Fringe Benefit Group Sued over Excessive Fees on 401(k)s and Health Plans

A team of California and Texas law firms overcame a challenge to a certified class action against fiduciaries for about 300,000 participants in retirement, health, and fringe-benefits plans.

The class action seeks to disgorge Fringe Benefit Group (FBG) companies of “ill-gotten profits” realized through excessive fees charges against employees who contributed to the plans through their employer, according to the opinion authored by Circuit Judge Carl E. Stewart of the U.S. Court of Appeals for the Fifth Circuit.

Lead plaintiff is Heriberto Chavez. Plaintiffs were employees of San Antonio-based Training, Rehabilitation & Development Institute Inc. Chavez alleges fees taken from his health and welfare account were “depleted more than it otherwise would have been if the fees had been reasonable.”

In July 2017, plaintiffs sued FBG for mismanaging the benefit plans by collecting excessive fees in violation of the Employee Retirement Income Security Act (ERISA), and later amended the claim to allege that FBG handpicked providers to maximize its profits, controlled disbursements from the trusts for its own benefit, and unlawfully procured indirect compensation.

When the trial court reached the class certification issue, it had to decide whether plaintiffs had standing to sue FBG on behalf of unnamed class members from different contribution plans. The trial court ruled in plaintiffs’ favor. FBG appealed to the Fifth Circuit, and a previous panel of the court vacated and remanded with instructions that a “rigorous analysis” was needed under the Federal Rules of Procedure for class actions—Rule 23.

This was done, and the trial court certified two classes: participants and beneficiaries of the health and welfare benefits trust, or CPT; and participants and beneficiaries of the employee retirement trust, or CERT.

“As of February 2021, the class included ’224,995 participants and 2,994 plans in CERT as well as 68,066 participants and 350 plans in CPT,’” Stewart noted.

The court recognized that the defendants raised important questions about the order and depth in which the Fifth Circuit grapples with constitutional standing and Rule 23 inquiries.

“There is a split on this very question that exists across the circuits,” Stewart noted, adding that it stems from the notion that there cannot be a disconnect between the harm plaintiffs suffer and the relief sought.

Stewart discussed the court’s own relevant case law, Angell v. Geico Advantage Insurance Co., and case law from the Second and Eleventh Circuits, and concluded the plaintiffs established standing to sue and moved on to an analysis of Rule 23.

Structuring the Class Action

Rule 23, through its subsections, provides several methods for proceeding with a class action.

Jackson Walker, for the defendants, argued that the trial court abused its discretion by allowing plaintiffs the option to sue without giving non-parties notice or a right to opt out.

A mandatory class status under Rule 23(b)(1), Stewart wrote, “is inappropriate because this is primarily an action for damages, and it is not evident that individual adjudications would substantially impair the interests of members not parties to the individual adjudications.

“The ability of individual class members to opt out and pursue separate remedies should be preserved, despite the claim for damages in the class complaint,” the opinion states.

The Fifth Circuit then offered guidance, suggesting Judge Yeakel address the variables of individualized damages. “A class may be divided into subclasses for adjudication of damages,” Stewart said. “The district court should consider whether liability and damages should be resolved commonly and whether injury, causation, and actual damages should be resolved individually.”

From: BenefitsPRO