In a recent published decision, the Fifth Circuit declined to articulate a rule for the “order and depth in which” it “grapples with constitutional standing and the Rule 23 inquiry.”  Chavez v. Plan Benefit Services, Inc., __ F.4th __, No. 22-50368, 2023 WL 5160393 (5th Cir. Aug. 11, 2023).  The court concluded that the plaintiffs—three employees who participated in health and retirement plans administered by the defendants—had standing to sue on behalf of absent class members who participated in thousands of different benefits plans administered by the defendants.  The court went on to affirm the district court’s certification of two classes, each under both Rules 23(b)(1)(B) and 23(b)(3).

The plaintiffs allege the defendants breached their duties as fiduciaries of two plan trusts, charged excessive fees, and mismanaged plan funds in violation of the Employee Retirement Income Security Act (“ERISA”).  The plaintiffs sought to represent all participants and beneficiaries in plans administered through the trusts, including individuals in plans in which the plaintiffs did not participate.  The defendants argued that the named plaintiffs lacked “standing to challenge fees that they were never subjected to, in plans that they never participated in, relating to services that they never received, from employers for whom they never worked.”

The Fifth Circuit noted a circuit split on how to handle a “disjuncture” between a named plaintiff’s alleged injury and the injuries of unnamed class members.  Some courts—including the First, Third, Sixth, and Ninth Circuits—address the disjuncture at class certification.  Other courts—including the Second and Eleventh Circuits—take a “stricter” approach to the standing analysis before proceeding to class certification.  This latter approach compares the injuries of the named plaintiff and absent class members to determine whether the injuries, and the conduct causing the injuries, are sufficiently similar.  The Fifth Circuit opted not to choose a side on the split, instead concluding that the plaintiffs’ allegations were adequate to support standing under either approach.  In brief, the named plaintiffs and their unnamed class members suffered from essentially the same injuries and had the exact same interest:  “the return of trust funds that each plaintiff would otherwise have been entitled to if [the defendants] had not violated ERISA.” 

With respect to class certification, the defendants argued on appeal that the district court failed to account for the variety of plans and fees at issue and therefore erred in approving certification.  The Fifth Circuit rejected this contention, describing it as “demonstrably untrue.”  To the contrary, the fees were either “uniform or amenable to a pricing grid,” and the defendants’ use of a “boilerplate-like pricing methodology” was supported by deposition testimony from key defense witnesses.  The court therefore affirmed the district court’s certification of Rule 23(b)(1)(B) and 23(b)(3) classes.

While the Fifth Circuit ultimately sidestepped the circuit split, Chavez provides a user-friendly guide to the current state of the relationship between standing and class certification.   Litigants in the Fifth Circuit—or in the First, Third, Sixth, and Ninth Circuits—should analyze whether the split might impact the outcome of their cases.  In an appropriate case, the Fifth Circuit may be willing to adopt the stricter standing analysis.  Cases from the circuits that take the more lenient approach may be suitable for review by the Supreme Court—if the issue is preserved.