no. 17-2911 · kai h. richter jacob t. schutz nichols kaster, pllp 4600 ids center 80 south eighth...

NO. 17-2911

IN THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Deutsche Bank Americas Holding Corp., Deutsche Bank Americas Holding Corp.

Executive Committee, Richard O’Connell, Deutsche Bank Matched Savings Plan

Investment Committee, John Arvanitis, Robert Dibble, Tim Dowling, Richard

Ferguson, James Gnall, Louis Jaffe, Patrick McKenna, David Pearson, Joseph

Rice, Scott Simon, Andrew Threadgold, James Volkwein,

Petitioners,

– v. –

Ramon Moreno, Donald O’Halloran, Omkharan Arasarantnam, Baiju Gajjar,

Rajath Nagaraja, Individually and as representatives of a class of similarly situated

persons and on behalf of the Deutsche Bank Matched Savings Plan,

Respondents.

ON PETITION FOR LEAVE TO APPEAL FROM THE

UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK

CASE NO. 1:15-CV-09936

RESPONDENTS’ ANSWER TO PETITION FOR PERMISSION TO

APPEAL PURSUANT TO FED. R. CIV. P. 23(f)

Case 17-2911, Document 32, 09/29/2017, 2136722, Page1 of 30

KAI H. RICHTER

JACOB T. SCHUTZ

NICHOLS KASTER, PLLP

4600 IDS CENTER

80 SOUTH EIGHTH STREET

MINNEAPOLIS, MN 55402-2242

TELEPHONE: 612-256-3200

COUNSEL FOR RESPONDENTS


i

TABLE OF CONTENTS

INTRODUCTION 1

FACTUAL AND PROCEDURAL BACKGROUND 3

I. EVIDENCE TO DATE 4

II. CLASS CERTIFICATION 6

ARGUMENT 7

I. PETITIONERS DO NOT MEET THE HIGH STANDARD FOR INTERLOCUTORY

REVIEW UNDER RULE 23(F) 7

II. THE DISTRICT COURT PROPERLY CERTIFIED THE CLASS UNDER

RULE 23(b)(1) 11

A. LaRue Is Not a Barrier to (b)(1) Certification 12

B. Certification Under Rule 23(b)(1) Does Not Violate Due Process 14

III. THE CLASS DEFINITION DOES NOT WARRANT INTERLOCUTORY REVIEW..15

IV. THE CHAMBER OF COMMERCE’S AMICUS BRIEF DOES NOT PROVIDE ANY

FURTHER SUPPORT FOR THE PETITION 19

CONCLUSION ........................................................................................................ 20


ii

TABLE OF AUTHORITIES

CASES

Bauer-Ramazani v. Teachers Ins. & Annuity Ass’n of Am.-Coll. Ret. & Equities

Fund, 290 F.R.D. 452 (D. Vt. 2013) ............................................................. 13

In re Beacon Assocs. Litig., 282 F.R.D. 315 (S.D.N.Y. 2012) ................................ 11

Blair v. Equifax Check Servs., Inc., 181 F.3d 832 (7th Cir. 1999) ............................ 8

Brotherston v. Putnam Invs., LLC,

No. 1:15-cv-13825, Dkt. No. 88 (D. Mass. Dec. 13, 2016) ............................ 1

Caufield v. Colgate-Palmolive Co.,

2017 WL 3206339 (S.D.N.Y. July 27, 2017) ................................................ 11

Chamberlan v. Ford Motor Co., 402 F.3d 952 (9th Cir. 2005) ............................... 16

In re Citigroup Pension Plan ERISA Litig.,

2007 WL 1074912, (S.D.N.Y. Apr. 4, 2007) .......................................... 19, 20

In re Cobalt Int’l Energy, Inc. Sec. Litig.,

2017 WL 3620590 (S.D. Tex. Aug. 23, 2017) .............................................. 19

Dobson v. Hartford Fin. Servs. Grp., Inc., 342 F. App’x 706 (2d Cir. 2009) ......... 11

F.T.C. v. Wyndham Worldwide Corp.,

10 F. Supp. 3d 602 (D.N.J. 2014) .................................................................. 20

Forbush v. J.C. Penney Co., 994 F.2d 1101 (5th Cir.1993) .................................... 18

Fort Worth Emps.’ Ret. Fund v. J.P. Morgan Chase & Co.,

301 F.R.D. 116 (S.D.N.Y. 2014) ................................................................... 16

Giovanniello v. ALM Media, LLC, 726 F.3d 106 (2d Cir. 2013) .............................. 7

In re Global Crossing Secs. & ERISA Litig., 225 F.R.D. 436 (S.D.N.Y.2004) ...... 11


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iii

Healthcare Strategies, Inc. v. ING Life Ins. & Annuity Co.,

2012 WL 10242276 (D. Conn. Sept. 27, 2012) ............................................ 13

Hevesi v. Citigroup Inc., 366 F.3d 70 (2d Cir. 2004) ............................................ 8, 9

In re Initial Pub. Offering Sec. Litig., 671 F. Supp. 2d 467 (S.D.N.Y. 2009) ......... 16

In re J.P. Morgan Stable Value Fund ERISA Litig.,

2017 WL 1273963 (S.D.N.Y. Mar. 31, 2017) ......................................... 13, 20

Jones v. NovaStar Fin., Inc., 257 F.R.D. 181 (W.D. Mo. 2009) ............................. 12

Kanawi v. Bechtel Corp., 254 F.R.D. 102 (N.D. Cal. 2008) ......................... 2, 11, 15

Krueger v. Ameriprise Fin., Inc., 304 F.R.D. 559 (D. Minn. 2014) .................... 2, 17

L.I. Head Start Child Dev. Servs., Inc. v. Econ. Opportunity Comm’n of Nassau

Cty., Inc., 710 F.3d 57 (2d Cir. 2013) ........................................................... 15

LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008) ....................passim

Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985)........................................ 14

In re Natural Gas Commodities Litig., 231 F.R.D. 171 (S.D.N.Y. 2005) ............... 19

In re Northrop Grumman Corp. ERISA Litig.,

2011 WL 3505264 (C.D. Cal. Mar. 29, 2011) .......................................... 2, 12

Ortiz v. Fireboard Corp., 527 U.S. 815 (1999) ....................................................... 11

In re Parmalat Sec. Litig., 2008 WL 3895539 (S.D.N.Y. Aug. 21, 2008) ........ 16, 17

In re Petrobras. Secs., 862 F.3d 250 (2d Cir. 2017) ................................................ 18

Prado-Steinman ex rel. Prado v. Bush, 221 F.3d 1266 (11th Cir. 2000) ................ 10

Robertson v. Nat’l Basketball Ass’n, 556 F.2d 682 (2d Cir. 1977) ......................... 14

In re Rodriguez, 695 F.3d 360 (5th Cir. 2012) ........................................................ 18

In re Schering Plough Corp. ERISA Litig., 589 F.3d 585 (3d Cir. 2009) ... 11, 12, 13


iv

Sims v. BB&T Corp., 2017 WL 3730552 (M.D.N.C. Aug. 28, 2017) ................. 1, 17

Spano v. Boeing Co., 633 F.3d 574 (7th Cir. 2011) ................................................ 13

Sumitomo Copper Litig. v. Credit Lyonnais Rouse, Ltd.,

262 F.3d 134 (2d Cir. 2001) ........................................................ 1, 8, 9, 15, 16

In re Suntrust Banks, Inc. ERISA Litig.,

2016 WL 4377131 (N.D. Ga. Aug. 17, 2016) ............................................... 17

Tibble v. Edison Int’l, 2009 WL 6764541 (C.D. Cal. June 30, 2009) ....................... 2

Tussey v. ABB, Inc., 2007 WL 4289694 (W.D. Mo. Dec. 3, 2007) ............... 2, 11, 15

Urakhchin v. Allianz Asset Mgmt. of Am., L.P.,

2017 WL 2655678 (C.D. Cal. June 15, 2017) ................................................. 1

Urakhchin v. Allianz Asset Mgmt. of Am., L.P.,

No. 17-80124, Dkt. No. 4 (9th Cir. Sept. 13, 2017) ........................................ 2

In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124 (2d Cir. 2001) ......... 8

Vizcaino v. United States Dist. Court for Western Dist. of Wash.,

173 F.3d 713, (9th Cir.1999) ......................................................................... 18

Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011) ............................. 6, 14, 15, 20

Wagner v. Barrick Gold Corp., 251 F.R.D. 112 (S.D.N.Y. 2008) .......................... 17

In re Warner Chilcott Ltd. Sec. Litig.,

2008 WL 344715 (S.D.N.Y. Feb. 4, 2008) ................................................... 17

Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288 (1st Cir. 2000) ................ 10

Weber v. United States, 484 F.3d 154 (2d Cir. 2007) ........................................ 10, 16


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v

RULES AND STATUTES

29 U.S.C. §§ 1109 .................................................................................... 2, 13, 14, 15

29 U.S.C. §§ 1132(a)(2) ................................................................................. 2, 13, 14

OTHER AUTHORITY

Manual for Complex Litigation § 21.222 (4th ed. 2004) ........................................ 19

Marc Galanter, The Vanishing Trial: An Examination of Trials and Related

Matters in Federal and State Courts, 1 J. EMPIRICAL LEGAL STUD. 459 (2004) ...... 9

William B. Rubenstein, Newberg on Class Actions §§ 4:21, 4:24 (5th ed., June

2017 update) ....................................................................................................... 12, 15


1

INTRODUCTION

The fiduciaries of the Deutsche Bank Matched Savings Plan (“Plan”) who

bring this Petition (“Petitioners”)1 have not met their heavy burden to show that

interlocutory review of the District Court’s class certification order is warranted

under Rule 23(f). See Sumitomo Copper Litig. v. Credit Lyonnais Rouse, Ltd., 262

F.3d 134, 140 (2d Cir. 2001) (“[T]he standards of Rule 23(f) will rarely be met.”).

In a thorough and well-reasoned opinion, the District Court gave careful

consideration to Petitioners’ arguments and rejected them. Although Petitioners are

disappointed by the District Court’s class certification ruling, they have not shown

that the District Court’s order is questionable and will effectively terminate the

litigation. Nor have they identified any “compelling issues” relating to the District

Court’s order that require immediate appellate intervention.

To the contrary, the District Court’s decision is consistent with a long line of

cases that have certified similar types of class actions involving 401(k) plan

fiduciaries.2 Indeed, the Ninth Circuit recently denied a Rule 23(f) petition in

1 Petitioners are Deutsche Bank Americas Holding Corp. (“Deutsche Bank”), the

Deutsche Bank Matched Savings Plan Investment Committee (“Investment

Committee”), Deutsche Bank Americas Holding Corp. Executive Committee

(“Executive Committee”), Richard O’Connell, John Arvanitis, Robert Dibble, Tim

Dowling, Richard Ferguson, James Gnall, Louis Jaffe, Patrick McKenna, David

Pearson, Joseph Rice, Scott Simon, Andrew Threadgold, and James Volkwein. 2 See, e.g., Sims v. BB&T Corp., 2017 WL 3730552 (M.D.N.C. Aug. 28, 2017);

Urakhchin v. Allianz Asset Mgmt. of Am., L.P., 2017 WL 2655678 (C.D. Cal. June

15, 2017); Brotherston v. Putnam Invs., LLC, No. 1:15-cv-13825, Dkt. No. 88 (D.


2

another class action involving 401(k) plan fiduciaries and proprietary funds, where

the parties are represented by the same counsel on both sides, and where most of

the same arguments Petitioners make here were also made.3

The Advisory Committee Notes to Rule 23(b)(1) expressly recognize that

class certification is appropriate in “an action which charges a breach of trust by an

indenture trustee or other fiduciary similarly affecting the members of a large class

of security holders or other beneficiaries.” Fed. R. Civ. P. 23, Advisory Cmte.

Note to Subd. (b)(1) Clause (B) (1966). Indeed, class certification is especially

appropriate in cases involving claims under the Employee Retirement Income

Security Act (“ERISA”), because ERISA grants retirement plan participants the

right to bring an action on behalf of a plan as a whole. See 29 U.S.C. §§ 1109,

1132(a)(2). This is precisely such a derivative action on behalf of the Plan under

ERISA, and the issues in this case relate to Petitioners’ management of the Plan as

a whole – in particular, the fact that the Petitioners have managed the Plan in their

Mass. Dec. 13, 2016) (Text Order); Krueger v. Ameriprise Fin., Inc., 304 F.R.D.

559 (D. Minn. 2014); In re Northrop Grumman Corp. ERISA Litig., 2011 WL

3505264 (C.D. Cal. Mar. 29, 2011); Tibble v. Edison Int’l, 2009 WL 6764541

(C.D. Cal. June 30, 2009); Kanawi v. Bechtel Corp., 254 F.R.D. 102 (N.D. Cal.

2008); Tussey v. ABB, Inc., 2007 WL 4289694 (W.D. Mo. Dec. 3, 2007). 3 Urakhchin v. Allianz Asset Mgmt. of Am., L.P., No. 17-80124, Dkt. No. 4 (9th

Cir. Sept. 13, 2017); see also Petition Under Fed. R. Civ. P. 23(f) for Permission to

Appeal Order Granting Class Certification, Urakhchin v. Allianz Asset Mgmt. of

Am., L.P., No. 17-80124, Dkt. No. 1-2, at 19-20 (9th Cir. June 29, 2017) (arguing

that LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248, 256 (2008) precludes

class certification under Rule 23(b)(1) for participants in defined contribution

plans, and that such certification would violate due process).




3

own business interests and not those of Plan participants. Accordingly, this case is

tailor made for Plan-wide class certification, and there is no reason to delay the

proceedings by granting early appellate review. Petitioners are fully capable of

litigating this action through trial (as the defendants did in Tibble, Tussey, and

Brotherston), and can seek review of any issues they believe should be addressed

together at the end of the case, once final judgment is entered.

FACTUAL AND PROCEDURAL BACKGROUND

On December 21, 2015, Plaintiffs Ramon Moreno and Donald O’Halloran4

brought this action on behalf of the Plan and a class consisting of all participants

and beneficiaries of the Plan at any time on or after December 21, 2009 (excluding

Defendants, their directors, and any employees responsible for the Plan’s

investment or administrative functions). See Dkt. No. 1 ¶¶ 102-03.5 In their

Complaint, Plaintiffs alleged that Petitioners “use the Plan as an opportunity to

promote the business interests of Deutsche Bank AG and its affiliates and

subsidiaries . . . at the expense of the Plan and its participants” by, among other

things, loading the Plan with imprudent and excessively expensive funds offered

by Deutsche Bank’s affiliates. Id. ¶¶ 3-5.

4 Omkharan Arasaratnam, Baiju Gajjar, and Rajath Nagaraja were first named as

Plaintiffs in the Second Amended Complaint. Dkt. No. 66. 5 Unless otherwise indicated, all docket references are to the District Court docket.


4

On April 29, 2016, Petitioners moved to dismiss the then-operative First

Amended Complaint. Dkt. No. 31. However, the District Court denied Petitioners’

motion to dismiss in substantial part, and allowed the central claims for breach of

fiduciary duty, prohibited transactions, and failure to monitor fiduciaries to

proceed. Dkt. No. 57.6 Plaintiffs’ operative Third Amended Complaint (“TAC”)

repeats the central allegations from prior pleadings, and asserts claims on behalf of

the same class. Dkt No. 162 ¶ 144.

I. EVIDENCE TO DATE

Plaintiffs have marshalled substantial support for their claims, as set forth in

their class certification motion papers and the District Court’s order (Dkt No. 165,

the “CC Order”). Among other things, the record reflects:

The Plan’s Investment Committee is comprised exclusively of managers and

executives affiliated with Deutsche Bank, with no independent fiduciaries.

CC Order at 2.

As of December 2009, the start of the proposed class period, the Plan offered

participants 22 core investment options, ten of which were Deutsche Bank-

affiliated mutual funds (“proprietary funds”) that generated fees for

Deutsche Bank’s subsidiaries. CC Order at 3.

6 The only claim the District Court dismissed was Plaintiffs’ equitable

disgorgement claim in Count V.


5

Three of the proprietary funds in the Plan were passively-managed “index”

funds with investment management fees that were more than five times

those of non-proprietary funds that tracked the same index. Although the

Plan’s investment advisor, Aon Hewitt (“Hewitt”), presented Petitioners

with less costly alternatives, Petitioners delayed removing these excessively

costly proprietary index funds for years. CC Order at 3. In marked contrast,

Deutsche Bank’s pension plan did not use Deutsche Bank index funds,

instead using a far less expensive non-proprietary alternative. Id. at 7.

The actively-managed proprietary funds in the Plan were also excessively

expensive compared to those used in other similarly-sized plans, and these

excess fees were not justified by superior performance. Dkt. No. 142 at 8-9.

For example, for four years Petitioners ignored advice from Hewitt to

remove a particularly egregious underperformer, the Deutsche Bank Large

Cap Value Fund, before finally doing so shortly before this lawsuit was

filed. Id. at 10.

The Investment Committee failed to follow its own Investment Policy

Statement (“IPS”). The Plan’s IPS called for use of “Special Review” and

“Termination Review” lists to closely monitor underperforming funds. Dkt.

No. 142 at 10-12. After proprietary funds repeatedly appeared on these lists,

and based on the advice of outside counsel, the Investment Committee


6

stopped using the lists, contributing to the mismanagement of the Plan and

its poor investment options. Id.

Petitioners failed to minimize Plan expenses in other ways. For example, the

Plan did not offer the lowest cost share classes for many of the funds in the

Plan. Dkt. No. 142 at 12. Petitioners also failed to adequately investigate

alternatives to mutual funds, such as separate accounts and collective

investment trusts, which have lower investment management fees. Id. at 12-

13. In addition, the Plan paid excess recordkeeping fees to ADP, to which

Deutsche Bank sold its recordkeeping business in 2003 while maintaining an

interest in that business. Id. at 13.

II. CLASS CERTIFICATION

Based on this evidence and the other evidence set forth in Plaintiffs’ class

certification brief and the preliminary expert report submitted in connection

therewith (Dkt. Nos. 142, 144-1), Plaintiffs moved for class certification under

Rule 23(b)(1). In opposition, Petitioners argued, based on LaRue and Wal-Mart

Stores, Inc. v. Dukes, 564 U.S. 338 (2011), that certification under Rule 23(b)(1) is

inappropriate. Id. at 19-22.7 After Plaintiffs filed their Reply (Dkt. No. 151), the

Court granted Plaintiffs’ motion in a 23-page written Order.

7 Petitioners also asserted other arguments that they do not pursue in their petition

for review.


7

In its Order, the Court held that certification under Rule 23(b)(1) was

appropriate and rejected Petitioners’ arguments regarding LaRue, noting that

“Defendants misapprehend Plaintiff’s theory of liability.” CC Order at 17. As the

Court explained, “Plaintiffs do not assert harms based on Defendants’ misconduct

that is specific to his or her individual account.” Id. Rather, Plaintiffs “challenge

Defendants’ process for selecting and retaining the investment options presented to

all Plan participants.” Id. The Court also rejected Petitioners’ reliance on Dukes,

holding that Rule 23(b)(1) requires neither “impossibility nor unworkability”,

which it explained were traditional justifications for class treatment under this

subsection, not an independent element required for class certification. Id. at 19

(citing Dukes, 564 U.S. at 361).

The District Court slightly modified Plaintiffs’ class definition to include

only participants “whose individual accounts suffered losses as a result of the

conduct alleged in Counts One through Four of the Third Amended Complaint.”

Id. at 21. The Court then noted, “This definition is sufficient at this stage of the

litigation.” Id. at 22.

ARGUMENT

I. PETITIONERS DO NOT MEET THE HIGH STANDARD FOR INTERLOCUTORY

REVIEW UNDER RULE 23(f)

Rule 23(f) petitions are not freely or routinely granted in this Circuit, see

Giovanniello v. ALM Media, LLC, 726 F.3d 106, 118 (2d Cir. 2013), and the


8

standards of Rule 23(f) will only rarely be met. Sumitomo, 262 F.3d at 140. This

prevents “needless erosion of the final judgment rule and the policy values it

ensures, including efficiency and deference.” Id.

To justify interlocutory review, Petitioners “must demonstrate either (1) that

the certification order will effectively terminate the litigation and there has been a

substantial showing that the district court’s decision is questionable, or (2) that the

certification order implicates a legal question about which there is a compelling

need for immediate resolution.” Id. at 139. Petitioners have not made and cannot

make either showing here.

To establish the first prong set forth in Sumitomo, Petitioners must

demonstrate both that the class certification decision is questionable, and that it

sounds a “death knell” on the litigation, id. at 140—e.g., that it results in

“potentially ruinous liability” that would “place[] inordinate or hydraulic pressure

on defendants to settle,” Hevesi v. Citigroup Inc., 366 F.3d 70, 80 (2d Cir. 2004)

(quoting In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 148 (2d

Cir. 2001) (Jacobs, J., dissenting)).8 Petitioners—which include the American

holding company of a multinational bank traded on the New York Stock

Exchange—have not shown that this is a “death knell” situation. Several similar

8 True “death knell” cases are few, and a reviewing court “must be wary lest the

mind hear a bell that is not tolling.” Blair v. Equifax Check Servs., Inc., 181 F.3d

832, 834–35 (7th Cir. 1999).


9

ERISA class actions have been tried (including the Tibble, Tussey, and Brotherston

cases cited supra at 1 n.2), and Petitioners are equally capable of trying this action.

Although Petitioners state that many ERISA class actions settle, this is a truism of

litigation in general, not just ERISA class actions. See Marc Galanter, The

Vanishing Trial: An Examination of Trials and Related Matters in Federal and

State Courts, 1 J. EMPIRICAL LEGAL STUD. 459 (2004) (noting that in 2002, only

1.8% of civil cases filed in federal court were tried). Regardless, as explained more

fully below, the District Court’s decision is not “questionable”—it is correct and in

line with a long line of other decisions.

As for the second basis for review under Sumitomo, “a novel legal question

will not compel immediate review unless it is of fundamental importance to the

development of the law of class actions and it is likely to escape effective review

after entry of final judgment.” 262 F.3d at 140 (emphasis added).9 Here, Petitioners

have not provided a credible reason why the district court’s class certification order

“cannot be fully reviewed on appeal from the final judgment—a circumstance that,

alone, establishes an adequate basis to deny the petition.” Id. at 142. Regardless,

9 Petitioners fail to acknowledge the second half of this test. See Petition at 13

(quoting Hevesi as providing, “An unsettled legal question must be of

‘fundamental importance to the development of the law of class actions’ to warrant

a Rule 23(f) appeal.”). The full sentence states: “[A] novel legal question will not

compel immediate review unless it is of fundamental importance to the

development of the law of class actions and it is likely to escape effective review

after entry of final judgment.” Hevesi, 366 F.3d at 77 (emphasis added).


10

the mere characterization of the District Court’s decision as “important” (Petition

at 9) is not sufficient to warrant interlocutory review. Prado-Steinman ex rel.

Prado v. Bush, 221 F.3d 1266, 1274 (11th Cir. 2000) (noting that it is “relatively

easy for a litigant to identify some question of law . . . [and] characterize that

question as novel or unsettled.”).10

There must be a “compelling need for

resolution of the legal issue sooner rather than later.” Id. at 1274. Petitioners have

not made such a showing here.

At bottom, Petitioners are asking the Court to grant interlocutory review to

establish precedent for other cases, which the defense bar and the Chamber of

Commerce hope will be helpful.11

This is precisely the sort of “precedent-creation

function” that this Court has rejected as a basis for interlocutory review in the past.

See Weber v. United States, 484 F.3d 154, 160 n.5 (2d Cir. 2007) (“Although some

circuit courts have suggested that Rule 23(f) may also serve a precedent-creation

function, we disagree.”). This Court should also decline to grant such review here.

10

Accord, Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288, 294 (1st Cir.

2000) (“[A] creative lawyer almost always will be able to argue that deciding her

case would clarify some ‘fundamental’ issue.”). 11

See, e.g., Petition at 5 (“This Court should . . . provide much-needed guidance to

district courts”), 12-13 (“District courts have weighed in for years; it is now time

for this Court to do so.”), 14 (arguing that immediate review would advance the

development of the law addressing Rule 23(b)(1) certification).


11

II. THE DISTRICT COURT PROPERLY CERTIFIED THE CLASS UNDER RULE

23(b)(1)

Beyond failing to establish that an immediate appeal is necessary, Petitioners

have failed to show that the District Court’s certification order under Rule 23(b)(1)

was questionable (let alone incorrect).12

One of the “classic” examples of a case

suitable for treatment under Rule 23(b)(1)(B) is an action alleging “‘a breach of

trust by an indenture trustee or other fiduciary similarly affecting the members of a

large class’ of beneficiaries, requiring an accounting or similar procedure ‘to

restore the subject of the trust.’” Ortiz v. Fireboard Corp., 527 U.S. 815, 833-34

(1999) (quoting Fed. R. Civ. P. 23, Adv. Cmte. Note to Subd. (b)(1) Clause (B)).

“In light of the derivative nature of ERISA § 502(a)(2) claims, breach of fiduciary

duty claims brought under § 502(a)(2) are paradigmatic examples of claims

appropriate for certification as a Rule 23(b)(1) class, as numerous courts have

held.” In re Schering Plough Corp. ERISA Litig., 589 F.3d 585, 604 (3d Cir. 2009)

(citing cases).13

Thus, “[m]ost ERISA class action cases are certified under Rule

23(b)(1).” Caufield v. Colgate-Palmolive Co., 2017 WL 3206339, at *5 (S.D.N.Y.

July 27, 2017) (quoting Kanawi, 254 F.R.D. at 111); see also William B.

12

Rulings on class certification are reviewed for abuse of discretion. Dobson v.

Hartford Fin. Servs. Grp., Inc., 342 F. App’x 706, 709 (2d Cir. 2009). 13

Accord, In re Beacon Assocs. Litig., 282 F.R.D. 315, 342 (S.D.N.Y. 2012)

(quoting In re Global Crossing Secs. & ERISA Litig., 225 F.R.D. 436, 453

(S.D.N.Y.2004)); see also Tussey, 2007 WL 4289694, at *8 (“Alleged breaches by

a fiduciary to a large class of beneficiaries present an especially appropriate

instance for treatment under Rule 23(b)(1).”).


12

Rubenstein, Newberg on Class Actions § 4:21 (5th ed., June 2017 update)

(“Newberg on Class Actions”) (“[C]ourts regularly certify ERISA cases under Rule

23(b)(1)(B)”). This is true not only for cases involving defined benefit plans, but

also cases involving defined contribution plans. See supra at 1 n.2.

A. LaRue Is Not a Barrier to (b)(1) Certification

Contrary to Petitioners’ arguments, the Supreme Court’s decision in LaRue

has no bearing on the class certification analysis. See Jones v. NovaStar Fin., Inc.,

257 F.R.D. 181, 190 (W.D. Mo. 2009) (“LaRue does not eliminate the possibility

of [ERISA] § 502(a)(2) class actions.”). Indeed, LaRue does not even address Rule

23; it merely provided that in addition to suing derivatively on behalf of a plan, an

individual also could individually sue for damages to his or her own account. See

In re Schering Plough Corp. ERISA Litig., 589 F.3d at 595 n.9 (stating that “LaRue

is of no help to defendants” because “it did not involve a class action”). Further,

LaRue does not address injunctive relief, which is a critical component of an action

such as this and impacts the Plan as a whole. Thus, “[a] majority of courts

addressing the propriety of certifying an ERISA class under § 502(a)(2) following

LaRue . . . have continued to find Rule 23(b)(1)(B) certification appropriate.” In re

Northrop Grumman Corp., 2011 WL 3505264, at *17 (citing cases).

Although Petitioners suggest that no appellate court has addressed this issue,

they are wrong. Both the Third Circuit and the Seventh Circuit have expressly


13

rejected Petitioners’ argument that LaRue operates as a bar to Rule 23(b)(1)

certification of actions such as this. See In re Schering Plough Corp. ERISA Litig.,

589 F.3d at 604 n.22; Spano v. Boeing Co., 633 F.3d 574, 591 (7th Cir. 2011)

(“Importantly, LaRue was an individual case, and so it does not answer the

question whether, or when, the kind of suit it was addressing may proceed as a

class action. In our view, it would be inconsistent with LaRue to assume that class

actions are impossible in these cases.”). There is no need for this Court to grant

immediate appellate review to simply add to the chorus of already existing voices.

Moreover, the district court cases upon which Petitioners rely are inapt. The

three cases supposedly establishing an intra-circuit “split” on Rule 23(b)(1)

certification involved different claims and different proposed classes than are at

issue in this case. See Petition at 12 n.6. None of those cases sought to certify a

class on behalf of participants of a single plan.14

This is a critical distinction, given

that ERISA provides for a right of action on behalf of “a plan”, 29 U.S.C. §§ 1109,

14

Healthcare Strategies, Inc. v. ING Life Ins. & Annuity Co., 2012 WL 10242276,

at *12 (D. Conn. Sept. 27, 2012) was brought by a plan administrator on behalf of

a proposed class of all plan administrators invested in a certain product. Bauer-

Ramazani v. Teachers Ins. & Annuity Ass’n of Am.-Coll. Ret. & Equities Fund, 290

F.R.D. 452, 457 (D. Vt. 2013) involved plaintiffs seeking to recover

“individualized monetary damages” on behalf of a class of all participants,

regardless of plan, who experienced losses when a particular recordkeeper

allegedly delayed transfers. In J.P. Morgan Stable Value Fund ERISA Litig., 2017

WL 1273963, at *13 (S.D.N.Y. Mar. 31, 2017), the court deemed the relief sought

by a proposed class of all participants in a particular investment, regardless of plan,

to be “individual monetary damages.”


14

1132(a)(2), and Plaintiffs have brought this action as a derivative action on behalf

of the Plan rather than as an individual action.15

B. Certification Under Rule 23(b)(1) Does Not Violate Due Process

Petitioners’ due process arguments are also unavailing. “There is no right to

request exclusion from a (b)(1) . . . class.” Fed. R. Civ. P. 23, Advisory Cmte.

Notes to Subd. (c), Par. (2) (2003). Prior challenges to this provision on

constitutional grounds have been rejected. See Robertson v. Nat’l Basketball Ass’n,

556 F.2d 682, 686 (2d Cir. 1977) (“[P]reclusion of the opt-out right in a (b)(1)

settlement does not violate due process.”)

Although Defendants argue that Dukes precludes certification of a (b)(1)

class in a case for money damages, their reliance on Dukes is misplaced. Dukes

involved a proposed class under Rule 23(b)(2) – not 23(b)(1). Moreover, Plaintiffs

are not seeking individualized damages awards for class members; they are seeking

relief on behalf of the Plan as a whole under ERISA. See Mass. Mut. Life Ins. Co.

v. Russell, 473 U.S. 134, 140 (1985) (“[R]ecovery for a violation of [ERISA] § 409

inures to the benefit of the plan as a whole. . . . [T]he potential personal liability of

the fiduciary is ‘to make good to such plan any losses to the plan . . . .’”) (quoting

15

Contrary to Petitioners’ arguments, there is no requirement that individualized

actions be “impossible or unworkable.” Petition at 12 (citing Dukes, 564 U.S. at

361. As the District Court explained in its opinion, Dukes referred to impossibility

and unworkability as “traditional justifications for class treatment,” not

independent elements necessary for certification. CC Order at 19 (citing Dukes,

564 U.S. at 361).


15

29 U.S.C. § 1109); accord, LaRue, 552 U.S. at 262 n.* (Thomas, J. concurring)

(“[A] participant suing to recover benefits on behalf of the plan is not entitled to

monetary relief payable directly to him; rather, any recovery must be paid to the

plan.”).16

Although any “recovery inuring to the Plan may ultimately benefit

particular participants,” that “does not convert their derivative suit into an action

for individual relief.” L.I. Head Start Child Dev. Servs., Inc. v. Econ. Opportunity

Comm’n of Nassau Cty., Inc., 710 F.3d 57, 65 (2d Cir. 2013). Thus, even if Dukes

has any application in the (b)(1) context, it does not bar (b)(1) classes in cases such

as this. As the leading treatise on class action law explains:

[E]ven applying Wal-Mart strictly, money damages that flow to the

entire class ought to remain available under Rule 23(b)(1) as Wal-

Mart suggests that they might be under Rule 23(b)(2); this would

enable (b)(1) certification in, for example, ERISA cases in which

monetary relief flows to the fund itself not to any individual litigant

directly.”

Newberg on Class Actions § 4:24.

III. THE CLASS DEFINITION DOES NOT WARRANT INTERLOCUTORY

REVIEW

Petitioners also seek to review the District Court’s class definition.

However, “issues that would result at most in a modification of a certification

16

“If the Plaintiffs recover any damages on behalf of the Plan, it will be up to the

Plan administrator to determine how those damages are to be distributed.” Kanawi,

254 F.R.D. at 109 (quoting Tussey, 2007 WL 4289694, at *5).


16

order,” like the definition of the class, “will be unlikely candidates for Rule 23(f)

appeal.” Sumitomo, 262 F.3d at 139-40.

Apparently conceding that the issue fails to warrant review under the

standards set forth in Sumitomo, Petitioners attempt to manufacture a “manifestly

erroneous” standard. Petition at 10, 19. This is not a recognized standard for 23(f)

petitions under Second Circuit law.17

In any event, the District Court’s decision

was not manifestly erroneous.

Although Petitioners complain that the District Court limited the class to

Plan participants who “suffered losses” as a result of the conduct alleged in the

Complaint, this type of class definition is common. “The phrase ‘and were

damaged thereby’ appears regularly in class definitions even though the ultimate

question of damages may not be settled until later in the litigation.” Fort Worth

Emps.’ Ret. Fund v. J.P. Morgan Chase & Co., 301 F.R.D. 116, 143 (S.D.N.Y.

2014); see, e.g, In re Initial Pub. Offering Sec. Litig., 671 F. Supp. 2d 467, 492

(S.D.N.Y. 2009); In re Parmalat Sec. Litig., 2008 WL 3895539, at *1 (S.D.N.Y.

17

The phrase “manifestly erroneous” is used three times in the Weber case cited by

Petitioners in support of such a standard: once in reference to the standard for

interlocutory appeals of bankruptcy court orders, and twice in parentheticals

quoting other Courts of Appeals. Weber, 484 F.3d at 160. The phrase has not

appeared in any other Second Circuit opinion discussing Rule 23(f). Regardless,

even in Circuits where it is the controlling standard, “It is difficult to show that a

class certification order is manifestly erroneous unless the district court applies an

incorrect Rule 23 standard or ignores a directly controlling case.” Chamberlan v.

Ford Motor Co., 402 F.3d 952, 962 (9th Cir. 2005).


17

Aug. 21, 2008); Wagner v. Barrick Gold Corp., 251 F.R.D. 112, 114 (S.D.N.Y.

2008); In re Warner Chilcott Ltd. Sec. Litig., 2008 WL 344715, at *1 (S.D.N.Y.

Feb. 4, 2008).

Petitioners attempt to distinguish these cases on the ground that many of

them are “securities actions” in which “determining who was injured is a simple

matter.” Petition at 22 n.12. However, numerous ERISA cases have adopted

similar class definitions. See, e.g., Sims, 2017 WL 3730552, at *1 (certifying class

of participants “who were injured by the conduct alleged in the Second Amended

Complaint”); In re Suntrust Banks, Inc. ERISA Litig., 2016 WL 4377131, at *8

(N.D. Ga. Aug. 17, 2016) (certifying class of 401(k) participants “who sustained a

loss to their account as a result of the investment in SunTrust Stock”); Krueger,

304 F.R.D. at 579 (amending class definition to refer “to participants and

beneficiaries ‘who were injured by’ the alleged wrongful conduct”). Indeed,

Petitioners’ objections to the class definition are entirely disingenuous, as

Petitioners previously argued to the District Court that the definition in Krueger

was preferable to the one that Plaintiffs originally proposed.18

18

In their opposition to class certification, Petitioners stated: “Plaintiffs also rely

heavily upon Krueger, but even Krueger, which involved different facts and

evidence than this case, was limited to ‘participants and beneficiaries “who were

injured by” the alleged wrongful conduct.’” Dkt. No. 148 at 16 (emphasis added by

Petitioners).


18

Petitioners do not cite any case from this Circuit that has rejected the type of

class definition at issue on the ground that it is a “fail safe” class.19

Indeed, the

Fifth Circuit has rejected the very type of argument raised by Petitioners here:

Countrywide does not cite any case where we have rejected a class

definition because it created a so-called fail-safe class. We rejected a

rule against fail-safe classes in . . . Forbush v. J.C. Penney Co., 994

F.2d 1101 (5th Cir.1993), abrogated on other grounds by Dukes, 131

S.Ct. 2541. The plaintiff in Forbush proposed that the court should

define its class as, “employees ‘whose pension benefits have been, or

will be, reduced or eliminated as a result of the overestimation of their

Social Security benefits.’” 994 F.2d at 1105. The defendant argued

that the class was not defined with sufficient specificity and was

“hopelessly ‘circular,’ as the court must first determine whether an

employee’s pension benefits were improperly reduced before that

person may be said to be a member of the class.” Id. In response, we

stated that, “[t]his argument is meritless and, if accepted, would

preclude certification of just about any class of persons alleging injury

from a particular action. These persons are linked by this common

complaint, and the possibility that some may fail to prevail on their

individual claims will not defeat class membership.” Id.

In re Rodriguez, 695 F.3d 360, 370 (5th Cir. 2012); see also Vizcaino v. United

States Dist. Court for Western Dist. of Wash., 173 F.3d 713, 722 (9th Cir.1999).

Although Petitioners cite to this Court’s decision in In re Petrobras. Secs.,

862 F.3d 250, 266 (2d Cir. 2017), that case does not support Petitioners’ position.

To the contrary, the Court affirmed class certification over the appellants’

ascertainability objections, and held that the ascertainability requirement is a

19

The class is not “fail safe” because the District Court could find that class

members suffered a loss from Petitioners’ conduct without finding Petitioners’

conduct unlawful.






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19

“modest threshold” that “does not require a complete list of class members at the

certification stage.” Petrobras, 862 F.3d at 266 & n.16. Indeed, at least one court

has considered the recently-decided Petrobras opinion, and held a class definition

of securities purchasers who “were damaged thereby” was sufficiently definite. In

re Cobalt Int’l Energy, Inc. Sec. Litig., 2017 WL 3620590, at *2 n.1, *3 (S.D. Tex.

Aug. 23, 2017).

The adequacy of the class definition is further supported by the fact that the

class at issue is a (b)(1) class, and notice is not required to be distributed to

individual class members. See Manual for Complex Litigation § 21.222 (4th ed.

2004) (“Rule 23(b)(3) actions require a class definition that will permit

identification of individual class members, while Rule 23(b)(1) or (b)(2) actions

may not.”). At a later date (when judgment is entered or a settlement is reached),

the class definition may be amended to be more precise. See In re Natural Gas

Commodities Litig., 231 F.R.D. 171, 180 (S.D.N.Y. 2005) (noting that “if those

who have been damaged by the alleged manipulation may be readily ascertained at

a later point in the proceeding, the definition may be modified by the Court.”).

“This definition is sufficient at this stage of the litigation.” CC Order at 22.

IV. THE CHAMBER OF COMMERCE’S AMICUS BRIEF DOES NOT PROVIDE

ANY FURTHER SUPPORT FOR THE PETITION

The amicus brief offered by the Chamber of Commerce (“Chamber”) does

not provide an independent basis for granting the petition. See In re Citigroup


20

Pension Plan ERISA Litig., 2007 WL 1074912, at *1 n.5, *3 n.40 (S.D.N.Y. Apr.

4, 2007) (noting that 23(f) petition had been rejected despite filing of amicus

brief); see also F.T.C. v. Wyndham Worldwide Corp., 10 F. Supp. 3d 602, 632

(D.N.J. 2014), aff’d, 799 F.3d 236 (3d Cir. 2015) (rejecting motion for leave to file

amici curiae briefs in support of motion seeking interlocutory appeal because the

court “requires no further assistance”). The Chamber’s proposed brief simply

repeats Petitioners’ misguided argument that the Petition should be granted for the

sake of establishing precedent, Dkt. No. 22-2 at 4; repeats Petitioners’

mischaracterization of the decision in J.P. Morgan Stable Value Fund Litigation to

manufacture a supposed intra-circuit “split,” Dkt. No. 22-2 at 5-7; repeats

Petitioners’ bare assertion that many ERISA cases settle, without attempting to

demonstrate that the decision under review creates a “death knell” situation, Dkt.

No. 22-2 at 8-10; and repeats Petitioners’ due process arguments based on Dukes

and LaRue, Dkt. No. 22-2 at 10-14. For the reasons discussed above, the arguments

of the Chamber do not support interlocutory review.

CONCLUSION

Plaintiffs respectfully request that this Court deny the petition for review.


21

Date: September 29, 2017 NICHOLS KASTER, PLLP

/s/Kai H. Richter

Kai H. Richter, MN Bar No. 0296545

Jacob T. Schutz, MN Bar No.

4600 IDS Center

80 South Eighth Street

Minneapolis, MN 55402

Telephone: (612) 256-3200

Facsimile: (612) 338-4878

[email protected]

[email protected]

Attorneys for Respondents


22

CERTIFICATE OF COMPLIANCE

1. This Brief complies with the type-volume limitation of Federal Rule

of Appellate Procedure 5(c)(1) because it contains 5,166 words, as determined by

the word-count function of Microsoft Word 2010, excluding the parts of the brief

exempted by Federal Rule of Appellate Procedure 32(f).

2. This brief complies with the typeface requirements of Federal Rule of

Appellate Procedure 32(a)(5) and the type of style requirements of Federal Rule of

Appellate Procedure 32(a)(6) because it has been prepared in a proportionally

spaced typeface using Microsoft Word 2010 in 14-point Times New Roman font.

Dated: September 29, 2017 /s/Kai H. Richter

Kai H. Richter


23

CERTIFICATE OF SERVICE

I hereby certify that on September 29, 2017, I electronically filed the

foregoing with the Clerk of the Court for the United States Court of Appeals for

the Second Circuit by using the appellate CM/ECF system.

Participants in the case who are registered CM/ECF users will be served by

the appellate CM/ECF system.

/s/Kai H. Richter

Kai H. Richter


no. 17-2911 · kai h. richter jacob t. schutz nichols kaster, pllp 4600 ids center 80 south eighth...

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