Peter Trauernicht and Zachary Wright, former employees of Genworth Financial, sued the company alleging that it breached its fiduciary duties by selecting and retaining BlackRock LifePath Index Funds for the company's defined contribution retirement plan. They argued these funds were imprudent compared to other available options and sought monetary losses under ERISA sections 502(a)(2) and 409(a). The district court certified a class of all participants who held these funds from August 2016 to judgment, ruling that ERISA claims inherently present common questions and that the derivative nature of the suit made mandatory certification appropriate. Genworth Financial appealed this interlocutory order, arguing that the claims were individualized and that the class included members who suffered no actual injury.
Judge Niemeyer, writing for the panel, began by distinguishing between defined benefit and defined contribution plans. While ERISA § 502(a)(2) allows a participant to sue on behalf of the plan for losses, the nature of the relief differs by plan type. In a defined benefit plan, losses are collective, but in a defined contribution plan, assets are allocated to individual accounts, and recovery is tailored to the specific losses of each account. Consequently, the court held that in a defined contribution context, these are 'individualized monetary claims.' Under Supreme Court precedent, specifically Wal-Mart Stores, Inc. v. Dukes, individualized monetary claims belong in Rule 23(b)(3), which provides notice and opt-out rights, rather than Rule 23(b)(1), which mandates class membership without notice. The court rejected the plaintiffs' argument that the claims were 'derivative' and thus suitable for mandatory certification, noting that the relief would ultimately flow to individual accounts, not the plan as a whole in a way that precludes individual adjudication. Furthermore, the court addressed the commonality requirement of Rule 23(a)(2). The district court had assumed commonality existed because the breach was against the plan. The Fourth Circuit corrected this, requiring a rigorous analysis of whether class members suffered the same injury. The record showed that many participants suffered no injury because the BlackRock funds outperformed the proposed passive comparators for certain vintages. Additionally, participants made different investment choices at different times and withdrew assets at different market conditions, meaning their injuries varied dramatically. The court concluded that the district court abused its discretion by failing to resolve these factual disputes regarding injury and comparators before certifying the class.
The class certification order is vacated, meaning the lawsuit cannot proceed as a class action under the current certification. Plaintiffs must now pursue individual claims or seek certification under Rule 23(b)(3), which would require providing notice to class members and allowing them to opt out. The decision clarifies that ERISA fiduciary breach claims in defined contribution plans are inherently individualized, limiting the use of mandatory class actions for monetary damages in this context. The case is remanded to the district court for further proceedings consistent with this opinion.
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