SANTOMENNO et al v. TRANSAMERICA LIFE INSURANCE COMPANY et al

Filing 354

ORDER DENYING MOTION FOR CLASS CERTIFICATION 277 by Judge Dean D. Pregerson. SEE ORDER FOR FURTHER AND COMPLETE DETAILS. (jre)

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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JACLYN SANTOMENNO; KAREN
POLEY; BARBARA POLEY,

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Plaintiff,
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v.
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TRANSAMERICA LIFE INSURANCE
COMPANY; TRANSAMERICA
INVESTMENT MANAGEMENT, LLC;
TRANSAMERICA ASSET
MANAGEMENT INC.,

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Defendants.
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Case No. CV 12-02782 DDP (MANx)
ORDER DENYING MOTION FOR CLASS
CERTIFICATION
[Dkt. No. 277]

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Presently before the Court is Plaintiffs’ Motion for Class

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Certification, (Dkt. No. 277), which is opposed by the Defendants

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on multiple grounds.

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and heard oral arguments, the Court adopts the following order.

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I.

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Having considered the parties’ submissions

BACKGROUND
The background facts of this case have been described in

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detail in previous orders and are condensed here, along with new

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///

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information, from Santomenno v. Transamerica Life Ins. Co., No. CV

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12-02782 DDP MANX, 2013 WL 603901, at *1-3 (C.D. Cal. Feb. 19,

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2013).

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Transamerica Life Insurance Company (“TLIC”) sells a 401(k)

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plan product targeted at small and mid-size employers. (Compl., ¶¶

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62, 94.) The product consists of a bundle of investment options and

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administrative services that an employer can purchase. (Id. at ¶

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7.)

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Plaintiffs and potential class members the retirement “plans”

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that used these TLIC products and people who are or were

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participants in or beneficiaries of the plans.

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§ III.)

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these products were excessive, in violation of the Employee

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Retirement Income Security Act (“ERISA”). (Compl., ¶ 1.)

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(Mot. Class Cert.,

Plaintiffs allege that the fees they were charged for

Employers who purchase the 401(k) plan product enter into a

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group annuity contract (“GAC” or “the contract”) with TLIC.1 (See

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Decl. Darcy Hatton ISO Def.'s Mot. Dismiss, Exs. D–1 and D–2.)

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Through the GAC, TLIC provides a set of investment options to the

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employer.

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retirement package. (Compl., ¶ 243.) This package gives employers

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170 investment options, from which the employer may select a

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smaller number to offer to their employees. (Id. at ¶¶ 241–42.) The

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401(k) plan sponsored by the former employer of Plaintiff

Plaintiffs' employers selected the “Partner Series III”

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The employer and TLIC also enter into an “Application and
Agreement for Services” (“Services Agreement”), which sets out the
various services TLIC agrees to provide for the employer's plan,
including recordkeeping services, enrollment services, and website
hosting. (See, e.g., Decl. Darcy Hatton ISO Def.'s Mot. Dismiss,
Ex. A.) Plaintiffs do not challenge fees associated with the
Services Agreements.
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Santomenno, the Gain Capital Group, LLC 401(k) Plan (the “Gain

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Plan”), selected 46 of 170 investment options. (Id. at ¶¶ 17,

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206–08.) The plan sponsored by the employer of Plaintiffs Karen and

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Barbara Poley, the QualCare Alliance Networks, Inc. Retirement Plan

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(the “QualCare Plan”), selected 36 of 170 investment options. (Id.

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at ¶¶ 16, 206–08.)

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One of the benefits TLIC provides to client employers is the

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“Fiduciary Warranty.” (Id. at ¶ 155.) Having entered into a GAC, an

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employer may pick and choose from the investment options à la

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carte, or it may choose one of TLIC's pre-selected “model” line-

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ups. (Id. at ¶ 157.) If an employer chooses a model line-up, the

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employer qualifies for TLIC's Fiduciary Warranty, which “provides

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specific assurances” that the line-up will satisfy ERISA's “broad

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range of investments” requirement and its “prudent man standards.”

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(Id.) TLIC warrants that if employees assert a claim for breach of

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those fiduciary duties against the employer, TLIC will indemnify

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the employer and make the plan whole. (Id. at ¶ 159.) TLIC's

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Fiduciary Warranty applies if an employer constructs its own line-

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up only if the employer selects investments from specified

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categories. (Id. at ¶ 157.)

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TLIC structures its investment product under the GAC such that

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each investment option is considered a “separate account.” (Id. at

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¶ 132.)

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investment: a mutual fund, a collective trust, or a traditional

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separate account. (Id. at ¶ 130.) In each separate account, TLIC

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pools together the retirement assets of all employees who choose a

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certain investment option, regardless of their employer. (Id.)

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Many of the mutual funds are publicly traded and managed by

Each separate account corresponds to an underlying

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investment managers unaffiliated with TLIC such as Fidelity or

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Vanguard. (See, e.g., id. at ¶ 214.) Some of the mutual funds and

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collective trusts are managed by Transamerica Investment

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Management, LLC (“TIM”) or Transamerica Asset Management, Inc.

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(“TAM”), affiliates of TLIC. (Id. at ¶ 340.)

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TLIC assesses fees for most accounts. The GAC specifies that

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there are Investment Management Charges and Administrative

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Management Charges (“IM/Admin Fee”) associated with each separate

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account, which “may be withdrawn daily and will belong to [TLIC].”

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(Hatton Decl., Exh. D–1.)

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assets in the separate account, and the rate varies depending on

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which separate account is in question. (Hatton Decl., Exhs. D–1 and

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D–2.)

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specific; it is charged uniformly to each separate account,

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regardless of plan.

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(deposition testimony of Eric King, VP of TLIC’s Investment

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Solutions Group).)

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the separate accounts but reserves the “right to change the

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Investment Management Charge or the Administrative Charge upon

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advance written notice to the Contractholder of at least 30 days.”

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(Hatton Decl., Exh. D–1.)

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These fees are a percentage of the

Thus, the IM/Admin Fee is not plan-specific, but investment-

(Decl. Robert Lakind, Ex. P at 21-23

The GAC provides a schedule of fees for each of

Plaintiff alleges that for separate account investment options

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invested in mutual funds, TLIC's fees are approximately 75 basis

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points, or 0.75% of the Plan assets invested in each option. (Id.

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at ¶ 271.) For at least 28 of the mutual fund options, plan

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participants pay the fee charged by the mutual fund in addition to

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a higher fee charged by TLIC. (Id. at ¶¶ 245, 248.) For instance,

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for the separate account that invests in the Vanguard Total Stock
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Market Index Ret Opt, the underlying mutual fund charged a fee of

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18 basis points and TLIC charged an additional account fee of 93

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basis points, for a total fee of 111 basis points or 1.11% of the

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separate account assets. (Id. at ¶ 246.) For separate account

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investment options invested in collective trusts, TLIC charged a

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fee ranging from 79 basis points to 150 basis points. (Id. at ¶¶

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331, 333–34.)

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Plaintiffs allege that Defendants' fees are excessive and are
a breach of their fiduciary duty to Plaintiffs under ERISA. More

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specifically, Plaintiffs allege that TLIC's fees on separate

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accounts that invest in publicly available mutual funds are

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excessive because TLIC provides no services on such accounts: the

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underlying mutual funds' investment management fees covered “all of

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the necessary investment management/advisory services needed for

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the mutual fund,” and thus “the alleged management services

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performed by TLIC were unnecessary or simply not performed.”

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(Compl., ¶ 276.) As a result, Plaintiffs argue, the fees they paid

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to TLIC were “excessive and unnecessary.” (Id.) “The charging of

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any fees by TLIC to Plaintiffs that are in excess of the fees

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charged by each of the mutual funds that underlie the overlaying

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separate account is impermissible.” (Id. at ¶ 293.)

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Plaintiffs further allege that TLIC has not used its

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institutional leverage to invest their money in the lowest price

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share class of mutual funds. (Id. at ¶ 314.)

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allege, was a breach of TLIC’s fiduciary duty under ERISA.

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¶ 314.)

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This, Plaintiffs
(Id. at

Plaintiffs also allege that TLIC affiliates TIM and TAM made
transactions that are prohibited under ERISA and knowingly
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participated in TLIC's violations of fiduciary duty. (Id., Count

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IV.)

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II.

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LEGAL STANDARD
Class action lawsuits are governed by Rule 23 of the Federal

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Rules of Civil Procedure.

Rule 23 imposes two sets of requirements

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on putative class plaintiffs.

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“prerequisites”: “(1) the class is so numerous that joinder of all

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members is impracticable; (2) there are questions of law or fact

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common to the class; (3) the claims or defenses of the

First, they must establish four

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representative parties are typical of the claims or defenses of the

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class; and (4) the representative parties will fairly and

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adequately protect the interests of the class.”

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23(a).

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Fed. R. Civ. P.

Second, they must show that the action is of at least one of

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several types that lend themselves to resolution on a class basis.

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Fed. R. Civ. P. 23(b).

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on a class basis if adjudication of the rights of the individual

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plaintiffs “would be dispositive of the interests of the other

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[class] members not parties” to the litigation, Fed. R. Civ. P.

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23(b)(1)(b), or if “the questions of law or fact common to class

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members predominate over any questions affecting only individual

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members” and “a class action is superior to other available methods

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for fairly and efficiently adjudicating the controversy.”

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Civ. P. 23(b)(3).

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is determined to be affects the rights of the class members to

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notice of the suit and to non-participation in the judgment.

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R. Civ. P. 23(c)(2)-(3).

For example, the action can be administered

Fed. R.

Which type of action the putative class lawsuit

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Fed.

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“[T]he court must determine by order whether to certify the

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action as a class action.”

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III. DISCUSSION

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Fed. R. Civ. P. 23(c)(1)(A).

Plaintiffs seek an order certifying the action as a class

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action.

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(generally known as “numerosity,” “commonality,” “typicality,” and

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“adequacy of representation”).

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may be certified under either Rule 23(b)(1)(b) or Rule 23(b)(3).

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Defendants argue, primarily, that the “commonality” prerequisite is

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not met, because the negotiation of fees was “plan-specific” and so

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requires individualized evidence of unreasonableness.

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also argue that Plaintiffs cannot show proof common to all putative

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class members of any of the following: TLIC’s fiduciary duties; the

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charging of unreasonable fees for accounts managed by affiliates;

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failure to use its institutional leverage to invest in low-cost

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share classes; and the use of transactions prohibited by ERISA.

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Defendants further argue that the named Plaintiffs are not typical

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of the class and are not adequate class representatives.

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Defendants argue that the action does not meet the requirements of

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either Rule 23(b)(1)(b) or Rule 23(b)(3).

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They argue that they meet Rule 23's four “prerequisites”

They also argue that this action

Defendants

Finally,

The Court addresses each of the Rule 23 requirements in turn.
A.

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Rule 23(a) Prerequisites
To show that class certification is warranted, Plaintiffs must

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show that all four prerequisites listed in Rule 23(a) are

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satisfied.

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1.

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Numerosity
Numerosity is satisfied if “the class is so numerous that

joinder of all members is impracticable.”
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Fed. R. Civ. P.

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23(a)(1).

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comprised of some “300,000 participants in about 7,400 plans.”

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(Mot. Class Cert. at 17:24-25.)

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proposed class on numerosity grounds or Plaintiffs’ figures.

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class in the hundreds of thousands easily satisfies the numerosity

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requirement.

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2.

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Here, Plaintiffs allege that the affected class is

Defendants do not challenge the
A

Commonality
Commonality is satisfied if “there are questions of law or

fact common to the class.”

Fed. R. Civ. P. 23(a)(2).

Note that

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this does not mean that all questions of law and fact must be

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identical across the class; “[t]he requirements of Rule 23(a)(2)

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have been construed permissively, and all questions of fact and law

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need not be common to satisfy the rule.”

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Corp., 657 F.3d 970, 981 (9th Cir.2011) (internal quotation marks

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and brackets omitted).

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fact is not enough: the “question” must be one that “will generate

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common answers apt to drive the resolution of the litigation.”

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Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011)

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(quoting Richard A Nagarenda, Class Certification in the Age of

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Aggregate Proof, 84 N.Y.U.L.Rev. 97, 132 (2009)).

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a.

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Ellis v. Costco Wholesale

However, posing common questions of trivial

Common Proof of Fiduciary Duty
Plaintiffs and Defendants agree that Defendants’ liability

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under ERISA is predicated on Defendants’ fiduciary duty to the

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members of the proposed class.

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a fiduciary with respect to a plan to the extent (i) he exercises

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any discretionary authority or discretionary control respecting

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management of such plan or exercises any authority or control

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respecting management or disposition of its assets.”

In the ERISA context, “a person is

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29 U.S.C. §

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1002(21)(A)(I).

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discretionary authority or discretionary responsibility in the

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administration of such plan.”

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every case charging breach of ERISA fiduciary duty . . . the

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threshold question is . . . whether that person was acting as a

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fiduciary (that is, was performing a fiduciary function) when

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taking the action subject to complaint.”

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U.S. 211, 226 (2000).

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i.

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A person may also be a fiduciary if “he has any

29 U.S.C. § 1002(21)(A)(iii).

“In

Pegram v. Herdrich, 530

Duty As To Fees
ERISA requires that a fiduciary “discharge his duties with

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respect to a plan solely in the interest of the participants and

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beneficiaries and . . . for the exclusive purpose of: (i) providing

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benefits to participants and their beneficiaries; and (ii)

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defraying reasonable expenses of administering the plan.”

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U.S.C. § 1104(a)(1) (emphasis added).

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is a fiduciary under ERISA and that its IM/Admin Fees are excessive

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under ERISA because they do more than defray reasonable expenses.

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Plaintiff alleges that TLIC

TLIC enters into two sets of contracts with the retirement

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plans to which it offers its services.

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TRAN-00529150.)

First, it enters into an “Agreement for Services”

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with each plan.

(Id.; Decl. Darcy Hatton ISO Def.'s Mot. Dismiss,

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Ex. A.)

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particular plan with whom TLIC is negotiating.

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into a “Group Annuity Contract” (“GAC”) that sets, inter alia, fees

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for the “separate accounts” – that is, each possible investment

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option available to participants under the plan.

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Complaint primarily focuses on the “Investment Management” and

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“Administrative” fees, referred to collectively by both sides as

(Lakind Decl., Ex. Q at

The terms of this Services Agreement are limited to the

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Second, it enters

Plaintiffs’

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the “IM/Admin Fee.”

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plans and thus, by definition, are not negotiated for by any plan

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trustee.

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its basic terms from plan to plan.

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Fees charged under the GAC are uniform across

Indeed, the GAC is a form contract that does not vary in
(Lakind Decl., Ex. R.)

Plaintiff argues that TLIC was an ERISA fiduciary as to the

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IM/Admin Fees that it charged to the proposed class plans, and it

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plans to rely on the powers granted to TLIC under the GAC as class-

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wide proof that TLIC satisfied the definition of “fiduciary” in §

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1002(21)(A).

Plaintiff notes that the GAC gives TLIC “unilateral

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discretion to raise and lower its ‘IM/Admin’ fee and to add or

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delete investment options, along with the physical possesion of the

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Plans’ invested assets from which TLIC pays itself the disputed

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compensation.”

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Plaintiff, TLIC exercised discretionary authority or control over

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the management or administration of the plan, or any sort of

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authority or control over the assets of the plan, as required by §

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1002(21)(A).

(Mot. Class Cert. at 19:20-23.)

Thus, according to

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Defendants, on the other hand, argue that the GAC cannot

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provide class-wide proof that TLIC exercised any of those forms of

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control or authority, for, primarily, two reasons.

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contracts between TLIC and the plans were negotiated at arms’

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length with the plans’ trustees or sponsors, and it was those

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parties that owed the plans and participants a fiduciary duty to

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make sure that the fees charged were reasonable.

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recognize, (Opp’n at 17:3-12), that the Court has already held that

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a party negotiating a contract with an acknowledged fiduciary, in

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order to assume the powers of a fiduciary, is not immunized from

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fiduciary responsibility solely because the acknowledged fiduciary
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First, the

Defendants

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agreed to the contract.

Santomenno v. Transamerica Life Ins. Co.,

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No. CV 12-02782 DDP MANX, 2013 WL 603901, at *12-13 (C.D. Cal. Feb.

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19, 2013) (“The contract can immunize the future fiduciary TLIC

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from fiduciary breach no more than it can immunize the employer.

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To hold otherwise would allow fiduciaries to contract themselves

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out of their duties, so long as it was done prior to the assumption

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of those duties.”).

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negotiations were “at arm’s length” because “[c]ompetition among

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service providers is fierce and frequent.”

Defendants nonetheless argue that the contract

(Opp’n at 17:13.)

This

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misses the point.

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sponsors may have had in the market.

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control and authority the GAC granted to TLIC in the management and

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administration of the plan or the management and disposition of

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plan assets.

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TLIC is an ERISA fiduciary.2

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It does not matter what other options the plan
What matters is the level of

If the contract assigns TLIC ERISA-fiduciary powers,

Defendants’ second argument is that even if it had control and

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authority, whether it “exercised” that control and authority is a

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plan-specific, individualized inquiry not susceptible to class-wide

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proof.

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control and authority, Defendants reason, it can only be considered

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a fiduciary as to those separate accounts with regard to which it

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actually took some overt action, such as changing its fees or

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adding or deleting investment options.

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different separate accounts, Defendants argue, there can be no

Because the ERISA statute requires that a person “exercise”

Because every plan selects

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Ed Miniat, Inc. v. Globe Life Ins. Grp., Inc., 805 F.2d 732,
737 (7th Cir. 1986) (“No discretion is exercised when an insurer
merely adheres to a specific contract term. When a contract,
however, grants an insurer discretionary authority, even though the
contract itself is the product of an arm's length bargain, the
insurer may be a fiduciary.”).
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class-wide showing that TLIC “exercised” control or authority as to

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all plans in the class.

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This argument, however, has largely been foreclosed by the

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Court’s previous order, which held that “in the ERISA context,

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having and exercising discretionary authority are so close as to be

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identical, and . . . under ERISA, a fiduciary duty attaches not

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because a party takes a discretionary action but when that party

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acquires the power to take a discretionary action.”

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2013 WL 603901 at 22.

Santomenno,

To support their position that no fiduciary

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duty exists until the ERISA fiduciary overtly acts, however,

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Defendants cite to Leimkuehler v. Am. United Life Ins. Co., decided

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two months after the Court issued its order.

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Cir. 2013).

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provider was a fiduciary because, like TLIC here, it had a

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contractual discretionary right to add or delete investments.

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at 914.

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breached its duty, because it had not used its authority to

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purchase less expensive share classes of the investments in

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question.

713 F.3d 905 (7th

In that case, a plaintiff alleged that a service

Id.

The plaintiff alleged that the service provider had

The Seventh Circuit held that

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[The plaintiff’s] theory is unworkable. It conflicts with a

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common-sense understanding of the meaning of “exercise,” is

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unsupported by precedent, and would expand fiduciary

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responsibilities under Section 1002(21)(A) to entities that

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took no action at all with respect to a plan.

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a named fiduciary, a functional fiduciary under Section

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1002(21)(A) owes a duty to a plan through its actions,

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regardless of whether it chose to assume fiduciary

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12

In contrast to

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responsibilities or even anticipated that such

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responsibilities might arise.

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Id.

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reasoning.

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Defendants urge the Court to follow the Seventh Circuit’s

There are several good reasons not to mechanically apply the

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holding of Leimkuehler to this case, however.

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was not decided at the class certification stage, because the

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district court had granted summary judgment as to the issue of

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fiduciary responsibility prior to any motion for class

First, Leimkeuhler

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certification.3

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not to have “exercised” its authority at all.

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therefore never considered the question of whether occasional overt

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use of control and authority with regard to particular separate

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accounts could act as class-wide proof of fiduciary status.

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Court doubts, for example, that if TLIC had made unilateral changes

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to its fee structure in 99% of separate accounts (or affecting 99%

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of plans) that it would make sense to say there was no class-wide

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proof of “exercise of control,” or fiduciary status, based solely

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on the 1% of cases in which TLIC chose not to change its fees.

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And the service provider in that case was found
Id.

Leimkeuhler

The

Moreover, the Court is not persuaded that Leimkeuhler’s

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reasoning is sound.

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bought no shares of any kind, then it might make sense to say that

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it had not “exercised” its authority.

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any kind, it could not have “perform[ed] a fiduciary function”

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while “taking the action subject to complaint,” because it would

If the service provider in that case had

Having taken no action of

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27
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3

Leimkuehler v. Am. United Life Ins. Co., 752 F. Supp. 2d 974,
976 n.1 (S.D. Ind. 2010) (“[N]o motion for class certification has
been filed yet.”).
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have taken no action at all.

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(2000).

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“exercised” its authority to choose what sorts of share classes to

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buy.

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benefit of plan participants, but chose not to use its authority to

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do so.

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discretionary authority.

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9

Pegram v. Herdrich, 530 U.S. 211, 226

But it did buy shares, and in doing so it implicitly

It could have bought less expensive classes of shares for the

This seems to be the very definition of exercising

Similarly, here it is not the case that TLIC charged no fees.
It did charge fees, and when it did so, it was within its

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discretion to adjust the fee to reasonably reflect its expenses

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and/or market conditions (subject to 30 days’ notice).

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time it charged fees, TLIC was acting with discretionary authority

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to set the level of those fees.

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“exercise” requirement.

Thus, every

This satisfies § 1002(21)(A)(i)’s

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Moreover, as Plaintiffs point out, Leimkuehler does not

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consider the effect of § 1002(21)(A)(iii), which makes a fiduciary

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of any person who has “discretionary authority or discretionary

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responsibility in the administration of” a plan.

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under clause (iii), the question of “exercise” falls away entirely.

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Although the statute and the case law provide no clear definition

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of “administration,” as separate from management or disposition of

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assets, it seems reasonable to say that setting fees is part of the

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administration of the plan.

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recently held, “to the extent [a service provider] has

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discretionary control over factors governing its fees after

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entering into its agreement with GSI for administration of the

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Plan, subsection (iii) is implicated . . . .”

If a person falls

As the District of Massachusetts

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14

Golden Star, Inc. v.

1

Mass Mut. Life Ins. Co., No. CIV. 3:11-30235-PBS, 2014 WL 2117511,

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at *8 (D. Mass. May 20, 2014).

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Because TLIC could be a fiduciary to the plans and

4

participants regardless of whether it actually exercised the option

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to adjust the IM/Admin Fee, the Court concludes that TLIC’s

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fiduciary status as to the setting of the IM/Admin Fee is a common

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question, susceptible to common proof.

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ii.

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Duty as to Other Actions
Defendants do not challenge the possibility of common proof of

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fiduciary duty as to Plaintiffs’ other allegations.

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essentially the same as those cited above with regard to the

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IM/Admin Fee, as well as the reasons set forth in the Court’s

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previous order, Santomenno, 2013 WL 603901 at 20-23, the Court

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assumes that common proof can be adduced showing that Defendants

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had a fiduciary duty as to the other allegations involving

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collection of fees as well.

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For reasons

As to the allegation that TLIC breached its fiduciary duty in

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not investing in the lowest-cost share classes, the Court also

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finds that such a claim would be susceptible to common proof as to

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duty, for the reasons explained above regarding Leimkeuhler, which

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was about that very question.

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b.

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Common Proof as to Separate Account/Investment-Level Fees
Fundamentally, this case is about how to view certain

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“separate account”-level fees – that is, fees charged uniformly to

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all investors in a particular mutual fund or other investment.

26

Plaintiffs point out that the IM/Admin Fees, in particular, are the

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28
15

1

same for all investors in a given separate account.4

2

Lakind, Ex. P at 21-23.)

3

discussion “plan-level” fees that would differ from plan to plan,

4

(Mot. Class Cert. at 4-5), in order to focus on a question of fact

5

common to all plan participants who invested in a given separate

6

account – how much was the IM/Admin Fee for that account? – and a

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question of law common to the same participants – was that fee

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reasonable?

9

(Decl. Robert

Plaintiffs specifically exclude from the

(Id. at 20-21.)

Defendants see the question differently.

Defendants argue

10

that the reasonableness of a particular fee cannot be measured in

11

isolation; rather, the Court must look at the total fee structure

12

charged to each of the seven thousand plans, compare that fee

13

structure to services rendered each plan, respectively, and judge

14

reasonableness that way.

15
16

(Opp’n at 19-20.)

The parties do not direct the Court to authority for either
position.

The Court also cannot find authority directly on point,

17
18
19
20
21
22
23
24
25
26
27
28

4

Because Plaintiffs limit themselves to an examination of
investment-level, relatively uniform fees, the Court need not
address whether commonality would be defeated if the plans’ “total
fees” were to be considered. But the Court notes in passing that
district courts in the Ninth Circuit have repeatedly rejected the
idea that variations in fee structures defeat commonality in class
actions for excessive fees under ERISA. See In re Northrop Grumman
Corp. ERISA Litig., No. CV 06-06213 MMM JCX, 2011 WL 3505264, at *8
(C.D. Cal. Mar. 29, 2011) (listing cases).
16

1

although a few cases are at least suggestive.5

2

treats this as a question of first impression.

3

The Court therefore

The Court finds that in this case, it is possible to find

4

common, dispositive questions as to whether the IM/Admin Fees were

5

excessive.

6

uniformly across plans?

7

level fees?

8

fees?

9

distinct from services provided at the plan level?

For example, were the investment-level fees charged
What was the range of these investment-

Do other ERISA plan service providers charge similar

What services did TLIC provide at the investment level,
Were the fees

10

represented to plan purchasers as covering, essentially, fixed

11

administrative expenses related to each investment, independent of

12

charges related to the administration of the plan?6

13

common questions go to the heart of Plaintiff’s claim and are

14

susceptible to common proof.

All these

15
16
5

17
18
19
20
21
22
23

Tussey v. ABB, Inc., No. 06-04305-CV-NKL, 2007 WL 4289694, at
*5 (W.D. Mo. Dec. 3, 2007) (finding commonality in the question of
excessive fees, even though the fees were composite in nature and
plan participants made individualized decisions in selecting
investments based on disclosed expense ratios); Spano v. The Boeing
Co., 633 F.3d 574, 588 (7th Cir. 2011) (common question as to
“[w]hether the fees charged by the plans were excessive (either on
their own, or as a result of the fee structures the plans used)”).
But Tussey was about a single plan, while the consolidated case
considered in Spano involved just two plans administered by a
single employer. Thus, neither directly answers the question
whether it is possible to find a common question based on an
investment-level fee charged to many thousands of plans.
6

24
25
26
27
28

Plaintiff presents some initial evidence that they were. A
document that TLIC provided to plan fiduciaries explains that
“[y]ou will generally encounter two types of fees and expenses with
respect to your 401(k) plan” and describes those two types as
“Recordkeeping and Administrative Fees” and “Investment and Product
Fees.” (Lakind Decl., Ex. QQQ at TRAN-00533083.) The IM/Admin
Fees are included in the latter category. (Id.) The same document
states that the IM/Admin Charges cover “[e]xpenses for managing and
administering the assets in the separate accounts offered under the
group annuity contract.” (Id. at TRAN-00533094.)
17

1

Defendants can (and do) present a defense on the basis of

2

total fees.

3

that there are plan-specific issues as to the effect of disclosures

4

stating that the IM/Admin Fees might be used to “subsidize other

5

services.”

6

deposition testimony which they claim shows that plan sponsors

7

looked at the total package of fees, not just the IM/Admin Fees, to

8

determine whether they were reasonable.

9

See Part III.B.2.a., infra.

(Opp’n at 21:3.)

Defendants also argue

Additionally, Defendants cite to

(Id. at 21:19-27.)

But these arguments, which essentially go to individualized

10

defenses that can be mounted against certain plans, are more

11

properly addressed in the predominance analysis under Rule

12

23(b)(3).

13

framed a set of common questions on the issue of fees.

14

See Part III.B.2., infra.

Plaintiffs have adequately

The Court finds that common proof can be adduced as to the

15

reasonableness of the IM/Admin Fees.

16

c.

Common Proof as to Fees Charged by Separate Accounts Managed

17

by Affiliates

18

Plaintiffs assert that TLIC allowed its affiliates, TIM and

19

TAM, to charge excessive fees for the separate accounts that they

20

managed.

21

Defendants assert that there is no common proof possible

22

because “[a]s with Plaintiffs’ challenge to TLIC’s IM/Admin fees,

23

the relevant question is whether total fees are reasonable.”

24

(Opp’n at 26:14-15.)

25

fiduciary duty at issue in this claim.

26

IM/Admin fees, the question was whether TLIC’s compensation as

27

fiduciary was reasonable.

28

statute, only total compensation is at issue.

This argument, however, mistakes the type of
In the claim as to the

There, under the language of the ERISA

18

1

As to its dealings with TIM and TAM, however the fiduciary

2

duty has nothing to do with TLIC’s own compensation.

3

alleged breach has to do with whether TLIC properly acted at arm’s

4

length with its affiliates to “secure[] . . . lower fees on

5

[participants’] behalf.”

6

fiduciary duty, then, is not 29 U.S.C. § 1104(a)(1)(A)(ii)

7

(fiduciary may only “defray[] reasonable expenses of administering

8

the plan”), but 29 U.S.C. § 1104(a)(1)(A)(i) (“[A] fiduciary shall

9

discharge his duties with respect to a plan solely in the interest

(Reply at 18.)

Rather, the

The relevant source of

10

of the participants and beneficiaries and for the exclusive purpose

11

of providing benefits to participants and their beneficiaries . . .

12

.”).

The question of TLIC’s total fees does not enter into it.

13

Defendants also argue that Plaintiffs use the wrong basis of

14

comparison, and that market rates for such fees vary considerably

15

“by asset class.”

16

factual matters implicating the merits of the claim; it is

17

inappropriate to resolve such questions at this stage unless

18

necessary to resolve the Rule 23 questions.

19

& Trust Funds v. Amgen Inc., 660 F.3d 1170, 1175 (9th Cir. 2011).

20

(Id. at 27:2.)

But those objections seem to be

Connecticut Ret. Plans

But there is a different problem with certifying this class as

21

to the fees charged by TIM and TAM for the “Affiliated Advised

22

Separate Accounts,” which is that it is not clear that every plan

23

and participant in the class actually invested in these accounts.

24

Plaintiffs only allege that “[a] few of the Ret Opt separate

25

account investment choices invested in an underlying mutual fund”

26

advised by TIM or TAM.

27

every plan and participant – i.e., every plaintiff – invested in

28

the investment choices advised by the affiliates.

(Mot. at 11.)

19

This does not suggest that

The Court

1

therefore cannot conclude that there is common proof available as

2

to the fees charged by the affiliate-managed accounts.

3

d.

Common Proof as to Failure to Invest in Lowest-Cost Share

4

Classes

5

Plaintiff alleges that TLIC breached its fiduciary duty when

6

it did not invest in the lowest-cost classes of shares available to

7

it.

8

fact, “generally” invest in the lowest-cost share class.

9

27:16-17.)

10
11

Defendants counter that the evidence shows that it did, in
(Opp’n at

Again, this may be true, but it is a question best

reserved for an evaluation on the merits.
Defendants also argue that plan-by-plan analysis is necessary

12

to determine whether the plans and participants invested in the

13

relevant separate accounts at a time when a lower-cost class was

14

available.

15

contention.

16

within TLIC’s discretion to change and fairly similar from account

17

to account, the existence of an opportunity to buy lower-cost share

18

classes might well have varied significantly from account to

19

account and time to time.

20

Rule 23(a)(2) is construed liberally.

21

law need not be common to satisfy the rule.” Hanlon v. Chrysler

22

Corp., 150 F.3d 1011, 1019 (9th Cir. 1998).

23

law – was TLIC obligated to attempt to buy the lowest-cost share

24

class where possible? – is common to all investors.

25

of fact can be framed as a common question as well – did TLIC

26

consistently buy lowest-cost shares when it was possible to do so?

27

It may be that TLIC will have an individualized defense as to

28

damages for some investors, because no opportunity to buy lower-

(Opp’n at 1-3.)

There may be some merit to this

Unlike the fees discussed above, which were both

However, the commonality requirement of

20

“All questions of fact and

Here, the question of

And a question

1

cost shares will have arisen.

2

the possibility that this claim requires a more individualized

3

inquiry to consider defenses against certain class members.

4

e.

5

But commonality is not defeated by

Common Proof as to Prohibited Transactions
Defendants similarly argue that there are individualized

6

issues of proof as to the prohibited transactions claims, because

7

fiduciary responsibility for the transactions will depend on who

8

“caused” the transactions.

9

fiduciaries (the plan sponsors) had notice of potential conflicts

Defendants argue that because other

10

or other issues making the transactions prohibited, and either

11

those other fiduciaries or the plan participants made the decision

12

to invest in the relevant separate accounts, they are not

13

“prohibited transactions.”

14

Defendants argue that if plan sponsors or participants selected the

15

separate accounts with full knowledge of the relevant details, the

16

transactions are not prohibited.

17

(Opp’n at 28-30.)

Essentially,

Whether Defendants are correct about that is, of course, a

18

common question of law.

Moreover, there appear to be common

19

questions of fact, such as what fees TIM and TAM may have charged,

20

the degree of control and affiliation TLIC had with the affiliate

21

accounts, the amount and nature of the alleged revenue-sharing

22

payments, whether TLIC gave investment advice, whether the IM/Admin

23

fees were used to pay for investment advice, and so on.

24

do not argue that these questions do not have common answers.

25

have, again, raised a question that may (or may not) serve as a

26

defense as to some proposed class members, and that may affect

27

predominance, but that is not enough to defeat commonality.

28

f.

Conclusion
21

Defendants
They

1

The Court finds that Plaintiffs raise sufficient dispositive

2

questions, common to all proposed class members, that the

3

requirement of commonality is satisfied.

4

3.

Typicality

5

Typicality is satisfied if “the claims or defenses of the

6

representative parties are typical of the claims or defenses of the

7

class.”

8

requirement is to assure that the interest of the named

9

representative aligns with the interests of the class.

Fed. R. Civ. P. 23(a)(3).

“The purpose of the typicality

Typicality

10

refers to the nature of the claim or defense of the class

11

representative, and not to the specific facts from which it arose

12

or the relief sought.

13

members have the same or similar injury . . . .”

14

Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (internal

15

quotation marks omitted) (citations omitted) (emphasis added).

16

The test of typicality is whether other
Hanon v.

Defendants argue that the Plaintiffs’ claims are not typical

17

of class for two reasons.

18

largest,” and fees vary by plan size.

19

Second, about 1,600 plans of the alleged 7,400 started using TLIC’s

20

services after December 9, 2011, at which point received “express

21

DOL-prescribed disclosures underscoring that the bulk of TLIC’s

22

IM/Admin charges would be used to subsidize plan-level

23

administrative services.”

24

First, Plaintiffs’ plans were “among the
(Opp’n at 31:10-15.)

(Id. at 31:16-21.)

The Court does not find these arguments convincing with regard

25

to typicality.

Defendant makes no effort to explain how the fact

26

that the fees varied somewhat with the size of the plan changes the

27

nature of the injury suffered.

28

potential class members were charged unreasonable fees under the

Plaintiffs assert that all

22

1

GAC; to the degree that the total fees charged to the plans may

2

have varied in absolute magnitude, that does not make alleged

3

injuries of a different kind.

4

As to the second point, it is not clear what effect the

5

alleged disclosures would have on the claims.

Perhaps Defendants

6

mean to argue that receipt of the disclosures might be a defense as

7

to those members.

8

majority of plans would not have received the disclosure, so that

9

Plaintiffs are, in fact “typical” of the average case here.

But even using Defendants’ numbers, the vast

To the

10

extent that defenses that apply only to certain members of the

11

class are a concern in the typicality analysis, it is generally

12

because those defenses are unique to the class representatives.

13

Hanon, 976 F.2d at 508.

14

representatives would be forced to spend an inordinate amount of

15

time “prepar[ing] to meet defenses that are not typical of the

16

defenses which may be raised against other members.”

17

example, in Ellis v. Costco Wholesale Corp., the defendant employer

18

in a promotion discrimination case had unique defenses against some

19

of the proposed class representatives: one had refused a promotion,

20

while another had “misrepresented her way into” the job and “was

21

disciplined for abusing subordinates.”

22

2011).

23

worthiness of those plaintiffs as managerial candidates would have

24

overshadowed the grievances of other class members.

25

there is no such danger: the named plaintiffs are not subject to

26

the defense Defendants raise.

27
28

The concern is that the class

For

657 F.3d 970, 984 (9th Cir.

There was thus a very real danger that litigation about the

The Court finds that typicality is satisfied.
4.

Id.

Adequacy of Representation
23

Here, however,

1

Adequacy of representation is satisfied if “the representative

2

parties will fairly and adequately protect the interests of the

3

class.”

4

distinct from commonality and typicality, this prerequisite is

5

primarily concerned with “the competency of class counsel and

6

conflicts of interest.”

7

U.S. 147, 158 n.13 (1982).

8

questions: (1) do the named plaintiffs and their counsel have any

9

conflicts of interest with other class members and (2) will the

Fed. R. Civ. P. 23(a)(4).

Inasmuch as it is conceptually

Gen. Tel. Co. of Southwest v. Falcon, 457
Thus, “courts must resolve two

10

named plaintiffs and their counsel prosecute the action vigorously

11

on behalf of the class?”

12

Ellis, 657 F.3d at 985.

Defendants point to no conflict of interest between Plaintiffs

13

and other members of the proposed class, and there is no apparent

14

reason to think that Plaintiffs will not vigorously prosecute the

15

action on behalf of all class members.

16

argue that Plaintiffs cannot adequately represent other class

17

members because they were not all participants in the same plans.

18

Defendants do not explain, however, how this fact would create a

19

conflict of interest or otherwise impact Plaintiffs’ vigorous

20

prosecution of the case.7

Nonetheless, Defendants

21
7

22
23
24
25
26
27
28

To the extent that this is an argument about standing, the
Court agrees with the analysis in Fallick v. Nationwide Mut. Ins.
Co.:
Threshold individual standing is a prerequisite for all
actions, including class actions . . . . [H]owever, once an
individual has alleged a distinct and palpable injury to
himself he has standing to challenge a practice even if the
injury is of a sort shared by a large class of possible
litigants . . . . [O]nce a potential ERISA class
representative establishes his individual standing to sue his
own ERISA-governed plan, there is no additional constitutional
standing requirement related to his suitability to represent
(continued...)
24

1

The Court finds that adequacy of representation is satisfied.

2

B.

Existence of a Class Action Under Rule 23(b)

3

1.

Action Under Rule 23(b)(1)(B)

4

Plaintiffs suggest the class could be certified under Rule

5

23(b)(1)(B), which allows for class actions if separate actions

6

“would create a risk of . . . adjudications with respect to

7

individual class members that, as a practical matter, would be

8

dispositive of the interests of the other members not parties to

9

the individual adjudications or would substantially impair or

10

impede their ability to protect their interests.”

11

case is a “limited fund” case, in which the rights to some limited

12

quantity of money are being adjudicated, and the adjudication of

13

the rights of one individual necessarily decreases the pool of

14

money available for other claimants.

15

actions by shareholders to compel the declaration of a dividend . .

16

. should ordinarily be conducted as class actions . . . .”

17

Advisory Committee's Notes on Fed. R. Civ. P. 23.

18

The paradigmatic

“For much the same reason

Thus it is unsurprising that a class action may be certified

19

under 23(b)(1)(B) where there has been “a breach of trust by an

20

indenture trustee or other fiduciary similarly affecting the

21

members of a large class of security holders or other

22

beneficiaries, and which requires an accounting or like measures to

23

restore the subject of the trust.”

24

Fibreboard Corp., 527 U.S. 815, 834 (1999) (quoting same).

Id.

See also Ortiz v.
At

25
26
27
28

7

(...continued)
the putative class of members of other plans to which he does
not belong.

162 F.3d 410, 423 (6th Cir. 1998).
25

1

least one judge in this district has found class certification

2

appropriate under 23(b)(1)(b) where the claims involve large-scale

3

violations of fiduciary duty under ERISA.

4

Litig., 227 F.R.D. 338, 347 (C.D. Cal. 2005).

5

In re Syncor Erisa

But in Syncor, only one plan was involved, the class was made

6

up of participants in the plan, and the fiduciaries being sued were

7

the employer and its board, as well as the committee that was in

8

charge of the plan.

9

sought “an order compelling Defendants to make good to the Plan all

Id. at 339-40.

The plaintiffs in that case

10

losses to the Plan resulting from Defendants' alleged breaches of

11

their fiduciary duties.”

12

adjudication of the claim of any plaintiff would have affected all

13

the class members.

Id. at 340.

Thus, of necessity,

14

In this case, however, it is perfectly possible for

15

participants in Plan A who invested in Investment X to be made

16

whole without that remedy in any way being dispositive of the

17

interests of participants in Plan B who invested in Investment Y.

18

The common nexus of interests is simply not present.

19

finds that certification under Rule 23(b)(1)(b) is not appropriate.

20

2.

21

The Court

Action Under Rule 23(b)(3)
A class action may be certified under Rule 23(b)(3) if “the

22

questions of law or fact common to class members predominate over

23

any questions affecting only individual members, and that a class

24

action is superior to other available methods for fairly and

25

efficiently adjudicating the controversy.”

26

23(b)(3).

27

consider “the class members' interests in individually controlling

28

the prosecution or defense of separate actions,” “the extent and

Fed. R. Civ. P.

In making its findings on these two issues, courts may

26

1

nature of any litigation concerning the controversy already begun

2

by or against class members,” “the desirability or undesirability

3

of concentrating the litigation of the claims in the particular

4

forum,” and “the likely difficulties in managing a class action.”

5

Id.

6

a.

7

Predominance
“The Rule 23(b)(3) predominance inquiry tests whether proposed

8

classes are sufficiently cohesive to warrant adjudication by

9

representation.”

Amchem Products, Inc. v. Windsor, 521 U.S. 591,

10

623 (1997).

11

satisfied by [a] shared experience, the predominance criterion is

12

far more demanding.”

13

satisfied if there is a much “greater number” of “significant

14

questions peculiar to the several categories of class members, and

15

to individuals within each category.”

“Even if Rule 23(a)'s commonality requirement may be

Id. at 623-24.

Predominance cannot be

Id. at 624.

16

The major common questions in this case revolve around whether

17

a single party, TLIC, met its fiduciary duties to the investors and

18

plans to whom it provided investment management services.

19

TLIC’s status as a fiduciary helps to narrow the questions that

20

must be answered – the Court need not, for example, conduct a free-

21

ranging inquiry into truth in advertising regarding the IM/Admin

22

Fee and other fees charged; the common questions here are grounded

23

in a single statute and its definition of fiduciary duty.

24

And

Nonetheless, individual inquiries potentially loom large.

25

a starting matter, Plaintiffs seek to certify a class of “about

26

300,000 participants in about 7,400 plans.”

27

17:24-25.)

28

anything the Court has been able to find in the case law:

As

(Mot. Class Cert. at

The sheer number of participants and plans dwarfs

27

1

typically, it seems, ERISA cases deal with just one plan or a

2

handful of related plans.

3

in facts or legal posture among plans is potentially multiplied a

4

thousandfold – a problem not presented in other ERISA class

5

actions.

6

i.

7

See note 5, supra.

Thus, any difference

IM/Admin Fees
Nor is this concern abstract or conjectural.

Defendants raise

8

potentially serious “defenses of liability . . . affecting the

9

individuals in different ways.”

Fed. R. Civ. P. 23, Adv. Comm.

10

Notes.

11

predominates the lawsuit), Defendants argue that whether TLIC met

12

its fiduciary duty to a given plan when charging the fee depends

13

on: (a) what the total fees charged were; (b) the actual services

14

TLIC rendered to each plan (and, presumably, TLIC’s actual cost in

15

providing them); (c) what disclosures TLIC may have made about how

16

the fee would be used; and (d) what services the plan

17

administrators or other plan fiduciaries would have understood the

18

fee to cover.

19

a suit involving one or two or even a few dozen plans.

20

involving thousands of plans, such inquiries could quickly become

21

intractable.

22

For example, as to the IM/Admin Fee issue (which, itself,

These questions, if relevant, would be manageable in
In a suit

The Court has therefore asked for additional briefing to

23

assist it with the question of predominance.

24

order suggested that because Plaintiffs do not allege that

25

Defendants’ total packages of fees are excessive, it was unclear

26

what Plaintiffs’ theory of liability was.

27

to “defray[] reasonable expenses of administering the plan.”

28

U.S.C. § 1104(a)(1).

(Dkt. No. 319.)

That

A fiduciary is allowed
29

Thus, at first blush, it would seem that as
28

1

long as a fiduciary’s fees match its reasonable expenses, ERISA is

2

not violated.

3

Plaintiff’s precise theory of ERISA liability, it could better

4

determine whether Defendants’ potential individualized defenses

5

would be likely to overwhelm the common questions at issue.

6

i.a. Fiduciary Duty Under ERISA to Defray Only “Reasonable

The Court hoped that by gaining clarity as to

7

Expenses”

8

In response to the Court’s order, Plaintiffs appear to state

9

that their theory of liability is that “the .75% Separate Account

10

IM/Admin fee paid at the Separate Account level on assets invested

11

in RetOpts and Menu 10 investment options is grossly excessive.”

12

(Pls.’ Suppl. Brief at 2.)

13

it does not clearly explain what fiduciary duty is being violated

14

by the charging of this “grossly excessive” fee.

15

concludes that it cannot be the duty to act solely to “defray[]

16

reasonable expenses of administering the plan.”

17

1104(a)(1)(A)(ii).

18
19

The problem with this statement is that

The Court

29 U.S.C. §

To see why this is so, consider an example set out by one of
Plaintiff’s experts:

20

Suppose a provider tells investors they are paying a certain

21

amount for investment services ($40) and another amount for an

22

ancillary service, such as preparation of statements or

23

mailing ($5). Suppose the investors, in fact, are paying $20

24

for investment services and $25 for the ancillary services

25

because the advice is sent by express mail. The investors, who

26

have not been properly informed, are not equally well off in

27

both circumstances. More money spent on investment advice

28

should pay for better investment advice (which in this case
29

1

would have resulted in Transamerica realizing it should reduce

2

its IM&A Charge).

3

equally well off irrespective of how their money is used,

4

because they lack the ability to monitor the propriety of

5

their total fees and the ability to insure the total price

6

they pay their provider is being allocated efficiently to buy

7

the services and quality of service that they value most.

8
9

With the bundled fee, the investors are not

(Pls.’ Suppl. Brief at 5-6.)
While it may be true that investors in this hypothetical are

10

not equally well off – at least in the sense that they are deprived

11

of the opportunity to monitor the provider’s decision-making – that

12

is not (necessarily) because the provider is not using the money to

13

defray reasonable expenses.

14

prices for investment services and for mailing.

15

available options, the provider might conclude that the additional

16

value to investors in investment services priced at $40 rather than

17

$20 was minimal, and it might also conclude that express mail was

18

faster, more secure, and more reliable than regular mail, and that

19

it therefore justified the cost.

20

not be reasonable – and, importantly, a different service provider

21

might make different choices – but if they are reasonable, §

22

1104(a)(1)(A)(ii) is satisfied.

There might be a range of reasonable
Looking at the

These conclusions might or might

23

In other words, the plain language of § 1104(a)(1)(A)(ii) only

24

requires a fiduciary to show that its expenses are reasonable – not

25

that its naming and accounting of fees accurately reflects the

26

breakdown of expenses.

27
28

The Court therefore finds that if Plaintiffs wish to assert a
claim under TLIC’s fiduciary duty to defray only reasonable
30

1

expenses, they must do so by considering TLIC’s fees as a whole

2

compared to TLIC’s total reasonable expenses in providing its

3

services.

4

Plaintiffs argue in their supplemental brief that they are

5

challenging the total fee package, in addition to challenging the

6

IM/Admin Fee, because the size of the IM/Admin Fee makes the total

7

fee package unreasonable.

8

unconvincing; it simply assumes the premise Plaintiffs want to

9

prove: that the fees must be considered separately, rather than as

10

a total package, without considering cost-sharing or subsidization

11

between categories of fees.

12

level fees excessive for plan-level expenses, (Pls.’ Suppl. Brief

13

at 7), perhaps that is only because they are being subsidized by

14

the investment-level fees.

(Pls.’ Suppl. Brief at 6-7.)

This is

If Plaintiffs do not consider the plan

15

All of this leads to the conclusion that fees charged to

16

individual plans must be compared to the expense of providing

17

services to those plans.

18

significantly more complex than Plaintiff’s proposed inquiry into a

19

single fee whose reasonableness (Plaintiffs argue) could be

20

straightforwardly determined as to all plans equally.

21

These individualized inquiries would be

Because Plaintiffs have not briefed the Court on how such a

22

plan-by-plan inquiry into total expenses and fees could be

23

conducted, even after the Court requested supplemental briefing,

24

the Court cannot determine that the common questions identified

25

above would necessarily predominate.

26

i.b. Fiduciary Duty Under ERISA to Provide Accurate Accounting of

27

Fees for the Benefit of Participants

28
31

1

Of course, as Plaintiff’s expert points out in the above

2

hypothetical, a careful naming and accounting of fees might benefit

3

the investors in other ways – for instance, by enabling them to

4

judge for themselves whether the fiduciary is making the best

5

decisions as to how to allocate resources.

6

sue a fiduciary who misrepresents the allocation of expenses to

7

fees for breach of the duty to act for the purpose of “providing

8

benefits to participants and their beneficiaries.”

9

1104(a)(1)(A)(i).

Thus, an investor can

§

Implicit in § 1104(a)(1)(A)(I) is a fiduciary

10

duty of honesty.

11

ERISA “fiduciaries breach their duties if they mislead plan

12

participants or misrepresent the terms or administration of a

13

plan.”

14

Cir. 2010) abrogated on other grounds by Fifth Third Bancorp v.

15

Dudenhoeffer, 134 S. Ct. 2459 (2014).

16

Pegram v. Herdrich, 530 U.S. 211, 224-25 (2000).

Quan v. Computer Sciences Corp., 623 F.3d 870, 886 (9th

But these kinds of allegations, though actionable, get away

17

from a relatively simple mathematical question of whether a

18

provider’s fees exceed its reasonable expenses and into the more

19

complex evidence needed to prove misrepresentation.

20

“To allege and prove a breach of [ERISA] fiduciary duty for

21

misrepresentations, a plaintiff must establish each of the

22

following elements: (1) the defendant's status as an ERISA

23

fiduciary acting as a fiduciary; (2) a misrepresentation on the

24

part of the defendant; (3) the materiality of that

25

misrepresentation; and (4) detrimental reliance by the plaintiff on

26

the misrepresentation.”

27

Litig., 635 F. Supp. 2d 1128, 1140 (C.D. Cal. 2009).

In re Computer Sciences Corp. ERISA

28
32

Element (1)

1

can be proven on a classwide basis; it seems highly unlikely that

2

elements (2), (3) and (4) can be.

3

Whether there was actually a misrepresentation may not be

4

susceptible to classwide proof, because many class members appear

5

to have received disclosures, starting in 2012, that explained the

6

subsidization of plan-level costs and provided estimates of the

7

amount spent on such subsidization.

8

02287686 & R at TRAN-02679054.)

(E.g., Defs.’ Exs. Q at TRAN-

9

As to materiality, “a misrepresentation is ‘material’ if there

10

was a substantial likelihood that it would have misled a reasonable

11

participant in making an adequately informed decision about whether

12

to place or maintain monies in a particular fund.”

13

at 886 (internal quotation marks omitted).

14

misrepresentation is material, in other words, depends on whether

15

it would change a reasonable participant’s behavior.

16

question of whether charging an “IM/Admin Fee” at the investment

17

level, rather than charging it or something like it at the plan

18

level, would change participants’ investment behavior is likely a

19

context-specific question.

20

on what other investment options were available to the participant,

21

which would likely vary from plan to plan.

22

Quan, 623 F.3d

Whether the

But the

It would probably depend, at a minimum,

But even if there were classwide proof of prongs (2) and (3),

23

the last prong, detrimental reliance, would necessarily require

24

individualized inquiries.

25

what plan sponsors or participants knew and when they knew it, what

26

steps participants took in reliance on the misrepresentations, and

27

whether those steps were detrimental to the participants’ financial

28

positions.

The Court would be forced inquire into

In a class the size of the one Plaintiffs propose, this
33

1

would require thousands of separate inquiries.

2

would far outweigh the common questions at issue.

3

having some common core, a fraud case may be unsuited for treatment

4

as a class action if there was material variation . . . in the

5

kinds or degrees of reliance by the persons to whom they were

6

addressed.”

7

These inquiries
“[A]lthough

Adv. Comm. Notes on Fed. R. Civ. P. 23.

Thus, although Plaintiffs have plausibly alleged that

8

Defendants have violated the fiduciary duty of honesty, and

9

specifically the duty to honestly describe its fee structure for

10

the benefit of participants, any proceeding under that theory would

11

require individualized inquiries that would quickly come to

12

predominate over the common questions.

13

ii.

14

Failure to Invest in Lower-Cost Share Classes
The Court finds that individualized inquiries would

15

predominate over common questions as to the claim that TLIC should

16

have invested in lower-cost share classes.

17

by-plan analysis would be necessary to determine whether the plans

18

and participants invested in the relevant separate accounts at a

19

time when a lower-cost class was available.

20

there could have been significant variation in such availability

21

from account to account and time to time.

22

would thus tend to predominate as to this claim as well.

23

iii. Conclusion

As noted above, plan-

It seems likely that

Individualized inquiries

24

The Court concludes, for the reasons given above, that

25

individual questions as to the IM/Admin fee and lower-cost share

26
27
28
34

1

classes would predominate over the common questions in this case.

2

Thus predominance is not satisfied.8

3

b.

4

Superiority
Because Plaintiffs’ motion fails on predominance, the Court

5

need not fully analyze the superiority prong.

6

passing that at least one key factor could weigh in favor of

7

granting class certification: the amount that any individual

8

plaintiff could get from Defendants might well be dwarfed by

9

litigation costs.

The Court notes in

Thus, class litigation might be superior in that

10

sense.

11

blossom and expand the scope of the litigation, the benefits of

12

cost-sharing among the class would correspondingly diminish.

13

any event, the same issues of trial manageability discussed above

14

would likely tip the superiority inquiry toward denying the motion.

But to the degree that individualized inquiries would

In

15
16
17
18
19
20
21
22
23
24
25
26
27
28

8

Of course, there are other claims as well. The Court has the
authority to isolate certain issues for class treatment under Rule
23(c)(4). Valentino v. Carter-Wallace, Inc., 97 F.3d 1227, 1234
(9th Cir. 1996). But the Court has already concluded, above at
Part III.A.2.c., that the claim regarding fees charged by TIM and
TAM as to the affiliate-advised accounts does not contain questions
common to the whole class. As to the prohibited transactions
claims, the parties have not briefed whether certification of those
claims in isolation would be appropriate. The legal authority for
these claims is, in any event, underdeveloped in the motion.
Plaintiffs allege that TLIC engaged in three types of prohibited
transactions: a portion of the IM/Admin fee was used to pay for
“investment advice”; revenue-sharing payments that TLIC received
from the underlying mutual funds; and TLIC’s investment of plan
funds in “Affiliate Advised Separate Accounts” – that is, accounts
managed by TIM and TAM. (Mot. at 23.) Defendants point out that
no claim was raised in the complaint as to the first type of
transaction. (Opp’n at 30 n.25.) More generally as to all three
types of transactions, Plaintiffs’ motion alleges violations of
“ERISA § 406(b)” – that is, 29 U.S.C. § 1106(b) – but does not
explain whether Plaintiffs’ theory of liability is under subsection
(1), (2), or (3). As Plaintiffs have not requested partial
certification, and as the legal basis for the claims is
underdeveloped on the present motion, the Court will not attempt to
construct an issue for partial certification sua sponte.
35

1
2

c.

Limited Holding
The Court emphasizes that its decision to deny the motion for

3

class certification is limited to the particular facts of this

4

motion and this proposed class.

5

problem of hidden or unappreciated fees charged to retirement

6

investors.

7

example, has presented research to the Senate showing that 83% of

8

401(k) participants do not know how much they pay in fees and

9

expenses.

The Court is mindful of the

The Government Accountability Office (“GAO”), for

Government Accountability Office, 401(k) Plan

10

Participants and Plan Sponsors Need Better Information on Fees 3-4

11

(2007).

12

Id. at 5.

13

service providers playing “hide the ball” with their fees.

14

it the case, as has occasionally been argued by Defendants in this

15

litigation, that the reasonableness of fees is measured against

16

what other providers are charging.

17

unreasonable under ERISA even if other fiduciaries are also

18

charging unreasonable fees.

Some 65% of those interviewed thought they paid no fees.
This order is not intended to approve of ERISA plan
Nor is

A fiduciary’s fees can be

19

But the Court is constrained by the statute, which calls for

20

an evaluation of a service provider’s reasonable expenses as to a

21

given plan compared to the fees charged.

22

primary question to be answered is not, as Plaintiffs suggest, a

23

single question about a single fee whose reasonableness is the same

24

as to all plans.

25

This means that the

If the question of evaluation of total plan expenses against

26

total plan fees were more directly presented, or if the class were

27

more narrowly drawn (so that individualized inquiries, even if

28

present, would not overwhelm common questions), the holding might
36

1

well be different.

2

Court finds that it cannot certify the class.

3

IV.

4

But on these pleadings and this motion, the

CONCLUSION
The Motion for Class Certification is DENIED.

5
6

IT IS SO ORDERED.

7
8

Dated: August 28, 2015
DEAN D. PREGERSON
United States District Judge

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