Universal Health Loses Bid to Undo 60,000-Person 401(k) Class

Universal Health Services Inc. must face a 60,000-person class action over its $1.9 billion retirement plan after the Third Circuit on Wednesday rejected a legal theory with the potential to significantly curtail class litigation over 401(k) plan fees.

The class representatives alleged missteps by Universal Health that affected multiple plan investments in the same way, making their claims typical of those of the class, the US Court of Appeals for the Third Circuit said. The court rejected Universal Health’s attempt to undo class certification by characterizing the case as “thirty-seven separate claims challenging thirty-seven separate investment options.”

“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,” the court said.

“To establish standing, class representatives need only show a constitutionally adequate injury flowing from those decisions or failures,” it continued. “The Named Plaintiffs allege such an injury for each claim.”

Allowing class representatives to bring claims based on funds they didn’t personally hold “may result in some inefficiency at the damages stage” of litigation, but it doesn’t create a roadblock to class certification under Federal Rule of Civil Procedure 23(b)(1), the court said.

Universal Health appealed a 2021 decision certifying the Employee Retirement Income Security Act lawsuit as a class action covering all the plan’s 60,000 participants. According to Universal Health, this “sweeping” class never should have been certified, because the three named plaintiffs invested in only seven of the 37 plan investment options challenged by their lawsuit.

The ruling marks the first time an appellate court has considered the recent push by employers to use the US Supreme Court’s 2020 decision in Thole v. U.S. Bank NA to limit the standing of 401(k) plan participants to bring class actions challenging funds they don’t personally hold in their retirement accounts. This legal effort, which has the potential to severely limit the scope of dozens of recent lawsuits challenging retirement plan fees, has been largely rejected by district courts in cases involving Columbia University, Natixis Investment Managers LP, Land O’Lakes Inc., Coca-Cola Consolidated Inc., and others.

In Thole, the Supreme Court held that a pension plan participant lacked standing to challenge misconduct that didn’t jeopardize his benefits. Here, the Third Circuit said the Universal Health plan participants “have alleged the kind of concrete, personalized injuries traceable to the challenged conduct by defendants that Thole requires.”

The opinion was written by Judge Anthony J. Scirica and joined by Judge Joseph A. Greenaway Jr. Judge Robert E. Cowen heard arguments in the case before assuming inactive status in April.

Morgan, Lewis & Bockius LLP represents Universal Health. Capozzi Adler PC and Miller Shah LLP represent the plan participants.

The case is Boley v. Universal Health Servs., Inc., 3d Cir., No. 21-2014, 6/1/22.