Four former employees of Eversource Energy Company recently obtained partial certification of their claims. However, the District of Connecticut ruled that because the named plaintiffs were all former plan participants, they could not seek prospective relief and only granted certification with respect to retroactive relief claims.
Plaintiffs’ second amended complaint sought prospective injunction as well as retroactive relief for damages related to alleged breaches of fiduciary duty for charging excessive recordkeeping fees, investing in a suite of funds to date actively managed target known as Fidelity Freedom Funds instead of the lower cost, passively managed Freedom Index Funds, and invest recklessly in and hold other specific investment options. Overall, 14 of the plan’s 19 investment options were contested, and all contested options were invested by at least one of the four named claimants.
Defendants opposed class certification on the grounds that the named plaintiffs lacked Article III standing to: (1) seek prospective relief because they were not currently participating in the plan; and (2) claim losses on behalf of funds in which they have not personally invested. The Court agreed with the defendants on their first argument, but disagreed on the second.
First, the Court found that although the plaintiffs met the statutory definition of “participant” in order to bring an action under ERISA, they were still required to demonstrate the likelihood of future harm when they were seeking a prospective injunction to satisfy Article III statute. Since the plaintiffs were no longer enrolled in the plan, the Court found that “the defendant’s future management of the plan does not pose a ‘real or immediate threat’ to the plaintiffs and they do not have standing to seek relief.” prospective injunction. ”
Second, the Court engaged in a thorough analysis of the different approaches to determining the extent of an Article III claimant’s ability to seek relief when suing derivatively under Article III. 502(a)(2). One approach concludes that a plaintiff has standing by simply participating in the plan and alleging injury to the entire plan, regardless of individual loss. The second approach requires a plaintiff to demonstrate sufficient harm or individual loss and can then only sue for losses of funds in which the plaintiff has invested.
Here, the Court did not rule on the correct approach, but found that the plaintiffs had constitutional status because their second amended complaint identified individual losses resulting from the defendants’ alleged violations. In addition, the Court found that the plaintiffs could also sue on behalf of alleged class members who had invested in the uncontested funds (i.e. funds in which none of the named plaintiffs had invested ) because the alleged recklessness of defendants’ investment process involved the “set of concerns” of all putative class members and the derivative actions under section 502(a)(2) are brought on behalf of the whole plan. Finally, although the Court denied certification prospectively, it granted the plaintiffs leave to amend to add a current plan member with standing to seek such relief as a named plaintiff within thirty days.
With nearly 200 similar lawsuits filed in recent years, this decision provides significant insight into the Article III analysis that district courts undertake in the context of class certification and highlights an argument that all employers should argue when former plan members seek prospective relief.
© 2022 Jackson LewisNational Law Review, Volume XII, Number 152