Foster v. Adams and Associates, Inc., 3:18-cv-02723

Background

Adams and Associates sold 100% of its stock to its ESOP in October 2012; plaintiffs are ESOP participants who vested on or after October 25, 2012.
Plaintiffs allege the October 2012 transaction and subsequent conduct involved prohibited transactions, fiduciary breaches, failure to disclose material facts (including that the ESOP trustee, Alan Weissman, was a felon), and an improper indemnification agreement.
Defendants include Adams and Associates, certain Adams family members, directors, and the Norem Trust; Weissman was later replaced and claims against his widow were dismissed by plaintiffs.
Plaintiffs seek equitable relief to restore ESOP losses, disgorgement, disclosures, accounting, and fees under ERISA §§ 102–1110 and related provisions.
Defendants moved only on adequacy of class representative Carol Foster; the court held discovery and argument and found Foster (and co-plaintiff Foreman) adequate.
The court certified the class under Fed. R. Civ. P. 23(b)(1) and 23(b)(2): all vested participants in the Adams ESOP from October 25, 2012 onward and their beneficiaries (with customary exclusions); appointed Foster and Foreman as class representatives and two law firms as co-lead counsel.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Adequacy of Carol Foster as class representative	Foster will fairly and adequately represent the class; her workplace disputes are unrelated to ERISA claims and she will accept class-favorable settlements	Foster is vindictive about Adams & Associates, showed animus in personnel disputes, and therefore may refuse reasonable settlements	Foster (and Foreman) are adequate: workplace conflicts are unrelated, no evidence of hostility toward defendants in this action, and both have actively participated in the litigation
Rule 23(a) prerequisites (numerosity, commonality, typicality)	Class meets numerosity (2,766 vested participants), common questions of law/fact regarding the ESOP transaction and fiduciary duties, and typicality because injuries are plan-wide	Defendants did not dispute numerosity, commonality, or typicality	Court finds Rule 23(a) satisfied: numerosity, commonality, and typicality met
Certification under Rule 23(b)(1) (A & B)	Uniform adjudication is required because ERISA fiduciaries must apply plan terms consistently; individual suits risk inconsistent standards and would affect rights of all beneficiaries	No opposition to certification under (b)(1)	Court certifies under 23(b)(1)(A) and (B): the ESOP-wide nature of the claims makes (b)(1) appropriate
Certification under Rule 23(b)(2)	Plaintiffs seek uniform injunctive and declaratory relief tied to defendants’ course of conduct affecting the class as a whole	Defendants did not oppose (b)(2) certification	Court certifies under 23(b)(2): single injunctive/declaratory relief would address class-wide harms

Key Cases Cited

Briseno v. ConAgra Foods, Inc., 844 F.3d 1121 (9th Cir. 2017) (Rule 23 governs class actions in federal court)
Mazza v. American Honda Motor Co., 666 F.3d 581 (9th Cir. 2012) (Rule 23(b) and certification burdens)
Comcast Corp. v. Behrend, 569 U.S. 27 (U.S. 2013) (plaintiff must satisfy Rule 23 and prove damages model supports predominance)
Wal–Mart Stores, Inc. v. Dukes, 564 U.S. 338 (U.S. 2011) (commonality and limits of Rule 23(b)(2))
Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (U.S. 1997) (differences among (b)(3) and other certification considerations)
Wolin v. Jaguar Land Rover N. Am., LLC, 617 F.3d 1168 (9th Cir. 2010) (Rule 23(b)(3) is more demanding)
Evon v. Law Offices of Sidney Mickel, 688 F.3d 1015 (9th Cir. 2012) (class must show same injury for commonality)
Kayes v. Pacific Lumber Co., 51 F.3d 1449 (9th Cir. 1995) (vindictiveness can render a representative inadequate)
Ortiz v. Fibreboard Corp., 527 U.S. 815 (U.S. 1999) ((b)(1)(B) and trust/fiduciary-class examples)