Breaking: Class Cert Granted in Spano v. Boeing Co.

In light of the recent 7th Circuit decision in Abbott v. Lockheed Martin Corporation, the district court in Spano v. Boeing Company has granted the Plaintiffs’ amended motion for class certification. Spano is one of the original excessive fee cases filed in 2006.

(Read about the Abbott decision here: Victory for Plaintiffs: 7th Circuit Allows Class Certifications for Excessive Fee Cases)

As many of you are aware, it was the 2011 decision in the Spano appeal to the 7th Circuit that for a time put in doubt the exact standard for certifying a class in an ERISA fiduciary breach case in the 7th Circuit.

Plaintiffs’ Allegations

The court summarized the Spano plaintiffs’ allegations as:

  • (1) defendants caused the Plan to pay unreasonable administrative fees to its recordkeeper CitiStreet;
  • (2) defendants imprudently included, among the Plan’s 11 investment options, four mutual funds, when superior institutional investment products were available;
  • (3) that these same four mutual funds charged excessive fees which included kickbacks to CitiStreet in the form of revenue sharing;
  • (4) that among these four mutual options, the Technology Fund was included in the Plan even though it was undiversified and imprudent for a retirement plan, and the Small Cap Fund was included even though it failed defendants’ standards of prudence, because it provided additional revenue sharing fees to CitiStreet; and
  • (5) that the Boeing Company Stock Fund imprudently held high levels of low-yielding cash, allowing State Street to place cash in its own funds and receive multiple layers of fees.
The Court’s Decision

The court keyed in on what was different this time around, as compared to the class certification that was overturned earlier: (1) the breadth of the defined classes has been limited to a specific time period, not all participants, past, present, and future and (2) each of the claims has been broken into subclasses, rather than one gigantic class, with specific evidence that the class reps seeking to represent that subclass meets the adequacy and typicality tests.

The decision reads very matter of fact despite the last few years of upheaval in this area. Citation to the Abbott decision was limited to just the subclass for the Technology Fund claim because it used a benchmark to define the subclass. The court determined that each of the 5 subclasses met the standards for class certification under Rule 23, including 23(b)(1)(A) which allows a non-opt out class. The following subclasses were granted:

 

  • Administrative Fee claim and class: All participants or beneficiaries of the Boeing Voluntary Investment Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directors, who had an account balance at any time between September 28, 2000 and December 31, 2006, as all participants during that time paid recordkeeping fees.
  • Mutual Fund Subclass: All participants or beneficiaries of the Boeing Voluntary Investment Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directors, who, between September 28, 2000 and December 31, 2005, invested in any of the Plan’s mutual funds, since each mutual fund during this time were laden with imprudently excessive fees.
  • Small Cap Fund Subclass: All participants or beneficiaries of the Boeing Voluntary Investment Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directors, who, between September 28, 2000 and December 31, 2005, invested in the Small Cap mutual fund in the Plan.
  • Technology Fund Subclass: All participants or beneficiaries of the Boeing Voluntary Investment Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directors, who, between September 28, 2000 and December 31, 2005 invested in the Plan’s Technology Fund and whose investment in the Technology Fund underperformed that of the diversified domestic equity markets as represented by the Standard and Poor’s 500 Index Fund minus 5 basis points for investment management.
  • Company Stock Fund Subclass: All participants or beneficiaries of the Boeing Voluntary Investment Plan, excluding the Defendants, members of the Defendant committees, and the Boeing directors, who, between September 28, 2000 and December 31, 2006 invested in the Plan=s Boeing Company Stock Fund and whose investment in the Boeing Company Stock Fund underperformed that of Boeing Company Stock.

Our Thoughts

This is another victory for plan participants, like the 7th Circuit decision in Abbott. I frankly did not expect a decision so soon. Just recently, the 7th Circuit denied a motion for rehearing in Abbott, which leaves the defendants there with two options: appeal to the Supreme Court or go back to the district court and go to trial.

For the defendants in Spano, the path is less clear. The window to appeal this decision on an interlocutory basis under Rule 23(f) is quite short. Additionally, there still remains pending summary judgment motions. Just because class certification has been granted here, doesn’t mean these are viable claims for these plaintiffs. That decision is yet to be made by the court. This differs from the Abbott case where there, the court already ruled on the summary judgment motion, finding that the claims viable enough to proceed to trial.

It’s been an exciting few months for those who follow these issues closely. Unless something happens before then, the next bit of news will be the oral arguments scheduled in Tussey v. ABB, Inc. before the 8th Circuit this coming Tuesday September 24. As they are being held here in St. Louis, I will be attending in person.

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