MARY K. BOLEY; KANDIE SUTTER; PHYLLIS JOHNSON, Individuаlly and as representatives of a class of similarly situated persons, on behalf of the Universal Health Services, Inc. Retirement Savings Plan v. UNIVERSAL HEALTH SERVICES, INC.; UNIVERSAL INC.; THE UHS RETIREMENT PLANS INVESTMENT COMMITTEE; DOES 1-10, Whose Names Are Currently Unknown Universal Health Services, Inc. and Health Universal Health Services, Inc. Retirement Plans Investment Committee, Appellants
No. 21-2014
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
June 1, 2022
PRECEDENTIAL. On Appeal from the United States District Court for the Eastern District of Pennsylvania
(District Judge: Honorable Mark A. Kearney)
Argued: February 11, 2022
Before: GREENAWAY, JR., SCIRICA and COWEN1, Circuit Judges.
(Filed: June 1, 2022)
Deborah S. Davidson
Morgan Lewis & Bockius
110 North Wacker Drive
Suite 2800
Chicago, IL 60606
Michael E. Kenneally [ARGUED]
Morgan Lewis & Bockius
1111 Pennsylvania Avenue, N.W.
Suite 800 North
Washington, DC 20004
Matthew D. Klayman
Brian T. Ortelere
Morgan Lewis & Bockius
1701 Market Street
Philadelphia, PA 19103
Sean K. McMahan
Morgan Lewis & Bockius
1717 Main Street
Suite 3200
Dallas, TX 75201
Counsel for Appellants
John M. Masslon, II
Washington Legal Foundation
2009 Massachusetts Avenue, N.W.
Washington, DC 20036
Counsel for Amicus Appellant
Alec Berin
James C. Shah
Miller Shah
1845 Walnut Street
Suite 806
Philadelphia, PA 19103
James E. Miller [ARGUED]
Miller Shah
65 Main Street
Chester, CT 06412
Mark K. Gyandoh
Gabrielle P. Kelerchian
Capozzi Adler
312 Old Lancaster Road
Merion Station, PA 19066
Donald R. Reavey
Capozzi Adler
Harrisburg, PA 17110
Counsel for Appellees
OPINION OF THE COURT
SCIRICA, Circuit Judge
In this interlocutory appeal, fiduciaries of a retirement plan appeal the District Court‘s certification of a class of participants who allege the fiduciaries breached their duty under the Employee Retirement Income Security Act of 1974 (“ERISA“). At issue in this case is whether the typicality requirement of
We will affirm. Because the class representatives allege actions or a course of conduct by ERISA fiduciaries that affected multiple funds in the same way, their claims are typical of those of the class.
I. FACTS AND PROCEDURAL HISTORY
Universal Health Services, Inc. sponsors the Universal Health Services, Inc., Retirement Savings Plan (the “Plan“), a defined contribution retirement plan,2 in which qualified employees cаn participate and invest a portion of their paycheck in selected investment options. The Plan‘s investment options and administrative arrangements are chosen and ratified by the UHS Retirement Plans Investment Committee (the “Committee“). The Committee is appointed and overseen by Universal. Both Universal and the Committee serve as the Plan‘s fiduciaries and administrators (collectively, “Universal“).
Since 2014, the Plan‘s available investment options consisted of thirty-seven funds, including mutual funds and a collective investment trust. As with most investment funds, the Plan funds charge participants annual management fees. The Plan also charges participants an annual recordkeeping and administrative fee. Each year, every investor in the Plan would pay the annual recordkeeping and administrative fee, plus the additional fees associated with whichever investment fund or funds in which he or she chose to invest.
Among the investment options is the Fidelity Freedom Fund suite, consisting of thirteen target date funds. Target date funds are managed funds that shift in investment
The class representatives are three current and former participants in the Plan (the “Named Plaintiffs“). Between them, the Named Plaintiffs invested in seven of the Plan‘s thirty-seven investment options. They were also charged the Plan‘s annual fee for recordkeeping and administrative services.
The Named Plaintiffs, on behalf of themselves and all other Plan participants, sued Universal under
Universal moved for partial dismissal of the Named Plaintiffs’ claims, contending the Named Plaintiffs lacked constitutional standing to pursue claims relating to funds in which they did not personally invest. Thе District Court denied Universal‘s motion, holding the Named Plaintiffs had standing to pursue all their claims because they alleged concrete injuries resulting from Universal‘s Plan-wide misconduct. Boley v. Universal Health Servs., Inc., 498 F. Supp. 3d 715, 719 (E.D. Pa. 2020). Accordingly, the Named Plaintiffs were permitted to bring their claims as alleged, because “claims relating to allegedly imprudent decision-making processes injure all plan participants.” Id. at 723.
The Named Plaintiffs then moved to certify a class under
II. JURISDICTION
The District Court had statutory federal-question jurisdiction over this ERISA lawsuit under
Universal does not challenge our statutory jurisdiction over this suit but, as part of its typicality argument, challenges the Named Plaintiffs’ standing under Article III. Specifically, for purposes of this appeal, Universal characterizes the Named Plaintiffs’ lack of standing as destroying typicality. But a lack of standing would present a more fundamental problem for the Named Plaintiffs because a lack of standing necessitates dismissal of claims, whether brought in a class action or in any other kind of suit. Because “our continuing obligation to assure that we have jurisdiction requires that we raise the issue of standing sua sрonte,” Wayne Land & Mineral Grp. v. Del. River Basin Comm‘n, 959 F.3d 569, 574 (3d Cir. 2020) (cleaned up) (quoting Seneca Res. Corp. v. Twp. of Highland, 863 F.3d 245, 252 (3d Cir. 2017)), we will address the Named Plaintiffs’ standing directly, as a question of jurisdiction.7
To establish standing, a plaintiff must show “(i) that he suffered an injury in fact that is concrete, particularized, and actual or imminent; (ii) that the injury was likely caused by the defendant; and (iii)
To determine whether the Named Plaintiffs have standing, we first look to the Complaint. Count I claims a breach of fiduciary duty and Count II claims a failure to monitor fiduciaries. For Count I, the Named Plaintiffs allege three specific breaches of fiduciary duty: first, Universal‘s alleged imprudence in offering the excessively expensive Fidelity Freedom Fund suite to Plan participants; second, Universal‘s alleged failure to monitor and reduce the excessively high recordkeeping and administrative fees for the Plan; and third, Universal‘s alleged lack of a “prudent investment evaluation process,” App. 59, ¶ 47, which resulted in the Plan offering a menu of excessively expensive investments.
Taking these claims out of order, Universal concedes the Named Plaintiffs have standing for the second claim challenging the recordkeeping and administrative costs. We agree. The challenged conduct-charging each Plan participant a flat annual recordkeeping and administrative fee-affected all Plan participants in the same way. This allegedly excessive annual fee would represent a concrete and personal injury to a plaintiff regardless of the funds in which he or she invested. It is immaterial to our standing analysis that each plaintiff‘s actual recovery would be personal to his or her individual account, or that, duе to the effects of compounding interest, a flat annual fee represents a higher ultimate cost for a plaintiff further from retirement than one close to retirement.
For the alleged imprudent selection of the Fidelity Freedom Fund suite, the Named Plaintiffs similarly have a concrete injury flowing from the challenged conduct. The Named Plaintiffs each invested in at least one of the Fidelity Freedom Funds. Importantly, the Named Plaintiffs’ allegations in the Complaint are that all of the funds in the suite were imprudent for the same reasons-they were all excessively expensive funds, because they invested in high feе actively managed funds rather than low-cost index funds. If the Named Plaintiffs’ allegations are true, each class representative suffered a concrete injury traceable to Universal‘s imprudent choice to include the Fidelity Freedom Fund suite in the Plan, rather than a suite consisting of target date funds that invested in less expensive index funds. The Named Plaintiffs have standing to bring this claim.
The standing analysis for the final claim under Count I is also similar. For this claim, the Named Plaintiffs allege Universal “lack[ed] a prudent investment evaluation process” when choosing and evaluating investments offered to Plan participants. App. 59, ¶ 47. The Named Plaintiffs contend this failure resulted in an excessively expensive investment menu. Universal allegedly failed to “consider ways in which to lessen the fee burden” on Plan participants, App. 57-58, ¶ 45, leading to the Plan paying total investment management fees nearly double those paid by comparable Plans. Because each class representative invested in at least one fund with allegedly excessive fees, the Named Plaintiffs adequately alleged they suffered
For Count II, the Named Plaintiffs allege a failure to monitor the performance of the Committee and its appointed members, resulting in “imprudent, excessively costly, and poorly performing” investments. App. 68, ¶ 80(c). This Count incorporates the factual allegations supporting the three claims in Count I, and, accordingly, relates to Universal‘s conduct regarding the administration of the Plan as a whole, not specific funds. For this reason, Count II, like the claims in Count I, alleges conduct by Universal that led to concrete injuries to all of the Named Plaintiffs. Accordingly, the Named Plaintiffs have standing to bring this claim as well.
Since the Named Plaintiffs allege concrete injuries traceable to the challenged decisions and courses of conduct of the defendants, they have met the requirements for standing. Article III does not prevent the Named Plaintiffs from representing parties who invested in funds that were allegedly imprudent due to the same decisions or courses of conduct. In Sweda v. University of Pennsylvania we held that participants in a defined contribution ERISA plan have standing to bring claims alleging the fiduciary‘s “process of selecting and managing options must have been flawed” even though the class representatives did not invest in every fund. 923 F.3d 320, 331 (3d Cir. 2019). We noted in Sweda that the class representatives alleged they had invested in some of the underperforming funds, and “[t]his allegation links the named plaintiffs with the underperforming investment options and is sufficient to show individual injuries.” Id. at 334 n.10; see also Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 593 (8th Cir. 2009) (noting that as long as the named plaintiffs have alleged individualized injuries with respect to all of their claims, they “may proceed under
Universal asks us to reach the opposite conclusion, contending the Named Plaintiffs’ allegations are really thirty-seven separate claims challenging thirty-seven separate investment options included in thе Plan. Universal characterizes the Named Plaintiffs’ claims as mere “artful pleading” and the District Court‘s holding that the Named Plaintiffs had standing as “exalting form over substance.” Appellants’ Br. 40. But the Named Plaintiffs do not allege thirty-seven individual breaches of fiduciary duty, but rather several broader failures by Universal affecting multiple funds in the same way. The District Court‘s conclusion that the Named Plaintiffs “do not pursue such piecemeal claims,” 498 F. Supp. 3d at 724, addressed the substance of the Named Plaintiffs’ allegations. The decision to offer the suite of Fidelity Freedom Funds was, in effect, one decision that led to thirteen allegedly imprudent funds being included in the Plan; the alleged failure to continuously evaluate management fees affected all funds in the Plan in the same way; and the alleged failure to monitor appointees resulted in high fees across the Plan menu. To establish standing, class representatives need only show a constitutionally adequate injury flowing from those decisions or failures. The Named Plaintiffs allege such an injury for each claim.
Universal suggests this straightforward standing inquiry should be adjusted in light of the Supreme Court‘s decision in Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020). True, Thole held that, in the absence of a personal loss to a plaintiff‘s account, an abstract breach of fiduciary duty оr a diminishment in a plan‘s assets is insufficient
Since the Named Plaintiffs each had a concrete and personalized stake in each claim alleged in the complaint, they may proceed under Article III. As the District Court properly recognized, Universal‘s concerns regarding the representation of absent class members might implicate class certification or damages but are distinct from the requirements of Article III.
III. CLASS CERTIFICATION
We review a district court‘s certification of a class for abuse of discretion. Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 165 (3d Cir. 2001). A district court abuses its discretion if its decision granting or denying class certification “rests upon a clearly erroneous finding of fact, an errant conclusion of law or an improper application of law to fact.” In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 312 (3d Cir. 2008) (quoting Newton, 259 F.3d at 165).
In this appeal, Universal contends class certification was improper because the class failed to satisfy the
Here, the Named Plaintiffs allege Universal breached its fiduciary duty under ERISA by failing to properly manage these investment options. But because the Named Plaintiffs did not invest in all thirty-seven of the challenged funds, Universal contends Plaintiffs’ claims are not typical of the class. According to Universal, in the context of a defined contribution plan under ERISA, named class representatives’ claims are not typical of the class unless the named representatives invested in each of the challenged funds, because, otherwise, the representatives would lack an incentive to litigate on behalf of the class.
Universal points out that to recover under ERISA, a plaintiff must show both an inadequate fiduciary process and the objective imprudence of offering each challenged fund. See Renfro v. Unisys Corp., 671 F.3d 314, 322 (3d Cir. 2011). Because the Named Plaintiffs did not invest in all the Plan‘s funds, Universal contends the Named Plaintiffs have no incentive to focus their litigation efforts on the objective imprudence of offering the funds in which they did not invest. After all, any recovery stemming from those funds will
We do not find Universal‘s incentive argument persuasive. The Named Plaintiffs have alleged that Universal employed a flawed fund selection process resulting in a menu of excessively expensive funds. They have also alleged Universal failed to monitor expense ratios and consider possible ways to lessen fees charged to participants. These claims are the same for participants across all the Plan‘s thirty-seven funds. Each participant‘s potential recovery, regardless of the fund in which he or she invested, is under the same legal theory-Universal‘s breach of its fiduciary duty under ERISA in managing the Plan‘s investment options. Likewise, each participant who was charged excessive fees when investing in any of the Plan‘s funds can trace his or her injury to the same practice-Universal‘s alleged failure to properly consider expense ratios when selecting and updating the Plan‘s investment options.
The same is true for the Named Plaintiffs’ allegations that Universal imprudently offered a suite of Fidelity Freedom target date funds with high expense ratios and aggressive equity allocation as the Plan‘s default investment option. Although the Named Plaintiffs have only invested in three of the suite‘s thirteen target date funds, Universal‘s decision to add and retain the Fidelity Freedom suite is the cause of injury for each participant across all thirteen funds. Accordingly, the Named Plaintiffs’ claims relating to the funds in which they invested are typical of the claims relating to the funds in which they did not.
This is not to say there are no factual differences between any of the individual thirty-seven funds. Universal‘s alleged breach may have resulted in some funds charging participants significantly higher fees than others. But these differences relate to degree of injury and level of recovery. So long as the alleged cause of the injury remains the same across all funds, “even relatively pronounced factual differences will generally not preclude a finding of typicality.” In re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d 283, 311 (3d Cir. 2016) (quoting Baby Neal v. Casey, 43 F.3d 48, 58 (3d Cir. 1994)). Indeed, “[o]ur jurisprudence ‘assures that a claim framed as a violative practice can support a class action embracing a variety of injuries so long as those injuries can all be linked to the practice.‘” Newton, 259 F.3d at 184 (quoting Baby Neal, 43 F.3d 48, 63 (3d Cir. 1998)).
Typicality does not requirе the class representatives’ claims be coterminous with those of the class. See Newton, 259 F.3d at 185 (“The inability of a class representative to prove every other class members’ [sic] claim does not necessarily result in failure of the typicality requirement.“). We have held that typicality may be satisfied even if the class representative must introduce additional evidence to support the claims of absent class members. See Baby Neal, 43 F.3d at 58 (holding that a class representative suffering one specific injury from the practice can represent a class suffering other injuries so long as all the injuries are shown to result from the practice). Here, the Named Plaintiffs’ interests are sufficiently aligned with those of the class because the common allegation for each class member-Universal‘s alleged imprudence in managing the Plan‘s
The cases Universal cites do not contradict this typicality inquiry. Universal points to Schering Plough, our most recent evaluation of typicality in the context of an ERISA challenge to a defined contribution plan, in which we explained that plaintiffs who lack a “monetary stake in the outcome” do not have interests sufficiently aligned with those of the class. 589 F.3d at 600. The obvious difference between this case and Schering Plough is that the Named Plaintiffs here have a monetary stake in the outcome of the case. Unlike the class representative in Schering Plough who was potentially subject to a unique defense that precluded her from recovering damages, see 589 F.3d at 600, the Named Plaintiffs here are not subject to any unique defenses. The Named Plaintiffs invested in seven of the Plan‘s funds and, like other class members, have a monetary stake in proving Universal‘s alleged imprudence.
Universal also relies on Spano v. Boeing Co., 633 F.3d 574 (7th Cir. 2011), another ERISA challenge, in which the Seventh Circuit, purporting to draw support from Schering Plough, held typicality was lacking because the possibility that only some of the funds were imprudent created a potential lack of “congruence” between the claims of the class representative and those of absent class members who invested in other funds. Id. at 586. Specifically, Universal relies on Spano‘s per se rule that a “class representative in a defined-contribution case would at a minimum need to have invested in the same funds as the class members.” Id.
We find Universal‘s reliance on Spano misplaced because that decision was guided by concerns of potential conflicts between the class representative and the class that are not present here. As described by the Seventh Circuit in Abbott v. Lockheed Martin Corp., the class in Spano covered all past and future participants in the defined contribution plan even though the allegations only concerned four specific funds. 725 F.3d 803, 813 (7th Cir. 2013). Moreover, the claims relating to those four funds involved “somewhat vague” allegations objecting to the inclusion of the funds and also alleging misrepresentation and excessive risk. Id. It was this “combination of exceedingly broad class definitions and murky claims” that made it difficult for the Court in Spano to assess whether “intra-class conflict of the sort that defeats both the typicality and adequacy-of-representation requirements of
Unlike Spano, there are no present concerns of intra-class conflict in this case. In the context of ERISA, as in other contexts, the potential for intra-class conflict depends on the type of claim and the contours of the class. See Abbott, 725 F.3d at 813 (noting that class treatment in an ERISA case “depends on the claims for which certification is sought“). As stated, the Named Plaintiffs here allege Universal
Certainly, there may be some situations where typicality for an ERISA class would not be satisfied unless the class representative invested in each of the challenged funds. But that is not the case here. And because we think the typicality inquiry is best served done on a case-by-case basis, we decline to adopt a per se rule as to whether a class representative must have invested in each of the challenged funds.
We recognize that allowing class representatives to bring claims relating to funds in which they did not invest may result in some inefficiency at the damages stage. But these concеrns do not bar certification of this (b)(1) class. Rather, they more closely resemble concerns that might relate to the predominance and superiority requirements for (b)(3) classes than they do the typicality requirement of
Indeed, we have held that ERISA “breach of fiduciary duty claims brought under
CONCLUSION
For these reasons, we will affirm the judgment of the District Cоurt.
Notes
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 subchapter 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 оf 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.
The District Court held certification was proper under bothprosecuting separate actions by or against individual class members would create a risk of (A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or (B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests.