In an amicus curiae (friend of the court) brief filed with the 7th U.S. Circuit Court of Appeals, ERIC asks the court to affirm a lower court ruling denying class certification.
Among other claims, the plaintiffs in Abbott v. Lockheed Martin allege that the Lockheed Martin stable value fund in its section 401(k) plan was mismanaged because of its investment in money market funds. The case is before the 7th Circuit on an interlocutory appeal regarding class certification on that claim, which is premised on the same claims and allegations that the District Court had previously rejected. (See “Slimmed-Down Revenue-Sharing Case Gets Class OK.”)
The plaintiffs allege that the measure of its alleged fiduciary breach should be based on the label of the fund (and how the investment and performance of such a fund compares to similarly labeled funds in other unrelated plans) rather than the specific provisions and disclosures of the Lockheed plan. At summary judgment, the U.S. District Court for the Southern District of Illinois rejected this theory, observing that the duties of a plan administrator are necessarily defined by the disclosures of that particular plan and not by the operation of other plans bearing similar labels.
The joint ERIC amicus brief argues that a plaintiff should not be able to use class certification to import a theory of liability under the Employee Retirement Income Security Act (ERISA) that it could not pursue on the merits and that the class definition cannot be based on claims unrelated to those that will be addressed on the merits. “Allowing a plaintiff to certify a class—even provisionally—on this rejected theory of liability would impose significant adverse consequences on the sponsors, administrators and beneficiaries of ERISA plans,” the brief argues.
The brief explains that one of ERISA’s most fundamental features is its focus on clear disclosure to participants. The brief contends that both the proposed class definition and the opening brief on appeal make clear that the plaintiffs are attempting to define a class based on the Lockheed Fund’s alleged divergence from the performance of a typical “stable value fund” rather than on any imprudence in the fund’s operations as set forth in its own disclosures.
“If [the] plaintiffs’ view were to prevail ... a plan administrator could be subjected to substantial cost and litigation risk based on something completely different: a standard of performance defined entirely by reference to the performance, decisions and disclosures of plan sponsors and fiduciaries of other, unrelated plans, rather than the terms and disclosures of the plan involved,” the brief warns. “This would only add complexity, confusion and risk to plan administration, and it would ultimately discourage employers from offering diverse ERISA plans.”
The brief is here.