IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MISSOURI CENTRAL DIVISION RONALD C. TUSSEY, et al., ) ) Plaintiffs, ) ) v. ) Case No. 06-04305-CV-NKL ) ABB, INC., et al., ) ) Defendants. ) MEMORANDUM AND ORDER Pending before the Court is Plaintiffs’ Motion to Certify Class [Doc. # 71] in this breach of fiduciary duty case brought pursuant to §§ 502(a) and 409(a) of the Employee Retirement Income Security Act (“ERISA”). Plaintiffs seek certification of the following class pursuant to Fed. R. Civ. P. 23: All persons, excluding individual employees who are or may be liable for the conduct described in the Complaint, who are or were participants or beneficiaries of the Plans and who are, were or may have been affected by the conduct set forth in the Complaint, as well as those who will become participants or beneficiaries of the Plans in the future. Defendants ABB, Inc.(“ABB”), and Fidelity Management Trust Company (“Fidelity Trust”) and its affiliated advisor, Fidelity Management & Research Company (“Fidelity Management”) raise several objections to the certification of Plaintiff’s proposed class based on the sufficiency of Plaintiffs’ class-wide evidence, and argue alternatively that in the event of certification, several reasons require the shortening of 1 Case 2:06-cv-04305-NKL Document 183 Filed 12/03/2007 Page 1 of 23 the proposed class period and narrowing of class scope. Because Plaintiffs satisfy each element required under Fed. R. Civ. P. Rule 23, Plaintiffs’ motion will be GRANTED. I. Background ABB, Inc., is a subsidiary of ABB, Ltd., a Swiss corporation and a major manufacturer of power and automation equipment. In 1992, ABB created a 401(k) plan for its employees (the “Plan”), which allowed Plan participants to contribute a portion of their income to individual retirement accounts. Several investment options were selected for the Plan participants to choose from. Each participant was able to select from that list his or her individual investment. In 1995, ABB selected Fidelity Trust to manage the Plan. (Trust Agreement Between Asea Brown Boveri Inc. And Fidelity Management Trust Company). Plaintiffs allege that, until 2004, the Trust Agreement between ABB and Fidelity Trust required ABB to get the consent of Fidelity Trust before choosing investment options for the Plan. (Am. Compl. ¶ 34). As a result, Plan participants were steered toward investments which were managed, operated or advised by Fidelity Trust or one of its affiliates. In addition, the investment options made available to the Plan participants charged higher fees to the Plan participants than were charged in the open market for the same product. Id. ¶ 36. ABB was designated as the administrator of the Plan and a named fiduciary of the Plan as that term is defined by ERISA. Fidelity Trust and Fidelity Management are also alleged to be fiduciaries subject to ERISA. Plaintiff Ronald C. Tussey (“Tussey”) 2 Case 2:06-cv-04305-NKL Document 183 Filed 12/03/2007 Page 2 of 23 1 has been employed by ABB since 1990 and participated in the Plan at all times during the proposed class period. Tussey has brought this action pursuant to ERISA § 502(a) and § 409(a), on behalf of himself and a proposed class of Plaintiffs, alleging that ABB and the Fidelity Defendants breached their fiduciary duties under ERISA § 409(a), by allowing Fidelity Trust to steer the Plan toward expensive Fidelity funds which in turn paid Fidelity Trust for the business. ABB and the Fidelity Defendants are also alleged to have breached their fiduciary duty by causing Plan participants to incur unnecessary and improper fees in connection with the Plan. (Am. Compl. ¶ 2) (“[T]he fees and expenses paid by the Plan, and thus borne by Plan participants - that were and are unreasonable and excessive; not incurred solely for the benefit of the Plan and its participants; and undisclosed to participants . . . By subjecting the Plan and its participants to these investment options and the accompanying excessive fees and expenses, and by other conduct set forth below, Defendants violated their fiduciary obligations under ERISA . . . .”). Plaintiffs allege several ways in which ABB’s alleged imprudence rose to the level of breaching its fiduciary duties: failing to capture additional compensation streams for the benefit of the Plan; failing to exercise substantial bargaining leverage for 1 Tussey originally worked for Westinghouse in 1967 which was subsequently acquired by ABB in a series of acquisitions beginning in 1988 and ending in 1990. ABB Form 20-F, April 3, 2001, p. 4. 3 Case 2:06-cv-04305-NKL Document 183 Filed 12/03/2007 Page 3 of 23 lower cost services; and, inclusion of actively managed investment options which cost more without providing any additional return to Plan participants. For instance, Plaintiffs allege that ABB and the Fidelity Defendants disguised the fees actually incurred by Plan participants by entering into revenue sharing agreements whereby Fidelity Trust would be paid a portion of its administrative fees from investment funds selected by Plan participants. Plaintiffs also allege that ABB and the Fidelity Defendants concealed the true nature of the fees and expenses incurred by the Plan by failing to disclose these revenue sharing arrangements to Plan participants and government regulators. See generally id. ¶¶ 68-73. II. Standing As a threshold matter, the Fidelity Defendants claim that Tussey has no constitutional standing to bring an action related to investment alternatives in which he never participated. (Fidelity Brief, 18) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)). In order to satisfy the Article III standing requirement, Tussey must prove that the Plan has suffered an injury in fact which is (a) concrete and particularized, and (b) actual or imminent. Id. This is because a retirement plan “is nothing more than an aggregation of its participants’ individual accounts, and therefore any loss to the Plan will have caused a loss to some or all of the [P]lan’s individual accounts.” DiFelice v. US Airways, Inc., 235 F.R.D. 70, 76 (E.D. Va. 2006). The loss to the Plan assets due to ABB and the Fidelity Defendants’ alleged failure to prudently select and monitor investment options is concrete and actual. The Fidelity Defendants’ argument that 4 Case 2:06-cv-04305-NKL Document 183 Filed 12/03/2007 Page 4 of 23 Tussey cannot advance any claims for investment options which he never elected is not persuasive because the losses occurred to the Plan as a whole. The standing inquiry in this context requires only that Tussey prove, for example, that the Fidelity Defendants steered ABB’s investment options toward unjustifiably expensive funds. “If, but for the breach, the Fund would have earned more than it actually earned, there is a ‘loss’ for which the breaching fiduciary is liable.” See Dardaganis v. Grace Capital, Inc., 889 F.2d 1237, 1243 (2d Cir. 1989). Tussey is not required to demonstrate his personal standing at all points throughout the class period in order to satisfy Article III’s case or controversy requirement. See Forbush v. J.C. Penney Co., 994 F.2d 1101, 1106 (5th Cir. 1993). Tussey has standing to pursue this action on behalf of the Plan. III. Legal Standards A. ERISA §§ 502(a)(2) and (3) Tussey brings this action pursuant to ERISA § 502(a), which states, in pertinent part, as follows: A civil action may be brought . . . (2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title; (3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan . . . . 29 U.S.C. §§ 1132(a). Plaintiffs allege in their Amended Complaint that ABB and the Fidelity Defendants breached their fiduciary duties under ERISA by providing high fee investment choices to participants and thereby causing the Plan to pay excess and 5 Case 2:06-cv-04305-NKL Document 183 Filed 12/03/2007 Page 5 of 23 unreasonable fees and expenses. They also claim that the Defendants all breached their fiduciary duty by failing to reveal the revenue sharing agreements between Fidelity Trust and the companies which provided investment options for ABB’s Plan. The Complaint goes on to allege many other ways in which the Defendants individually and collectively breached their fiduciary duties to the Plan. In Count I Plaintiffs seek relief under ERISA § 502(a)(2) which requires a breaching fiduciary to make good to the Plan “any losses to the [P]lan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary . . .” 29 U.S.C. § 1109(a). Plaintiffs also seek appropriate prospective injunctive relief. In Count II, Plaintiffs incorporate by reference the same breaches alleged in Count I and seek relief under ERISA § 502(a)(3). The relief sought is “an accounting of all transactions, disbursements, and dispositions occurring in, in connection with, or in respect of, the Plan and its assets.” (Am Compl. ¶ 94). Such an accounting should include “detailed and specific information regarding all fees and expenses incurred by the Plan and/or paid to third parties, whether paid directly by the Plan or indirectly transferred among Plan service providers or other third parties.” (Am. Compl., ¶ 95). Plaintiffs also ask for an order requiring the Defendants to pay “all amounts . . . which . . . were improper, excessive and/or in violation of ERISA,” and to disgorge ABB’s administrative credits. (Am. Compl., ¶ 96). In Count III, Plaintiffs incorporate by reference the fiduciary breaches alleged in Count I and seek relief under ERISA § 502(a)(3) for equitable restitution of any funds obtained by Fidelity that should 6 Case 2:06-cv-04305-NKL Document 183 Filed 12/03/2007 Page 6 of 23 have been used for the benefit of the Plan. (Am. Compl., ¶ 107). They also seek appropriate prospective injunctive relief. B. Class Certification In addition to generalized argument regarding the propriety of class certification, the Defendants argue that Tussey’s claims are not suitable for class-wide relief because they are dependent on proof concerning each participant’s individualized choice about which investment option to select and how those choices affected the fees charged to each individual participant in the Plan. The Defendants argue that the Court must in fact examine the factual support for Tussey’s claim to determine whether class certification is appropriate. A motion for class certification involves a two part analysis. First, the movant must demonstrate that the proposed class satisfies the requirements of Rule 23(a): (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class. Fed. R. Civ. P. 23(a). Should Tussey satisfy these requirements, he must then demonstrate that the proposed class fits one of the three categories identified in Fed. R. Civ. P. 23(b). The Plaintiffs bear the burden of showing that Rule 23 requirements are met and that the 7 Case 2:06-cv-04305-NKL Document 183 Filed 12/03/2007 Page 7 of 23 class should be certified. Coleman v. Watt, 40 F.3d 255, 258 (8th Cir. 1994). To determine whether class certification is appropriate, the Court must conduct a limited preliminary inquiry, looking behind the pleadings. Blades v. Monsanto Co., 400 F.3d 562, 567 (8th Cir. 2005) (citing General Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 160 (1982)). “In conducting this preliminary inquiry, however, the Court must look only so far as to determine whether, given the factual setting of the case, if the plaintiffs general allegations are true, common evidence could suffice to make out a prima facie case for the class.” Id. at 566. In considering class certification motions, the Court liberally construes Fed. R. Civ. P. 23(a), and does not resolve the merits of the dispute. See Gunnells v. Healthplan Services, Inc., 348 F.3d 417, 424 (4th Cir. 2003); In re Control Data Corp. Sec. Litigation, 116 F.R.D. 216, 219 (D. Minn. 1986) rev’d on other grounds In re Control Data Corp. Sec. Litigation, 933 F.2d 616 (8th Cir. 1991). C. Federal Rule of Civil Procedure 23(a) 1. Numerosity To address the numerosity requirement, the Court should examine the number of persons in a proposed class, the nature of the action, the size of the individual claims and the inconvenience of trying individual claims, as well as other factors. Paxton v. Union Nat’l Bank, 688 F.2d 552, 561 (8th Cir. 1982). The Plan had approximately 12,567 participants at the end of calendar year 2005. ABB and the Fidelity Defendants do not dispute that the putative class satisfies the numerosity requirement. See e.g., Bradford v. AGCO Corp., 187 F.R.D. 600, 604 (W.D. Mo. 1999) (certifying a class of between 20 8 Case 2:06-cv-04305-NKL Document 183 Filed 12/03/2007 Page 8 of 23 and 65). 2. Commonality The commonality requirement of Rule 23(a)(2) is satisfied when the legal question “linking the class members is substantially related to the resolution of the litigation.” Paxton v. Union Nat’l Bank, 688 F.2d 552, 561 (8th Cir. 1982). In determining commonality, “the appropriate focus is [on] the conduct of the defendant[s], not the plaintiffs.” In re Aquila ERISA Litig., 237 F.R.D. 202, 207-08 (W.D. Mo. 2006) (citing DiFelice v. US Airways, Inc., 235 F.R.D. 70, 78 (E.D. Va. 2006) (“the central question at issue in this litigation is whether US Airways breached its fiduciary duty to select and monitor investment options prudently.”)); In re Williams Co. ERISA Litig., 231 F.R.D. 416, 421-22 (N.D. Okla. 2005) (“multiple common issues exist, including but not limited to: whether Defendants acted as fiduciaries; what duties, if any, were violated by Defendants with respect to the Plan; and whether Defendants improperly withheld information from Plan participants.”); In re Ikon Office Solutions, Inc., 191 F.R.D. 457, 464 (E.D. Pa. 2000) (“common questions include whether the defendants acted as fiduciaries, what communications they made to plan participants and beneficiaries, and whether those communications contained material misrepresentations.”)). ABB and the Fidelity Defendants urge the Court to deny class certification because individualized damage inquiries will dwarf the liability inquiry. (ABB Brief, 7- 23); (Fidelity Brief, 9-20). Specifically, ABB and the Fidelity Defendants assert that 9 Case 2:06-cv-04305-NKL Document 183 Filed 12/03/2007 Page 9 of 23 “excessive fee,” “unreasonable compensation” and “non-disclosure” claims are necessarily individualized, incapable of class-wide proof and point out that any calculation of damages in this case will require a comparison of the actual value of individual accounts and the hypothetical value of the Plan assuming ABB and the Fidelity Defendants had not injured the Plan with excessive fees. See e.g. (Fidelity 2 Brief, 6). The Court disagrees. As previously stated, to determine whether common questions predominate, a court must conduct a limited preliminary inquiry, looking behind the pleadings. Blades v. Monsanto Co., 400 F.3d 562, 567 (8th Cir. 2005) (citing General Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 160 (1982)). Citing Blades v. Monsanto and Sanft v. Winnebago Indus. Inc., 214 F.R.D. 514 (N.D. Iowa 2003), ABB and the Fidelity Defendants encourage the Court to probe beyond the class certification analysis and into the merits of Plaintiffs’ case. (ABB Brief, 6); (Fidelity Brief, 9). The Fidelity Defendants and ABB, however, overstate the extent to which a court may probe into the merits when determining whether common questions of law and fact make class certification appropriate. In the Blades case, the Eighth Circuit did authorize district judges to inquire into the merits 1) when a factual dispute necessary for deciding class 2 ABB prematurely asserts arguments based on individual control of 401(k) accounts necessary to prove a defense available to them under ERISA § 404(c)’s safe harbor provision. ERISA § 404 (c) shields fiduciaries from liability for “any loss, or by reason of any breach, which results from” a participant’s control. This is an affirmative defense which must be proven and is not an appropriate basis to deny class certification. In re Aquila ERISA Litig., 237 F.R.D. 202, 213 (W.D. Mo. 2006). 10 Case 2:06-cv-04305-NKL Document 183 Filed 12/03/2007 Page 10 of 23