The plaintiffs, three plan participants, filed their lawsuit in 2012 and purported to assert claims on behalf of a class of all plans serviced by the defendants, affiliated entities that provided services to the plans and/or their investments. The complaint alleged that the defendants breached ERISA fiduciary duties and engaged in prohibited transactions by charging excessive fees.

Specifically, the plaintiffs asserted that the fees the defendants assessed to the insurance company separate accounts offered to client plans as investments were excessive because the separate accounts invested in publicly available mutual funds and the defendants provided no services on such accounts. The plaintiffs further alleged that the defendants did not use their institutional leverage to invest plan assets at the lowest price share class of mutual funds, and that the defendants engaged in prohibited transactions. 

Early in the case, the district court had denied the defendants’ motion to dismiss on the ground that the complaint adequately pleaded that the service provider was an ERISA fiduciary with respect to its fees because it had contractual rights to modify its fees or make investment changes that would affect its compensation. 

In denying the motion for class certification, the court held that, while the plaintiffs had satisfied their burden under Federal Rule of Civil Procedure 23(a), they had failed to demonstrate that a class could be properly certified under either Rule 23(b)(1) or 23(b)(3). 

The court held that certification under Rule 23(b)(1) is only appropriate in cases in which the rights to some limited quantity of money are being adjudicated, and the adjudication of the rights of one individual would necessarily decrease the pool available for other claimants. Where the proposed class here included multiple plans, the adjudication of one plaintiff’s claim would not necessarily affect all class members.

The court further rejected certification under Rule 23(b)(3), which requires the plaintiffs to demonstrate that questions common to the class predominate over questions affecting only individual members. The court held that individual issues about the reasonableness of the total fees paid by each plan as compared to the expense of providing services to such plans would predominate the litigation, and that a class action would be so unwieldy as to not be the superior method of adjudication. The court further held that the plaintiffs’ allegation that the defendants had failed to provide an accurate accounting of fees was likewise not susceptible to class treatment, because the court would be forced to inquire into what plan sponsors or participants knew and when they knew it, which would require “thousands of separate inquiries.”