Duane Morris Class Action Review - 2023 - Report - Page 196
C.
Challenges To “Fail-Safe” Classes
In addition to the more common motions to dismiss or compel the individual arbitration
of ERISA claims, in 2022 defendants attempted to preempt class litigation by moving to
strike class allegations for seeking to certify allegedly improper “fail-safe” classes. Failsafe classes are those that define membership based on the determination of a merits
issue (for example, “a class consisting of individuals injured by the defendant’s breach
of fiduciary duty”). Such classes are impermissible because they would allow putative
members to seek a remedy if they win, but, if they lose, they are not in the class and are
not bound by an adverse ruling.
In Adams, et al. v. U.S. Bancorp, 2022 U.S. Dist. Lexis 188713 (D. Minn. Oct. 17, 2022),
the plaintiffs filed a putative class action asserting that the defendants relied on
outdated actuarial assumptions when calculating monthly pension benefits (i.e., definedbenefit payments) for employees retiring prior to age 65, including Plaintiffs. Id. at *2-3.
As a result, the plaintiffs alleged that their total benefits were less than “what they would
have received had they retired at sixty-five” in violation of ERISA’s actuarial equivalence
and anti-forfeiture provisions. Id. The defendants moved to dismiss the complaint under
Rule 12(b)(6) and, under Rule 12(f), to strike the plaintiffs’ class allegations as asserting
“an impermissible fail-safe class.” Id. at *3. Denying the motion to dismiss after
concluding that the plaintiffs had plausibly alleged their claims, the court turned to the
defendants’ motion to strike the class allegations. The plaintiffs sought to certify a class
of plan participants whose benefits were reduced by the assumptions underlying the
defendants’ benefits calculations and whose annuity benefits had a lesser actuarial
present value than their age-65 benefit as calculated using applicable Treasury
assumptions. Id. at *30-31. The defendants challenged the proposed class as fail-safe
class that “impermissibly limit[ed] membership to those who would prevail on the ERISA
claims, requiring the court to engage in a merits evaluation to determine who is in the
class” and “preclud[ing] the possibility of an adverse judgment.” Id. at *33 (internal
citations and quotations omitted). Rejecting this argument, the court explained that a
“fail-safe class is one that would allow putative class members to seek a remedy but not
be bound by an adverse judgment - either those class members win, or by virtue of
losing, they are not in the class and are not bound.” Id. at *31. Concluding that the
“defendants are correct” that the putative class included “only those Plan participants
who will prevail on the merits,” the court nevertheless held that the class was “not an
impermissible fail-safe class.” Id. at *31-34. Instead, because the class was limited to
those Plan participants whose benefits were less than they would have been had the
defendants used proper actuarial (i.e., Treasury) assumptions, the court held
membership in it could be determined by “objective criteria . . . that require no legal
analysis.” Id. Specifically, the class could be ascertained “by comparing the present
values of early-retirement benefits under the Plan versus the Treasury assumptions”
without a finding of liability or resolution of a merits question. Id. at *33-34. Noting that
striking pleadings is a drastic and extreme measure, the court held that doing so would
be premature in this case. Id. at *31-34.
By contrast, in White, et al. v. Hilton Hotels Retirement Plan, 2022 U.S. Dist. LEXIS
51151 (D.D.C. Mar. 22, 2022), the court held that the plaintiffs proposed class was an
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Duane Morris Class Action Review – 2023
