By: Mark Casciari and Ada Dolph

On February 6, 2012, the Court of Appeals for the Second Circuit in Nationwide Life Ins. Co. v. Haddock, Case No. 10-4237-cv, vacated and remanded for reconsideration a district court’s ERISA class action certification issued pre-Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011).  The court vacated the district court certification order, which relied on  Fed. R. Civ. P. 23(b)(2).  The court reasoned that, if the plaintiffs were awarded money pursuant to ERISA Section 502(a)(3), the court would nonetheless be required to conduct “non-incidental, individualized proceedings for monetary awards.” 

The plaintiffs, in their role as pension plan trustees, alleged under  ERISA Section 502(a)(3) that Nationwide, an investment provider, breached its alleged fiduciary duties by collecting revenue sharing payments from the mutual funds that Nationwide selected and offered to the plaintiffs’ plans.  The plaintiffs sought as relief a declaratory judgment that Nationwide’s revenue sharing violated ERISA, an injunction barring Nationwide from receiving revenue sharing payments, and disgorgement of the revenue sharing payments received by Nationwide. 

The plaintiffs moved for class certification pursuant to Rule 23(b)(2) and (b)(3).  In 2009, the district court certified the class pursuant to Rule 23(b)(2), concluding that plaintiffs’ claims for general injunctive or declaratory relief predominated over their claims for individualized monetary relief.  The district court did not decide whether the class could be certified pursuant to Rule 23(b)(3).

On appeal, the Second Circuit found that Dukes means that claims for individualized monetary relief are not suitable for Rule 23(b)(2) certification unless they are “incidental” to the requested declaratory or injunctive relief.   The Second Circuit found that if the plaintiffs were successful, the court would be required to determine the separate monetary recoveries of each defendant from the disgorged funds.  “This process,” it concluded, “would require the type of non-incidental, individualized proceedings for monetary awards that Wal-Mart rejected under Rule 23(b)(2).”  The Second Circuit then remanded the case to the district court to consider whether the class could be certified under Rule 23(b)(3). 

This case provides two lessons.  First, it will be difficult after Dukes to certify an ERISA action under Rule 23(b)(2) because many such actions have a primary focus of recovering money.  Second, because Rule 23(b)(3) certification requires the court to provide notice about the action and a right to opt out of any certified class, and because there is little history of ERISA Rule 23(b)(3) certifications, there will much to say in the future about the ramifications of such certifications.