OVERVIEW

A Texas federal court certified a class in case brought by participants in one plan, and allowed those participants to represent participants in unaffiliated plans. The claims alleged that the defendants, who marketed and provided services to all of the plans, breached fiduciary duties by imposing excessive fees. See Chavez, et al. v. Plan Benefits Services, Inc., et al., No. AU-17-CA-00659-SS, United States District Court for Western District of Texas (Aug. 30, 2019).

IN DEPTH

In July of 2017, participants in two plans sponsored by Training, Rehabilitation & Development Institute, Inc. (TRDI) filed fiduciary-breach claims for allegedly excessive plan fees. The participants did not sue fiduciaries who oversaw the TRDI plans specifically, but three entities that marketed and supported health-and-welfare plans and retirement plans for a number of employers. The defendants, Plan Benefit Services, Inc., Fringe Insurance Benefits, Inc. and Fringe Benefits Group, marketed and serviced plans for companies that obtained government contracts. The plaintiffs’ employer, TRDI, enrolled in two plans, one for health and welfare benefits and another for retirement benefits. The plaintiffs sued for breach of fiduciary duty under ERISA, alleging the defendants charged excessive fees, primarily because of allegedly undisclosed, indirect compensation the defendants received from third parties as part of the defendants’ recordkeeping, administrative, and other services to the plans.

The amended complaint brought class claims on behalf of participants in other plans serviced by the defendants but sponsored by unaffiliated employers. The claims alleged that the defendants were fiduciaries of all of these plans because the defendants controlled disbursements from trusts and directed the various plans’ trustees with respect to disbursements, including payments for defendants’ fees. The plaintiffs filed for class certification, and the court found that a class action was appropriate. Even though many putative class members participated in different plans, and usually questions about the reasonableness of fees require courts to review details of each plan (including plan fiduciaries’ processes in evaluating and approving fees), the court found that the defendants did not adequately explain why those differences mattered given the plaintiffs’ class-wide theory of liability. The court also rejected the defendants’ argument that there were particular defenses that might apply to some plans and some class members, because the defendants did not adequately identify particular defenses that might defeat class-wide treatment of the claims.

The court also rejected the argument that the plaintiffs lacked standing to bring class claims on behalf of participants in other plans. The court held that for purposes of class certification, the plaintiffs only needed to establish that they had standing to bring each claim asserted on behalf of the class; the plaintiffs did not have to actually be participants in every plan involved.

What this Means: In ERISA fiduciary-breach claims involving allegations of excessive fees, it is unusual for courts to certify classes of participants in unaffiliated plans. There are at least two reasons for this. The first is that it is fiduciary decisions about plan fees that usually are made by particular fiduciaries of each particular plan, and there is no single, common fiduciary that makes fee decisions for many different plans. The second reason is that challenges to fiduciary decisions about plan fees usually involve fact-intensive questions about the plan’s characteristics, the level of services received and the process the fiduciaries engaged in when evaluating the fees. The Chavez case, however, reminds us that there may be situations where vendors who serve multiple plans are accused of acting in fiduciary capacities for all of the plans, and are accused of alleged misconduct that affected all the plans similarly. The Chavez case is one to watch as it progresses past this class-certification stage to see how the court addresses questions about the merits of the claims and whether the court decides to revisit the class-certification decision at a later date.