Last week, the U.S. Court of Appeals for the Third Circuit issued its decision in Boley v. Universal Health Services, Inc., No. 21-2014 (3d Cir. June 1, 2022), becoming the first court of appeals to apply Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020), in a case involving a defined contribution plan. Thole held that participants in a defined benefit plan lacked Article III standing to bring certain Employee Retirement Income Security Act (ERISA) claims if their benefits were not affected. Many defendants in ERISA fee and expense cases had argued that Thole meant that participants could not challenge investment options in which they did not personally invest. Although Boley rejected that argument, it made clear that lower courts should carefully scrutinize class certification motions that raise related issues, including issues involving intraclass conflicts.
The plaintiffs in Boley were participants in a defined contribution plan sponsored by Universal Health Services, Inc. They claimed that the plan fiduciaries violated ERISA by imprudently selecting and monitoring the plan’s investment options and allowing the plan to pay excessive administrative fees. They sought to bring these claims on behalf of a class of plan participants. The defendants argued class certification should be denied because the named plaintiffs lacked Article III standing to challenge the prudence of investments they never held. Even if the named plaintiffs had standing, defendants argued, their claims did not satisfy Federal Rule of Civil Procedure 23(a)(3) (typicality) because the plaintiffs had no incentive to prosecute claims over investments they never held. The district court rejected these arguments and certified a class.
The Third Circuit affirmed. Article III, the court reasoned, “does not prevent the Named Plaintiffs from representing parties who invested in funds that were allegedly imprudent” so long as the investments were in the plan “due to the same decisions or courses of conduct.” Boley, slip op. at 14. Because each plaintiff invested in at least one allegedly imprudent investment, they had standing to pursue claims on behalf of all participants affected by the fiduciaries’ allegedly imprudent process for selecting and monitoring investments. The court explained that class certification was appropriate because each participant’s recovery relied on “the same legal theory” and could be traced to the same practice — “Universal’s alleged failure to properly consider expense ratios when selecting and updating the Plan’s investment options.” Id. at 18.
However, the Third Circuit limited the scope of its holding in a significant way. It did not hold that ERISA plaintiffs always have standing to challenge funds in which they never invested; “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.” Id. at 22. The court explained that in some ERISA cases, a proposed class may present an “intra-class conflict,” depending on “the type of claim and the contours of the class.” Id. at 21. It found that concerns about such conflicts in Boley were only “speculative” given the claims and record in the case. Id. at 22. But in light of the potential for intraclass conflicts in other cases, the court “declin[ed] to adopt a per se rule as to whether a class representative must have invested in each of the challenged funds,” emphasizing that the typicality inquiry under Rule 23(a)(3) should be “done on a case-by-case basis.” Id. In the wake of Boley, courts are likely to scrutinize class certification motions for potential intraclass conflicts more closely, especially when the named plaintiffs challenge investment options they themselves never chose.