United States District Court, E.D. Virginia, Alexandria Division
T. S. Ellis, III United States District Judge.
Plaintiffs in this Employee Retirement Income Security Act ("ERISA") case are former executives for defendant Computer Sciences Corporation and current participants in defendant Computer Sciences Corporation Deferred Compensation Plan for Key Executives ("Plan"). The Consolidated Complaint alleges four counts. Counts I, II, and III are alternative theories aimed at obtaining the same relief, namely the invalidation of an amendment to the Plan that plaintiffs allege harms their interests. Count IV alleges a procedural violation of ERISA in that plaintiffs contend they were not afforded a full and fair review of their claims for benefits. With respect to Counts I, II, and III, plaintiffs moved to certify a class action including all similarly situated former employees of CSC whom the challenged amendment affected. CSC opposes class certification and seeks summary judgment on all counts.
Plaintiffs' motion for class certification and CSC's motion for summary judgment have been fully briefed and argued. This Memorandum Opinion disposes of both motions.
CSC is a Fortune 500 company that provides information technology services worldwide. Since 1995, CSC has sponsored the Plan at issue in this lawsuit. The Plan is what is known as a "top-hat plan, " which means it is "unfunded" and "maintained...primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees." 29 U.S.C. § 1051(2). Pursuant to the Plan, eligible Plan participants-select, highly compensated key executives-can defer each year portions of their base salary and up to 100% of their incentive compensation. Because the Plan is unfunded, deferrals are recorded in notational accounts; no funds are actually segregated or placed in a trust. In other words, an election to defer compensation does not result in CSC's investing money on the participant's behalf. Rather, deferrals are noted for accounting purposes, and participants are paid from CSC's general assets at the appropriate time, which participants can elect to be the time of retirement or as annual installment payments over five, ten, or fifteen years following retirement.
By deferring compensation, Plan participants in essence make a loan to CSC. In return, participants realize certain benefits. For one, deferring income allows participants to defer income taxes, which gives participants the potential to build up more money for retirement or other long-term goals than if they were to invest the same amount after taxes. Additionally, a participant's deferred income grows; deferrals are credited with earnings according to a crediting rate set forth in the Plan. The Plan crediting rate is at the heart of the instant lawsuit.
There have been three crediting rates over the lifetime of the Plan. First, from the Plan's establishment in 1995 through March 2003, the crediting rate was 120% of the 120-month rolling average yield to maturity on 10-year U.S. Treasury Notes as of December 31 of the preceding plan year ("Treasury rate"). Second, as the result of a Plan amendment, in March 2003 the Plan began using as the crediting rate the 120-month rolling average yield to maturity of the Merrill Lynch U.S. Corporate, A Rated, 15 Years Index ("Merrill Lynch Index"). The Merrill Lynch Index was applied to all deferrals, even those made before the effective date of the new crediting rate. Third, in May 2012 CSC's Board of Directors ("Board") adopted a Plan amendment to the crediting rate to be effective as of January 1, 2013 ("2012 Amendment"). Specifically, the 2012 Amendment replaced the Merrill Lynch Index with four valuation funds as crediting rate options. These four funds mirror the options available in CSC's 401(k) plan. Under the 2012 Amendment, participants can select any mixture of the four valuation funds, and participants can even change their valuation fund selections on a daily basis. The four valuation fund options have varying levels of risk and return. They are (i) a money market fund, (ii) an S&P 500 index fund, (iii) a core bond fund, and (iv) a target-date retirement fund. If a participant fails to select his or her own valuation funds, the money market fund is selected by default.
Beyond changing the crediting rate, the 2012 Amendment also changed how annual benefit payments are distributed. Before the 2012 Amendment, participants received equal distribution payments until the final installment, which would be adjusted to reflect the actual performance of the Merrill Lynch Index over the entire distribution schedule. Under the 2012 Amendment, however, distribution installments are determined by applying the crediting rate to the remaining account balance and dividing the total by the number of remaining distribution installments. As a result, distribution payments under the 2012 Amendment are no longer approximately equal over time as they were prior to the 2012 Amendment.
Importantly, the Plan's terms at the time of the 2012 Amendment's adoption gave the Board amendment authority. In general, the Plan provided that it could be "wholly or partially amended by the Board from time to time, in its sole and absolute discretion." See D. Mem. Supp., Ex. 4 ("2007 Plan"), §§ 8.6 & 16.6. Moreover, the Plan permitted such amendments to apply prospectively to amounts noted in a participant's account as of the date of amendment. Id. The only limitation on CSC's amendment power was that no amendment could decrease the amount of any participant's account "as of the effective date of such amendment." Id. In addition to the general amendment power, the Plan also plainly specified that the crediting rate was "subject to amendment by the Board." Id. §§ 4.3 & 12.3. Nothing in the Plan distinguished retired employees from active employees for purposes of CSC's amendment power. To the contrary, the Plan defined a "Participant" as any "Key Executive who elects to participate in...the Plan...until [the Key Executive] ha[s] received all benefits due under...the Plan." Id. §§ 1.18 & 9.20. In other words, anyone to whom distributions were due under the Plan was a participant for purposes of the Plan, and CSC's amendment authority, by its plain language, permitted amendments to the crediting rate for all participant accounts. See Id. §§ 4.3 & 12.3, 1.18 & 9.20.
Plaintiffs consider themselves aggrieved by the 2012 Amendment. Plaintiff Jeffrey Plotnick, a former CSC Vice President of Business Development, began participating in the Plan shortly after its establishment in 1995, usually electing to have his account distributed in fifteen annual installments after retirement. At the time Plotnick retired on September 4, 2012, his account balance was approximately $3.5 million dollars; the value did not decline on the effective date of the 2012 Amendment. Plaintiff James Kennedy, also a former CSC Vice President, began participating in the Plan in 1999, typically electing to receive his distributions in installments over ten years after retirement. Kennedy's account balance at the time of his retirement-March 2, 2012-was approximately $4 million, and his account balance was also unaffected as of the effective date of the 2012 Amendment. Given their dates of participation in the Plan, each plaintiff has had his account subject to three different crediting rates-the Treasury rate, the Merrill Lynch Index, and the current regime under the 2012 Amendment. When the 2012 Amendment went into effect, Kennedy elected to allocate his account between the bond fund and the S&P 500 Index. In contrast, Plotnick, in protest to the 2012 Amendment, allowed his account to default into the money market fund.
Plaintiffs began their attack on the 2012 Amendment on May 20, 2013, when their attorneys sent CSC two nearly identical letters, one on behalf of each plaintiff, claiming benefits under the Plan. These letters challenged the 2012 Amendment on four grounds, namely (i) that the Plan is a unilateral contract that cannot be changed after a participant retires, (ii) that the crediting rates under the 2012 Amendment are invalid because the valuation funds have the potential to lose money, (iii) that the 2012 Amendment improperly allows calculation of the rate of return for a notational investment option "for any given period" rather than on a 120-month rolling average, and (iv) that the new manner in which distributions are calculated violates the Plan's language that participants may elect to receive distributions in approximately equal annual installments. On behalf of the Plan administrator, CSC Executive Vice President and Chief Human Resources Officer Sunita Holzer denied plaintiffs' claims for benefits by letters dated July 22, 2013. These denial letters explained that the Board had the absolute discretion to amend the Plan under §§ 8.6 and 16.6 and that the Board had exercised that power. The letters further informed plaintiffs that they had exhausted their administrative remedies under the Plan and had the right to bring a civil action under ERISA. At the time plaintiffs claimed benefits under the Plan, they also requested certain Plan documents. CSC's Vice President of Global Compensation Benefits, Eduardo Nunez, responded to these requests and provided plaintiffs copies of Plan documents, account statements, distribution election information, and a certified copy of the relevant Board resolutions amending the Plan.
Plotnick initiated this putative class action in January 2014,  and Kennedy intervened in January 2016. Plaintiffs seek to represent a class consisting of participants (and beneficiaries of participants) in the Plan who retired as of December 31, 2012, who had elected to receive distributions of deferred income during retirement in installments, and for whom the amount or manner of their benefit payment was altered by the 2012 Amendment. The Consolidated Complaint seeks on behalf of this class:
Count I: recalculation and distribution of benefits under the pre-amendment terms of the Plan pursuant to 29 U.S.C. § 1132(a)(1)(B);
Count II: a declaration that the plan amendment in issue is invalid and an order that benefits be calculated accordingly pursuant to 29 U.S.C. § 1132(a)(3); or
Count III: relief on the basis of equitable estoppel under § 1132(a)(3).
Counts I, II, and III are alleged only in the alternative; plaintiffs concede that relief can only be proper under one of the counts. In addition, in Count IV plaintiffs seek only on their behalf, not the class, a declaration that CSC violated ERISA's "full and fair review" requirement and the Plan's own provisions regarding benefit claims and appeals.
The first issue to be addressed and resolved is whether class certification is appropriate as to Counts I, II, and III. As noted, plaintiffs propose the following class with regard to each count:
Participants in the Plan who retired as of December 31, 2012, had elected to receive distributions of deferred income during retirement in installments, and for whom the amount or manner of their benefit payment was altered by the 201  Amendment; and the Beneficiaries of those Participants.
The question is whether plaintiffs' proposed class-or any feasible class-meets the requirements of Rule 23, Fed. R. Civ. P.
It is well settled that a class action is an "exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only, " and a departure from this "usual rule" is justified only where the class representatives are part of the class, possess the same interest as the class members, and suffered the same injury as the class members. Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2550 (2011) (internal quotations omitted). Thus, in order to certify a class, plaintiffs bear the burden of demonstrating compliance with the four requirements of Rule 23(a)-numerosity, commonality, typicality, and adequacy-as well as one of the requirements of Rule 23(b). See Id. at 2551 ("A party seeking class certification must affirmatively demonstrate...compliance with the Rule" and "be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc.") (emphasis in original).
CSC argues that plaintiffs' proposed class cannot satisfy Rule 23(a)'s commonality, typicality, and adequacy requirements and that certification is improper under each of Rule 23(b)'s requirements. With respect to the commonality, typicality, and adequacy requirements, it is often observed that these requirements "tend to merge, " such that the same basic concerns can be relevant under each of the requirements. Id. at 2551 n.5. Moreover, it is well established that the merits of a class certification argument can sometimes "overlap with the merits of the...underlying claim." EQT Prod. Co. v. Adair, 764 F.3d 347, 357 (4th Cir. 2014).
The class certification analysis here begins with commonality and typicality. Rule 23(a)(2) requires as a condition of class certification that "there are questions of law or fact common to the class." This requirement is satisfied when there is even a single common question that will resolve an issue central to the validity of each of the class member's claims. See EQT Prod. Co., 764 F.3d at 360. Rule 23(a)(3) imposes a further requirement that "the claims or defenses of the representative parties are typical of the claims or defenses of the class." As one treatise notes, "many courts have found typicality if the claims or defenses of the representatives and the members of the class stem from a single event or a unitary course of conduct." Wright & Miller, supra, § 1764 at 270 (citing, inter alia, Kennedy v. United Healthcare of Ohio, Inc., 206 F.R.D. 191, 196 (S.D. Oh. 2002) (claims that an ERISA health insurance plan violated ERISA by failing to calculate copayments in accordance with the plan arose from the same conduct and were therefore typical)). As noted previously, there is significant overlap between the commonality and typicality requirements. See Dukes, 131 S.Ct. at 2551 n.5.
With respect to Counts I and II, the proposed class clearly satisfies the commonality and typicality requirements. The common question under these counts is whether the 2012 Amendment is valid, a question that applies to all Plan participants. Moreover, typicality is satisfied because "the claims or defenses of the representatives and the members of the class stem from a single event or a unitary course of conduct, " namely the Board's adoption and implementation of the allegedly invalid Plan amendment. See Wright & Miller, supra, § 1764 at 270.
CSC argues that there is no commonality or typicality as to Counts I and II because causation cannot be demonstrated through class-wide proof. In this respect, CSC relies on Wiseman v. First Citizens Bank & Trust Co., 212 F.R.D. 482, 486-88 (W.D. N.C. 2003), an ERISA breach of fiduciary duty case in which the court concluded that the class lacked commonality and typicality because ERISA insulates fiduciaries from liability for losses attributable to a participant's exercise of control over his or her account. As the Wiseman court noted, although ERISA creates liability for a breach of fiduciary duty, § 1104(c)(1)(B) shields fiduciaries from liability where the losses are attributable to the participant's control of his or her own account. 212 F.R.D. at 486. Thus, Wiseman reflects that where a fiduciary breaches his duty to a class of participants, but calculation of damages requires a participant-by-participant analysis as to whether § 1104(c)(1)(B) applies, class certification is inappropriate. Id. at 486-88.
CSC points out that under the 2012 Amendment, Plan participants exercise control over their accounts and therefore whether any given participant suffered an injury turns on his or her own valuation fund choices. Yet, CSC's analogy to Wiseman fails because the legal issues are entirely different. In Wisemen, determining whether the fiduciary incurred liability with respect to any given participant would have required a participant-by-participant analysis as to whether that participant's losses were traceable to the participant's exercise of control over his or her account. Here, in contrast, the common legal question is whether the 2012 Amendment is valid, a question on which Plan participants' post-amendment investment decisions have no bearing. Thus, commonality and typicality are satisfied as to Counts I and II.
As to Count III, plaintiffs' estoppel claim, CSC argues that class certification is inappropriate because plaintiffs cannot show that each class member relied, to his or her detriment, on the same material representations. Indeed, many courts have noted that "[b]ecause of their focus on individualized proof, estoppel claims are typically inappropriate for class treatment." Sprague v. Gen. Motors Corp., 133 F.3d 388, 398 (6th Cir. 1998) (en banc) (citing Jensen v. SIPCO, Inc., 38 F.3d 945, 953 (8th Cir. 1994) (estoppel "must be applied with factual precision and therefore is not a suitable basis for class-wide relief')).
Plaintiffs argue that they can overcome this problem because they and the other putative class members relied on the Plan as a whole to their detriment and are therefore entitled to the enforcement of the terms on which they relied. This argument is patently absurd, as the Plan as a whole includes provisions permitting amendment to the Plan, including to the crediting rate. Thus, plaintiffs are not really alleging reliance on the terms of the Plan as a whole, but reliance on their own interpretations of the Plan. Specifically, plaintiffs argue that they understood the Plan as not permitting amendments adversely affecting the crediting rate. Thus, plaintiffs feel entitled to have the Plan interpreted consistent with their expectations. By the overwhelming weight of judicial authority, however, plaintiffs cannot simply rely on their own interpretations of the Plan; rather, at least seven circuits allow ERISA estoppel claims only where there is a reasonable and detrimental reliance on a specific misrepresentation. Moreover, at least three circuits explicitly require a representation constituting an interpretation of ambiguous Plan language on which plaintiffs relied to their detriment in order to state an ERISA estoppel claim. See Guerra-Delgado, 774 F.3d at 782; Greany, 973 F.2d at 821; Kane, 893 F.2d at 1285. Plaintiffs cite no case for the ...