The Second Circuit awarded our client, Teachers Insurance and Annuity Association of America (TIAA), victory in a December 1 decision overturning district court certification for a nationwide class of 8,000 annuity plans with hundreds of thousands of plan participants and hundreds of thousands of plan participants thousands of transactions. TIAA is the leading provider of financial services to academia, serving more than 5 million participants with more than $1 trillion in assets under management. The litigation involves a challenge to TIAA’s offering of participant loan services — services that allow plan participants to borrow funds funded by their individual retirement accounts. The named plaintiff — a single participant in a single plan — alleged that the trustees of thousands of plans across the country violated ERISA when they chose to offer TIAA’s lending services. But instead of suing those plan trustees, she sued TIAA for hundreds of millions of dollars, claiming that TIAA should be held liable as a non-trustee for knowingly participating in ERISA violations inflicted on the trustees of each class membership plan. After the district court upheld this unprecedented class in November 2020, the Second Circuit granted an interlocutory review and, in its December 2022 opinion, overturned the district court’s decision.
The Second Circuit held that the district court erred in ignoring important statutory exceptions in assessing supremacy under rule 23(b)(3). These exceptions, raised by TIAA as affirmative objections, are at the heart of the parties’ dispute as to whether each plan’s loan service arrangements were ERISA-compliant. For example, the Court noted that under ERISA a relevant exception asks whether each plan paid and received “reasonable consideration,” considering whether each plan’s trustees acted “in good faith” in approving the amount paid or received. have acted. Another examines whether the loans were consistent with the governing documents of each plan and whether each plan’s loans “carry an appropriate rate of interest.” However, the district court ruled out “[d]” these factors from the dominance analysis and failed to consider evidence supporting differences between the plans because it incorrectly assumed that ERISA’s exceptions as positive objections were irrelevant to the class certification analysis. The Second Circuit ruled that ERISA’s legal and regulatory exceptions “do not carry ‘less weight’ in the issue of class certification” simply because they are positive defenses. It was vacated and remanded to the District Court for the appropriate supremacy investigation under the proper legal standard.
TIAA was represented by Jaime Santos, an appellate partner who argued the appeal, along with Jamie Fleckner, Mike Isenman and Kelsey Pelagalli.
See Bloomberg Law and Law360 coverage for more details.