SPANO v. THE BOEING COMPANY (January 21, 2011)
Like most American companies, the Boeing Company and the International Paper Company offered their employees participation in defined-contribution benefit plans. Members in each of the plans brought suit against each company and the plans. The allegations in each of the suits were quite similar. They claimed that the plans breached their fiduciary duties by a) paying excessive fees and expenses, b) choosing to include imprudent investment options in the plans, and c) concealing information from plan participants. Chief Judge Herndon (S.D. Ill.) certified a class in each case under Rule 23(b)(1). Each class definition included all persons who are, were, or ever will be participants or beneficiaries of the plan. Boeing and IP sought review.
In their opinion, Judges Bauer, Wood, and Tinder granted the request for review, vacated each certification order, and remanded. The Court noted that the case was brought under § 502(a)(2) of ERISA, which allows a participant to bring a civil action for relief under § 409, which in turn makes a fiduciary personally liable for a breach of fiduciary duty. In 1985, the Supreme Court held, inRussell, that a fiduciary in a defined-benefit plan context was not personally liable to a participant for damages. In a defined-benefit plan, assets are held in trust and the plan is administered by a fiduciary. Obligating a fiduciary to restore funds to the plan is sufficient to make the plan whole. In 2008, the Supreme Court had an occasion to apply that principle to a defined-contribution plan in LaRue. LaRue alleged a breach by a fiduciary that affected his account only and sought restoration of that amount to his account. Relying principally on the differences between defined-benefit and defined-contribution plans, the Supreme Court held that § 502(a) does authorize recovery for breaches of fiduciary duty that impair only the assets in a particular participant's account. But LaRue was an individual claim. The consolidated appeals involve class claims. The Court had to distinguish between an individual injury and an injury that should be considered a plan injury -- only a complaint about the latter is appropriately treated as a class. The Court turned to Rule 23. In order to proceed as a class, a claim must meet all of the elements of Rule 23(a) and fit into one of the 23(b) categories. For class certification purposes, a district court should not take the facts as alleged but, rather, make any required factual determinations. If the court finds that the claims meet the Rule 23 requirements, it issues an order in which it certifies and defines the class. The class definition is a very important aspect of the order, affecting both the litigation's scope and its res judicata effect. With those principles in mind, the Court turned first to the Boeing case. Although the Court found that the class met the numerosity and commonality requirements of Rule 23(a), it concluded that it did not meet the typicality and adequacy of representation requirements. Given the breadth of the class definition and the specific objections to two of the several investment options included in the plan, it is possible that many plan participants never owned shares in the targeted funds. Because the plaintiffs could potentially correct the Rule 23(a) problems by redefining the class, the Court also addressed Rule 23(b). The Court mentioned the Supreme Court’s cautionary remarks in Ortiz regarding the use of mandatory (b)(1) classes. Again, using the class definition certified, the Court concluded that the class could not meet the (b)(1)(A) or (b)(1)(B) requirements. The class was simply too diverse to for the Court to conclude that the class members had an identity of interest or that there was a risk of incompatible standards of conduct. Turning to the IP class, the Court found some of the same problems. It addressed the theories of relief (misrepresentation, imprudent investment, and excessive fees) individually. Under the misrepresentation theory, the Court concluded that it was not clear that the class representative's claims were typical of those of the group. With respect to the imprudent investment theory, the Court concluded (like in the Boeing class) that the allegation that some funds were imprudent while others were not, in conjunction with the diversity of the class, made the claim inappropriate for class treatment. Finally, with respect to the excessive fee theory, it appears that some fees were plan specific while others were fund specific. Given the class members’ different decisions regarding specific fund investments, this theory is also not appropriate for class treatment. The Court again emphasized that its decision was based on the definition provided by the district court and that it was not holding that an appropriate class could not be defined.