Chavez v. Plan Benefit Servs., Inc.

77 F.4th 370

Heriberto CHAVEZ; Evangelina Escarcega,as the legal representative of her son Jose Escarcega; Jorge Moreno, Plaintiffs—Appellees, v. PLAN BENEFIT SERVICES, INC.;Fringe Insurance Benefits, Incorporated;Fringe Benefit Group, Defendants—Appellants.

No. 22-50368

United States Court of Appeals, Fifth Circuit

FILED August 11, 2023

Appeal from the United States District Court for the Western District of Texas, USDC No. 1:17-CV-659, Lee Yeakel, U.S. District Judge

Nina Wasow, Catha Worthman, Attorneys, Feinberg, Jackson, Worthman & Wasow, L.L.P., Berkeley, CA, Richard J. Burch, Houston, TX, Connie K. Chan, Eileen B. Goldsmith, Danielle Leonard, Altshuler Berzon, L.L.P., San Francisco, CA, for Plaintiffs—Appellees.

James Matthew Dow, Peter Carl Hansen, Joshua Abraham Romero, Jackson Walker, L.L.P., Austin, TX, James A. Holifield, Jr., Holifield & Janich, P.L.L.C., Knoxville, TN, Jonathan Danny Neerman, Jackson Walker, L.L.P., Dallas, TX, for Defendants—Appellants.

Meaghan McLaine VerGow, O'Melveny & Myers, L.L.P., Washington, DC, for Amicus Curiae Chamber of Commerce of the United States of America.

Before Wiener, Stewart, and Engelhardt, Circuit Judges.

Carl E. Stewart, Circuit Judge:

Heriberto Chavez, Evangelina Escarcega (representing her son, Jose Escarcega), and Jorge Moreno (collectively "Plaintiffs") seek to represent a class in a lawsuit against Plan Benefit Services, Fringe Insurance Benefits, and Fringe Benefit Group (collectively "FBG") for the alleged mismanagement of funds that Plaintiffs contributed to benefit plans through their employers. Because Plaintiffs have standing to sue and the district court did not abuse its discretion in the Rule 23 certification analysis, we AFFIRM.

I. Background

A. FBG's Alleged Mismanagement of the CERT & CPT Trusts

FBG helps employers design and administer employee benefit programs that offer retirement and health and welfare benefits to their employees. In accordance with FBG's plan, employers disburse benefits to their employees through two trusts: (1) the Contractors and Employee Retirement Trust ("CERT"), which covers retirement plans; and (2) the Contractors Plan Trust ("CPT"), which covers health and welfare benefits. Each employer signs either a separate retainer agreement or an adoption agreement as part of their enrollment in a plan. FBG serves as "Master Plan Sponsor" and "Recordkeeper" for both CERT and CPT.

The contracts that FBG enters with employers also include a "Master Trust Agreement" granting FBG greater control over the CERT and CPT trusts. For example, the Master Trust Agreement allows FBG to determine the fees deducted from CERT and allows it to direct "banks and other entities holding Trust funds to pay those fees, including to FBG itself." As to CPT specifically, the Master Trust Agreement authorizes FBG to "calculate and deduct its own fees from employer contributions before remitting premium payments to the carriers."

FBG markets CERT and CPT to non-union employers seeking to compete for government contracts. To qualify for the contracts, employers must pay their employees prevailing wages—that is, the wages and benefits paid to the majority of similarly situated laborers in the area at the time. In assisting employers with offering benefits under the prevailing wage laws, FBG offers plans with a combination of administrative and variable fees.

For example, each employer pays an identical, fixed administrative fee of $200, nondiscriminatory testing fee of $400, and indirect percentage-based fees totaling 1.15% of the company's assets in the trust. Variable fees are assessed based on the company's selections with FBG and the company's total size and structure. So, a company that offers its employees a 401(k) may be assessed different fees than another company that offers a money-purchase plan. "These structures are called Tiered 1-4, Graded 25, and Graded 50." While employers can choose a " 'tiered' or 'graded' plan, [FBG] determines where the employer falls within [each] categorization scheme[.]"

Plaintiffs were employees of the Training, Rehabilitation & Development Institute, Inc. ("TRDI"). TRDI contracted with FBG for various services. It was required to provide wage and fringe benefits to its employees in an amount calculated by the applicable prevailing wage determination. It provided retirement plans under CERT and health and welfare plans under CPT. The agreement governing CERT, CPT, and TRDI allotted various "powers and responsibilities" to FBG. For example, FBG had the power to: (1) enter contracts imposing fees and other charges on the trusts and the plans; (2) instruct any insurance company with respect to investment or disbursement of investment funds on behalf of the Trustee; (3) require the Trustee to make disbursements for FBG's own fees in any amount that it directed; and (4) appoint and remove the Trustee.

Chavez participated in CPT, meaning that TRDI paid monthly contributions to CPT on his behalf, from which FBG deducted fees. TRDI contributed a certain amount of money to a fringe benefit account in Chavez's name for every hour that he worked, in accordance with federal and state laws. This fringe benefit account was used to help pay Chavez's premiums incurred through his enrollment in health and welfare plans provided by TRDI. TRDI also paid a premium of $570.58 a month into CPT for these benefits to cover his insurance. At least ten percent of the premium amount was paid to FBG. These fees were taken from Chavez's individual health and welfare account. He contends that the "account was depleted more than it otherwise would have been if the fees had been reasonable." He also avers that the unreasonable fees are wholly responsible for "no amount ever [being] contributed [to his] retirement account."

Escarcega and Moreno participated in both CERT and CPT. Like Chavez, TRDI made contributions to the fringe benefit accounts based on the number of hours that Escarcega and Moreno worked. Under each plan, FBG's fees for plan administration services were subtracted from their individual accounts. They allege that FBG "deducted fees totaling more than 10% of these payments for their own compensation before remitting the remainder to" their medical insurance providers. Escarcega was also enrolled in a "limited medical plan" with Standard Security Life ("SSL") through CPT. He claims that "FBG deducted compensation for itself . . . for ancillary insurance premiums and fees of more than 17% of these payments, remitting the remaining amount as premiums to SSL."

B. Procedural History

In July 2017, Plaintiffs sued FBG for mismanaging their employee benefit plans by collecting excessive fees in violation of the Employee Retirement Income Security Act ("ERISA"). See 29 U.S.C. § 1001 et seq. Specifically, Plaintiffs asserted that FBG charged different rates for identical services and charged an excessive base fee. FBG moved to dismiss Plaintiffs' claims. The district court granted FBG's motion but gave Plaintiffs the opportunity to amend their complaint. Plaintiffs' amended complaint alleged that FBG "accepted excessive fees, handpicked providers to maximize its profits, controlled disbursements from the trusts for its own benefit, and unlawfully procured indirect compensation." Chavez v. Plan Benefit Servs., 957 F.3d 542, 544 (5th Cir. 2020). FBG moved to dismiss again for failure to state a claim under 21 U.S.C. §§ 1106(b) and § 1109(a) and lack of standing, which the district court denied.

Thereafter, Plaintiffs filed a motion for class certification. They sought to represent a class of "all participants in and beneficiaries of employee benefit plans that provide benefits through CERT and CPT, . . . from six years before the filing of this action [July 6, 2011] until the time of trial." The district court encountered a question of first impression: whether Plaintiffs had standing to sue FBG on behalf of unnamed class members from different contribution plans. It requested additional briefing on the issue and ultimately ruled that Plaintiffs had constitutional and statutory standing to sue FBG in a class-action context. On constitutional standing, the district court explained that Plaintiffs had demonstrated injury in fact, traceability, and redressability. Notably, it held that the class context was appropriate because "both the named and unnamed plaintiffs . . . are participants 'of plans that provide employee benefits through CPT or CERT.' " It concluded that commonality was sufficient to allow class certification at this stage.

As for statutory standing, the district court relied on a Sixth Circuit case, Fallick v. Nationwide Mutual Insurance Company, to hold that Plaintiffs' only burden at this stage was assuring the court of their own standing to sue FBG. 162 F.3d 410, 424 (6th Cir. 1998). Specifically, it cited Fallick for the proposition that "the standing-related provisions of ERISA were not intended to limit a claimant's right to proceed under Rule 23 on behalf of all individuals affected by the [fiduciary's] challenged conduct, regardless of the representative's lack of participation in all the ERISA governed plans involved." Id. at 410; FED. R. CIV. P. 23. It reasoned that a deeper inquiry into the appropriateness of Plaintiffs as class representatives was reserved for the Rule 23 analysis, not constitutional or statutory standing. It held in Plaintiffs' favor and certified a Rule 23(b)(1)(B) class of 90,000 employees. Chavez v. Plan Benefit Servs., Inc., No. 1:17-CV-659-SS, 2018 WL 3016925, at *7-8 (W.D. Tex. June 15, 2018).

FBG appealed, and a panel of this court vacated and remanded, holding that the district court failed to engage in the "rigorous analysis" necessary for certifying a class action under Rule 23. See Chavez, 957 F.3d at 544. On remand, Plaintiffs amended their motion for class certification, and the case was reassigned. The parties then presented oral argument and submitted supplemental briefing on...