Universal ERISA: Miller Shah LLP Secures Victory at Third Circuit for 401(k) Participants

On June 1, 2022, the United States Court of Appeals for the Third Circuit upheld the United States District Court for the Eastern District of Pennsylvania’s decision to certify a class of more than 60,000 participants in a lawsuit against Universal Health Services Inc. (“UHS”) and the UHS Retirement Plan Investment Committee (together, “Universal” or “Defendants”) regarding the alleged mismanagement of the UHS Retirement Savings Plan (the “Plan”).

Universal, like many corporations and non-profit organizations, offers a defined contribution 401(k) plan, into which eligible employees set aside a certain percentage of their income to be invested for retirement. As the employer and sponsor of the Plan, Universal offers a menu of investments from which employees can select, according to their personal retirement goals and risk preferences. Employees then pay account maintenance fees, also known as recordkeeping fees, and investment management fees, which vary depending on the chosen investments.

Defined contribution plans are governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), a federal statute establishing standards for plan administrators to ensure that investments offered to employees are prudently selected and monitored.

Plaintiffs, represented by Miller Shah, allege that Universal violated ERISA by: (1) including the actively managed Fidelity Freedom Fund investment options in the plan, (2) charging excessive recordkeeping and administrative fees to Plan participants, and (3) employing a flawed process for selecting and monitoring the Plan’s investment options. Importantly, the named Plaintiffs, who moved to be the class representatives, invested in seven out of the 37 investment options available to Plan participants.

In October 2020, Universal moved to partially dismiss the lawsuit, arguing that the class representatives did not suffer any damages from those investment options in which they never participated and therefore lacked constitutional standing to pursue claims relating to those other 30 investments. In response, Plaintiffs argued that because the Plan administrators’ misconduct relates to all of the Plan’s investment options, not just the seven invested funds, the class representatives have standing. Plaintiffs further noted that ERISA lawsuits are brought in a representative capacity on behalf of all Plan participants, not just the named Plaintiffs.

Later that month, the District Court for the Eastern District of Pennsylvania denied the motion, finding that the class representatives had adequately alleged the requisite injuries for standing and that the eventual outcome of the case would hinge on the Defendants’ uniform conduct with respect to the Plan.

Plaintiffs subsequently moved to certify the lawsuit as a class action, thereby combining the claims of “all participants and beneficiaries in the Plan at any time on or after June 5, 2014 to the present” into one lawsuit. Defendants opposed the motion.

In March 2021, the District Court granted Plaintiffs class action status, finding that they had satisfied each of the four principal requirements of class actions: numerosity, commonality, typicality, and adequacy of representation. Shortly thereafter, Defendants appealed the decision to the Third Circuit.  

Defendants, repackaging their standing argument, argued that because the named Plaintiffs did not invest in each of the funds in the Plan lineup, they failed to meet the typicality requirement for class certification under Federal Rule of Civil Procedure 23(a). Citing the Supreme Court’s decision in Thole v. U.S. Bank N.A., Universal maintained that the named Plaintiffs’ claims are atypical of those of other class members and that the class representatives lack sufficient incentives to litigate ERISA claims over funds in which they did not invest because they stand to recover no money from a favorable judicial decision regarding those investments.

On June 1, 2022, in a precedential decision, the Third Circuit disagreed with Universal and affirmed the District Court’s decision. The three-judge panel explained that because “the class representatives allege actions or a course of conduct by ERISA fiduciaries that affected multiple funds in the same way, their claims are typical of those of the class.” The decision reaffirms the Third Circuit’s prior decision in In re Schering Plough, which holds that ERISA “breach of fiduciary duty claims brought under § 502(a)(2) are paradigmatic examples of claims appropriate for certification as a Rule 23(b)(1) class.” The decision clears the way for similar ERISA suits to be certified as class actions.

The lawsuit will now proceed through expert discovery and is on track to reach trial later this year. Updates will be posted to this blog as the matter progresses. The case caption is Mary Boley, et al v. Universal Health Services Inc, et al, No. 21-2014, filed in the United States Court of Appeals for the Third Circuit.

The legal team at Miller Shah LLP has significant experience representing ERISA matters. If you have any questions regarding this subject or this post, please contact Alec Berin (ajberin@millershah.com) or Stephen Rutkowski (strutkowski@millershah.com). The firm can also be reached toll-free at (866) 540-5505.

Miller Shah LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, and Pennsylvania. The firm is an active member of Integrated Advisory Group (www.iaginternational.org), which provides clients access to excellent legal and accounting resources around the globe. For more information about the firm, please visit https://www.millershah.com.

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