Plaintiffs were employees of TRDI, which contracted with FBG for various services. It was required to provide wage and fringe benefits to its employees in an amount calculated by the applicable prevailing wage determination, and provided retirement plans under the Contractors and Employee Retirement Trust and health and welfare plans under the Contractors Plan Trust. The agreement governing CERT, CPT, and TRDI allotted various “powers and responsibilities” to FBG. For example, FBG had the power to: (1) enter contracts imposing fees and other charges on the trusts and the plans; (2) instruct any insurance company with respect to investment or disbursement of investment funds on behalf of the Trustee; (3) require the Trustee to make disbursements for FBG’s own fees in any amount that it directed; and (4) appoint and remove the Trustee. Chavez participated in CPT, meaning that TRDI paid monthly contributions to CPT on his behalf, from which FBG deducted fees. TRDI contributed a certain amount of money to a fringe benefit account in Chavez’s name for every hour that he worked, in accordance with federal and state laws. This fringe benefit account was used to help pay Chavez’s premiums incurred through his enrollment in health and welfare plans provided by TRDI. TRDI also paid a premium of $570.58 a month into CPT for these benefits to cover his insurance. At least ten percent of the premium amount was paid to FBG. These fees were taken from Chavez’s individual health and welfare account. He contends that the account was depleted more than it otherwise would have been if the fees had been reasonable, and further that the unreasonable fees are wholly responsible for no amount ever being contributed to his retirement account.

Plaintiff sought to represent a class of “all participants in and beneficiaries of employee benefit plans that provide benefits through CERT and CPT….” The District Court encountered a question of first impression: Whether Plaintiffs had standing to sue FBG on behalf of unnamed class members from different contribution plans. On constitutional standing, the District Court explained that Plaintiffs had demonstrated injury in fact, traceability, and redressability. As for statutory standing, the District Court held that Plaintiffs’ only burden at this stage was assuring the court of their own standing to sue FBG. FBG appealed, and a panel of the Fifth Circuit vacated and remanded, holding that the district court failed to engage in the “rigorous analysis” necessary for certifying a class action under Rule 23. See Chavez, 957 F.3d at 544. On remand, Plaintiffs amended their motion for class certification, and the District Court certified the following two classes: (1) All participants and beneficiaries of plans that provide employee benefits through CPT — other than FBG’s officers, directors, or relatives —  from July 6, 2011, until trial; and (2) All participants and beneficiaries of plans that provide employee benefits through CERT — other than (a) participants and beneficiaries of custom plans, and (b) FBG’s officers, directors, or relatives—from August 31, 2014, until trial. FBG then filed a second appeal, urging the Court to determine that Plaintiffs lack standing and to reverse the District Court’s decision that Rules 23(b)(1)(B) and (b)(3) are proper vehicles for class certification.

As to standing, the U.S. Fifth Circuit affirmed under either and both the Class Certification Approach and the Standing Approach.  With respect to the Class Certification Approach: “Plaintiffs have established their standing to sue FBG. First, they have demonstrated injury in fact by alleging that FBG abused its authority under the Master Trust Agreement by hiring itself to perform services paid with funds from the CERT and CPT trusts, effectively devaluing the trusts and retirement benefits that Plaintiffs otherwise would have accrued with their employer. Second, they have established that their injury is traceable to FBG’s conduct by providing evidence of FBG’s direct control over the CERT and CPT trusts and the underlying contractual agreement with their employer. Finally, their injury is redressable in this court by awarding monetary damages or other relief. Any further analysis on the appropriateness of appointing Plaintiffs as the class representatives under this approach would occur during the Rule 23 inquiry.”  With respect to the Standing Approach: “The standing approach offers three different avenues for evaluating Plaintiffs’ Article III standing: (1) the Lewis test, requiring us to consider whether Plaintiffs’ harm is so unique that it warrants an isolated remedy that would be inappropriate if extended to other class members; (2) the Gratz test, which requires us to evaluate if Plaintiffs’ injury implicates a significantly different set of concerns from the other potential class members; or (3) the Second or Eleventh Circuit tests for class representative standing, which are hybrid versions of the Lewis and Gratz tests.”  Under the Lewis Test: “FBG does not contend that the other class members seek or require a different remedy, nor does it assert that the injury is unique to Plaintiffs. Instead, it merely insists that because Plaintiffs had different plans and employers, they lack standing to challenge the same general practices that each member of the class was subjected to. This theory is unsupported by Lewis.” Under the Gratz Test: “That there is an abundance of employers and plans does nothing to shift the calculus…. Ultimately, Plaintiffs have undeniably suffered the same kind of loss as the unnamed class members because of FBG’s alleged misconduct. Put another way, the set of concerns here are identical between Plaintiffs and the unnamed class members: the return of trust funds that each plaintiff would otherwise have been entitled to if FBG had not violated ERISA. Furthermore, at no stage in this litigation, has FBG argued that there are different concerns across the class.”  Finally, under the Hybrid Tests: “Plaintiffs and the other class members undoubtedly have the same interest: the return of trust funds or any other vindication of their financial harm. The two also share the same injury: FBG’s mismanagement of trust funds and charging of excessive fees deprived them of some portion of the benefits that they were entitled to. Again, that these injuries were the result of different agreements with different employers does not alter that the harm occurred directly from FBG’s misconduct pertaining to the trusts that it required participation in through the incorporation of certain provisions in each contract.”

The U.S. Fifth Circuit also affirmed the (b)(3) certification.  “First, we examine the district court’s conclusion that this case will not devolve into a series of mini-trials on FBG’s status as a fiduciary…. It explained that whether FBG owed a duty to Plaintiffs was a common question across the class. Moreover, it observed that whether that duty was breached was a similarly common question that was significant and likely dispositive over the entire class’s claims. In response, FBG maintains that those common questions fail to predominate the individualized inquiry into each plan that will necessarily follow. It cites Teets for the proposition that “Plaintiffs must establish that FBG was the functional fiduciary as to each challenged action in relation to each plan.” The district court disagreed, and so do we. Besides the fact that it was not bound by the Tenth Circuit’s decision in Teets, the district court went a different direction than that court because it aptly recognized that trying this case separately would inevitably lead to the redundant production of evidence that is common across the class. For example, each plaintiff would certainly produce that plaintiff’s own contract, which expressly makes FBG a fiduciary by incorporating the Master Trust Agreement. The predominant question from the production of the Master Trust Agreements is whether it operates as Plaintiffs assert. That question’s commonality unequivocally dominates any potential individualized inquiries that could arise thereafter. The district court did not abuse its discretion.

“FBG also argues that the district court’s decision to consider Plaintiffs’ statistical evidence interferes with its constitutional right to due process by robbing it of its right “to defend against the alleged excessiveness of every fee paid by every plan in every geographic area on an individualized basis.” But the nonbinding authority it cites for this right contradicts its assertions. See Mullins v. Direct Digital, LLC, 795 F.3d 654, 670–71 (7th Cir. 2015) (rejecting a violation of a defendant’s due process rights where there is a common method for showing individual damages, such as a simple formula that could be applied to each class member’s employment records because that would be sufficient for the predominance and superiority requirements to be met). The Seventh Circuit’s understanding of due process in Mullins aligns with the Supreme Court’s jurisprudence on damage calculations through formulae and statistical modeling in the class context. In short, the district court did not violate this precedent by acknowledging Plaintiffs’ plan to establish FBG’s liability using an arithmetic, formulaic method. So, FBG’s due process rights are sufficiently protected, and the differences in the amount of damages among class members are no bar to class certification.”

The Court, however, reversed certification under (b)(1).  The District Court “recognized that prosecuting separate actions could substantially impair the putative class members’ ability to protect their interests because Plaintiffs are alleging two claims central to all class members. Namely, whether FBG is or is not a fiduciary, and, if so, whether it breached its duties in that role. However, the ability of individual class members to opt out and pursue separate remedies should be preserved…. A large part of the monetary relief that Plaintiffs seek stems from their desire to disgorge FBG of ill-gotten profits, thus restoring assets to the CERT and CPT trusts…. The inclusion of claims for injunctive and declaratory relief does not change the nature of this action. Rule 23(b)(3) certification, which permits class members to opt out, is the appropriate vehicle for such class actions.”

 

Chavez v. Plan Benefit Services, No.22-50368, 2024 WL 3409147 (5^th Cir. July 15, 2024).