ORDER
Plаintiff Jennifer Jones (“Jones”) brings this putative class action pursuant to the Employee Retirement Income Security Act,
I. Factual Background
Jones sues under §§ 409 and 502(a)(2) and (3) of ERISA.
Jones alleges that the events underlying this case occurred primarily between May 4, 2006 and November 15, 2007 (the “Class Period”). According to the Complaint, the Plan covered substantially all of the employees of NovaStar Financial, Inc., and its subsidiaries (collectively, “NovaStar”). Individual accounts were maintained for each Plan participant, and each participant could elect between various investment options. One of the investment options in the Plan was the NovaStar Financial, Inc., Unitized Common Stock Fund, which held NovaStar common stock. Jones alleges that Defendants were Plan fiduciaries.
In general, Jones claims that Defendants failed to: act solely in the interest of participants and beneficiaries of the Plan; and to exercise the necessary skill, care, prudence, and diligence in administering the Plan and the Plan’s assets. More specifically, Jones states that Defendants allowed the investment of the Plan’s assets in NovaStar common stock although they knew, or should have known, that such an invеstment was imprudent. Jones maintains that the investment was imprudent because of NovaStar’s serious mismanagement and improper business practices, including:
(i) relying on originating, purchasing, sec-uritizing, selling, investing in and servicing subprime residential mortgages for revenue; (ii) manipulation of its mortgage origination process; (iii) failing to abide by its stated mortgage underwriting process and criteria; (iv) failing to implement, maintain and/or abide by proper risk management processes; (v) improper financial accounting for, among other matters, its portfolio of mortgages; and (vi) engaging in prac*185 tices that endangered and ultimately eliminated its ability to elect to be taxed as a real estate investment trust or REIT, all of which caused its financial statements to be misleading and which artificially inflated the value of shares of NovaStar common stock____
Doc. # 1, (Compl.) at ¶ 5. Jones alleges that Defendants failed to investigate whether No-vaStar common stock was a prudent investment, and that they also failed to investigate the performance of other Plan fiduciaries.
Jones states that Defendants knew about NovaStar’s problems but did not disclose them to Plan participants. According to the Complaint, Defendants issued misleading communications to Plan participants regarding investment in NovaStar common stock, including SEC filings, annual reports, press releases, and Plan documents. Jones says that, as a result, Plan participants could not make informed decisions about their investments; also as a result, the price of NovaS-tar common stock was artificially inflated.
Jones was one of the Plan participants who held NovaStar common stock in her individual Plan account. Jones’s employment with NovaStаr ended on May 5, 2006, one day into the Class Period. She cashed out of her account and withdrew the full value of her account on approximately June 28, 2006, less than two months into the Class Period.
Jones states that, following the revelation of various truths regarding NovaStar’s mismanagement and improper business practices, the price of NovaStar common stock collapsed. Thousands of Plan participants lost a substantial portion of their retirement savings. At the beginning of the Class Period, NovaStar common stock was valued at approximately $36.41 per share. When Jones cashed out, NovaStar common stock was valued at approximately $31.61 per share. At the close of the Class Period, NovaStar common stock was valued at approximately $1.72.
The parties appear to agree that NovaStar commоn stock was closed to Plan participant purchases during the portion of the Class Period in which Jones was a participant; therefore, Jones did not purchase NovaStar common stock for her account during the Class Period. However, Plan participants were allowed to make new investments in NovaStar common stock following Jones’s cash-out during the Class Period, from November 30, 2006 until November 15, 2007.
The Complaint includes four counts. Count I alleges liability under ERISA §§ 502(a)(2) and(3) for breach of the fiduciary duties of loyalty, exclusive purpose, and prudence against Defendants because they allowed Plan participants to invest in NovaS-tar common stock. Count II, derivative of Count I, alleges liability under the same sections against NovaStar and the Defendants who were chairs of the Retirement Committee for their failure to fulfill their obligations аs monitoring fiduciaries. Count III alleges liability under § 502(a)(2) for breach of the fiduciary duty of loyalty against Defendants based on their misleading communications. Count IV alleges co-fiduciary liability under §§ 502(a)(2) and (3) for knowing about, participating in, and enabling co-fiduciaries’ improprieties.
The Prayer for Relief requests: a declaration that Defendants are not entitled to the protection of ERISA § 404(c)(1)(B) (regarding participants’ control of their accounts); an order compelling Defendants to make good to the Plan losses resulting from the alleged breaches; an order requiring Defendants to appoint independent fiduciaries to manage the Plan’s investments concerning NovaStar common stock; actual damages to be allocated among participants’ individual accounts; fees and costs; and equitable restitution. Jones brings her clаims in a representative capacity on behalf of the Plan and its participants under ERISA. The Court denied Defendants’ motion to dismiss by Order dated February 11, 2009 [Doe. #43].
Defendants took Jones’s deposition. At her deposition, she indicated a general awareness that the case concerns Defendants’ mishandling of the Plan with regard to the NovaStar common stock. Jones stated that she reviewed the Complaint, is aware of the status of the case and received a copy of the motion to dismiss and knows that settlement negotiations have occurred. Jones knows who the Defendants are, and she be
All persons, other than Defendants, who were Participants in or beneficiaries of the NovaStar Financial, Inc. 401(k) (the “Plan”) at any time between May 4, 2006 and November 15, 2007, inclusive, and whose accounts included investments in NovaStar common stock.
[Doc. #38 at 1.] According to Jones, this proposed class would include over one thousand NovaStar employees, retirees (and, presumably, other former employees). Jones also seeks an Order: appointing her as class representative; appointing Dysart Taylor Lay Cotter & MeMonigle, P.C., as local counsel; and appointing Gainey & McKenna and Stull, Stull & Brody as class counsel.
II. Discussion
In order to be certified as a class action, Jones’s claims must satisfy the requirements of Rule 23 of the Federal Rules of Civil Procedure. The proposed class must meet the criteria set out in Rule 23(a), commonly referred to as: (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy of representation. Further, Jones’s action must be maintainable as a class action under at least one of the three subsections of Rule 23(b). See, e.g., In re St. Jude Med., Inc.,
In considering whether class certification is appropriate, the Court does not address the merits of the parties’ claims and defenses, but does probe behind the pleadings and look to what the parties must prove.
General Tel. Co. v. Falcon,
A. Rule 23(a)
1. Numerosity
Defendants do not dispute Jones’s argument that the proposed class is “so numerous that joinder of all members is impracticable.” See Fed.R.Civ.P. 23(a)(1). The proposed class numbers over one thousand persons. Jones has satisfied Rule 23(a)(1).
2. Commonality
Defendants do not dispute Jones’s argument that “questions of law or fact [are] common to the class.” See Fed.R.Civ.P. 23(a)(2).
However, Defendants do dispute Jones’s argument that her claims are typical of the claims of the class. Generally, Rule 23(a)(3) requires that “the claims or defenses of the representative parties are typical of the claims or defenses of the class.” Fed. R.Civ.P. 23(a)(3).
When finding a class representative’s claims typical, it is not necessary to first find that all putative class members share identical claims. Piazza v. Ebsco Indus., Inc.,
Still, “[a] proposed class representative is not adequate or typical if it is subject to a unique defense that threatens to play a major role in the litigation.” In re Milk Prods. Antitrust Litig.,
a. Standing/Injury
Defendants argue that Jones’s claims are subject to particularized defenses concerning her standing.
There is evidence that Jones suffered the requisite injury. Her NovaStar common stock was worth approximately $36.41 at the start of the Class Period; her stock was worth approximately $31.61 when she sold it. Jones pleads that this drop in stock price was due to Defendants’ misconduct. On Defendants’ motion to dismiss, the Court found that Jones has adequately alleged and shown the requisite injury for purposes of establishing standing, which she will eventually need to prove in order to prevail on her claims. See generally Loomis v. Exelon Corp., No. 06 C 4900,
Defendants argue that issues surrounding whether Jones suffered an injury will “linger over this case” in a manner which prejudices other class members. Defendants speculate that Jones may have actually profited from their alleged misconduct; however, there is no evidence of profit at this stage of litigation — only evidence of loss. Of course, Jones and the class will have to prove injury to the Plan as the case proceeds, and, as part of that analysis, the parties may elect to examine the losses of individual Plan participants including Jones. However, the need to calculate the amount of loss — including that relevant to Jones’s standing — does not overwhelm the key issuеs in this case concerning whether Defendants breached their duties to the Plan.
b. Early Cash Out
Defendants also attempt to show that the claims Jones brings on behalf of the Plan are atypical in that (1) she did not hold her NovaStar common stock as long as other class members, and (2) unlike other class members, she did not purchase NovaStar common stock during the Class Period. While recognizing that no court has drawn such a distinction, Defendants attempt to split Jones’s fiduciary duty claims into two separate categories: claims that Defendants violated their fiduciary duties by allowing class members to hold NovaStar common stock, and claims that Defendants violated those duties by allowing class members to purchase NovaStar common stock.
As to Jones’s “holder” claims, Defendants argue that Jones’s claims are atypical because she cashed out earlier than other class members. Defendants еmphasize that Jones sold only weeks into the Class Period; they state that it may be more difficult to prove that breaches occurred within those weeks — when the stock price was still relatively strong — than later — when it collapsed. Defendants state that Jones has an interest in proving that Defendants’ actions became improper on a date earlier than would other class members, to their detriment. In Di-Felice v. U.S. Airways,
While it may be true that each Plan participant who invested in the Company Stock Fund has an ‘optimal prudence date,’ .... it is also true that the Plan has a single ‘optimal imprudence date,’ and as this law*189 suit is brought on behalf of the Plan[. I]ndividual participants’ ‘optimal imprudence dates’ are irrelevant. To the extent members of the class, including the class representative, have interests with respect to this date that are slightly divergent with eaсh other, or with the Plan itself, this slight divergence is greatly outweighed by shared interests in establishing [defendant’s] liability.
Id. at 79 (quoted with approval in In re Aguila ERISA Litig.,
As to Jones’s “purchaser” claims, Defendants argue that her claims are not typical in that she herself did not purchase any NovaS-tar common stock during the Class Period. Citing to a Congressional policy of protecting fiduciaries from liability for allowing beneficiaries to hold company stock, see In re McKesson HBOC, Inc. ERISA Litig.,
Because her assets will be affected, Jones has an incentive to maximize the recovery of the Plan, regardless of whether that recovery flows directly from her personal injury. The claims of both Jones and the class members center on issues surrounding Defendants’ liability, such as: whether Defendants were fiduciaries to the Plan; whether NovaStar common stock was an imprudent investment; whether Defendants properly communicated with the Plan and its participants regarding NovaStar common stock; whether Defendants took appropriate steps to monitor or investigate the offering or holding of NovaStar common stock; whether Defendants took adequate steps to protect the Plan; whether the Plan and its participants were injured by Defendants’ alleged breaches; and whether the class is entitled to relief. Though other class members — who Defendants seem to argue lost considerably more money than did Jones— may have suffered a greater dollar loss, their claims are united with Jones’s in that they seek retribution for harm caused by Defendants to the Plan. See In re ADC Telecoms ERISA Litig., No. Civ. 03-2989ADMFLN,
Defendants argue that the recent decision in LaRue v. DeWolff, Boberg & Associates, Inc., — U.S.-,
... Defendants suggest that the Supreme Court’s recеnt decision in LaRue ... has changed the landscape of ERISA claims in a manner pertinent to the class certification inquiry. LaRue dealt with an individual suit brought by a participant in a 401(k) plan. The plaintiff alleged that his employer failed to follow his directions for making changes to investments in his individual plan account, resulting in losses. Id. at 1021-22. The Supreme Court held that an individual participant’s claim was cognizable under ERISA § 502(a)(2), authorizing suits to enforce fiduciary obligations. Id. at 1026.
Defendants urge that LaRue brought into question the propriety of class certification in § 502(a)(2) cases. Under their analysis, a class action alleging a breach of fiduciary duty cannot be sustained in the individual plan context because the loss caused to each account would be specific to that person’s investment strategy. Defendants’ argument reads too much into the LaRue analysis. Before LaRue, recovery under ERISA § 502(a)(2) was recognized to be on behаlf of a plan — individuals could not recover for their own losses. See [Massachusetts Mut. Life Ins. Co. v.J Russell,473 U.S. 134 ,105 S.Ct. 3085 ,87 L.Ed.2d 96 [ (1985) ]. LaRue did not overrule that widely-accepted tenet of ERISA law____ LaRue simply expanded the relief available under § 502(a)(2), so that recovery can now be had when a participant demonstrates that fiduciary misconduct affected his individual account. Id. at 1025-26; see also Bendaoud v. Hodgson,578 F.Supp.2d 257 ... (D.Mass.2008) (“Of course, a fiduciary’s breaches can affect more than one defined contribution plan participant. In that situation, though, the proper approach is joinder of the affected participants or the certification of a class.”).
____ “If the Plaintiffs recover any damages on behalf of the Plan, it will be up to the Plan administrator to determine how those damages are to be distributed.” Ronald C. Tussey, et al. v. ABB, Inc., et al., No. 06-04305-CV, ...2007 WL 4289694 , *5 (W.D.Mo. Dec.3, 2007). Here, the common focus is on the conduct of Defendants: whether they breached their fiduciary duties to the Plan as а whole by paying excessive fees, whether they made imprudent investment decisions, and whether they concealed information from all Plan participants. Plaintiffs’ claims do not focus on injuries caused to each individual account, but rather on how the Defendants’ conduct affected the pool of assets that make up the [plan].
Kanawi v. Bechtel Corp.,
(1) Reliance
Finally, Defendants argue that Jones’s claims concerning their failure to disclose relevant information are atypical because she cannot establish reliance on the alleged misrepresentations. Defendants cite to Jones’s deposition testimony, which indicates that she may not have relied on all of Defendants’ alleged misstatements in determining how to invest her individual account funds.
The question of whether plaintiffs must individually show reliance on § 502(a)(2) communications claims — and, thus, whether class treatment is appropriate — has not been settled by courts. See, e.g., In re Merck & Co., Inc. Sec., Derivative & ERISA Litig., MDL No. 1658(SRC),
Because ERISA § 502(a)(2) focuses on plans, rather than individuals, the Court finds persuasive those cases which have held that plaintiffs need not establish individual reliance in order to prevail. As one court explained:
ERISA § 502(a)(2) provides than an action may be brought by a retirement plan participant or beneficiary for relief “under section 1109 of this title.” In turn, ERISA § 409 imposes personal liability on plan fiduciaries who breach their fiduciary duties “to make good to such plan any losses to the plan resulting from each such breach.” Thus, an action brought by a plan participant under ERISA § 502(a)(2) is brought in a representative capacity on behalf of the plan and solely for relief to the plan as a whole. Mass. Mut. Life Ins. Co. v. Russell,473 U.S. 134 , 140-142,105 S.Ct. 3085 ,87 L.Ed.2d 96 (1985). Thus, even assuming that detrimental reliance must be proved, the relevant detrimental reliance is that of the Plan, not the individual Plan participants.
In re Aquila ERISA Litig.,
Such an analysis is particularly appropriate where defendants make the alleged misrepresentations on a plan-wide basis. Brieger v. Tellabs, Inc.,
Defendants’ actions towards the Plan, not individual Plan participants, are relevant to Jones’s communications claims. For purposes of class certification, what Jones individually “knew, and when, regarding the allegations of non-disclosure and concealment, does not defeat typicality.” Spano,
4. Adequacy
Defendants also dispute Jones’s argument that she “will fairly and adequately protect the interest of the class.” See Fed. R.Civ.P. 23(a)(4). The focus of the adequacy inquiry is whether “(1) the class representatives have common interests with the members of the class, and (2) whether the class representatives will vigorously prosecute the interests of the class through qualified counsel.” Paxton v. Union Nat’l Bank,
a. Differences in Claims/Interests
Defendants rely on the differences between Jоnes’s claims and those of other class members in arguing that she is not an ade
There is no indication that Jones’s interests are antagonistic to those of the class. See Paxton,
b. Understanding the Role of Class Representative
Defendants cite to Jones’s deposition testimony as evidence that she will not vigorously prosecute the interests of the class: Defendants argue that Jones does not appropriately understand her suit or the role of a class representative. Class representatives need not have special understanding of the factual or legal issues in their cases. Amchem Prods., Inc. v. Windsor,
B. Rule 23(b)
In addition to meeting the requirements of Rule 23(a), a case must also meet the requirements of one of the subdivisions of Rule 23(b) in order to proceed as a class action. Jones argues that her claims may be appropriately certified under Rule 23(b)(1) or, alternatively, Rules (b)(2) or (b)(3).
1. Rule 23(b)(1)
Rule 23(b)(1) allows certification where:
(1) the prosecution of separate actions by or against individual members of the class would create a risk of
(A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or
(B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substan*193 tially impair or impede their ability to protect their interests[.]
Fed.R.Civ.P. 23(b)(1). Subsection A attempts to avoid possible prejudice to Defendants, while subsection B attempts to avoid possible prejudice to class members. See In re Ikon,
a. Rule 23(b)(1)(B)
Jones argues first for certification under Rule 23(b)(1)(B), which addresses potential prejudice to class members. The Advisory Committee Notes to Rule 23(b)(1)(B) provide:
[Rule 23(b)(1)(B) ] takes in situations where the judgment in a non-class action by or against an individual member of the class, while not technically concluding the other members, might do so as a practical matter. The vice of an individual action would lie in the fact that the other members of the class, thus practically concluded, would have had no representation in the lawsuit ... [This] reasoning applies to an action which charges a breach of trust by an indenture trustee or other fiduciary similarly affecting the members of a large class of security holders or other beneficiaries, and which requires an accounting or like measures to restore the subject of the trust.
Fed.R.Civ.P. 23(b)(1)(B) Advisory Committee Notes (1966 Amendment).
To qualify as a class action under Rule 23(b)(1)(B), it must be shown that “the shared character of rights claimed or relief awarded entails that any individual adjudication by a class member disposes of, or substantially affects, the interests of absent сlass members.” Ortiz,
b. Rule 23(b)(1)(A)
Jones also seeks certification under Rule 23(b)(1)(A), which addresses potential prejudice to Defendants. Defendant argues that Rule 23(b)(1)(A) is not available where a plaintiff seeks monetary relief. Though certain Ninth Circuit case law suggests this argument, see McDonnell Douglas Corp. v. United States Dist. Court for Cent. Dist.,
inserts a requirement into 23(b)(1)(A) that is not present. This subsection requires that the varying adjudications “would establish incompatible standards of conduct for the party opposing the class.” This language does not require that the varying adjudications would establish incompatible standards as the exclusive or even primary remedy. It only requires that varying adjudications would establish incompatible standards____
In re Merck,
Arguing against Rule 23(b)(1) certification, Defendants rely on Langbecker,
c. Rule 23(b)(1) Conclusion
“ERISA litigation of this nature presents a paradigmatic example of a (b)(1) class.” In re Global Crossing Sec. & ERISA Litig.,
[Given] the nature of an ERISA claim which authorizes plan-wide relief, there is a risk that failure to certify the class would leave future plaintiffs without relief.... There is also risk of inconsistent dispositions that would prejudice the defendants: contradictory rulings as to whether [defendant] had itself acted as a fiduciary, whether the individual defendants had, in this context, acted as fiduciaries, or whether the alleged misrepresentations were material would create difficulties in implementing such decisions.
In re Ikon,
III. Notice
The Court recognizes that Rule 23(b)(1) does not require notice to class members. However, Rule 23(e) permits the Court to direct appropriate notice to the class. Fed. R.Civ.P. 23(c)(2)(A). The Court finds that notice costs will not “deter the pursuit of class relief’ in this case, where the attorneys have demonstrated a commitment to recovering from Defendants. Particularly, in light of the current economic climate, in which many are worried about the state of their retirement accounts, the Court finds it appropriate to notify class members that their interests are being represented with regard to the claims in this case.
A. Rule 23(g)
Rule 23(g) complements the Rule 23(a)(4) requirement of adequate representation by establishing certain requirements for appointing class counsel. Defendants do not contest Jones’s argument and supporting declaration that proposed local and class counsel, as required by Rule 23(g): has worked to identify and investigate potential claims; has experience handling other class
IV. Conclusion
Pursuant to Rule 23(c), the Court certifies the following class under Rule 23(b)(1):
All persons, other than Defendants, who were Participants in or beneficiaries of the NovaStar Financial, Inc. 401(k) (the “Plan”) at any time between May 4, 2006 and November 15, 2007, inclusive, and whose accounts included investments in NovaStar common stock.
Notice shall be provided to the class members. The Court appoints Dysart Taylor Lay Cotter & McMonigle, P.C., as local counsel; the Court appoints Gainey & McKenna and Stull, Stull & Brody as class counsel.
It is hereby ORDERED that Jones’s Motion to Certify [Doc. #38] is GRANTED.
Notes
. Section 502(a)(2) provides for representative suits on behalf of a plan to enforce the liability-creating provisions of § 409, concerning breaches of fiduciary duties that harm plans. LaRue v. DeWolff, Boberg & Assoc., - U.S. -,
Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this title shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary. A fiduciary may also be removed for a violation of section 411 of this Act.
29 U.S.C. § 1109(a). Section 502(a)(3) allows individuals to sue for equitable relief, permitting suits "(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.”
Jones’s Complaint does not specify what relief she seeks under § 502(a)(2) as opposed to § 502(a)(3), and the parties do not discuss the claims separately. However, in her Complaint and briefing, Jones clarifies that the only relief she seeks is on behalf of the Plan, and indicates that the only equitable relief she seeks under § 502(a)(3) is that which is necessary to facilitate distribution of recovery obtained by the Plan. See, e.g., Doc. # 39 (Jones's Sugg. Supp. Mot. Cert.) at 1-2 (referencing the representative nature of her claims), 3 ("If this action is successful, the entire recovery will flow to the Plan and will be held, allocated and ultimately distributed to the Plan's participants and beneficiaries оn a Plan-wide basis”), 9 (identifying the key issue of whether the Plan sustained damage), 10 (noting that ERISA allows for Plan-wide relief); Doc. #52 (Reply Supp. Mot. Cert.) at 1 (referencing the representative nature of claims), 9 (stating that class certification focuses on claims brought on behalf of the Plan), 14 (emphasizing that the remedies Jones seeks are Plan-wide); Doc. # 1 (Compl.) (seeking "appropriate” equitable relief).
. Some of Defendants' arguments concerning typicality overlap with issues relevant to commonality, but will be addressed as Defendants have classified them, in the discussion of typicality, infra.
. More specifically, as they did on their motion to dismiss, Defendants argue that Jones’s claims lack both Constitutional and ERISA statutory standing. Defendants state that Jones did not buy shares at a time when she claims stock prices were artificially inflated. They emphasize that she cashеd out of the Plan at a time when she claims that stock prices were artificially inflated as a result of Defendants’ alleged fiduciary improprieties. Defendants argue that the evidence will show that, had they disclosed their alleged breaches of duty as Jones contends they should have, Jones would have suffered a far greater loss than she alleges. Thus, Defendants argue that Jones actually benefitted from the improprieties she alleges.
. Without citation, Defendants argue that Jones does not have standing to seek the requested injunctive relief because she is no longer invested in the Plan. To the extent that Jones would benefit from injunctive relief enforcing recovery obtained by the Plan, she has standing to seek such relief. See generally Nechis v. Oxford Health Plans, Inc.,
. Defendants did not argue for modification of the proposed class description, or that subclasses (such as "holder” and “purchaser” subclasses) might be appropriate.
. Defendants rely on Ince v. Aetna Health Mgmt., Inc.,