The ERISA Litigation Newsletter - January 2013

Editors' Overview

This month's issue covers two emerging areas of employee-benefits law. Our lead article considers the implications of a forthcoming decision in Comcast Corp. v. Behrend, a case currently pending in the Supreme Court. The federal circuits have heretofore split on whether federal district courts must determine the admissibility of expert evidence during the class-certification phase of class litigation. In Comcast, the Court is expected to resolve this split in the antitrust context, although the Court's decision will likely apply in other types of litigation, as well. Our author examines the role of expert evidence in class certification issues arising in ERISA litigations, and identifies particular areas where the Comcast ruling may have significant implications for ERISA practitioners.

Our second article, the "View from Proskauer," is another installment in a series of articles covering the sweeping changes wrought by the Affordable Care Act (ACA). We have previously covered other aspects of the ACA in our May, July, August and November 2012 issues. In this issue, our authors consider cost-control strategies for employers as they struggle with retiree-medical expenditures in the era of the ACA. They conclude with practical advice for employers hoping to reduce retiree-medical costs while minimizing abrupt changes to coverage.

As always, be sure to review the section on Rulings, Filings, and Settlements of Interest.

The Future Role of Experts in ERISA Class Actions*

Contributed by Nicole A. Eichberger

The Supreme Court's decision in Wal-Mart Stores, Inc. v. Dukes impacted not only employment class actions but the viability of class certification in ERISA cases. The Supreme Court's grant of certiorari last term in Comcast Corporation v. Behrend has the potential to similarly impact the future availability of class certification in ERISA actions. The Supreme Court granted Comcast's petition for certiorari with respect to the following question on which the federal circuit courts have been divided since Dukes:

Whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.

Although Comcast is an antitrust lawsuit, the Supreme Court's decision could affect certification decisions in ERISA class actions, since the evaluation of class certification motions in ERISA cases often involves an assessment of the parties' respective expert analyses.

Experts have always played a significant role in complex class action litigation, including ERISA lawsuits, but the courts' views as to the role of experts at the class certification stage were inconsistent at best. The Supreme Court's decision in Dukes arguably affected the analysis, insofar as the Court set forth a "significant proof" standard for satisfying Fed. R. Civ. P. 23. As part of the "significant proof" discussion, the Supreme Court stated in dicta that the admissibility standard for expert evidence set forth in Daubert v. Merrell Dow Pharmaceuticals Inc.,1 should apply at the class certification stage. After Dukes, the circuit courts have divided on whether a ruling on the admissibility of expert evidence is a prerequisite to a class certification ruling. The Supreme Court's ruling in Comcast should resolve this split and, in so doing, significantly impact the outcome of class action litigation, including ERISA litigation.

Role of Experts in ERISA Class Actions Pre-Dukes

To appreciate the significant role experts can play in class certification, it is helpful to consider the courts' approaches to class certification in ERISA lawsuits. The propriety of class-wide resolution is particularly important in the ERISA context, since courts apply class certification criteria both to suits brought on behalf of a class of plan participants and to suits brought "on behalf of" an ERISA plan.2 These decisions typically emphasize the due process considerations underlying Rule 23's procedural protections for absentee plan participants.

As in all class actions, the plaintiff in an ERISA class action must satisfy Rule 23(a)'s requirements of numerosity, commonality, typicality, and adequacy. In addition, the plaintiff must satisfy at least one of Rule 23(b)'s requirements. Before Dukes, commonality requirements were satisfied readily in ERISA 401(k) excessive fee claims and prudence claims based on alleged breaches in selecting investment options. In contrast, ERISA putative classes alleging misrepresentation and/or estoppel claims generally were not certified because of the predominance of individualized issues. Regardless of the type of claims involved, the courts have reached inconsistent results regarding the proof needed to sustain a showing of commonality, including the need for expert evidence and the circumstances under which such evidence should be considered.

For example, in Langbecker, plaintiffs brought a class action alleging breach of fiduciary duty claims, including prudence and disclosure claims, stemming from the company's offering of a 401(k) plan in which the employer stock fund was an ESOP. The district court certified the prudence claim for class treatment, notwithstanding an expert analysis offered by defendants to demonstrate that plaintiffs could not satisfy their Rule 23 burden of proof.3 On appeal, the Fifth Circuit decertified the prudence claims. In so ruling, the Fifth Circuit stated that a district court's analysis under Rule 23 required an inquiry into the merits to determine whether sufficient admissible evidence had been presented, and that this inquiry should include consideration of the admissibility of the expert evidence.4

In parallel class action challenges to administrative fees levied against ERISA plans, the Seventh Circuit found class resolution improper5 based in part on expert testimony proffered by defendants, which demonstrated that damages could not be awarded on a class-wide basis. In so ruling, the court rejected plaintiffs' arguments that they did not have to offer evidence in advance of trial to show that damages could be awarded on a class-wide basis.

Contrasting these rulings is the district court's ruling in Brieger v. Tellabs.6 In Brieger, plaintiffs filed a putative class action alleging that Tellabs and various individual defendants breached their fiduciary duties of prudence and disclosure because Tellabs common stock was offered as an investment option in the company's 401(k) plan. In granting plaintiffs' motion for certification, the district court rejected defendants' proffered expert opinion, holding that it need not consider expert reports at the certification stage.

The Supreme Court's Ruling in Wal-Mart v. Dukes

Although the Supreme Court's ruling in Dukes did not rule on the admissibility of expert evidence at the class certification stage, many of the Court's pronouncements may be relevant to the issue. Plaintiffs in Dukes filed a Title VII class action suit on behalf of past, present, and future female employees of Wal-Mart's retail stores in the United States. Plaintiffs alleged that the company systematically paid women less than their male counterparts and promoted men to higher positions at faster rates than women, in violation of Title VII. The district court granted class certification, and the Ninth Circuit affirmed.

At the outset of the opinion, the Supreme Court held that Rule 23 is not a mere pleading standard. Rather, a party seeking class certification "must affirmatively demonstrate his compliance with the Rulethat is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc.," and the moving party's burden is one of "significant proof." The Court confirmed its prior rulings that class certification is not the rule but the exception. When assessing class certification, a district court may not refuse to consider...