Heriberto Chavez v. Plan Benefit Services

Case: 19-50904 Document: 00515398715 Page: 1 Date Filed: 04/29/2020

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

United States Court of Appeals

Fifth Circuit

FILED

No. 19-50904

April 29, 2020

Lyle W. Cayce

Clerk

HERIBERTO CHAVEZ;

EVANGELINA ESCARCEGA,

as the legal representative of her son Jose Escarcega; JORGE MORENO,

Plaintiffs–Appellees,

versus

PLAN BENEFIT SERVICES, INC.;

FRINGE INSURANCE BENEFITS, INCORPORATED;

FRINGE BENEFIT GROUP,

Defendants–Appellants.

Appeal from the United States District Court

for the Western District of Texas

Before SMITH, GRAVES, and HO, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

A district court must engage in a “rigorous analysis” when it certifies a

class action. In the absence of that rigor, we vacate the certification order.

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No. 19-50904

I.

Plan Benefit Services, Inc., Fringe Insurance Benefits, Inc., and Fringe

Benefit Group (collectively “FBG” or “the company”) market and administer

retirement and health benefit plans to various employers. FBG offers the

plans through two trusts, and there are many plan options, which (FBG

asserts) vary in fees and structures. Employers can sign up to provide their

employees with benefits through those offerings; or they can retain FBG

merely to keep records and supply administrative services.

The named plaintiffs are current and former employees of a company

that contracted with FBG for various services. They sued FBG under the Em-

ployee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et

seq. The thrust of their complaint is that FBG has acted as a fiduciary and

breached its duties. They charge that the company accepted excessive fees,

handpicked providers to maximize its profits, controlled disbursements from

the trusts for its own benefit, and unlawfully procured indirect compensation.

In short: They allege garden-variety fiduciary misbehavior.

The plaintiffs seek to represent a class of “all participants in and bene-

ficiaries of employee benefit plans that provide benefits through [the trusts],

. . . from July 6, 2011 until the time of trial.” The proposed group involves some

90,000 individuals and implicates many employers and plans. 1

1 The record does not reveal the exact number of employers and plans, but the com-

plaint and briefs suggest that there are at least 1,700. Both sides agree that each employer

that participates in the trusts creates its own plan arrangement. Compare Plaintiffs’ Brief

at 20 (“[E]ach employer that joins [the trusts] creates an individual employer plan[.]”), and

Amended Complaint at ¶ 53 (“Each participating employer’s health and welfare plan is an

employee welfare benefit plan within the meaning of ERISA[.]”), with FBG’s Opening Brief

at 5–6 (contending that each employer creates its own plan by selecting various options). And

the complaint alleges that, as of 2015, one trust had 1,716 participating employers and the

other had 162, resulting in a minimum estimate of over 1,700, even if one assumes overlap

between the two. FBG asserts that the number is much higher, given that the class includes

participants over several years, but it does not dispute a floor of 1,700. (The parties strongly

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FBG opposes certification with predictable vigor. It maintains that the

central issues—such as whether FBG was a fiduciary or charged excessive

fees—necessarily turn on the diverse features of each plan, so a class involving

so many of them is improper.

After a hearing, the court certified the class. It settled on a mandatory

Federal Rule of Civil Procedure 23(b)(1)(B) class and found that Rule 23(a)’s

prerequisites—numerosity, commonality, typicality, and adequacy—are met.

Despite the complexity of the certification issues, the sweeping scope of

the proposed class, and FBG’s numerous case-specific objections, the court’s

certification order has about five pages of substantive analysis. We accepted

this interlocutory appeal, see FED. R. CIV. P. 23(f), and vacate.

II.

A.

Given the impact of certification, district courts must analyze Rule 23

with special attention. Certification is proper only where “the trial court is

satisfied, after a rigorous analysis,” 2 that the Rule’s requirements are met. Put

another way, “a district court must detail with sufficient specificity how the

plaintiff has met the requirements of Rule 23.” Vizena v. Union Pac. R.R.,

360 F.3d 496, 503 (5th Cir. 2004) (per curiam).

“Rule 23 does not set forth a mere pleading standard.” Dukes, 564 U.S.

disagree, however, as to whether differences among the plans are material.) The district

court and the parties are free to arrive at a more precise number in future proceedings.

2 Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350–51 (2011) (emphasis added); see

also Comcast Corp. v. Behrend, 569 U.S. 27, 33 (2013) (same); Gen. Tel. Co. of the Sw. v.

Falcon, 457 U.S. 147, 161 (1982) (same); M.D. ex rel. Stukenberg v. Perry, 675 F.3d 832, 837

(5th Cir. 2012) (“It is well-established that a district court must conduct a rigorous analysis

of the Rule 23 prerequisites before certifying a class.” (brackets and quotation marks

removed)).

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at 350. Instead, “[a] party seeking class certification must affirmatively dem-

onstrate his compliance with the Rule—that is, he must be prepared to prove

that there are in fact sufficiently numerous parties, common questions of law

or fact,” and so on. Id.

As a result, in weighing certification, the court will often have “to probe

behind the pleadings,” Falcon, 457 U.S. at 160, because “[t]he class determin-

ation generally involves considerations that are enmeshed in the factual and

legal issues” of the case, Dukes, 564 U.S. at 351. So the court should seek to

“understand the claims, defenses, relevant facts, and applicable substantive

law in order to make a meaningful determination[.]” Flecha v. Medicredit, Inc.,

946 F.3d 762, 766 (5th Cir. 2020). “If some of the determinations . . . cannot be

made without a look at the facts, then the judge must undertake that investi-

gation.” Spano v. Boeing Co., 633 F.3d 574, 583 (7th Cir. 2011). The judge

cannot merely “review a complaint and ask whether, taking the facts as the

party seeking the class presents them, the case seems suitable for class treat-

ment.” Id. (emphasis added). Much more is needed.

Thus, to satisfy the rigor requirement, a district court must detail with

specificity its reasons for certifying. Vizena, 360 F.3d at 503. It must explain

and apply the substantive law governing the plaintiffs’ claims to the relevant

facts and defenses, articulating why the issues are fit for classwide resolution. 3

The court should respond to the defendants’ legitimate protests of individual-

ized issues that could preclude class treatment. 4 And its analysis must stay

3 See, e.g., Stukenberg, 675 F.3d at 837. We do not mean that the court should decide

the merits of the plaintiffs’ claims. That is inappropriate at the certification stage. See, e.g.,

Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455, 466 (2013) (“Rule 23 grants courts

no license to engage in free-ranging merits inquiries at the certification stage.”). Instead, we

mean that the certification issues often entail examining the substantive law that the claims

implicate. See, e.g., Dukes, 564 U.S. at 351.

4 See, e.g., Stukenberg, 675 F.3d at 842–43 (noting that “[t]he district court clearly

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close to the facts and law of the case, spurning reliance on generalizations

about what types of disputes may be fit for a class. 5 The court must rigorously

consider both Rule 23(a)’s prerequisites 6 and the Rule 23(b) class type. 7

This “rigorous analysis” mandate is not some pointless exercise that we

foist on this circuit’s hardworking and conscientious district judges, such as

the judge in this case. It matters. A “class action is an exception to the usual

rule that litigation is conducted by and on behalf of the individual named par-

ties only,” Behrend, 569 U.S. at 33 (quotation marks removed), and creative

uses are perilous. It is no secret that certification “can coerce a defendant into

settling on highly disadvantageous terms regardless of the merits of the suit.” 8

rejected” the defendant’s individualization argument but had not “[]sufficiently analyzed” it);

Ward v. Hellerstedt, 753 F. App’x 236, 246 (5th Cir. 2018) (per curiam) (“[W]e note that it is

incumbent on the district court to consider and discuss the facts of this case, as well as the

elements of Plaintiffs’ claims, prior to rejecting Defendant’s argument that dissimilarities

among individual claimants obviate commonality.”).

5 See, e.g., E. Tex. Motor Freight Sys., Inc. v. Rodriguez, 431 U.S. 395, 405 (1977) (“We

are not unaware that suits alleging racial or ethnic discrimination are often by their very

nature class suits, involving classwide wrongs. Common questions of law or fact are typically

present. But careful attention to the requirements of [Rule] 23 remains nonetheless indis-

pensable.”); Gene & Gene LLC v. BioPay LLC, 541 F.3d 318, 328 (5th Cir. 2008) (“[T]here are

no invariable rules regarding the suitability of a particular case filed under this subsection

of the TCPA for class treatment; the unique facts of each case generally will determine

whether certification is proper.”); Robinson v. Tex. Auto. Dealers Ass’n, 387 F.3d 416, 420–21

(5th Cir. 2004) (“There are no hard and fast rules regarding the suitability of a particular

type of antitrust case for class action treatment. Rather, the unique facts of each case will

generally be the determining factor governing certification.” (cleaned up)).

6 See, e.g., Dukes, 564 U.S. at 350–51.

7 See Behrend, 569 U.S. at 33–34 (“[C]ertification is proper only if the trial court is

satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satis-

fied. . . . The same analytical principles govern Rule 23(b).” (quotation marks removed)); Cas-

tano v. Am. Tobacco Co., 84 F.3d 734, 742–43 (5th Cir. 1996) (holding that the district court

had not engaged in a rigorous analysis of predominance—that is, whether a Rule 23(b)(3)

class type was appropriate); Madison v. Chalmette Ref., L.L.C., 637 F.3d 551, 556–57 (5th

Cir. 2011) (same).

8CE Design Ltd. v. King Architectural Metals, Inc., 637 F.3d 721, 723 (7th Cir. 2011)

(Posner, J.); see also Castano, 84 F.3d at 746 (“[C]lass certification creates insurmountable

pressure on defendants to settle . . . . The risk of facing an all-or-nothing verdict presents too

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And the existence of a class fundamentally alters the rights of present and

absent members, particularly for mandatory classes such as the one here. 9 No

less than due process is implicated, so a careful look is necessary. See Unger

v. Amedisys Inc., 401 F.3d 316, 320 (5th Cir. 2005).

A rigorous analysis also ensures effective appellate review, which we are

unable to engage in here. See Stukenberg, 675 F.3d at 842. Indeed, in ad-

dressing a certification, we search only for abuse of discretion, recognizing “the

essentially factual basis of the certification inquiry and . . . the district court’s

inherent power to manage and control pending litigation.” Id. at 836. Appel-

late judges are not finders of fact, 10 and we play no role in managing a district

court’s docket. So it’s up to the district judge to find the facts.

B.

FBG complains that the court analyzed Rule 23 superficially. We agree.

1.

We begin with commonality, which requires the plaintiff to show that

“there are questions of law or fact common to the class.” FED. R. CIV. P.

23(a)(2). Under Dukes—which “heightened the standards” 11—“all of the class

member’s claims [must] depend on a common issue . . . whose resolution will

high a risk, even when the probability of an adverse judgment is low.”).

9 See Ortiz v. Fibreboard Corp., 527 U.S. 815, 846–47 (1999) (“Unlike Rule 23(b)(3)

class members, objectors to the collectivism of a mandatory subdivision (b)(1)(B) action have

no inherent right to abstain. The legal rights of absent class members . . . are resolved re-

gardless of either their consent, or, in a class with objectors, their express wish to the con-

trary.”); Ward, 753 F. App’x at 244 (“Such independent analysis is necessary to protect

unknown or unnamed potential class members[.]” (quotation marks removed)).

10See, e.g., Copeland v. Greyhound Corp., 337 F.2d 822, 825 (5th Cir. 1964) (describing

the “reluctance, shared by all appellate courts, to second-guess trial courts or other fact

finders with respect to determinations of fact”).

11 Stukenberg, 675 F.3d at 839.

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resolve an issue that is central to the validity of each one of the class member’s

claims in one stroke.” Stukenberg, 675 F.3d at 840 (cleaned up).

To satisfy the rigor requirement, the district court must explain how that

standard is met. Id. at 841. It should do so “with specific reference to the

claims, defenses, relevant facts, and applicable substantive law raised by the

class claims,” id. at 843 (quotation marks removed), and it must “address

actual or potential differences in purported class members’ individual circum-

stances and claims,” Ward, 753 F. App’x at 246.

Here, however, the court’s analysis—for this huge putative class—is

fleeting:

In this case, Plaintiffs allege prohibited self-dealing and fiduciary

breaches stemming from Defendants’ exertion of discretionary con-

trol over [the trusts]. Plaintiffs further allege Defendants’ actions

affected all plans participating in [the trusts]. Because Defen-

dants’ status as fiduciaries with discretionary control over [the

trusts] presents a common question capable of classwide resolu-

tion, Plaintiffs’ proposed class satisfies the commonality require-

ment (docket citations removed).

Our caselaw demands more than this brevity. First, the order does not

identify the common question with any specificity. 12 And, having defined the

question vaguely, the court then analyzes it conclusionally. There is no refer-

ence to ERISA. 13 Nor does the court explain why clarifying FBG’s status as a

fiduciary will in one stroke resolve an issue that is central to the claims of each

12 See id. at 842 (“[T]he formulation of these common questions of law is too general

to allow for effective appellate review.”).

13 See, e.g., id. (faulting the district court for failing to conduct any “analysis of the

elements and defenses for establishing any of the proposed class claims” in weighing com-

monality); Ward, 753 F. App’x at 246 (faulting the district court for failing to explain and

apply “the elements of Plaintiffs’ claims” in evaluating commonality); see also Madison,

637 F.3d at 557 (finding insufficient analysis of predominance because “[t]he opinion [was]

. . . silent as to the relevant state law that applie[d] . . . and what Plaintiffs must prove to

make their case”).

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one of the class members. 14 Most noticeably, the order neglects to consider

asserted differences among class members that could prevent the suit from

generating “common answers apt to drive the resolution of the litigation.” 15

As the briefs reveal, liability apparently will turn on whether FBG

(1) was a fiduciary as to each plan 16 and (2) received too much compensation.17

But FBG informs us—just as it told the district court—that differences in fees,

structure, and assignment of responsibility among the many plans negate the

possibility of a common answer to those issues. The plaintiffs reply that the

documents governing each plan are materially indistinguishable, such that the

analysis pertaining to one plan will apply to all. FBG retorts that there are

fundamental and dispositive differences among the plan documents.

Faced with those warring factual contentions, the district court needed

to resolve whether there were relevant differences among the many plans—

and, if so, to explain why they did not prevent classwide resolution of the

common issue. 18 Instead, the court offered only its unsupported assurance that

14 See, e.g., Stukenberg, 675 F.3d at 841 (criticizing the district court for not consid-

ering or explaining how the one-stroke standard was met); Ward, 753 F. App’x at 246 (same).

15 Dukes, 564 U.S. at 350 (emphasis removed) (quoting Richard A. Nagareda, Class

Certification in the Age of Aggregate Proof, 84 N.Y.U. L. REV. 97, 132 (2009)); see Stukenberg,

675 F.3d at 842–43 (noting that the district court had apparently rejected defendant’s argu-

ments about individualized issues precluding commonality without explaining why); Ward,

753 F. App’x at 246 (similarly faulting the district court for rejecting defendant’s arguments

about dissimilarities obviating commonality without engaging in a proper analysis).

16See 29 U.S.C. § 1104(a) (outlining ERISA fiduciary duties); id. § 1002(21)(A) (outlin-

ing requirements for becoming a functional fiduciary under ERISA).

17 See id. § 1106(b) (outlining impermissible transactions between a plan and a

fiduciary).

18 See Stukenberg, 675 F.3d at 843 (noting that the district court needed to explain

why it had rejected the defendant’s argument that “resolution of each of the class member’s

. . . claims require[d] individual analysis” that could have prevented the litigation from

“generat[ing] common answers”); see also In re Hydrogen Peroxide Antitrust Litig., 552 F.3d

305, 320 (3d Cir. 2008), as amended (Jan. 16, 2009) (“[B]ecause each requirement of Rule 23

must be met, a district court errs as a matter of law when it fails to resolve a genuine legal

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FBG’s fiduciary status is “capable of classwide resolution.” It is an abuse of

discretion to find commonality on such a thin survey. 19 An issue is not “capable

of classwide resolution” just because the district court, without explanation,

says it is.

2.

The district court’s analysis of the class type is similarly—and

reversibly—breezy. The court certified under Rule 23(b)(1)(B), which provides

for a mandatory class with no opting out, 20 where

prosecuting separate actions by or against individual class mem-

bers would create a risk of . . . adjudications with respect to indi-

vidual class members that, as a practical matter, would be disposi-

tive of the interests of the other members not parties to the indi-

vidual adjudications or would substantially impair or impede their

ability to protect their interests[.]

FED. R. CIV. P. 23(b)(1)(B).

The district court’s reasoning needs more facts and fewer generaliza-

tions. The court noted that the plaintiffs sought “restitution, an accounting for

profits, and an order that Defendants make good to the plans the losses stem-

ming from Defendants’ exercise of discretion and control with respect to [the

or factual dispute relevant to determining the requirements.”).

The order’s only analysis of the differences among the plans occurs (oddly enough) in

its discussion of typicality under Rule 23(a)(3). And it mentions those asserted differences

only in passing before concluding that FBG hadn’t “cogently explain[ed] why [they]

matter[ed].” Even if we could import that reasoning into the analysis of commonality—and

we cannot, because typicality is a distinct issue—it would be insufficient. The court failed to

articulate what the asserted differences were, much less say why they were immaterial by

reference to the facts, allegations, and law of ERISA.

19 See Stukenberg, 675 F.3d at 844–45 (concluding that certification order did not

rigorously analyze commonality); Ward, 753 F. App’x at 246 (same); cf. Madison, 637 F.3d

at 557 (finding abuse of discretion where district court failed to analyze predominance with

sufficient rigor).

20 See In re Katrina Canal Breaches Litig., 628 F.3d 185, 191 (5th Cir. 2010).

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trusts]” (quotation marks removed). It then quoted dictum in Ortiz, which

stated that Rule 23(b)(1)(B) would often encompass “actions charging a breach

of trust by a[] . . . fiduciary similarly affecting the members of a large class of

beneficiaries,” because such actions “requir[e] an accounting or similar proce-

dure to restore the subject of the trust.” Ortiz, 527 U.S. at 834 (quotation

marks removed). The proposed group fell within that “[c]lassic example,” the

district court opined, because the plaintiffs sought an ERISA accounting that

would make good any losses that resulted from FBG’s fiduciary breaches. So

Rule 23(b)(1)(B) applied.

Despite relying on Ortiz, the court missed its central premise. Even if a

proposed class appears, at first glance, to be an historical example of a

23(b)(1)(B) class, the court must look closely at the facts to ensure that separate

adjudications as to each class member would indeed impair nonparties’ ability

to protect their interests. 21 In other words, the Rule does not tolerate a fleeting

analysis that assumes that a given class is appropriate just because it appears

to be a classic (b)(1)(B) class. See id. at 848–61.

Applying that principle, Ortiz held that a proposed class did not qualify,

because it did not sufficiently resemble a “limited fund.” See id. In so doing,

the Court applied a “limiting construction” to Rule 23(b)(1)(B) designed “to stay

close to the historical model[s]” of such classes. Id. at 842. It spoke warily of

the “likelihood of abuse” of that subsection and counseled against its “adven-

turous application.” 22 The Court wished to avoid “potential conflict with the

21 See Ortiz, 527 U.S. at 848–61 (analyzing a proposed limited-fund class under Rule

23(b)(1)(B) to see whether its characteristics adhered to the historical limited fund).

22Id. at 842, 845; see Katrina, 628 F.3d at 192 (noting that Ortiz “counseled against

adventurous application of Rule 23(b)(1)(B)” and stressed “a limited construction” (quotation

marks removed)); Spano, 633 F.3d at 587 (“In Ortiz, the Supreme Court cautioned strongly

against overuse of (b)(1) classes.”).

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Rules Enabling Act” and “serious constitutional concerns raised by the manda-

tory class resolution of individual legal claims.” Id.

Ortiz shows that the district court’s order does not analyze the class type

with requisite rigor. The court notes that, just as in Ortiz, id. at 834, the

plaintiffs’ case relates to one of the historical models—namely, an action

against a fiduciary seeking an accounting to restore the subject of the trust (in

this case, benefits plans). But, parting ways with Ortiz, the court’s analysis

begins and ends there. It fails to examine the facts of this specific class to

ensure that it qualifies.

That failure is reversible error. 23 FBG vigorously asserts that the class

in no way resembles a typical ERISA class belonging under (b)(1)(B). Among

other things, the company contends—as it did at the district court—that

even assuming that the relief sought for one individual’s claim

would be dispositive of another individual’s claim in the same plan,

that relief would not affect, much less be dispositive of, claims

under the other . . . plans. Different plans require their own lia-

bility and damage[s] analysis, and their own respective account-

ings or other relief.

The order has no response to that fact-bound contention. It instead

assumes that the desired relief—an ERISA accounting—automatically entitles

the plaintiffs to certification via (b)(1)(B). The court’s nonspecific, categorical

reasoning contradicts Ortiz and fails to demonstrate a rigorous analysis.

It follows that we cannot do this work in the district court’s stead. The

Rule requires a case-specific inquiry into whether, “as a practical matter,” one

class member’s relief in an adjudication would impair the interests of non-

23 Cf. Cruson v. Jackson Nat’l Life Ins. Co., 954 F.3d 240, 255 (5th Cir. 2020) (“Here,

the district court provided only a cursory analysis on this key point. That is reversible

error.”).

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parties. 24 But here, the court bypasses that required analysis, offering instead

only its conclusional reassurance that the desired “relief would, as a practical

matter, dispose of the interests of the other putative class members.”

A more searching analysis is required. “[C]areful attention to the re-

quirements of [Rule] 23 remains . . . indispensable.” Rodriguez, 431 U.S.

at 405. The court must explain, in the factual context of this case, why adjudi-

cations for individual class members would prejudice nonparty members.25

Such will necessarily entail considering and responding to FBG’s contention

that the existence of many different plans prevents (b)(1)(B) from applying.

C.

The plaintiffs, maybe sensing the inadequacies, point out that the court

had plenty of evidence before it and that the hearing showed that the court was

thoughtfully considering the issues. All true. But the rigor requirement does

not turn on how much material the parties submit or on how carefully the court

seems to weigh the issues at a hearing. It instead asks whether the court’s

order sufficiently analyzes Rule 23. E.g., Stukenberg, 675 F.3d at 842–44. For

reasons described, the one here does not.

The certification order is VACATED. We express no view on whether a

class should be certified, and we place no limit on the matters the court may

consider in further proceedings.

24 FED. R. CIV. P. 23(b)(1)(B) (emphasis added); see 7AA CHARLES ALAN WRIGHT &

ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1774 (3d ed.) (“Because of the

rule’s emphasis on the practical effects of separate adjudications, the determination of wheth-

er a particular action falls within its ambit depends largely on the facts of each case.”).

25 See FED. R. CIV. P. 23(b)(1)(B); cf. Cruson, 954 F.3d at 255 (“We recognize that suits

involving form contracts often lend themselves to class treatment. But this is not always so.”

(citations removed)).

12