The Third Circuit Court of Appeals recently held that as the plan fiduciary of Universal’s defined contribution plan, Universal Health Services Inc. and its plan investment committee (collectively “Universal”) must face a class action claiming its retirement plan included imprudent investment options charging excessive fees to more than 60,000 participants, even though the three named plaintiffs only invested in seven of the 37 plan investment options challenged by their lawsuit.
Universal had appealed a 2021 decision certifying the Employee Retirement Income Security Act lawsuit as a class action covering all of the plan’s 60,000 participants. Universal claimed that the class as certified was overbroad because the three named plaintiffs had only invested in a handful of the challenged funds in the plan and, therefore, their claims were not typical of the class. Universal also argued the plaintiffs only had standing to sue on behalf of others who had invested in the same funds.
A unanimous three-judge panel said that while the named plaintiffs only invested in a fraction of the funds offered by the plan, Universal’s alleged failure to properly evaluate investment fees affected all the funds in the Plan the same way. The appellate court focused on the investment decisions offering the suite of challenged target funds to conclude plaintiffs had a concrete stake in and typical class claims as to those decisions, even though plaintiffs had not invested in all of the funds in that suite. The appellate court applied this same analysis to plaintiffs’ claim Universal failed to follow a prudent process to evaluate investment options offered in the plan. While the appellate court acknowledged that allowing class representatives to bring claims based on funds they didn’t personally hold “may result in some inefficiency at the damages stage” of litigation, the court held that it doesn’t bar class certification under Federal Rule of Civil Procedure 23(b)(1).