A small plan participant’s bid to bring suit on behalf of tens of thousands of plans and millions of participants has been rejected by a federal judge.
U.S. District Judge Edmund A. Sargus of the U.S. District Court for the Southern District of Ohio denied a bid from plaintiff Theresa Brown to certify both a plaintiff class of more than 7,000 401(k) plans and a defendant class of more than 7,000 plan sponsors in her suit against Nationwide Life Insurance Co. and her employer Andrus Wagstaff (ironically, a national mass tort law firm).
The original suit (Schmitt v. Nationwide Life Ins. Co., S.D. Ohio, No. 2:17-cv-00558, complaint filed 6/27/17), filed by one Alana Schmitt (who in 2017 was replaced by another Andrus Wagstaff participant, the aforementioned Theresa Brown), “Individually and as representatives of a class of participants and beneficiaries on behalf of the Andrus Wagstaff, PC 401(k) Profit Sharing Plan and all other similarly situated individual account retirement plans,” says that while small plans such as the AW plan have the same legal and regulatory obligations as Fortune 500 companies, they “lack the expertise to navigate the labyrinth of federal regulations governing employee benefit plans or the time and resources to seek out and employ expert financial and legal consultants to understand the complexities of the marketplace.”
Specifically, the suit alleged that “by charging an asset-based fee which resulted in fees approaching $500 per plan member,” Nationwide “received excessive and unreasonable compensation for their services.” Additionally, in what it described as “an apparent attempt to hide the actual dollar amount of fees being paid by the AW Plan and the individual benefit plan investors,” the suit claims that the 2014 and 2015 Form 5500s show that no administrative or other fees were paid by the AW plan… to anyone. It goes on to claim that those reporting “failures” “…appear deliberately intended to conceal the amount of Defendants’ actual compensation for services provided to the Plan,” and that those errors “suggest that Defendants have also failed to comply with the disclosure requirements” of 408(b)2 – and that the “confusing and misleading information contained in Nationwide’s 408b-2 disclosures” kept AW and other, similarly situated plan sponsors from “determining the true costs of the Nationwide Retirement Flexible Plans Program to Plan participants.”
In considering the various motions in the case, Judge Sargus noted (Brown v. Nationwide Life Ins. Co., S.D. Ohio, No. 17-cv-558, 9/19/19) that in order to qualify as a class, it must be established that (1) the class is so numerous that joinder of all members is impractical, (2) there are questions of law or fact common to the class, (3) the claims/defenses of the representative parties are typical of the claims/defenses of the class, and (4) the parties will fairly and adequately protect the interests of the class.
This particular suit was seeking to certify two classes; one “all participant-directed individual 401(k) plans” with assets less than $10 million who engaged Nationwide for recordkeeping/administrative services through the Nationwide Retirement Flexible Advantage Retirement Plans Program that paid fess in excess of $64 per participant (a figure the original suit alleged was the median recordkeeping costs in 2015, citing a survey by NEPC – although the average plan size of the respondents to the NEPC survey was $1.1 billion and each plan had more than 12,000 participants), excluding employees of the plaintiffs’ law firms, and all sponsors of the aforementioned participant-directed 401(k) plans that participated in the Nationwide program noted above.
After a review of the motions from both parties, and the legal precedents for consideration, Judge Sargus cited what he called a “key distinction” noted by the Nationwide defendants, that the plan agreements “varied based on the information and services provided,” and that therefore “the Plaintiff’s alleged injury, i.e., excessive fees, is not traceable to a specific provision in a shared contract.” In fact, Judge Sargus noted, not only did the plaintiff present no evidence suggesting that Nationwide acted in concert in constructing those agreements, but rather that they admitted they had “absolutely no idea what steps the sponsors of the thousands of other plans took in the same vein.” This, Sargus wrote, meant that the potential class members “do not share a judicial link,” and thus not only did the plaintiff lack standing to sue each defendant, the certification of a class on that basis would be “improper,” and denied the motion.
Ditto the second claim. Sargus declined to certify a plaintiff class because only Brown can assert a cause of action against Nationwide and her own plan sponsor (Andrus) – and that “those putative plaintiff class members who did not utilize AW as a fiduciary lack standing to bring claims against AW.”
