The Second Circuit recently vacated a district court ruling certifying a class of thousands of employee benefit plans whose fiduciaries contracted with the Teachers Insurance and Annuity Association of America (TIAA) to provide collateralized loans to plan participants, in a case that clarifies how courts must analyze challenges to Rule 23’s “predominance” requirement for class certification.

In Haley v. Teachers Insurance and Annuity Association of America, 2022 WL 17347244 (2d Cir. Dec. 1, 2022), the plaintiff—a participant in a Washington University in St. Louis defined contribution savings plan governed by ERISA—brought suit against defendant TIAA alleging that the loans facilitated by TIAA violated ERISA’s “prohibited transactions” rules, which protect benefit plan participants and their beneficiaries from certain transactions involving retirement plan assets, which are believed to pose a high risk of self-dealing.

Plaintiff moved to certify a nationwide class of 8,000 ERISA-governed plans whose members received loans offered by plan administrators and facilitated by TIAA.  The district court certified the multi-plan class under Rule 23(b)(3) despite TIAA’s objections that the putative class lacked commonality and predominance because the loans it provided varied across the thousands of plans, and the loans were subject to statutory exemptions to ERISA’s prohibited transactions rules, which were not subject to common proof.

The Second Circuit reversed.  Though it found that the district court did not abuse its discretion in finding that common issues existed bearing on TIAA’s liability to the putative class, it held that the district court failed to adequately analyze predominance. 

The Second Circuit’s decision helps distinguish the predominance and commonality requirements, and makes clear that courts must engage rigorously with factual and legal issues that could undermine the ability to try cases as class actions. The Second Circuit explained that predominance “demands that a district court consider all factual or legal issues and classify them as subject either to common or individual proof.”  The Court emphasized that this analysis requires district courts to consider all relevant evidence submitted at class certification, an obligation that is not altered or reduced because a defendant ultimately bears the burden of proof on a relevant issue at the merits stage.  Embracing this standard, the Second Circuit vacated the district court’s class certification decision for failure to conduct the required predominance analysis because the district court did not consider whether the statutory exemptions asserted by TIAA were subject to individual or common proof, and did not engage with the evidence submitted by TIAA about alleged variations among the plans.  It instructed the district court to scrutinize these issues on remand.