Compliance

ERISA Lawsuit Against Deutsche Bank Gains Class Certification

The text of the decision to grant class certification, while only representing an interim step in this ERISA challenge, offers important insight into what it takes to prove commonality, typicality and numerosity. 

By John Manganaro editors@strategic-i.com | September 07, 2017
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A federal district court judge has granted class certification to a sizable group of Deutsche Bank employees who have filed an Employee Retirement Income Security Act (ERISA) challenge, alleging self-dealing in the company’s retirement plan benefit.

The now class-certified case comes out of the U.S. District Court for the Southern District of New York. The underlying allegations are that Deutsche Bank and other defendants violated their fiduciary duties by offering in the company 401(k) plan proprietary, high-cost investments that profited the bank. This development comes nearly a year after the court rejected defendants’ argument that the lawsuit, filed in December 2015, should be time-barred by ERIA’s various statutes of limitation. The bank otherwise denies the allegations. 

According to the plaintiffs’ complaint, the Deutsche Bank Matched Savings Plan, as of 2009, had roughly $1.9 billion in assets and offered participants 22 “designated investment alternatives,” 10 of which were “proprietary Deutsche Bank mutual funds.” The core of the complaint’s allegations concerns the inclusion of Deutsche Bank proprietary mutual funds among the plan’s offerings. According to the complaint, “Deutsche Bank earned millions of dollars in investment management fees by retaining [these proprietary mutual funds] in the plan.”

The complaint specifically alleges that the plan included three proprietary index funds that charged excessive fees in relation to other comparable index funds. The complaint also asserts that the plan included actively managed proprietary funds that charged investment management fees two- to five-times higher than “other actively managed funds in the same style,” and “not only did these proprietary funds have higher fees, but they also consistently underperformed as measured by benchmark indices.” Plaintiffs allege that the plan further failed to include the least expensive share class for each of its offered proprietary funds and failed to rationally control recordkeeping costs.

Turning to the class certification matter at hand, the district court has considered plaintiffs’ arguments primarily under Rule 23(b)(1), which permits class certification if prosecuting separate actions by or against individual class members would create a risk of: (A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or (B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests.

As the decision lays out, Rule 23 “does not set forth a mere pleading standard.”

“A party must not only be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, typicality of claims or defenses, and adequacy of representation, as required by Rule 23(a) … The party must also satisfy through evidentiary proof at least one of the provisions of Rule 23(b).”

NEXT: Weighing the requirements of class certification