Fifth Circuit Weighs Certification of Giant Class of ERISA Plans

A class action covering thousands of benefit plans serviced by Fringe Benefit Group appeared to be in jeopardy Wednesday, when a panel of Fifth Circuit judges peppered lawyers with questions about how the case could be resolved on a classwide basis.

The case involves 290,000 participants across more than 3,000 plans that are governed by thousands of different “arms-length negotiated agreements,” Fringe attorney Al Holifield of Holifield & Janich PLLC told the judges. His co-counsel, Joshua Romero of Jackson Walker LLP, said that assessing the appropriateness of fees paid by these plans would require “thousands of mini trials” over “whether Fee X is excessive or whether Fee Y is excessive.”

If the court allows this case to move forward as a class action, there would be “nothing to stop certifying every ERISA case in the country,” Romero said during the oral arguments.

Judge Kurt D. Engelhardt questioned whether the trusts that hold the assets of these plans could provide a “lowest common denominator” for assessing the defendants’ liability.

Romero agreed that the trusts formed a common nexus, but he said they couldn’t support class certification because the trusts themselves have no bearing on whether the fees paid by the plans were reasonable.

Back and Forth

The lawsuit accuses Fringe, an Austin, Texas-based benefit plan manager, and its subsidiaries of manipulating the plans they administer in order to pay themselves excessive and unauthorized fees in violation of the federal Employee Retirement Income Security Act.

In 2019, a Texas federal judge certified a class of thousands of participants in various plans, but the US Court of Appeals for the Fifth Circuit undid that ruling the following year after finding the judge’s analysis “breezy” and in need of “more facts and fewer generalizations.”

On remand, a different federal judge issued a lengthy order certifying a slightly narrower class of about 290,000 employees across thousands of benefit plans managed by Fringe.

Fringe appealed to the Fifth Circuit again, receiving support from the US Chamber of Commerce, which has long opposed multi-plan classes under ERISA.

While the appeal was pending, the Second Circuit considered a similar case, undoing the certification of a class of thousands of retirement plans challenging a loan program administered by Teachers Insurance & Annuity Association. That case is currently pending before a federal judge in Manhattan.

Standing Versus Class

Fifth Circuit Judge Carl E. Stewart‘s questions suggested that he saw the dispute as falling under the rubric of constitutional standing. He asked the plan participants’ attorney whether a plaintiff who was injured by only a small portion of the dispute has standing to represent a class of 290,000 people.

The participants’ attorney, Nina Wasow of Feinberg, Jackson, Worthman & Wasow LLP, said these concerns go to the class certification requirements of Federal Rule of Civil Procedure 23—which are typically addressed later in a lawsuit—and not the question of standing, which can sink a case in its early stages.

Stewart appeared skeptical, saying “we have to address the standing or we don’t get to the rest of it.”

Circuit Split?

The lawyers also debated whether a decision favoring Fringe and decertifying the class would necessarily create a circuit split with the Sixth Circuit.

That court ruled in 1998’s Fallick v. Nationwide Mut. Ins. Co. that once a plaintiff has demonstrated an individual injury giving rise to standing, their ability to represent other class members “depends solely” on whether the Rule 23 requirements are met.

Wasow told the judges that Fallick‘s reasoning has been endorsed by courts across the country. But according to Romero, Fallick involved the methodology for calculating fees and is thus distinguishable from the case at hand.

Judge Jacques L. Wiener Jr. appeared concerned with figuring out whether each class member had the same amount of fees deducted from their accounts.

Romero said no, telling him this is “absolutely not a case where each month a dollar is withdrawn from participants’ accounts.” That would be a “much different case,” he said.

Wasow conceded that there wasn’t a “flat fee structure,” but she argued that the variation in fees paid was small.

The plan participants are also represented by Altshuler Berzon LLP, and Bruckner Burch PLLC.

The case is Chavez v. Plan Benefit Servs., Inc., 5th Cir., No. 22-50368, argued 3/8/23.