DC Circuit Holds Named Plaintiff Who Settles Individual Claims Retains Standing To Appeal Denial Of Class Certification

by Carlton Fields

In Stephens, two former pilots brought a putative class action lawsuit against their employer airline and their retirement plan, alleging that a delay in paying retirement benefits and failure to pay interest during the delay violated the Employee Retirement Income Security Act (“ERISA”).  Defendants maintained that the delay was necessary to calculate the amount of benefits where a beneficiary elected to receive a lump sum rather than a monthly annuity.  After the airline’s bankruptcy, the Pension Benefit Guaranty Corporation, the statutory trustee of the plan, was substituted as the defendant.  The U.S. District Court for the District of Columbia had previously granted summary judgment for the defendant, which the D.C. Circuit affirmed in part on appeal, finding the calculation of the lump sum payment did not violate ERISA, but that the airline was required to pay interest on any unreasonable delay.  On remand, the district court denied plaintiffs’ motion to certify a class, finding that one of the named plaintiffs did not satisfy typicality under Federal Rule of Civil Procedure 23(a)(3) because he – unlike other putative class members – exhausted his administrative remedies and, further, that putative class members were not excused from the exhaustion requirement. That plaintiff subsequently settled his individual claim, while the other named plaintiff agreed to a dismissal without prejudice. After the case was dismissed, however, plaintiffs appealed the denial of class certification.

On appeal, the D.C. Circuit first found that the plaintiff who had settled his claim still had standing to appeal.  Although an appeal is moot when the court cannot grant effectual relief in favor of an appellant, the plaintiff still had a continuing “interest in spreading the litigation costs among other members of the plaintiff class.”  Such a result would occur if class counsel was paid from a class recovery even if plaintiff himself could not recover attorney’s fees from the defendant.  Thus, the plaintiff had standing to bring the appeal.  The court next held as a matter of first impression that where plaintiffs allege statutory, rather than plan-based, violations of ERISA, they are not required to exhaust their administrative remedies under the plan prior to bringing suit.  Although courts have required exhaustion in the ERISA context in order to allow plan administrators to apply their own expertise and decrease frivolous suits and the cost of settlement, courts of appeal are split on the issue of whether this requirement applies in a suit based on alleged violations of statutory duties rather than contractual rights under the plan.  The D.C. Circuit joined the Third, Fourth, Fifth, Ninth, and Tenth Circuits in holding that claims alleging statutory violations are not subject to the exhaustion requirement.  As a result, the district court had erred in holding that the named plaintiff’s claim was not typical based on the fact that he had exhausted his administrative remedies, and the court remanded for reconsideration of the motion to certify a class.

Stephens v. Pension Benefit Guar. Corp., No. 13-5129, Slip Op. (D.C. Cir. June 24, 2014).


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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