21-805-cv

Haley v. TIAA

In the

United States Court of Appeals

For the Second Circuit ________

AUGUST TERM 2021

ARGUED: MAY 10, 2022

DECIDED: DECEMBER 1, 2022

No. 21-805-cv

MELISSA HALEY, individually and on behalf of herself

and all others similarly situated,

Plaintiff-Appellee,

v.

TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA,

Defendant-Appellant.

∗

________

Appeal from the United States District Court

for the Southern District of New York.

________

Before: NEWMAN, WALKER, and SULLIVAN, Circuit Judges.

________

Melissa Haley alleges that a participant loan program that 

Teachers Insurance and Annuity Association of America (TIAA)

∗ The Clerk of Court is directed to amend the caption as set forth above.
2 No. 21-805

offered to her retirement plan is a prohibited transaction under the 

Employee Retirement Income Security Act of 1974 (ERISA). After 

ruling that Haley’s suit could proceed against TIAA as a nonfiduciary under ERISA, the district court certified a class of employee 

benefit plans whose fiduciaries contracted with TIAA to offer loans 

that were secured by a participant’s retirement savings. In this 

interlocutory appeal challenging the certification decision, TIAA 

argues that the district court erred when it found that common issues 

predominated over individual ones without addressing the effect of 

ERISA’s statutory exemptions on liability classwide and without 

making any factual findings as to the similarities of the loans. We 

agree. Because the predominance inquiry of Federal Rule of Civil 

Procedure 23(b)(3) requires that a district court analyze defenses, and

the court did not do so here, we VACATE the district court’s decision 

and REMAND for proceedings consistent with this opinion. 

________

TODD S. COLLINS (Ellen T. Noteware, on the brief),

Berger Montague PC, Philadelphia, PA; John J. 

Nestico, Todd M. Schneider, on the brief, Schneider 

Wallace Cottrell Konecky LLP, Charlotte, NC and 

Emeryville, CA, for Plaintiff-Appellee.

JAIME A. SANTOS (James O. Fleckner, Michael K. 

Isenman, Kelsey Pelagalli, on the brief), Goodwin 

Procter LLP, Washington, DC and Boston, MA, for 

Defendant-Appellant.

Leah M. Nicholls, on the brief, Public Justice, P.C., 

Washington, DC, for amicus curiae Public Justice. 
3 No. 21-805

Dara S. Smith, William Alvarado Rivera, on the 

brief, AARP Foundation, Washington, DC, for amici 

curiae AARP and AARP Foundation. 

Meaghan VerGow, on the brief, O’Melveny & 

Myers LLP, Washington, DC, for amici curiae The 

Securities Industry and Financial Markets Association, 

American Benefits Council, Society of Professional 

Asset Managers and Recordkeepers, American Council 

of Life Insurers, and Chamber of Commerce of the 

United States of America.

________

JOHN M. WALKER, JR., Circuit Judge:

Melissa Haley alleges that a participant loan program that 

Teachers Insurance and Annuity Association of America (TIAA)

offered to her retirement plan is a prohibited transaction under the 

Employee Retirement Income Security Act of 1974 (ERISA). After 

ruling that Haley’s suit could proceed against TIAA as a nonfiduciary under ERISA, the district court (Oetken, J.) certified a class 

of employee benefit plans whose fiduciaries contracted with TIAA to 

offer loans that were secured by a participant’s retirement savings. In 

this interlocutory appeal challenging the certification decision, TIAA 

argues that the district court erred when it found that common issues 

predominated over individual ones without addressing the effect of 

ERISA’s statutory exemptions on liability classwide and without 

making any factual findings as to the similarities of the loans. We 

agree. Because the predominance inquiry of Federal Rule of Civil 

Procedure 23(b)(3) requires that a district court analyze defenses, and
4 No. 21-805

the court did not do so here, we VACATE the district court’s decision 

and REMAND for proceedings consistent with this opinion.

BACKGROUND

Haley participates in a retirement plan offered by Washington 

University in St. Louis (WashU). The WashU plan is a defined 

contribution savings plan that is tax-deferred under 26 U.S.C. § 403(b)

and governed by ERISA.1 WashU chose to offer certain services to its 

participants, including the ability to borrow against retirement 

savings without incurring a taxable event. During the relevant 

period, WashU plan participants were permitted to take out either 

non-collateralized or collateralized loans. To facilitate these loans, 

WashU engaged with outside vendors known as “service providers,” 

including TIAA and Vanguard. 

Non-collateralized loans enable participants to borrow directly 

from their retirement accounts without pledging any assets as 

collateral. Vanguard serviced the non-collateralized loans for WashU 

plan participants and charged participants a fixed origination fee and 

annual maintenance fees. Non-collateralized loans are not at issue in 

this case.

This suit instead challenges the collateralized loan products

that TIAA offered. Fiduciaries responsible for some eight thousand 

plans, such as WashU, retained TIAA to service collateralized loans 

for their respective plans. The collateralized loans shared the 

1 29 U.S.C. § 1002(34). Defined contribution plans are retirement 

savings vehicles that allow participants to contribute a portion of their 

salary to the plan. Section 403(b) plans are available to employees of public 

schools and certain non-profits. 
5 No. 21-805

following attributes. TIAA required participants to borrow the 

desired loan amount from TIAA’s “General Account” rather than 

directly from their own retirement accounts.2 TIAA charged interest 

on the loan, which participants paid (along with the principal) to the 

General Account. The interest rates that participants paid, however,

depended on several variables, including the type of loan contract

between TIAA and the plan and the relevant state’s insurance laws. 

TIAA secured the loans with collateral equal to the loan

amount plus 10%. TIAA invested that sum in the participant’s 

account in a TIAA Traditional Annuity, an interest-bearing fixed 

annuity that paid a guaranteed minimum rate of return, plus 

additional amounts of interest declared at TIAA’s discretion. The 

plan participant kept the return earned on the collateral. Returns 

varied based on the type of the annuity contract that TIAA offered to 

the plan, and when and where the loan was obtained. The underlying 

annuity contract also affected whether a borrowing participant could 

designate funds already invested in a TIAA Traditional Annuity as 

collateral or whether the participant had to transfer funds from

existing investments into a TIAA Traditional Annuity. 

While it did not charge origination or maintenance fees, TIAA 

was compensated for servicing the loans. TIAA states that its 

compensation was the difference, or “spread,” between the interest 

2 An insurance company’s “general account” refers to the assets that 

guarantee the insurer’s obligations under its insurance contracts and 

provide liquidity. Participants do not invest directly in the General 

Account, which TIAA represents is a broadly diversified portfolio of mostly 

fixed income assets. 
6 No. 21-805

that participants paid TIAA on the loan and the amount TIAA 

credited to participants on their collateral as investment income.3 

Haley took out four collateralized loans from her WashU plan 

between 2011 and 2015, and a fifth in 2019 while this lawsuit was 

pending. In 2017, she brought the instant action seeking to hold TIAA 

directly liable on the grounds that the collateralized loans violated 

ERISA’s so-called “prohibited transactions” rules. In the alternative, 

Haley sought to hold TIAA liable as a non-fiduciary for its knowing 

participation in the alleged violations by her plan fiduciary, WashU. 

Haley, however, did not name WashU as a defendant. 

The district court held that TIAA was not an ERISA fiduciary

with respect to the challenged loans but permitted Haley’s claims to 

proceed against TIAA as a non-fiduciary. Haley then moved to certify 

a nationwide class of similarly situated ERISA-governed plans. TIAA 

opposed, asserting that the challenged loans were too disparate to 

warrant class treatment. TIAA further objected to certification on the 

grounds that ERISA recognizes exemptions to prohibited transactions

and that the factors relevant to whether a collateralized loan is exempt 

are not subject to common proof. The district court certified a class 

under Rule 23(b)(3) as to each of Haley’s non-fiduciary claims. But 

the court did not make any findings about the purported variations

among the loans in the putative class and did not address how the 

exemptions to the statutory prohibitions weighed in the certification 

analysis. TIAA timely filed an interlocutory appeal under Rule 23(f). 

3 Haley alleged that the spread is even greater because it includes the 

difference between the returns earned on the investments in TIAA’s 

General Account and the interest rate that TIAA credits the participants on 

their collateral. Regardless, this difference is not material to this appeal.
7 No. 21-805

DISCUSSION

Haley is not the first WashU plan participant to allege that the 

collateralized loans serviced by TIAA are prohibited transactions

under ERISA.4 But her suit is unique because she is seeking to hold 

TIAA liable on behalf of a nationwide class of ERISA-governed plans

whose members received loans under terms approved by plan 

administrators, without naming those administrator fiduciaries as 

defendants. TIAA argues that the district court improperly certified 

the multi-plan class.5

4 See Davis v. Wash. Univ. in St. Louis, No. 4:17-CV-1641 RLW, 2018 

WL 4684244, at *5 (E.D. Mo. Sept. 28, 2018) (dismissing the ERISA 

§ 406(a)(1)(B) claim against WashU), aff'd in part, rev'd in part and remanded, 

960 F.3d 478 (8th Cir. 2020). The Davis plaintiffs did not appeal the 

dismissal of their prohibited transaction claims. 

5 The class certified by the district court includes: “All individual 

account retirement plans governed by ERISA (the ‘Plans‘) for which, at any 

time from February 5, 2011 through the date of judgment: (a) Teachers 

Insurance and Annuity Association [of America] (‘TIAA’) provided 

services that included collateralized loans (the ‘Loans’) for Plan participants 

(the ‘Borrowing Participants’); (b) TIAA required the Borrowing 

Participants to provide collateral in the amount of 110% of the principal 

balance of the Loans, which collateral TIAA invested in its general account; 

and (c) (i) TIAA charged Loan interest at a rate in excess of the interest rate 

credited to Borrowing Participants on the invested collateral; (ii) TIAA kept 

for or paid to itself amounts earned on the amount of the invested collateral, 

equal to the principal amount of the outstanding Loans, that were in excess 

of the amounts credited to Borrowing Participants; (iii) the amounts that 

TIAA credited to Borrowing Participants on the invested collateral in excess 

of the principal amount of the Loan were less than Borrowing Participants 

would have received had the collateral remained in the Borrowing 

Participants’ designated investment options; and/or (iv) TIAA caused loss 

to the Participant Borrowers and the Plans.” Special App’x 5.
8 No. 21-805

I. ERISA’s Prohibited Transactions, Briefly Explained 

ERISA is a comprehensive federal statute that regulates 

retirement and employee benefit plans, as well as the conduct of 

fiduciaries who act on behalf of plan participants and other 

beneficiaries.6 Section 404 of ERISA sets out general duties for plan 

fiduciaries, sponsors, and others. Section 406 further protects 

participants and beneficiaries by prohibiting certain transactions 

involving plan assets that are “believed to pose a high risk of fiduciary 

self-dealing.”7 Subsection 406(a) regulates transactions between a 

plan and “parties in interest” with respect to the plan. A “party in 

interest” includes, among others, persons providing services to the 

plan.8 Haley alleges that the collateralized loans violate two 

provisions of § 406(a):

Except as provided in section [408] of this title . . . [a]

fiduciary with respect to a plan shall not cause the plan 

to engage in a transaction, if he knows or should know 

that such transaction constitutes a direct or indirect—

. . .

(B) lending of money or other extension of credit 

between the plan and party in interest; [or]

6 See Harris Tr. & Sav. Bank v. John Hancock Mut. Life Ins. Co., 302 F.3d 

18, 26 (2d Cir. 2002) (quoting H.R. Rep. No. 533, 93d Cong., 2nd Sess. 1, 

reprinted in 1974 U.S.C.C.A.N. 4639, 4639). 

7 Henry v. Champlain Enters., Inc., 445 F.3d 610, 618 (2d Cir. 2006).

8 29 U.S.C. § 1002(14)(B). At a general level, a “party in interest” is 

any entity “that a fiduciary might be inclined to favor at the expense of the 

plan’s beneficiaries.” Harris Tr. & Sav. Bank v. Salomon Smith Barney, Inc., 

530 U.S. 238, 242 (2000).
9 No. 21-805

(D) transfer to, or use by or for the benefit of a party in 

interest, of any assets of the plan[.]9

Section 406(a)’s broad language would ban most transactions 

involving service providers, like TIAA. But § 406(a) is expressly 

limited by § 408, which authorizes the Secretary of Labor to exempt 

certain transactions so long as they are in the “interests of the plan’s 

participants and beneficiaries.”10 TIAA asserts that two exemptions 

are potentially applicable here.11 First, § 408(b)(1) exempts loans to 

participants provided that, among other things, they are made in 

accordance with specific provisions of the plan document, “bear a 

reasonable rate of interest,” and are “adequately secured.”12 Second, 

§ 408(b)(17) permits transactions prohibited by § 406(a)(1)(B) and (D) 

as long as the plan pays no more and receives no less than “adequate 

consideration.”13 

9 29 U.S.C. §§ 1106(a)(1)(B), (D). Haley initially also alleged that 

TIAA charged excessive and unreasonable compensation, in violation of 

§ 406(a)(1)(C). Haley does not oppose TIAA’s request to modify the 

certification order as to this claim. 

10 Boggs v. Boggs, 520 U.S. 833, 846 (1997) (citing 29 U.S.C. § 1108(a)(2)) 

(internal quotation marks omitted). 

11 Because Haley has conceded that her § 406(a)(1)(C) claim should 

not be resolved classwide, we need not consider TIAA’s arguments that the 

exemption to excessive compensation claims as set forth in § 408(b)(2) 

applies. 

12 29 U.S.C. § 1108(b)(1). The Department of Labor’s definition of 

“participant loans” presupposes that the loan is exempt under § 408(b)(1) 

and thus not a prohibited transaction. See 29 C.F.R. § 2550.408b-1(a)(3)(i). 

For our purposes, although we may use the term participant loan as 

shorthand, we express no opinion as to whether the challenged loans in fact 

meet the statutory definition.

13 29 U.S.C. § 1108(b)(17)(A). 
10 No. 21-805

II. Standard of Review 

We review class certification decisions, including a district 

court’s rulings that each of the Rule 23 requirements are satisfied, for 

abuse of discretion.14 We give greater deference to decisions granting 

class certification than to those declining to certify.15 But “[t]o be 

afforded this deference . . . the certification must be sufficiently 

supported and explained.”16

Rule 23(a) requires that a proposed class be sufficiently 

numerous, have questions of law or fact common to the class, and 

involve representative plaintiffs whose claims or defenses are typical 

of the class and who can fairly and adequately protect the class’s 

interests.17 The district court certified the class under Rule 23(b)(3), 

pursuant to which a plaintiff must also establish that questions of law 

or fact common to the putative class “predominate” over questions 

affecting only individual members and that the class action vehicle is 

the superior method of adjudication.18

III. TIAA’s Challenges to Certification 

TIAA disputes Haley’s ability to show both that there are 

questions common to the class and that such issues predominate. 

14 In re Initial Pub. Offerings Sec. Litig., 471 F.3d 24, 31 (2d Cir. 

2006), decision clarified on denial of reh'g sub nom. In re Initial Pub. Offering Sec. 

Litig., 483 F.3d 70 (2d Cir. 2007); Johnson v. Nextel Commc’ns. Inc., 780 F.3d 

128, 137 (2d Cir. 2015). 

15 See Johnson, 780 F.3d at 137. 

16 Langan v. Johnson & Johnson Consumer Cos., Inc., 897 F.3d 88, 97 (2d 

Cir. 2018).

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

18 Johnson, 780 F.3d at 137; Fed. R. Civ. P. 23(b)(3). 
11 No. 21-805

Because the district court determined that predominance was 

satisfied without analyzing the § 408 exemptions or TIAA’s claimed 

variations among the loans, we vacate and remand for it to undertake 

that inquiry in the first instance. 

A. Commonality 

“Where the same conduct or practice by the same defendant 

gives rise to the same kind of claims from all class members, there is 

a common question.”19 Commonality is usually easier to show than 

predominance20 and the district court did not abuse its discretion in 

finding that former requirement satisfied. As an example, whether 

the uniform requirement that collateral be held in a TIAA annuity 

product rendered TIAA a party in interest “us[ing] . . . [plan] assets”

in violation of § 406(a)(1)(D) is a common issue bearing on the 

defendant’s liability to the putative class.21 TIAA recycles many of its 

arguments relating to commonality in its challenge to Haley’s ability 

to satisfy predominance. Because those arguments are “more 

19 Johnson, 780 F.3d at 137 (internal citation and quotation marks 

omitted).

20 Comcast Corp. v. Behrend, 569 U.S. 27, 34 (2013).

21 29 U.S.C. § 1106(a)(1)(D). TIAA does not dispute that this attribute 

was a common feature of the collateralized loans it serviced. 
12 No. 21-805

efficiently addressed in light of the predominance . . . requirement[],” 

we will consider them in that context.22

B. Predominance 

TIAA’s principal argument is that the district court erred by 

failing to include ERISA’s statutory exemptions as part of its 

predominance inquiry. We agree. 

Predominance is not simply an exercise in tallying up issues; it 

is a qualitative inquiry that entails “careful scrutiny” of the nature and 

significance of a case’s common and individual issues.23 To that end, 

a complete assessment of predominance demands that a district court 

“consider all factual or legal issues” and classify them as subject either 

to common or individual proof.24 It is well settled that this exercise 

includes any affirmative defenses,25 such as the § 408 exemptions.26 

Affirmative defenses do not carry “less weight” on the class 

certification issue simply because the defendant will bear the burden 

22 Johnson, 780 F.3d at 140. 

23 See In re Petrobras Sec., 862 F.3d 250, 271 (2d Cir. 2017) (internal 

quotation marks and emphasis omitted); 1 McLaughlin on Class Actions 

§ 5:23 (18th ed.). 

24 Myers v. Hertz Corp., 624 F.3d 537, 550 (2d Cir. 2010) (internal 

citation and quotation marks omitted). 

25 Id. (collecting cases); Johnson, 780 F.3d at 138 (noting that as part of 

both the commonality and predominance analysis, the court “must assess 

. . . the elements of the claims and defenses to be litigated” (internal 

quotation marks omitted)). 

26 Henry, 445 F.3d at 619; Lowen v. Tower Asset Mgmt., Inc., 829 F.2d 

1209, 1215 (2d Cir. 1987). 
13 No. 21-805

of proof at the merits stage.27 Here, as explained below, the district 

court’s treatment of the exemptions was simply to exclude them from 

the predominance analysis because, as affirmative defenses, the 

burden of proving them rests with TIAA. Rule 23(b)(3) demands 

more. 

We start with § 408(b)(17), which exempts transactions that 

otherwise violate § 406(a)(1)(B) and (D) as long as the “plan receives 

no less, nor pays no more, than adequate consideration.”28 There is 

no rule that clearly defines what consideration is “adequate”; it is 

instead a standard that takes into account whether the fiduciary 

exercised “good faith” in approving the amount the plan pays or 

receives.29 So, our “focus[] [is] on the conduct of the fiduciaries in 

determining the price, not the price itself.”30 Haley asserts that the 

“adequacy” determination can be made classwide because good faith 

is evaluated against what is objectively reasonable. TIAA argues that 

individualized proof must be marshalled from non-party plan 

fiduciaries showing how each plan fiduciary valued the assets and 

whether, given other options available to the plan, the fiduciary

exercised good faith in selecting the terms offered by TIAA. So, even 

if good faith is measured against an objective metric, the application 

27 Myers, 624 F.3d at 551. TIAA does not dispute that, as a nonfiduciary, it also bears the burden of showing that an exemption applies. 

28 29 U.S.C. § 1108(b)(17)(A). 

29 29 U.S.C. § 1108(b)(17)(B)(ii). 

30 Henry, 445 F.3d at 619–20 (emphasis added) (interpreting the 

Department of Labor’s Proposed Regulation Relating to the Definition of 

Adequate Consideration, 53 Fed. Reg. 17,632, 17,634) (May 17, 1988) and 

noting that, although the proposed regulation had no legal effect, 

“numerous circuit courts have adopted the DOL’s proposed definition”). 
14 No. 21-805

of facts pertaining to each non-party fiduciary may be individualized. 

Notwithstanding this dispute, the district court limited its analysis to 

suggesting only that determining whether the plans received 

adequate compensation “is not quite as easy” to resolve with common 

proof.31 

As for the other exemption that TIAA asserts may apply, the 

district court’s decision gives us no indication that the court factored 

it into its predominance analysis at all. Section 408(b)(1) exempts 

loans “made by the plan to parties in interest who are participants or 

beneficiaries of the plan” so long as, inter alia, the loans are “made in 

accordance with specific provisions regarding such loans set forth in 

the plan,” “bear a reasonable rate of interest,” and “are adequately 

secured.”32 The parties’ briefs dispute whether the loans are eligible 

for a § 408(b)(1) exemption and whether such a determination could 

be made with classwide proof. TIAA emphasizes the individualized 

nature of reviewing each loan against the specific plan’s governing 

documents to ensure compliance.33 It adds that by submitting only 

her loan contract, Haley failed to supply the district court with 

necessary proof that the various plans in the purported class were 

sufficiently similar. TIAA also relies on regulations that define 

“reasonableness” in light of rates that would be offered by “local 

banks” and financial institutions in the community, as well as current 

economic conditions, to argue that reasonableness is necessarily a 

fact- and plan-specific inquiry.34 Haley counters that the same 

31 Special App’x 22. 

32 29 U.S.C. § 1108(b)(1). 

33 See 29 C.F.R. § 2550.408b-1(d). 

34 29 C.F.R. § 2550.408b-1(e). 
15 No. 21-805

regulations provide that a “loan program containing a precondition 

designed to benefit a party in interest (other than the participant) is 

not afforded relief by section 408(b)(1).”35 According to Haley, even 

assuming the interest rate charged on each loan in the class is 

reasonable, requiring borrowers to invest their collateral in a TIAA 

Traditional Annuity is a disqualifying “precondition.” 

That certain of the exemption-related issues may overlap with 

the merits of this case does not absolve a district court from 

addressing them at the certification stage when such determinations

bear on assessing a Rule 23 requirement.36 The court must still find 

that each of the requirements is satisfied in order to certify a class. We 

recognize, however, that the “determination as to a Rule 23 

requirement is not binding on the trier of fact in its determination of 

the merits.”37

Because the district court did not analyze the exemptions, it 

also did not engage with the evidence that TIAA submitted to 

substantiate the purported variations among the plans. A district 

court cannot simply “take the plaintiff’s word that no material 

differences exist.”38 While it may be true, as the district court 

surmised, that the loans had the “same basic central . . . structure,” it 

made no findings about the interest rates that TIAA credited on the 

collateral, the interest rates that participants paid, and whether those 

rates varied across loans to support its conclusion that the class 

35 29 C.F.R. § 2550.408b-1(a)(3)(i). 

36 Wal-Mart Corp. v. Dukes, 564 U.S. 338, 351–52 & n.6 (2011); In re 

I.P.O. Sec. Litig., 471 F.3d at 41.

37 Johnson, 780 F.3d at 138.

38 Langan, 897 F.3d at 97. 
16 No. 21-805

members were adversely affected in the same way.39 We have 

instructed that a district court must “assess all of the relevant 

evidence admitted at the class certification stage.”40 The district court 

did not do that here and, in the process, impaired our appellate 

review. 

On this basis, we cannot say the district court took the requisite 

“close look at whether the common legal questions predominate over 

individual ones.”41 We are thus constrained to find that the district 

court’s determination on predominance was not “within the range of 

permissible decisions,”42 and therefore remand is required.43

39 Special App’x 9–10. 

40 In re I.P.O. Sec. Litig., 471 F.3d at 42. 

41 Langan, 897 F.3d at 97 (internal citation and quotation marks 

omitted). 

42 Myers, 624 F.3d at 548. 

43 We are mindful that district courts have various “management 

tools” at their disposal, including bifurcating classwide issues from 

individual issues, and identifying subclasses of “more homogenous groups 

defined by common legal or factual questions.” In re Petrobras Sec., 862 F.3d 

at 274; see Fed. R. Civ. P. 23(c)(4), (5). We reiterate in the interest of 

thoroughness that, if the district court were to rely on subclasses on 

remand, then it would need to (as any district court must) not only identify 

those subclasses but also explain their necessity and show that proceeding 

in that manner comports with Rule 23(b)(3)’s requirements. See Langan, 897 

F.3d at 98. We express no opinion as to whether any of the tools we have 

identified here may be appropriate to this case and leave that determination 

to the district court in the first instance.
17 No. 21-805

CONCLUSION

In sum, we VACATE the district court’s decision and 

REMAND for further proceedings consistent with this opinion.