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. 

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 

Weighing this requirements of class certification, the court observes the parties do not contest the numerosity of the plaintiffs, which is obvious given the large size of the retirement plan under consideration. On the matter of commonality, the court has determined plaintiffs proved it sufficiently, on the logic that “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.”

The decision clarifies: “Plaintiffs raise numerous questions that are capable of classwide resolution, such as whether each defendant was a fiduciary; whether defendants’ process for assembling and monitoring the plan’s menu of investment options, including the proprietary funds, was tainted by a conflict of interest or imprudence and whether defendants acted imprudently by failing to control recordkeeping expenses. Resolution of these questions will generate common answers apt to drive the resolution of defendants’ liability … Defendants argue that plaintiffs cannot show commonality because none of the alleged breaches affected all class members. They note, for instance, that 12,000 class members never invested in a single proprietary fund at any point during the relevant period. Commonality, however, does not mean that all issues must be identical as to each class member. These distinctions among class members may affect the calculation of damages but do not defeat class certification when the underlying harm derives from the same common contention, in this case that the investment lineup made available to all participants violated ERISA.”

The court similarly sides with plaintiffs on the matters of typicality and adequacy of representation.

“Plaintiffs have shown typicality,” the decision states. “Typicality is intended to ensure that maintenance of a class action is economical and [that] the named plaintiff’s claim and the class claims are so interrelated that the interests of the class members will be fairly and adequately protected in their absence. The requirement is met where each class member’s claim arises from the same course of events and each class member makes similar legal arguments to prove the defendant’s liability.”

The decision continues: “Each plaintiff has done one or more of the following: (1) invested in at least one proprietary mutual fund; (2) participated in the plan during the time period when the recordkeeping fees were allegedly excessive; and (3) invested in a proprietary or non-proprietary fund for which cheaper alternatives were allegedly available. This is sufficient to show typicality.”

The full text of the decision, including more detailed consideration of Deutsche Bank’s failed counterarguments against class certification, is available here