Osberg v. Foot Locker, Inc. et al
OPINION & ORDER re: 192 MOTION to Amend/Correct Class Certification Rulings. filed by Geoffrey Osberg. For all of the reasons set forth above, as well as the reasons set forth in this Court's Opinion dated September 24, 2014, the following class is certified: All persons who were participants in the Foot Locker Retirement Plan as of December 31, 1995, who had at least one Hour of Service on or after January 1, 1996 (as defined under the Plan), and who were either paid a b enefit from the Plan after December 31, 1995, or are still entitled to a benefit from the Plan; and the beneficiaries and estates of such persons and alternate payees under a Qualified Domestic Relations Order. The Clerk of Court is directed to terminate the motion at ECF No. 192. (Signed by Judge Katherine B. Forrest on 11/7/2014) (lmb)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
NOV 0 7 2014
GEOFFREY OSBERG, on behalf of himself
and on behalf of all others similarly situated,
OPINION & ORDER
FOOT LOCKER, INC. et al.,
KATHERINE B. FORREST, District Judge:
On September 24, 2014, this Court certified a class in the above captioned
ERISA action. (ECF No. 186.) After further briefing, including submission of
materials to the Second Circuit in connection with a petition for review under Rule
23(f), this Court notified the parties that it would reconsider its prior decision - but
in doing so, it was not suggesting that it would necessarily alter its initial
determination. (ECF No. 211.) In addition, plaintiffs have separately moved for
this Court to amend its class certification ruling to include Count Three, the § 102
"Summary Plan Description" claim, in such certification. The instant Opinion
resolves both of these issues in plaintiffs favor.
Defendant makes two main arguments as to why the Court erroneously
determined that common issues predominate: (1) proof of reliance (which it asserts
is a necessary element of plaintiffs' claims based on misrepresentations) necessarily
requires individualized inquiries and is not amenable to generalized proof; and
(2) questions regarding whether each plaintiffs claim is within the statute of
limitations also requires individual inquiry. After studying these questions again,
reading any even potentially relevant case law in this area, and examining the
record on this motion, the Court confirms its prior decision for all of the reasons set
forth in its Opinion from September 24, 2014 as well as for the additional reasons
set forth below.
While plaintiff Osberg initially asserted four claims, at this time only two
claims remain: Count Three, alleging violations of ERISA § 102(a), and Count Four,
alleging violations of§ 404(a). These counts seek plan reformation on the basis that
defendant made false and material misstatements and omissions in its adoption of
the 1995 pension plan amendment (effective as of January 1, 1996) in violation of
§§102, 204(h) and 404(a). 1 Plan reformation is, as the Supreme Court found in
CIGNA v. Amara, 131 S.Ct. 1866, 1879-80 (2011), essentially an equitable remedy.
Defendant asserts that for claims based on a misrepresentation, plaintiffs
must prove individualized reliance. Plaintiffs argue that reliance is not a required
element of either claim. This Court previously found, based, inter alia, on Amara,
that detrimental reliance is not required in the context of a plan reformation claim.
131 S.Ct. at 1881 ("a showing of detrimental reliance ... is not [a] necessary element
1 In recent motion practice before this Court, it was found that plaintiffs may properly pursue
equitable as well as legal remedies. Plaintiffs have stated that they do not seek the imposition of a
"surcharge" as remedial relief. (Transcript of Conference on September 24, 2014, ECF No. 188,
12:13 - 14:20.)
of an ERISA plan reformation claim.") However, the propriety of class certification
does not depend on that determination alone. Even if reliance is required, class
certification on the facts before this Court is entirely supportable as reliance can be
demonstrated on a generalized basis. Further, to the extent plaintiffs' claim relates
to omissions, the law is clear that a demonstration of reliance is not required. This
Court has also previously found, and does not here revisit, that there are no
material differences in communications on which the alleged misrepresentations
and omissions are based.
The Court has previously found that the elements of Rule 23(a) have been
satisfied by a preponderance of the evidence. It does not appear that defendants
have serious concerns with the Court's determination as to any issues other than
predominance; they have framed their concerns in terms of the standards governing
Predominance tests whether the proposed class is sufficiently cohesive to
warrant adjudication by representation. Amchem Prods., Inc. v. Windsor, 521 U.S.
591, 623 (1997); Myers v. Hertz Corp., 624 F.3d 537, 547 (2d Cir. 2010) ("The
requirement's purpose is to ensure that the class will be certified only when it would
achieve economies of time, effort, and expense, and promote uniformity of decision
as to persons similarly situated, without sacrificing procedural fairness or bringing
2 Inclusion of the § 102 SPD Claim does not alter any of the Court's determinations with regards to
the Rule 23 factors: the plaintiff group is the same, the questions are common, and typicality and
adequacy are clear. The Court discusses predominance infra.
about other undesirable results.") (alteration, citations, and internal quotation
Whether the required elements of a claim may be demonstrated through
generalized proof is the sine qua non of predominance. "Economies of time, effort
and expense in fully resolving each plaintiffs claims will only be served, and the
predominance requirement satisfied, if the plaintiffs can show that" the question at
issue can be "answered with respect to the members of the class as a whole through
generalized proof and that those common issues are more substantial than
individualized ones." Myers, at 549 (alteration, citations, and internal quotation
marks omitted); see also UFCW Local 1776 v. Eli Lilly & Co., 620 F.3d 121, 131 (2d
Cir. 2010) ("Class-wide issues predominate if resolution of some of the legal or
factual questions that qualify each class member's case as a genuine controversy
can be achieved through generalized proof, and if these issues are more substantial
than the issues subject only to individualized proof.")
That there may be some individualized issues does not necessarily defeat
predominance-it is a question of the balance. See Public Employees' Retirement
System of Mississippi v. Merrill Lynch & Co., Inc., 277 F.R.D. 97, 110-19 (S.D.N.Y.
2011); In re NYSE Specialists Secs. Litig., 260 F.R.D. 55, 74-77 (S.D.N.Y. 2009).
Misrepresentation claims do not always require individualized proof of
reliance. Defendant's assertion to the contrary simply ignores Second Circuit case
law. It is useful to discuss - in the order in which they were decided - a number of
cases in this Circuit addressing the issue.
In 2002, the Second Circuit decided Moore v. Painewebber, Inc., 306 F.3d
1247 (2d Cir. 2002). The Court affirmed a denial of class certification on the basis
that while there was evidence of uniform misrepresentations made to the proposed
class, there was insufficient evidence that proposed class members had in fact
received the materials containing the misrepresentations. Far from finding that
misrepresentation claims could not be amenable to class certification, the Court
instead explicitly held that class certification of fraud claims based on
misrepresentations may be appropriate where those misrepresentations are
materially uniform. Id. at 1249. In such cases, misrepresentations may be
demonstrated using generalized rather than individualized proof. Id. The Court
did not specifically address the difference between proof of the misrepresentation on
a generalized basis versus proof of reliance. However, implicit in the Court's
discussion is that when there is uniformity of misrepresentation, reliance may
similarly be amenable to generalized proof. The Court's concern there was
primarily focused on whether plaintiffs could prove receipt of the
misrepresentations through generalized proof. Id. at 1253, 1255.
In Moore, the Court acknowledged that the Third Circuit had, at that time,
considered the issue in the greatest depth. Id. at 1254. In cases before that Circuit,
the outcomes of class certification motions had varied in misrepresentation cases
depending upon the extent and nature of the evidence regarding uniformity in
misrepresentations. Id. at 1254-55. In Moore, the Second Circuit determined that
the "district court did not abuse its discretion" in denying certification as proof of
receipt was inadequate. Id. at 1255. It is reasonable to extrapolate that had the
evidence of receipt been present, there may have been sufficient generalized
circumstantial evidence of reliance for purposes of class certification. At least, that
possibility was not foreclosed. (Otherwise, the decision would make little sense.)
In the case before this Court, plaintiffs have proffered extensive evidence that
all class members were exposed to the uniform misrepresentations in a similar
manner: through presentations, and mandatory and statutorily required
distribution of the materials containing the misrepresentations. Thus, receipt of
the materials containing the alleged misrepresentations is here not an issue.
In 2006, the Second Circuit decided In re Initial Public Offerings Securities
Litigation, 471 F.3d 24 (2d Cir. 2006). In that case, the Second Circuit reviewed
and affirmed a district court's refusal to certify a class on the basis that common
questions predominated because (inter alia) there was insufficient evidence of
plaintiffs' reliance on alleged misrepresentations. Id. at 42-43. In that case,
plaintiffs recognized that reliance was an element of their claim, but asserted that
they should be entitled to the rebuttable presumption of reliance set forth in Basic
v. Levinson, 485 U.S. 224, 245-47 (1988). The Second Circuit disagreed. The Court
stated that there was no factual basis to assert that an IPO market operated
efficiently - and that presumed efficiency was at the core of the Basic presumption.
Id. Plaintiffs had not asserted another basis for proving reliance on a class-wide
In the case before this Court, plaintiffs are not relying on a presumption
unrelated to their particular facts. Instead, what they are asserting is more
appropriately characterized as reliance upon generalized and common
circumstantial evidence based on common facts as to misrepresentations and their
method of dissemination and receipt. The IPO case is, simply put, unhelpful to the
analysis of whether reliance here can be demonstrated on a class-wide basis.
The next case of note on this issue in the Second Circuit is McLaughlin v.
Am. Tobacco Co., 522 F.3d 215, 22-226 (2d Cir. 2008). Defendant here relies heavily
on this case. McLaughlin contains an extended discussion of when reliance may
and may not be amenable to generalized proof. The case concerned plaintiffs (a
group of smokers) who alleged they had been harmed by false advertising of
cigarettes. Id. at 220. They alleged that, based on false representations, they had
been led to believe that defendants' cigarettes, "Lights", were healthier than fullflavored cigarettes. Id. Plaintiffs sought $800 billion in economic damages
stemming from their purchases of Lights. Id. at 221. The district court certified a
class of Lights smokers. Id. The Second Circuit reversed.
The Second Circuit found that to demonstrate causation, plaintiffs had to
demonstrate reliance on defendants' alleged statements regarding Lights. Id. at
222. The district court had found that defendants had engaged in a national
advertising campaign which had asserted that Lights were healthier than full7
flavored brands, and that the campaign had been conducted in a uniform manner.
Id. at 223. Plaintiffs sought to defend the district court's certification with reference
to Second Circuit's decision in Moore. Id. The Second Circuit in McLaughlin
recognized that Moore had not directly addressed reliance - but instead had
addressed whether the fact of a misrepresentation could be proven in a generalized
manner. Id. The Court stated that "reliance on the misrepresentation, cannot be
the subject of generalized proof. Individualized proof is needed to overcome the
possibility that a member of the purported class purchased Lights for some reason
other than the belief that Lights were a healthier alternative", and referred to taste
or style differences. Id.
The Court in McLaughlin explicitly stated, "We need not go so far as to adopt
the Fifth Circuit's blanket rule that a 'fraud class action cannot be certified when
individual reliance will be an issue."' Id. at 224 (citing Castano v. Am. Tobacco Co.,
84 F.3d 734, 7 45 (5th Cir. 1996). The Court also quoted from the Advisory
Committee Notes to Rule 23(b) which state, in part, "'[A] fraud perpetrated on
numerous persons by use of similar misrepresentations may be an appealing
situation for a class action, and it may remain so despite the need, if liability is
found, for separate determination of the damages suffered by individuals within the
class."' Id. at 225. The Court rejected plaintiffs' argument that there should be a
presumption of reliance based on the market shift of brand preferences from nonfiltered to filtered cigarettes that they claim was due to defendants' campaign with
regard to Lights. Id.
Importantly, in footnote 7, the Second Circuit differentiated between the type
of personal preference factors that might impact whether a plaintiff relied on
misrepresentations for a consumer good versus misrepresentations in connection
with a financial transaction; "a financial transaction does not usually implicate the
same type or degree of personal idiosyncratic choice as does a consumer purchase."
Id. at n.7. The Court then found that this was the distinguishing factor between its
outcome and the Eleventh Circuit's decision in Klay v. Humana, Inc., 382 F.3d 1241
(11th Cir. 2004). In Klay, plaintiffs had entered into contracts with defendants and
that it did not strain credulity to conclude that in so doing, plaintiffs relied upon
defendants' representations and assumed that they would be paid the amounts due.
McLaughlin, 522 F.3d at n.7. The Second Circuit drew from this the following:
"assuming that most individuals are led to believe that they will get paid when they
sign a contract calling for payment is very different from assuming that most
individuals purchase a consumer good in reliance upon an inference that they draw
from its marketing and branding rather than for some other reason." Id.
The case before this Court is precisely that called out in footnote 7 of
McLaughlin: a financial transaction in which it does not strain credulity to assume
that plaintiffs believed what they were allegedly told about the change in pension
plans, as well as the type of situation envisioned by the Advisory Committee Notes.
McLaughlin does not - as it explicitly states - present a hard and fast rule that in
all cases of misrepresentation, reliance must be shown on an individualized basis.
As the Second Circuit noted there, and the Court acknowledges here, it all depends
on the particular case.
In 2013 the Second Circuit again addressed circumstances in which reliance
may be demonstrated on a generalized basis. In re U.S. Foodservice Inc. v. Pricing
Litigation, 729 F.3d 108 (2d Cir. 2013). In that case, U.S. Foodservice Inc. ("USF")
was a nationwide food distributor. Id. at 112. It sold its food products to customers
based on cost-plus contractual arrangements. Id. That is, it would add a
percentage mark-up to its cost of acquisition. Id. One method of determining USF
cost of acquisition was based on its own "invoice cost". Id. Plaintiffs alleged that
USF had engaged in a scheme in which it artificially inflated the cost component of
its contracts. Id. at 113. Plaintiffs alleged that USF's fraudulent practices were
implemented as to all cost-plus customers. While customers would receive bills
from USF, the invoices were general requests for payment and did not reveal the
fraud. Id. The district court found evidence that defendant took steps to conceal
the fraud from its customers. Id. at 114.
The Second Circuit affirmed the district court's certification of a class on the
basis that "plaintiffs had demonstrated, and USF had failed to rebut, that the
relevant issues were susceptible to generalized proof such that individualized
questions would not predominate and render the class unmanageable." Id. at 116.
The Court noted a district court's determination of the Rule 23 factors requires
resolution of factual issues by a preponderance of the evidence, a burden born by
the plaintiff. Id. at 117. The Second Circuit noted, "We have previously observed
that fraud claims based on uniform misrepresentations to all members of a class
'are appropriate subjects for class certification' because, unlike fraud claims in
which there are material variations in the misrepresentations made to each class
member, uniform misrepresentations create 'no need for a series of mini-trials."' Id.
at 118 (citing Moore, 306 F.3d at 1253.) The Court further found that the
allegations in the case before it were most analogous to those in Klay v. Humana.
USF argued that customer reliance on inflated invoices could only be proven
by individualized inquiry into the circumstances of each of its 75,000 customers. Id.
at 119. The Second Circuit disagreed. While acknowledging its prior decision in
McLaughlin, the Court nevertheless found that payment of inflated invoices could
constitute circumstantial evidence of reliance on the accuracy of the invoice. Id. at
120. Notably, the Second Circuit found that USF had made an argument as to
reliance - but did not have proof in the record supportive of that argument. Id. at
So too in the case before this Court. First, this case concerns a change in
pension plans resulting in lower payments to class members; such changes were
allegedly effected through misrepresentations. As in In re U.S. Foodservice Inc, the
fact that plaintiffs switched plans, and may have even received payment without
complaint, may be circumstantial proof of plaintiffs' reliance on the truth of the
alleged misrepresentations. Put differently, no reasonable juror would assume that
a person knowingly receiving a pension benefit lower than that to which they are
otherwise entitled would simply ignore that fact. Also, in this case, defendant has
argued that reliance may be an individualized inquiry, but has proffered not a shred
of evidence in that regard. For instance, defendant has failed to proffer a
declaration from a single class member who acknowledges that they did not rely on
the materials provided to them regarding the pension plan amendment. Nor has
defendant proffered any evidence that seriously undermines any of plaintiffs'
uniformity of misrepresentation or assertions as to receipt. Accordingly, the law
does not provide that reliance cannot be demonstrated on a generalized basis; and
as a matter of fact, defendant has failed to rebut the factual showing by plaintiff.
Defendant largely ignores that this case is also pled as an omissions case.
Reliance is presumed in cases where material omissions are asserted. Affiliated
Ute Citizens v. United States, 406 U.S. 128, 153-54 (1972); see also Titan Grp., Inc.
v. Faggen, 513 F.2d 234, 239 (2d Cir. 1975) ("[I]n instances of total non-disclosure,
as in Affiliated Ute, it is of course impossible to demonstrate reliance[.]"); Goodman
v. Genworth Financial Wealth Management, Inc., 300 F.R.D. 90, 104 (E.D.N.Y.
2014) ("reliance is presumed when it would be impossible to prove.")
It is certainly true that the line between omission and misrepresentation can
sometimes be difficult to draw - and one cannot turn every misrepresentation case
into an omission case. However, plaintiffs' claim is not simply limited to words
which would have changed a single misrepresentation into truth. Instead,
plaintiffs' claim is also about specific information regarding the effect and duration
of "wear-away" that was not disclosed to class members. This is a cognizable
om1ss10n. The proof of the alleged omission is - again - generalized; and reliance
may be presumed. Accordingly, even if this Court were simply to have certified the
class based on the omission alone, that would be enough.
Statute of Limitations
Defendants argue that the statute of limitations also provides individualized
defenses which defeat predominance. However, defendants have failed to proffer
evidence of even a single instance in which there would a need for such an
individualized inquiry. Plaintiffs' evidence is the sole evidence before this Court and their evidence is as to a timely claim by Mr. Osberg. Defendants' argument
regarding theoretical views as to the statute of limitations must fail. Lawyers
seeking to defeat class certification are well aware of the process: plaintiffs bear the
burden of proving each of the elements of Rule 23 by a preponderance of the
evidence; the burden the shifts to the defendant to rebut that evidence. See In re
U.S. Foodservice Inc. v. Pricing Litigation, 729 F.3d at 117. Plaintiffs here have
carried their burden; in response, defendant has offered only argument and not a
shred of proof. That is insufficient. See Koss v. Wackenhut Corp., No. 03 Civ. 7679
(SCR), 2009 WL 928087, at *11 ("Defendants' argument assumes facts not in the
record; moreover, this conclusory presumption is insufficient to overcome the strong
predominance of questions of law and fact that are common to class members over
any individualized questions.")
Defendant's argument regarding the statute of limitations relies heavily on
the Second Circuit's decision in Novella v. Westchester Co., 661 F.3d 128 (2d Cir.
2011). They have misread that decision. There, plaintiff immediately caught a
miscalculation of his pension benefits when he received notice as to the rates that
would be used for such calculation. Id. at 134. He appealed the determination of
rates used and those appeals were denied. Numerosity for purposes of class
certification depended on whether other potential class members recognized an
error in rate calculation within a six year period. Defendants in that case urged the
Court to adopt a bright-line rule in which a pensioner's receipt of benefits would
cause the statute to run - a "first payment rule." Id. at 144. The Court declined on
the basis that that would place an undue burden on pensioners. Id. at 146.
Instead, based on the facts at issue (a clear rate dispute -- disclosed by the
defendant and contested by plaintiffs), the Court determined that "miscalculation
can be imputed to a pensioner - and the statute of limitations will start to run when there is enough information available to the pensioner to assure that he
knows or reasonably should know of the miscalculation." Id. at 147.
Here, the facts are far different. First, there are well over 10,000 potential
class members. Plaintiffs here allege that far from a clear disclosure of rates used,
defendant has engaged in a scheme to prevent plaintiffs from learning of their
misrepresentations. And that - in essence - even when plaintiffs receive benefits,
they would have no way to know, and no reason to question at that time that they
were receiving less than that to which they might be entitled. There is no
reasonable way for payment alone to arm plaintiffs with the information they would
need to be on notice of their claims. Accordingly, as the assertion that some
nameless plaintiff knew or should have known of a claim within an earlier time
period is entirely theoretical as well as unreasonable to assume, this Court declines
to find individualized issues predominate on that basis.
THE SPD CLAIM
Plaintiff seeks to extend this Court's certification of the class to include the
SPD claim, which is now part of the case. Defendant has opposed on generally
similar bases as with regard to the § 404 claim. Those are dealt with in the Court's
Opinion of September 24, 2014 and are applicable to the § 102 claim, and also in the
instant Opinion. In addition, defendant argues that plan reformation for a§ 102
claim requires individualized inquiry. This is incorrect. First, defendant's
argument is again a merely theoretical one without any supporting proof. But,
second, plan reformation would require plan change(s) applicable class-wide. To the
extent defendant's argument bleeds into whether a particular plaintiff relied on the
SPD, those reliance issues are dealt with elsewhere in this Opinion.
Inclusion of the SPD claim makes sense as the misrepresentations and
omissions asserted in the SPD claim are the same as those at issue in the § 404
claim. The only question for this Court would be whether individualized inquiries
would somehow predominate for that claim in a way they would not for the § 404
claim. They would not. Indeed, Amara indisputably holds that reliance is not an
element of a § 102 claim. Amara, 131 S.Ct. at 1881-82. Thus, the SPD claim is
included in the claims as to which the class has been certified.
For all of the reasons set forth above, as well as the reasons set forth in this
Court's Opinion dated September 24, 2014, the following class is certified:
All persons who were participants in the Foot Locker Retirement Plan as of
December 31, 1995, who had at least one Hour of Service on or after January
1, 1996 (as defined under the Plan), and who were either paid a benefit from
the Plan after December 31, 1995, or are still entitled to a benefit from the
Plan; and the beneficiaries and estates of such persons and alternate payees
under a Qualified Domestic Relations Order.
The Clerk of Court is directed to terminate the motion at ECF No. 192.
New York, New York
November 7, 2014
KA THERINE B. FORREST
United States District Judge
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