Connecticut US District Judge Stefan Underhill certified a class of over 24,000 401(k) retirement plan trustees in an action alleging that Nationwide breached ERISA fiduciary duties by receiving and retaining “revenue sharing” payments from mutual funds offered as investment options under Nationwide annuity contracts issued to the trustees’ plans. For plaintiffs to prevail in Haddock v. Nationwide, they must prove that Nationwide, which was neither an investment adviser nor a named fiduciary to the plans, nevertheless functioned as an ERISA fiduciary. Plaintiffs allege that Nationwide functioned as an ERISA fiduciary based on two theories, which were labeled by the court as the “specific accumulation unit” theory and the “mutual fund selection” theory. The court certified a “hybrid” class under Rule 23(b)(2), requiring notice and opt-out rights to class members.
In its petition for Rule 23(f) review, Nationwide attacks the merits of plaintiffs’ theories of ERISA fiduciary liability and plaintiffs’ ability to prove such theories on a class-wide basis. It argues that the “specific accumulation unit” theory is flawed because simple custody and control over plan assets is insufficient to render it a fiduciary. Nationwide further argues that the “mutual fund selection” theory is defective because merely selecting investment options prior to contracting with the plans did not make it a fiduciary, and neither did having the contractual right to substitute investment options, where the plans have “final authority” over what investment options are offered to plan participants.
In response, plaintiffs assert that Nationwide failed to demonstrate that class certification effectively terminates the case, and that none of Nationwide’s arguments on the merits of their theories presented an important class action issue or made class certification questionable. Nationwide was granted leave to file a reply brief, in which it argues that class certification puts tremendous pressure on it to settle, that plaintiffs’ theories of liability underlying class certification are “questionable,” and that certification under Rule 23(b) (2) is improper because plaintiffs’ request for monetary relief predominates.