On March 4, 2011, Judge Rebecca Pallmeyer of the U.S. District Court for the Northern District of Illinois granted class certification in Neil, et al. v. Zell, et al, Case No. 08-CV-6833 (N.D. Ill. Mar. 4, 2011), a high profile ERISA case. The ruling is instructive to all employers facing ERISA class actions.
In Neil, the named plaintiffs, two former employees of the Tribune Company, brought suit under ERISA against GreatBanc, Sam Zell, and EGI-TRB LLC, alleging breaches of fiduciary duty stemming from the leveraged buyout of the Tribune Company by the employee stock ownership plan (the “ESOP”). Under the leveraged buyout, the ESOP was created and then it purchased the Tribune Company. Shortly after the purchase the company declared bankruptcy and, as a result, plaintiffs allege that the stock held by the ESOP is now worthless.
The proposed class covered all participants and beneficiaries (except the defendants), who participated in the ESOP and who were entitled to an allocation to their ESOP account. In deciding to certify the class, the Court concluded that the proposed class met all four criteria of Rule 23(a). First, even though nearly 4,000 potential class members signed releases waiving all ERISA claims, the Court found that plaintiffs met the numerosity criteria, because the class contained at least 7,000 participants notwithstanding those who signed releases. Second, the Court determined that plaintiffs satisfied the commonality requirement, because all of the allegations related to the leveraged buyout. Third, the Court held that plaintiffs demonstrated typicality, because, unlike in Spano v. The Boeing Co., 633 F.3d 574, (7th Cir. 2011), the class members all held the same investment – the Tribune Company stock. Moreover, the Court reasoned that because the named plaintiffs did not sign a release of claims, the releases did not defeat typicality. Fourth, the Court concluded that the proposed class representatives were adequate. In making this finding, the Court rejected the argument that the named plaintiffs’ animosity towards defendant Zell rendered them unsuitable. The Court acknowledged that although a proposed representative may be inadequate when motivated by personal animus, the evidence presented did not establish sufficient animus or vindictiveness. The Court also rejected the defense argument that one of the named plaintiffs was inadequate based on his alleged lack of knowledge about the specifics of the lawsuit. Similarly, the Court rejected the argument that the economic interests of the named plaintiffs conflicted with those of the class, finding that a victory by the named plaintiffs would not cause another member of the class to suffer an identifiable harm.
Reviewing the Rule 23(b) standards, the Court determined that certification pursuant to Rule 23(b)(1)(A) and (B) was appropriate, because adjudicating the case in a non-class format potentially could cause inconsistent direction to ESOP fiduciaries and a victory by one plan member would necessarily be a victory for all plan members. It also concluded that certification pursuant to Rule 23(b)(2) is appropriate because plaintiffs seek equitable relief and any incidental damages can be calculated mechanically.
Neil is a significant case for employers facing ERISA litigation. It demonstrates that despite the Seventh’s Circuit curtailment of a party’s ability to bring a class action under ERISA announced in Spano v. The Boeing Co., 2011 WL 183974 (7th Cir. Jan. 21, 2011), district courts remain willing to certify class actions under ERISA.