status as to the setting of the IM/Admin Fee is a common 7 question, susceptible to common proof. 8 ii. 9 Duty as to Other Actions Defendants do not challenge the possibility of common proof of 10 fiduciary duty as to Plaintiffs’ other allegations. 11 essentially the same as those cited above with regard to the 12 IM/Admin Fee, as well as the reasons set forth in the Court’s 13 previous order, Santomenno, 2013 WL 603901 at 20-23, the Court 14 assumes that common proof can be adduced showing that Defendants 15 had a fiduciary duty as to the other allegations involving 16 collection of fees as well. 17 For reasons As to the allegation that TLIC breached its fiduciary duty in 18 not investing in the lowest-cost share classes, the Court also 19 finds that such a claim would be susceptible to common proof as to 20 duty, for the reasons explained above regarding Leimkeuhler, which 21 was about that very question. 22 b. 23 Common Proof as to Separate Account/Investment-Level Fees Fundamentally, this case is about how to view certain 24 “separate account”-level fees – that is, fees charged uniformly to 25 all investors in a particular mutual fund or other investment. 26 Plaintiffs point out that the IM/Admin Fees, in particular, are the 27 28 15 1 same for all investors in a given separate account.4 2 Lakind, Ex. P at 21-23.) 3 discussion “plan-level” fees that would differ from plan to plan, 4 (Mot. Class Cert. at 4-5), in order to focus on a question of fact 5 common to all plan participants who invested in a given separate 6 account – how much was the IM/Admin Fee for that account? – and a 7 question of law common to the same participants – was that fee 8 reasonable? 9 (Decl. Robert Plaintiffs specifically exclude from the (Id. at 20-21.) Defendants see the question differently. Defendants argue 10 that the reasonableness of a particular fee cannot be measured in 11 isolation; rather, the Court must look at the total fee structure 12 charged to each of the seven thousand plans, compare that fee 13 structure to services rendered each plan, respectively, and judge 14 reasonableness that way. 15 16 (Opp’n at 19-20.) The parties do not direct the Court to authority for either position. The Court also cannot find authority directly on point, 17 18 19 20 21 22 23 24 25 26 27 28 4 Because Plaintiffs limit themselves to an examination of investment-level, relatively uniform fees, the Court need not address whether commonality would be defeated if the plans’ “total fees” were to be considered. But the Court notes in passing that district courts in the Ninth Circuit have repeatedly rejected the idea that variations in fee structures defeat commonality in class actions for excessive fees under ERISA. See In re Northrop Grumman Corp. ERISA Litig., No. CV 06-06213 MMM JCX, 2011 WL 3505264, at *8 (C.D. Cal. Mar. 29, 2011) (listing cases). 16 1 although a few cases are at least suggestive.5 2 treats this as a question of first impression. 3 The Court therefore The Court finds that in this case, it is possible to find 4 common, dispositive questions as to whether the IM/Admin Fees were 5 excessive. 6 uniformly across plans? 7 level fees? 8 fees? 9 distinct from services provided at the plan level? For example, were the investment-level fees charged What was the range of these investment- Do other ERISA plan service providers charge similar What services did TLIC provide at the investment level, Were the fees 10 represented to plan purchasers as covering, essentially, fixed 11 administrative expenses related to each investment, independent of 12 charges related to the administration of the plan?6 13 common questions go to the heart of Plaintiff’s claim and are 14 susceptible to common proof. All these 15 16 5 17 18 19 20 21 22 23 Tussey v. ABB, Inc., No. 06-04305-CV-NKL, 2007 WL 4289694, at *5 (W.D. Mo. Dec. 3, 2007) (finding commonality in the question of excessive fees, even though the fees were composite in nature and plan participants made individualized decisions in selecting investments based on disclosed expense ratios); Spano v. The Boeing Co., 633 F.3d 574, 588 (7th Cir. 2011) (common question as to “[w]hether the fees charged by the plans were excessive (either on their own, or as a result of the fee structures the plans used)”). But Tussey was about a single plan, while the consolidated case considered in Spano involved just two plans administered by a single employer. Thus, neither directly answers the question whether it is possible to find a common question based on an investment-level fee charged to many thousands of plans. 6 24 25 26 27 28 Plaintiff presents some initial evidence that they were. A document that TLIC provided to plan fiduciaries explains that “[y]ou will generally encounter two types of fees and expenses with respect to your 401(k) plan” and describes those two types as “Recordkeeping and Administrative Fees” and “Investment and Product Fees.” (Lakind Decl., Ex. QQQ at TRAN-00533083.) The IM/Admin Fees are included in the latter category. (Id.) The same document states that the IM/Admin Charges cover “[e]xpenses for managing and administering the assets in the separate accounts offered under the group annuity contract.” (Id. at TRAN-00533094.) 17 1 Defendants can (and do) present a defense on the basis of 2 total fees. 3 that there are plan-specific issues as to the effect of disclosures 4 stating that the IM/Admin Fees might be used to “subsidize other 5 services.” 6 deposition testimony which they claim shows that plan sponsors 7 looked at the total package of fees, not just the IM/Admin Fees, to 8 determine whether they were reasonable. 9 See Part III.B.2.a., infra. (Opp’n at 21:3.) Defendants also argue Additionally, Defendants cite to (Id. at 21:19-27.) But these arguments, which essentially go to individualized 10 defenses that can be mounted against certain plans, are more 11 properly addressed in the predominance analysis under Rule 12 23(b)(3). 13 framed a set of common questions on the issue of fees. 14 See Part III.B.2., infra. Plaintiffs have adequately The Court finds that common proof can be adduced as to the 15 reasonableness of the IM/Admin Fees. 16 c. Common Proof as to Fees Charged by Separate Accounts Managed 17 by Affiliates 18 Plaintiffs assert that TLIC allowed its affiliates, TIM and 19 TAM, to charge excessive fees for the separate accounts that they 20 managed. 21 Defendants assert that there is no common proof possible 22 because “[a]s with Plaintiffs’ challenge to TLIC’s IM/Admin fees, 23 the relevant question is whether total fees are reasonable.” 24 (Opp’n at 26:14-15.) 25 fiduciary duty at issue in this claim. 26 IM/Admin fees, the question was whether TLIC’s compensation as 27 fiduciary was reasonable. 28 statute, only total compensation is at issue. This argument, however, mistakes the type of In the claim as to the There, under the language of the ERISA 18 1 As to its dealings with TIM and TAM, however the fiduciary 2 duty has nothing to do with TLIC’s own compensation. 3 alleged breach has to do with whether TLIC properly acted at arm’s 4 length with its affiliates to “secure[] . . . lower fees on 5 [participants’] behalf.” 6 fiduciary duty, then, is not 29 U.S.C. § 1104(a)(1)(A)(ii) 7 (fiduciary may only “defray[] reasonable expenses of administering 8 the plan”), but 29 U.S.C. § 1104(a)(1)(A)(i) (“[A] fiduciary shall 9 discharge his duties with respect to a plan solely in the interest (Reply at 18.) Rather, the The relevant source of 10 of the participants and beneficiaries and for the exclusive purpose 11 of providing benefits to participants and their beneficiaries . . . 12 .”). The question of TLIC’s total fees does not enter into it. 13 Defendants also argue that Plaintiffs use the wrong basis of 14 comparison, and that market rates for such fees vary considerably 15 “by asset class.” 16 factual matters implicating the merits of the claim; it is 17 inappropriate to resolve such questions at this stage unless 18 necessary to resolve the Rule 23 questions. 19 & Trust Funds v. Amgen Inc., 660 F.3d 1170, 1175 (9th Cir. 2011). 20 (Id. at 27:2.) But those objections seem to be Connecticut Ret. Plans But there is a different problem with certifying this class as 21 to the fees charged by TIM and TAM for the “Affiliated Advised 22 Separate Accounts,” which is that it is not clear that every plan 23 and participant in the class actually invested in these accounts. 24 Plaintiffs only allege that “[a] few of the Ret Opt separate 25 account investment choices invested in an underlying mutual fund” 26 advised by TIM or TAM. 27 every plan and participant – i.e., every plaintiff – invested in 28 the investment choices advised by the affiliates. (Mot. at 11.) 19 This does not suggest that The Court 1 therefore cannot conclude that there is common proof available as 2 to the fees charged by the affiliate-managed accounts. 3 d. Common Proof as to Failure to Invest in Lowest-Cost Share 4 Classes 5 Plaintiff alleges that TLIC breached its fiduciary duty when 6 it did not invest in the lowest-cost classes of shares available to 7 it. 8 fact, “generally” invest in the lowest-cost share class. 9 27:16-17.) 10 11 Defendants counter that the evidence shows that it did, in (Opp’n at Again, this may be true, but it is a question best reserved for an evaluation on the merits. Defendants also argue that plan-by-plan analysis is necessary 12 to determine whether the plans and participants invested in the 13 relevant separate accounts at a time when a lower-cost class was 14 available. 15 contention. 16 within TLIC’s discretion to change and fairly similar from account 17 to account, the existence of an opportunity to buy lower-cost share 18 classes might well have varied significantly from account to 19 account and time to time. 20 Rule 23(a)(2) is construed liberally. 21 law need not be common to satisfy the rule.” Hanlon v. Chrysler 22 Corp., 150 F.3d 1011, 1019 (9th Cir. 1998). 23 law – was TLIC obligated to attempt to buy the lowest-cost share 24 class where possible? – is common to all investors. 25 of fact can be framed as a common question as well – did TLIC 26 consistently buy lowest-cost shares when it was possible to do so? 27 It may be that TLIC will have an individualized defense as to 28 damages for some investors, because no opportunity to buy lower- (Opp’n at 1-3.) There may be some merit to this Unlike the fees discussed above, which were both However, the commonality requirement of 20 “All questions of fact and Here, the question of And a question 1 cost shares will have arisen. 2 the possibility that this claim requires a more individualized 3 inquiry to consider defenses against certain class members. 4 e. 5 But commonality is not defeated by Common Proof as to Prohibited Transactions Defendants similarly argue that there are individualized 6 issues of proof as to the prohibited transactions claims, because 7 fiduciary responsibility for the transactions will depend on who 8 “caused” the transactions. 9 fiduciaries (the plan sponsors) had notice of potential conflicts Defendants argue that because other 10 or other issues making the transactions prohibited, and either 11 those other fiduciaries or the plan participants made the decision 12 to invest in the relevant separate accounts, they are not 13 “prohibited transactions.” 14 Defendants argue that if plan sponsors or participants selected the 15 separate accounts with full knowledge of the relevant details, the 16 transactions are not prohibited. 17 (Opp’n at 28-30.) Essentially, Whether Defendants are correct about that is, of course, a 18 common question of law. Moreover, there appear to be common 19 questions of fact, such as what fees TIM and TAM may have charged, 20 the degree of control and affiliation TLIC had with the affiliate 21 accounts, the amount and nature of the alleged revenue-sharing 22 payments, whether TLIC gave investment advice, whether the IM/Admin 23 fees were used to pay for investment advice, and so on. 24 do not argue that these questions do not have common answers. 25 have, again, raised a question that may (or may not) serve as a 26 defense as to some proposed class members, and that may affect 27 predominance, but that is not enough to defeat commonality. 28 f. Conclusion 21 Defendants They 1 The Court finds that Plaintiffs raise sufficient dispositive 2 questions, common to all proposed class members, that the 3 requirement of commonality is satisfied. 4 3. Typicality 5 Typicality is satisfied if “the claims or defenses of the 6 representative parties are typical of the claims or defenses of the 7 class.” 8 requirement is to assure that the interest of the named 9 representative aligns with the interests of the class. Fed. R. Civ. P. 23(a)(3). “The purpose of the typicality Typicality 10 refers to the nature of the claim or defense of the class 11 representative, and not to the specific facts from which it arose 12 or the relief sought. 13 members have the same or similar injury . . . .” 14 Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (internal 15 quotation marks omitted) (citations omitted) (emphasis added). 16 The test of typicality is whether other Hanon v. Defendants argue that the Plaintiffs’ claims are not typical 17 of class for two reasons. 18 largest,” and fees vary by plan size. 19 Second, about 1,600 plans of the alleged 7,400 started using TLIC’s 20 services after December 9, 2011, at which point received “express 21 DOL-prescribed disclosures underscoring that the bulk of TLIC’s 22 IM/Admin charges would be used to subsidize plan-level 23 administrative services.” 24 First, Plaintiffs’ plans were “among the (Opp’n at 31:10-15.) (Id. at 31:16-21.) The Court does not find these arguments convincing with regard 25 to typicality. 26 that the fees varied somewhat with the size of the plan changes the 27 nature of the injury suffered. 28 potential class members were charged unreasonable fees under the Defendant makes no effort to explain how the fact Plaintiffs assert that all 22 1 GAC; to the degree that the total fees charged to the plans may 2 have varied in absolute magnitude, that does not make alleged 3 injuries of a different kind. 4 As to the second point, it is not clear what effect the 5 alleged disclosures would have on the claims. 6 mean to argue that receipt of the disclosures might be a defense as 7 to those members. 8 majority of plans would not have received the disclosure, so that 9 Plaintiffs are, in fact “typical” of the average case here. Perhaps Defendants But even using Defendants’ numbers, the vast To the 10 extent that defenses that apply only to certain members of the 11 class are a concern in the typicality analysis, it is generally 12 because those defenses are unique to the class representatives. 13 Hanon, 976 F.2d at 508. 14 representatives would be forced to spend an inordinate amount of 15 time “prepar[ing] to meet defenses that are not typical of the 16 defenses which may be raised against other members.” 17 example, in Ellis v. Costco Wholesale Corp., the defendant employer 18 in a promotion discrimination case had unique defenses against some 19 of the proposed class representatives: one had refused a promotion, 20 while another had “misrepresented her way into” the job and “was 21 disciplined for abusing subordinates.” 22 2011). 23 worthiness of those plaintiffs as managerial candidates would have 24 overshadowed the grievances of other class members. 25 there is no such danger: the named plaintiffs are not subject to 26 the defense Defendants raise. 27 28 The concern is that the class For 657 F.3d 970, 984 (9th Cir. There was thus a very real danger that litigation about the The Court finds that typicality is satisfied. 4. Id. Adequacy of Representation 23 Here, however, 1 Adequacy of representation is satisfied if “the representative 2 parties will fairly and adequately protect the interests of the 3 class.” 4 distinct from commonality and typicality, this prerequisite is 5 primarily concerned with “the competency of class counsel and 6 conflicts of interest.” 7 U.S. 147, 158 n.13 (1982). 8 questions: (1) do the named plaintiffs and their counsel have any 9 conflicts of interest with other class members and (2) will the Fed. R. Civ. P. 23(a)(4). Inasmuch as it is conceptually Gen. Tel. Co. of Southwest v. Falcon, 457 Thus, “courts must resolve two 10 named plaintiffs and their counsel prosecute the action vigorously 11 on behalf of the class?” 12 Ellis, 657 F.3d at 985. Defendants point to no conflict of interest between Plaintiffs 13 and other members of the proposed class, and there is no apparent 14 reason to think that Plaintiffs will not vigorously prosecute the 15 action on behalf of all class members. 16 argue that Plaintiffs cannot adequately represent other class 17 members because they were not all participants in the same plans. 18 Defendants do not explain, however, how this fact would create a 19 conflict of interest or otherwise impact Plaintiffs’ vigorous 20 prosecution of the case.7 Nonetheless, Defendants 21 7 22 23 24 25 26 27 28 To the extent that this is an argument about standing, the Court agrees with the analysis in Fallick v. Nationwide Mut. Ins. Co.: Threshold individual standing is a prerequisite for all actions, including class actions . . . . [H]owever, once an individual has alleged a distinct and palpable injury to himself he has standing to challenge a practice even if the injury is of a sort shared by a large class of possible litigants . . . . [O]nce a potential ERISA class representative establishes his individual standing to sue his own ERISA-governed plan, there is no additional constitutional standing requirement related to his suitability to represent (continued...) 24 1 The Court finds that adequacy of representation is satisfied. 2 B. Existence of a Class Action Under Rule 23(b) 3 1. Action Under Rule 23(b)(1)(B) 4 Plaintiffs suggest the class could be certified under Rule 5 23(b)(1)(B), which allows for class actions if separate actions 6 “would create a risk of . . . adjudications with respect to 7 individual class members that, as a practical matter, would be 8 dispositive of the interests of the other members not parties to 9 the individual adjudications or would substantially impair or 10 impede their ability to protect their interests.” 11 case is a “limited fund” case, in which the rights to some limited 12 quantity of money are being adjudicated, and the adjudication of 13 the rights of one individual necessarily decreases the pool of 14 money available for other claimants. 15 actions by shareholders to compel the declaration of a dividend . . 16 . should ordinarily be conducted as class actions . . . .” 17 Advisory Committee's Notes on Fed. R. Civ. P. 23. 18 The paradigmatic “For much the same reason Thus it is unsurprising that a class action may be certified 19 under 23(b)(1)(B) where there has been “a breach of trust by an 20 indenture trustee or other fiduciary similarly affecting the 21 members of a large class of security holders or other 22 beneficiaries, and which requires an accounting or like measures to 23 restore the subject of the trust.” 24 Fibreboard Corp., 527 U.S. 815, 834 (1999) (quoting same). Id. See also Ortiz v. At 25 26 27 28 7 (...continued) the putative class of members of other plans to which he does not belong. 162 F.3d 410, 423 (6th Cir. 1998). 25 1 least one judge in this district has found class certification 2 appropriate under 23(b)(1)(b) where the claims involve large-scale 3 violations of fiduciary duty under ERISA. 4 Litig., 227 F.R.D. 338, 347 (C.D. Cal. 2005). 5 In re Syncor Erisa But in Syncor, only one plan was involved, the class was made 6 up of participants in the plan, and the fiduciaries being sued were 7 the employer and its board, as well as the committee that was in 8 charge of the plan. 9 sought “an order compelling Defendants to make good to the Plan all Id. at 339-40. The plaintiffs in that case 10 losses to the Plan resulting from Defendants' alleged breaches of 11 their fiduciary duties.” 12 adjudication of the claim of any plaintiff would have affected all 13 the class members. Id. at 340. Thus, of necessity, 14 In this case, however, it is perfectly possible for 15 participants in Plan A who invested in Investment X to be made 16 whole without that remedy in any way being dispositive of the 17 interests of participants in Plan B who invested in Investment Y. 18 The common nexus of interests is simply not present. 19 finds that certification under Rule 23(b)(1)(b) is not appropriate. 20 2. 21 The Court Action Under Rule 23(b)(3) A class action may be certified under Rule 23(b)(3) if “the 22 questions of law or fact common to class members predominate over 23 any questions affecting only individual members, and that a class 24 action is superior to other available methods for fairly and 25 efficiently adjudicating the controversy.” 26 23(b)(3). 27 consider “the class members' interests in individually controlling 28 the prosecution or defense of separate actions,” “the extent and Fed. R. Civ. P. In making its findings on these two issues, courts may 26 1 nature of any litigation concerning the controversy already begun 2 by or against class members,” “the desirability or undesirability 3 of concentrating the litigation of the claims in the particular 4 forum,” and “the likely difficulties in managing a class action.” 5 Id. 6 a. 7 Predominance “The Rule 23(b)(3) predominance inquiry tests whether proposed 8 classes are sufficiently cohesive to warrant adjudication by 9 representation.” Amchem Products, Inc. v. Windsor, 521 U.S. 591, 10 623 (1997). 11 satisfied by [a] shared experience, the predominance criterion is 12 far more demanding.” 13 satisfied if there is a much “greater number” of “significant 14 questions peculiar to the several categories of class members, and 15 to individuals within each category.” “Even if Rule 23(a)'s commonality requirement may be Id. at 623-24. Predominance cannot be Id. at 624. 16 The major common questions in this case revolve around whether 17 a single party, TLIC, met its fiduciary duties to the investors and 18 plans to whom it provided investment management services. 19 TLIC’s status as a fiduciary helps to narrow the questions that 20 must be answered – the Court need not, for example, conduct a free- 21 ranging inquiry into truth in advertising regarding the IM/Admin 22 Fee and other fees charged; the common questions here are grounded 23 in a single statute and its definition of fiduciary duty. 24 And Nonetheless, individual inquiries potentially loom large. 25 a starting matter, Plaintiffs seek to certify a class of “about 26 300,000 participants in about 7,400 plans.” 27 17:24-25.) 28 anything the Court has been able to find in the case law: As (Mot. Class Cert. at The sheer number of participants and plans dwarfs 27 1 typically, it seems, ERISA cases deal with just one plan or a 2 handful of related plans. 3 in facts or legal posture among plans is potentially multiplied a 4 thousandfold – a problem not presented in other ERISA class 5 actions. 6 i. 7 See note 5, supra. Thus, any difference IM/Admin Fees Nor is this concern abstract or conjectural. Defendants raise 8 potentially serious “defenses of liability . . . affecting the 9 individuals in different ways.” Fed. R. Civ. P. 23, Adv. Comm. 10 Notes. 11 predominates the lawsuit), Defendants argue that whether TLIC met 12 its fiduciary duty to a given plan when charging the fee depends 13 on: (a) what the total fees charged were; (b) the actual services 14 TLIC rendered to each plan (and, presumably, TLIC’s actual cost in 15 providing them); (c) what disclosures TLIC may have made about how 16 the fee would be used; and (d) what services the plan 17 administrators or other plan fiduciaries would have understood the 18 fee to cover. 19 a suit involving one or two or even a few dozen plans. 20 involving thousands of plans, such inquiries could quickly become 21 intractable. 22 For example, as to the IM/Admin Fee issue (which, itself, These questions, if relevant, would be manageable in In a suit The Court has therefore asked for additional briefing to 23 assist it with the question of predominance. 24 order suggested that because Plaintiffs do not allege that 25 Defendants’ total packages of fees are excessive, it was unclear 26 what Plaintiffs’ theory of liability was. 27 to “defray[] reasonable expenses of administering the plan.” 28 U.S.C. § 1104(a)(1). (Dkt. No. 319.) That A fiduciary is allowed 29 Thus, at first blush, it would seem that as 28 1 long as a fiduciary’s fees match its reasonable expenses, ERISA is 2 not violated. 3 Plaintiff’s precise theory of ERISA liability, it could better 4 determine whether Defendants’ potential individualized defenses 5 would be likely to overwhelm the common questions at issue. 6 i.a. Fiduciary Duty Under ERISA to Defray Only “Reasonable The Court hoped that by gaining clarity as to 7 Expenses” 8 In response to the Court’s order, Plaintiffs appear to state 9 that their theory of liability is that “the .75% Separate Account 10 IM/Admin fee paid at the Separate Account level on assets invested 11 in RetOpts and Menu 10 investment options is grossly excessive.” 12 (Pls.’ Suppl. Brief at 2.) 13 it does not clearly explain what fiduciary duty is being violated 14 by the charging of this “grossly excessive” fee. 15 concludes that it cannot be the duty to act solely to “defray[] 16 reasonable expenses of administering the plan.” 17 1104(a)(1)(A)(ii). 18 19 The problem with this statement is that The Court 29 U.S.C. § To see why this is so, consider an example set out by one of Plaintiff’s experts: 20 Suppose a provider tells investors they are paying a certain 21 amount for investment services ($40) and another amount for an 22 ancillary service, such as preparation of statements or 23 mailing ($5). Suppose the investors, in fact, are paying $20 24 for investment services and $25 for the ancillary services 25 because the advice is sent by express mail. The investors, who 26 have not been properly informed, are not equally well off in 27 both circumstances. More money spent on investment advice 28 should pay for better investment advice (which in this case 29 1 would have resulted in Transamerica realizing it should reduce 2 its IM&A Charge). 3 equally well off irrespective of how their money is used, 4 because they lack the ability to monitor the propriety of 5 their total fees and the ability to insure the total price 6 they pay their provider is being allocated efficiently to buy 7 the services and quality of service that they value most. 8 9 With the bundled fee, the investors are not (Pls.’ Suppl. Brief at 5-6.) While it may be true that investors in this hypothetical are 10 not equally well off – at least in the sense that they are deprived 11 of the opportunity to monitor the provider’s decision-making – that 12 is not (necessarily) because the provider is not using the money to 13 defray reasonable expenses. 14 prices for investment services and for mailing. 15 available options, the provider might conclude that the additional 16 value to investors in investment services priced at $40 rather than 17 $20 was minimal, and it might also conclude that express mail was 18 faster, more secure, and more reliable than regular mail, and that 19 it therefore justified the cost. 20 not be reasonable – and, importantly, a different service provider 21 might make different choices – but if they are reasonable, § 22 1104(a)(1)(A)(ii) is satisfied. There might be a range of reasonable Looking at the These conclusions might or might 23 In other words, the plain language of § 1104(a)(1)(A)(ii) only 24 requires a fiduciary to show that its expenses are reasonable – not 25 that its naming and accounting of fees accurately reflects the 26 breakdown of expenses. 27 28 The Court therefore finds that if Plaintiffs wish to assert a claim under TLIC’s fiduciary duty to defray only reasonable 30 1 expenses, they must do so by considering TLIC’s fees as a whole 2 compared to TLIC’s total reasonable expenses in providing its 3 services. 4 Plaintiffs argue in their supplemental brief that they are 5 challenging the total fee package, in addition to challenging the 6 IM/Admin Fee, because the size of the IM/Admin Fee makes the total 7 fee package unreasonable. 8 unconvincing; it simply assumes the premise Plaintiffs want to 9 prove: that the fees must be considered separately, rather than as 10 a total package, without considering cost-sharing or subsidization 11 between categories of fees. 12 level fees excessive for plan-level expenses, (Pls.’ Suppl. Brief 13 at 7), perhaps that is only because they are being subsidized by 14 the investment-level fees. (Pls.’ Suppl. Brief at 6-7.) This is If Plaintiffs do not consider the plan 15 All of this leads to the conclusion that fees charged to 16 individual plans must be compared to the expense of providing 17 services to those plans. 18 significantly more complex than Plaintiff’s proposed inquiry into a 19 single fee whose reasonableness (Plaintiffs argue) could be 20 straightforwardly determined as to all plans equally. 21 These individualized inquiries would be Because Plaintiffs have not briefed the Court on how such a 22 plan-by-plan inquiry into total expenses and fees could be 23 conducted, even after the Court requested supplemental briefing, 24 the Court cannot determine that the common questions identified 25 above would necessarily predominate. 26 i.b. Fiduciary Duty Under ERISA to Provide Accurate Accounting of 27 Fees for the Benefit of Participants 28 31 1 Of course, as Plaintiff’s expert points out in the above 2 hypothetical, a careful naming and accounting of fees might benefit 3 the investors in other ways – for instance, by enabling them to 4 judge for themselves whether the fiduciary is making the best 5 decisions as to how to allocate resources. 6 sue a fiduciary who misrepresents the allocation of expenses to 7 fees for breach of the duty to act for the purpose of “providing 8 benefits to participants and their beneficiaries.” 9 1104(a)(1)(A)(i). Thus, an investor can § Implicit in § 1104(a)(1)(A)(I) is a fiduciary 10 duty of honesty. 11 ERISA “fiduciaries breach their duties if they mislead plan 12 participants or misrepresent the terms or administration of a 13 plan.” 14 Cir. 2010) abrogated on other grounds by Fifth Third Bancorp v. 15 Dudenhoeffer, 134 S. Ct. 2459 (2014). 16 Pegram v. Herdrich, 530 U.S. 211, 224-25 (2000). Quan v. Computer Sciences Corp., 623 F.3d 870, 886 (9th But these kinds of allegations, though actionable, get away 17 from a relatively simple mathematical question of whether a 18 provider’s fees exceed its reasonable expenses and into the more 19 complex evidence needed to prove misrepresentation. 20 “To allege and prove a breach of [ERISA] fiduciary duty for 21 misrepresentations, a plaintiff must establish each of the 22 following elements: (1) the defendant's status as an ERISA 23 fiduciary acting as a fiduciary; (2) a misrepresentation on the 24 part of the defendant; (3) the materiality of that 25 misrepresentation; and (4) detrimental reliance by the plaintiff on 26 the misrepresentation.” 27 Litig., 635 F. Supp. 2d 1128, 1140 (C.D. Cal. 2009). In re Computer Sciences Corp. ERISA 28 32 Element (1) 1 can be proven on a classwide basis; it seems highly unlikely that 2 elements (2), (3) and (4) can be. 3 Whether there was actually a misrepresentation may not be 4 susceptible to classwide proof, because many class members appear 5 to have received disclosures, starting in 2012, that explained the 6 subsidization of plan-level costs and provided estimates of the 7 amount spent on such subsidization. 8 02287686 & R at TRAN-02679054.) (E.g., Defs.’ Exs. Q at TRAN- 9 As to materiality, “a misrepresentation is ‘material’ if there 10 was a substantial likelihood that it would have misled a reasonable 11 participant in making an adequately informed decision about whether 12 to place or maintain monies in a particular fund.” 13 at 886 (internal quotation marks omitted). 14 misrepresentation is material, in other words, depends on whether 15 it would change a reasonable participant’s behavior. 16 question of whether charging an “IM/Admin Fee” at the investment 17 level, rather than charging it or something like it at the plan 18 level, would change participants’ investment behavior is likely a 19 context-specific question. 20 on what other investment options were available to the participant, 21 which would likely vary from plan to plan. 22 Quan, 623 F.3d Whether the But the It would probably depend, at a minimum, But even if there were classwide proof of prongs (2) and (3), 23 the last prong, detrimental reliance, would necessarily require 24 individualized inquiries. 25 what plan sponsors or participants knew and when they knew it, what 26 steps participants took in reliance on the misrepresentations, and 27 whether those steps were detrimental to the participants’ financial 28 positions. The Court would be forced inquire into In a class the size of the one Plaintiffs propose, this 33 1 would require thousands of separate inquiries. 2 would far outweigh the common questions at issue. 3 having some common core, a fraud case may be unsuited for treatment 4 as a class action if there was material variation . . . in the 5 kinds or degrees of reliance by the persons to whom they were 6 addressed.” 7 These inquiries “[A]lthough Adv. Comm. Notes on Fed. R. Civ. P. 23. Thus, although Plaintiffs have plausibly alleged that 8 Defendants have violated the fiduciary duty of honesty, and 9 specifically the duty to honestly describe its fee structure for 10 the benefit of participants, any proceeding under that theory would 11 require individualized inquiries that would quickly come to 12 predominate over the common questions. 13 ii. 14 Failure to Invest in Lower-Cost Share Classes The Court finds that individualized inquiries would 15 predominate over common questions as to the claim that TLIC should 16 have invested in lower-cost share classes. 17 by-plan analysis would be necessary to determine whether the plans 18 and participants invested in the relevant separate accounts at a 19 time when a lower-cost class was available. 20 there could have been significant variation in such availability 21 from account to account and time to time. 22 would thus tend to predominate as to this claim as well. 23 iii. Conclusion As noted above, plan- It seems likely that Individualized inquiries 24 The Court concludes, for the reasons given above, that 25 individual questions as to the IM/Admin fee and lower-cost share 26 27 28 34 1 classes would predominate over the common questions in this case. 2 Thus predominance is not satisfied.8 3 b. 4 Superiority Because Plaintiffs’ motion fails on predominance, the Court 5 need not fully analyze the superiority prong. 6 passing that at least one key factor could weigh in favor of 7 granting class certification: the amount that any individual 8 plaintiff could get from Defendants might well be dwarfed by 9 litigation costs. The Court notes in Thus, class litigation might be superior in that 10 sense. 11 blossom and expand the scope of the litigation, the benefits of 12 cost-sharing among the class would correspondingly diminish. 13 any event, the same issues of trial manageability discussed above 14 would likely tip the superiority inquiry toward denying the motion. But to the degree that individualized inquiries would In 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 Of course, there are other claims as well. The Court has the authority to isolate certain issues for class treatment under Rule 23(c)(4). Valentino v. Carter-Wallace, Inc., 97 F.3d 1227, 1234 (9th Cir. 1996). But the Court has already concluded, above at Part III.A.2.c., that the claim regarding fees charged by TIM and TAM as to the affiliate-advised accounts does not contain questions common to the whole class. As to the prohibited transactions claims, the parties have not briefed whether certification of those claims in isolation would be appropriate. The legal authority for these claims is, in any event, underdeveloped in the motion. Plaintiffs allege that TLIC engaged in three types of prohibited transactions: a portion of the IM/Admin fee was used to pay for “investment advice”; revenue-sharing payments that TLIC received from the underlying mutual funds; and TLIC’s investment of plan funds in “Affiliate Advised Separate Accounts” – that is, accounts managed by TIM and TAM. (Mot. at 23.) Defendants point out that no claim was raised in the complaint as to the first type of transaction. (Opp’n at 30 n.25.) More generally as to all three types of transactions, Plaintiffs’ motion alleges violations of “ERISA § 406(b)” – that is, 29 U.S.C. § 1106(b) – but does not explain whether Plaintiffs’ theory of liability is under subsection (1), (2), or (3). As Plaintiffs have not requested partial certification, and as the legal basis for the claims is underdeveloped on the present motion, the Court will not attempt to construct an issue for partial certification sua sponte. 35 1 2 c. Limited Holding The Court emphasizes that its decision to deny the motion for 3 class certification is limited to the particular facts of this 4 motion and this proposed class. 5 problem of hidden or unappreciated fees charged to retirement 6 investors. 7 example, has presented research to the Senate showing that 83% of 8 401(k) participants do not know how much they pay in fees and 9 expenses. The Court is mindful of the The Government Accountability Office (“GAO”), for Government Accountability Office, 401(k) Plan 10 Participants and Plan Sponsors Need Better Information on Fees 3-4 11 (2007). 12 Id. at 5. 13 service providers playing “hide the ball” with their fees. 14 it the case, as has occasionally been argued by Defendants in this 15 litigation, that the reasonableness of fees is measured against 16 what other providers are charging. 17 unreasonable under ERISA even if other fiduciaries are also 18 charging unreasonable fees. Some 65% of those interviewed thought they paid no fees. This order is not intended to approve of ERISA plan Nor is A fiduciary’s fees can be 19 But the Court is constrained by the statute, which calls for 20 an evaluation of a service provider’s reasonable expenses as to a 21 given plan compared to the fees charged. 22 primary question to be answered is not, as Plaintiffs suggest, a 23 single question about a single fee whose reasonableness is the same 24 as to all plans. 25 This means that the If the question of evaluation of total plan expenses against 26 total plan fees were more directly presented, or if the class were 27 more narrowly drawn (so that individualized inquiries, even if 28 present, would not overwhelm common questions), the holding might 36 1 well be different. 2 Court finds that it cannot certify the class. 3 IV. 4 But on these pleadings and this motion, the CONCLUSION The Motion for Class Certification is DENIED. 5 6 IT IS SO ORDERED. 7 8 Dated: August 28, 2015 DEAN D. PREGERSON United States District Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 37
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