Opinion ID: 75658
Heading Depth: 2
Heading Rank: 2

Heading: The EBSCO Defendants

Text: 31 On appeal, the EBSCO Defendants argue that the district court abused its discretion in certifying the class against them. They argue that Piazza lacks standing to present some of the class's claims, that irreconcilable conflicts exist among the class members, and that it was an abuse of discretion to certify certain claims pursuant to Rule 23(b)(3), rather than Rule 23(b)(1). We address these arguments below. 32 As an initial matter, however, we note that our analysis of the EBSCO Defendants' challenges to the class certification order is hampered by the lack of precision in the class certification order. The district court certified the class with respect to the claims against all defendants as such claims are stated in the June 30, 1999 amended complaint. Although we read this to mean that the district court intended to certify all of the claims stated in the amended complaint against all of the defendants, we note that, prior to the class certification order, the district court had granted PwC's motion for summary judgment on several state law claims. Moreover, when we turn to the amended complaint, it is difficult, if not impossible, to discern precisely which claims are asserted against the EBSCO Defendants, and therefore impossible to identify precisely the claims with respect to which the class was certified. 33 In his argument to this court, Piazza identifies three general claims against the EBSCO Defendants: (1) breach of fiduciary duty by operating competitor companies which lowered the value of EBSCO stock and diminished the profits EBSCO placed in the Plan from 1983 to the present; (2) breach of fiduciary duty through the sale of EBSCO stock from the Plan in 1994 at an unreasonably low price; and (3) breach of fiduciary duty by artificially lowering the value of the stock between 1983 and the 1994 sale. Each of these claims is said to arise under both §a502(a)(2) and §a502(a)(3) of ERISA. Given the lack of precision in the certification order and incorporated complaint, we will assume that the district court intended to certify each of these three general claims against the EBSCO Defendants under § 502(a)(2) and (3). 3 Since we find that it was an abuse of discretion to certify some of these claims, we vacate the certification of the class against the EBSCO Defendants and remand to the district court for a precise statement of the class claims, if any, which it may permit.
34 The EBSCO Defendants argue that Piazza lacks standing to assert, on behalf of the class, the claim for breach of fiduciary duty by operating competing companies from 1983 to the present. The heart of this claim is that the EBSCO Defendants' operation of competing companies diminished EBSCO's profits during that period and, consequently, reduced EBSCO's profit-sharing contributions to the Plan. This claim is asserted on behalf of all class members, and applies to the entire class period. Although the class period runs from 1983 to the present, Piazza was a Plan participant only from 1988 to 1996. Accordingly, EBSCO argues that Piazza lacks standing to assert a claim based on the operation of competing companies from 1983 to 1988 (before he was an EBSCO employee or Plan participant) or after 1996 (when he withdrew his funds from the Plan). While we agree that Piazza lacks standing to assert a claim based on the operation of competing companies either before or after his participation in the Plan, we donot believe that this prevents him from acting as a representative of the class of all Plan participants from 1983 through the pendency of the case. 35 The EBSCO Defendants argue, and we agree, that Piazza has a breach of fiduciary duty claim on this ground against the EBSCO Defendants only for the period when he was a Plan participant. The fiduciary duties which they are alleged to have breached arise under ERISA. ERISA requires fiduciaries to discharge [their] duties with respect to the plan solely in the interest of the participants and beneficiaries, ERISA § 404(a), 29 U.S.C. § 1104(a), and requires plan administrators to discharge their fiduciary duties for the exclusive purpose of . . . providing benefits to participants and their beneficiaries. 29 U.S.C. § 1104(a)(1)(A)(i). 36 Furthermore, ERISA defines participant as 37 any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be able to receive any such benefit. 38 29 U.S.C. § 1002(7). ERISA does not include in the definition of participant a future employee. Plainly, the EBSCO Defendants did not owe Piazza a fiduciary duty before he became an EBSCO employee, and Piazza can have no claim for breach of that duty before it arose. 39 Moreover, under the terms of the Plan, Piazza's retirement distributions were determined only by the assets that were in the plan at the time of his retirement. Consequently, the fact that EBSCO's profit sharing contributions after his retirement may have been smaller than they would have been without the alleged breach of fiduciary duty cannot have had any effect on him whatsoever. Without such an effect, there is no injury in fact and Piazza lacks standing to raise a claim for the alleged breaches occurring after his retirement. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S. Ct. 2130, 2136, 119 L. Ed. 2d 351 (1992) (To satisfy the first element of the irreducible constitutional minimum of standing . . . the plaintiff must have suffered an 'injury in fact'--an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical.) (citations and quotation marks omitted). 40 Piazza therefore only has standing to assert this breach of fiduciary duty claim for breaches occurring from 1988 to 1996, when he was a Plan participant. The EBSCO Defendants argue that, since Piazza does not have standing to raise a breach of fiduciary duty claim against them for breaches that occurred before or after his participation in the Plan, he cannot represent a class making these claims on behalf of some of its members. We disagree. 41 Even though Piazza only has standing to assert this breach of fiduciary duty claim for the period of his participation in the Plan, he may still represent the class if his claim has the requisite typicality. It is beyond dispute that in order to have the requisite typicality to represent a class, a named plaintiff must have individual standing to assert the claim. Prado-Steiman, 221 F.3d at 1279. However, there is no similar requirement that all putative class members share identical claims. Id. at 1279 n.14 (quoting Baby Neal v. Casey, 43 F.3d 48, 54 (3rd Cir. 1994)). In fact, typicality and commonality may be satisfied even if some factual differences exist between the claims of the named representatives and the claims of the class at large . . . [although] we do require that the named representatives' claims share the same essential characteristics as the claims of the class at large. Id. (citations and quotation marks omitted). In making this determination, we have concluded that a strongsimilarity of legal theories will satisfy the typicality requirement despite substantial factual differences. Id.; see also Kornberg v. Carnival Cruise Lines, Inc., 741 F.2d 1332, 1337 (11th Cir. 1984) (stating that a sufficient nexus is established if the claims or defenses of the class and the class representative arise from the same event or pattern or practice and are based on the same legal theory). 42 Although Piazza only has standing to assert this breach of fiduciary duty claim based on the operation of competing companies while he was a Plan participant, his claim has the same essential characteristics as the claims of the class at large. Prado-Steiman, 221 F.3d at 1279 n.14. The breach of fiduciary duty claims of all class members are based on the EBSCO Defendants' practice of operating competing companies during the class period, reducing EBSCO's profits and, consequently, reducing EBSCO's profit-sharing contributions to the Plan. The class members' claims therefore arise from precisely the same practice and the legal issues are identical. Compare Kornberg, 741 F.2d at 1337. Their claims differ from Piazza's only in the particular time period in which the operation of competing companies caused them injury. Although individual damage calculations may vary with the periods during which the different class members were Plan participants and the particular dates on which retired class membersreceived their retirement distributions, the essential core of their claims does not vary. Piazza's claim is therefore altogether typical of the claims possessed by the class members; the factual differences between their claims and his are no barrier to allowing him to serve as class representative. Quite simply, this argument provides no basis for concluding that the district court abused its discretion by certifying a class against the EBSCO Defendants on this claim.
43 The EBSCO Defendants concede that the requirements of Rule 23(a) are met with regard to the claim for breach of fiduciary duty on the basis of their participation in the Plan's sale of the EBSCO stock at less than its true value. They argue, however, that the district court abused its discretion in its application of Rule 23(b) to this claim. 4 We agree. 44 A class action may be maintained only when it satisfies the numerosity, commonality, typicality, and adequacy requirements of Rule 23(a) and at least one of the alternative requirements of Rule 23(b). See Jackson, 130 F.3d at 1005. The district court certified the class against the EBSCO Defendants pursuant to Rule 23(b)(3), which allows certification when common questions of law and fact predominate and a class action offers a superior method for fair and efficient adjudication. The EBSCO Defendants argue that the district court abused its discretion by certifying the class under Rule 23(b)(3) rather than Rule 23(b)(1), which allows certification when the prosecution of separate actions by individual class members would create a risk that inconsistent adjudications would establish incompatible standards of conduct. The subsection under which the class action is certified is significant to the EBSCO Defendants because Rule 23(c)(2) requires the court to allow class members an opportunity to opt out of class actions maintained under Rule 23(b)(3), but no such requirement applies to class actions maintained under Rule 23(b)(1). 45 The EBSCO Defendants do not contest the district court's determination that common issues predominate, arguing instead that a class action under Rule 23(b)(1) is an available and plainly superior method for the fair and efficient adjudication of this controversy. The EBSCO Defendants contend that, since Piazza was not individually injured by the Plan's 1994 sale of the EBSCO stock, his only ERISA claim is pursuant to ERISA § 502(a)(2), for appropriate relief to the Plan for alleged breaches of fiduciary duty. Since a §a502(a)(2) claim is brought on behalf of the Plan, any recovery will benefit the Plan and, indirectly, the members of the class. Allowing individuals to opt out of the class action and pursue their own suits under ERISA § 502(a)(2), the EBSCO Defendants argue, would require them to defend against multiple suits, each asserting what is actually one claim belonging to the Plan. Clearly, the EBSCO Defendants assert, the requirements of Rule 23(b)(1) are met, since inconsistent or varying adjudications with respect to individual members of the class on this claim would establish incompatible standards of conduct for them. See Rule 23(b)(1)(A). The EBSCO Defendants conclude, therefore, that the possibility of such prejudice to them, and the lack of any countervailing benefit 5 to be obtained from certification of the class under Rule 23(b)(3), renders it an abuse of discretion for the district court to have certified the class on the ERISA § 502(a)(2) claim under Rule 23(b)(3) rather than Rule 23(b)(1). 46 Under these particular circumstances, where the EBSCO Defendants have identified potential prejudice arising from certification of the ERISA § 502(a)(2) claim under Rule 23(b)(3), certification under Rule 23(b)(1) is also available, and Piazza has identified no basis for preferring certification of this claim under Rule 23(b)(3) to certification under Rule 23(b)(1), it was an abuse of discretion to certify the § 502(a)(2) claim 6 under Rule 23(b)(3). No other court has certified a Rule 23(b)(3) class for a § 502(a)(2) claim, although such claims have been allowed to proceed as class actions under subsections (b)(1) and (b)(2). See, e.g., Bradford v. AGCO Corp., 187 F.R.D. 600, 605 (W.D. Mo. 1999) (Rule 23(b)(2));Gruby v. Brady, 838 F. Supp. 820, 828 (S.D.N.Y. 1993) (Rule 23(b)(1)); Specialty Cabinets & Fixtures, Inc. v. American Equitable Life Ins. Co., 140 F.R.D. 474, 479 (S.D. Ga. 1991) (Rule 23(b)(1)) (Because individuals may bring class actions to remedy breaches of fiduciary duty only on behalf of the plan, rather than themselves, the court cannot allow absent participants or beneficiaries to opt out of this class. The right to recovery, after all, belongs to the plan.) (citation omitted). 7
47 The EBSCO Defendants proffer two broad arguments against the district court's certification of the claim that they breached their fiduciary duties through their roles in the alleged undervaluations of the EBSCO stock in the years preceding the 1994 sale. First, they say that Piazza has no standing to raise this claim because he suffered no injury in fact from this alleged breach of their fiduciary duties. Second, they contend that there are irreconcilable conflicts among the members of the class. Both of these arguments have at their heart the assertion that any pre-sale undervaluations only harmed those who retired while that undervaluation was in effect and actually benefitted those who retired later. Since we agree with this idea, and that Piazza does not have standing as a consequence, we need not address the EBSCO Defendants' conflicts argument to reach our conclusion that the district court abused its discretion by certifying a class on this claim. 48 Each Plan participant's retirement distribution is calculated as a share of the value of the assets in the Plan when that participant retires. Up until the sale of the Plan's EBSCO stock in 1994, the Plan's trustee, AmSouth, calculated a value for the Plan's EBSCO stock each year and used that value as a basis for determining the retirement distributions for those who retired during that year. 8 If the Plan's EBSCO stock was undervalued when a participant retired, that participant would receive less than he would have if his retirement distribution had been calculated based on the true value of the Plan's assets. Any participant who retired while the Plan owned EBSCO stock, therefore, would be injured by an undervaluation of the EBSCO stock at the time of his retirement. 49 It should be obvious that Plan participants are not injured by any undervaluation that occurs after they retire, since their retirement distributions are not affected by the value of the Plan's assets after they retire. Less obvious, however, is the fact that Plan participants are actually benefitted by undervaluations that precede their retirement, so long as the stock remains in the Plan. This is so since undervaluations reduce the size of the distributions to participants who retire when the undervaluation is in effect, and therefore leave more assets in the Plan for later retirees. 9 50 After the stock sale, the Plan no longer held any EBSCO stock, holding in its place the funds which had been used by EBSCO to purchase the stock (or other assets that the Plan purchased with those funds). Post-sale retirees, like Piazza, would have been harmed by the sale of the EBSCO stock at an improperly low price, because that left the Plan with a less valuable pool of assets than it had before the sale. They would not, however, have been harmed by any earlier undervaluations. In fact, pre-sale undervaluations of the EBSCO stock would have reduced the value of retirement distributions paid to pre-sale retirees, leaving more assets in the Plan than if their retirement distributions had been based on the true value of the Plan's EBSCO stock, and actually increasing the value of distributions to later retirees. 51 Since Piazza was not injured by the alleged pre-sale undervaluations (which, if anything, increased his retirement distributions), he lacks standing to raise a claim based on the pre-sale undervaluation of the EBSCO stock. 10 SeeLujan, 504 U.S. at 560, 112 S. Ct. at 2136 (As we have noted, to satisfy the first element of the irreducible constitutional minimum of standing . . . the plaintiff must have suffered an 'injury in fact'--an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical.) (citations and quotation marks omitted). It therefore was an abuse of discretion for the district court to certify a class represented by Piazza against the EBSCO Defendants on the claim that they breached their fiduciary duties by undervaluing EBSCO stock between 1983 and the 1994 stock sale. Prado-Steiman, 221 F.3d at 1279 ([T]here cannot be adequate typicality between a class and a named representative unless the named representative has individual standing to raise the legal claims of the class.).