[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 99-14220 NOVEMBER 30, 2001
________________________ THOMAS K. KAHN
CLERK
D. C. Docket No. 97-01823-CV-J-S
CHARLES J. PIAZZA, JR., an individual
and as a representative for a class of
persons similarly situated,
Plaintiff-Appellee,
versus
EBSCO INDUSTRIES, INC.,
COOPERS & LYBRAND, LLP, et al.,
Defendants-Appellants.
________________________
Appeals from the United States District Court
for the Northern District of Alabama
_________________________
(November 30, 2001)
Before CARNES, MARCUS and FARRIS*, Circuit Judges.
MARCUS, Circuit Judge:
*
Honorable Jerome Farris, U.S. Circuit Judge for the Ninth Circuit, sitting by designation.
This is an interlocutory appeal from a grant of class certification. Charles
Piazza (“Piazza”), a former employee of EBSCO Industries, Inc. (“EBSCO”), and
a former participant in the EBSCO Savings and Profit Sharing Trust Plan (the
“Plan”), brought this action against EBSCO, certain EBSCO directors, certain
trustees and fiduciaries of the Plan (together, the “EBSCO Defendants”) and
Pricewaterhouse Coopers, LLP (“PwC”),1 alleging violations of Alabama law and
the Employee Retirement Income Security Act, 29 U.S.C. § 1001-1461 (“ERISA”).
The district court granted Piazza’s motion for class certification, and, pursuant to
Fed. R. Civ. P. 23(b)(3), certified against all defendants a class of all persons who
are or have been Plan participants or beneficiaries from 1983 through the present.
PwC and the EBSCO Defendants argue on appeal that the district court abused its
discretion by certifying a class against them. We reverse certification of a class
against PwC, vacate certification of the class against the EBSCO Defendants, and
remand to the district court with instructions.
I.
The facts surrounding this appeal are straightforward. The Plan is funded by
employee contributions and fifteen percent of EBSCO’s annual profits. Among
1
Piazza originally named Coopers & Lybrand, LLP, PwC’s predecessor in interest. For
ease of reference, we will refer to both entities as “PwC.”
2
other assets, the Plan also held EBSCO stock, which comprised 30% of the corpus
by 1993. In 1994, the Plan sold the EBSCO stock back to EBSCO, based on a
valuation by PwC. AmSouth Bank, the Plan trustee, hired PwC for this purpose.
PwC delivered its report on January 31, 1994, and valued the stock at
approximately $17 million. The sale was completed between March and June
1994.
Piazza was an EBSCO employee and Plan participant from 1988 until 1995.
He retired in 1995 and withdrew his funds from the Plan in 1996. Piazza first
learned of the 1994 stock sale from another EBSCO employee in November 1995.
He also learned that some impropriety may have occurred in the valuation of
EBSCO stock for the sale. Upon investigation, Piazza discovered that the EBSCO
Defendants secretly operated competing companies.
Piazza filed suit on July 18, 1997, alleging that the EBSCO Defendants had
undervalued the stock for the 1994 sale and pressured the trustee to undervalue the
stock in prior years. From the outset, Piazza sought to certify a class and proceed
with a class action suit. Piazza initially named only the EBSCO Defendants and
PwC as defendants. He did not seek to join AmSouth until August 1998, near the
close of discovery. The district court granted joinder in February 1999 and
extended the discovery period.
3
Piazza moved for class certification pursuant to Fed. R. Civ. P. 23(b)(1), (2),
and (3). Defendants vigorously opposed. On July 7, 1999, the district court held a
class certification hearing. At the hearing, Piazza abandoned his earlier claim that
the class should begin in 1959, the year the Plan was established, in favor of 1983,
when the EBSCO Defendants began operating competing companies. On August
13, 1999, the district court issued an order certifying against all defendants a Rule
23(b)(3) class of all persons who were Plan participants or beneficiaries from 1983
through the pendency of the action.2
We granted the defendants’ interlocutory motions to appeal class
certification by order of October 27, 1999. See Fed. R. Civ. P. 23(f).
On February 8, 2000, the district court granted AmSouth’s motion for
summary judgment, holding that Piazza’s claims against it were barred by the
statute of limitations. The district court certified this order as a final judgment, and
Piazza did not appeal in the time allotted. On April 3, 2000, we dismissed
AmSouth’s appeal of the class certification as moot.
II.
We review orders granting class certification for abuse of discretion. See
2
Due to a clerical error, the original order stated that the class period began in 1993. A
clarifying order was issued on August 25, 1999.
4
Andrews v. American Tel. & Tel. Co., 95 F.3d 1014, 1022 (11th Cir. 1996).
Whether the named plaintiffs have standing to assert their claims is a legal issue
subject to de novo review. See Wooden v. Board of Regents of Univ. Sys. of
Georgia., 247 F.3d 1262, 1271 n.9 (11th Cir. 2001).
Rule 23(a) sets out four requirements which must be satisfied before a class
can be certified. The Rule states:
(a) Prerequisites to a Class Action. One or more members of a class
may sue or be sued as representative parties on behalf of all only if (1)
the class is so numerous that joinder of all members is impracticable;
(2) there are questions of law or fact common to the class; (3) the
claims or defenses of the representative parties are typical of the
claims or defenses of the class; and (4) the representative parties will
fairly and adequately protect the interests of the class.
Id. These four requirements commonly are referred to as “the prerequisites of
numerosity, commonality, typicality, and adequacy of representation,” and they are
designed to limit class claims to those “fairly encompassed” by the named
plaintiffs’ individual claims. General Tel. Co. of S.W. v. Falcon, 457 U.S. 147,
156, 102 S. Ct. 2364, 2370, 72 L. Ed. 2d 740 (1982) (quoting General Tel. Co. of
N.W. v. E.E.O.C., 446 U.S. 318, 330, 100 S. CT.. 1698, 1706, 64 L. Ed. 2d 319
(1980)). Typicality, along with the related requirement of commonality, focuses
on whether a sufficient nexus exists between the legal claims of the named class
representatives and those of individual class members to warrant class certification.
5
See Washington v. Brown & Williamson Tobacco Corp., 959 F.2d 1566, 1569 n. 8
(11th Cir.1992); see also 7A C. Wright & A. Miller, Federal Practice and
Procedure § 1764 (1986). Traditionally, commonality refers to the group
characteristics of the class as a whole, while typicality refers to the individual
characteristics of the named plaintiff in relation to the class. See Prado-Steiman v.
Bush, 221 F.3d 1266, 1279 (11th Cir. 2000). Typicality also encompasses the
question of the named plaintiff’s standing, for “[w]ithout individual standing to
raise a legal claim, a named representative does not have the requisite typicality to
raise the same claim on behalf of a class.” Id. “Adequacy of representation”
means that the class representative has common interests with unnamed class
members and will vigorously prosecute the interests of the class through qualified
counsel. Andrews, 95 F.3d at 1023. These four requirements “serve as guideposts
for determining whether under the particular circumstances maintenance of a class
action is economical and whether the named plaintiff’s claim and the class claims
are so interrelated that the interests of the class members will be fairly and
adequately protected in their absence.” Prado-Steiman v. Bush, 221 F.3d at 1279
(11th Cir. 2000) (quoting Falcon, 457 U.S. at 157, n.13, 102 S. Ct. at 2370).
In addition to the requirements of Rule 23(a), before a class can be certified,
at least one of the alternative requirements of Rule 23(b) must be satisfied.
6
Jackson v. Motel 6 Multipurpose, Inc., 130 F.3d 999, 1005 (11th Cir.1997). The
alternative requirements provided by Rule 23(b) are as follows:
(1) the prosecution of separate actions by or against individual
members of the class would create a risk of
(A) inconsistent or varying adjudications with respect to
individual members of the class which would establish
incompatible standards of conduct for the party opposing
the class, or
(B) adjudications with respect to individual members of
the class which would as a practical matter be dispositive
of the interests of the other members not parties to the
adjudications or substantially impair or impede their
ability to protect their interests; or
(2) the party opposing the class has acted or refused to act on grounds
generally applicable to the class, thereby making appropriate final
injunctive relief or corresponding declaratory relief with respect to the
class as a whole; or
(3) the court finds that the questions of law or fact common to the
members of the class predominate over any questions affecting only
individual members, and that a class action is superior to other
available methods for the fair and efficient adjudication of the
controversy. The matters pertinent to the findings include: (A) the
interest of members of the class in individually controlling the
prosecution or defense of separate actions; (B) the extent and nature of
any litigation concerning the controversy already commenced by or
against members of the class; (C) the desirability or undesirability of
concentrating the litigation of the claims in the particular forum; (D)
the difficulties likely to be encountered in the management of a class
action.
7
Fed. R. Civ. P. 23(b)(1)-(3). These alternative requirements “describe[] the
additional elements which in varying situations justify the use of a class action.”
Fed. R. Civ. P. 23 advisory committee’s note (1966 amend.).
A. PwC
PwC argues that the Rule 23(a) prerequisites were not met here because (1)
commonality was defeated by the fact that plan participants live in thirty-seven
states and therefore the laws of thirty-seven different states would have to be
applied; (2) there is no typicality because Piazza cannot establish the reliance
element necessary to prove each individual class member’s claim; and (3) Piazza
cannot serve as a class representative since he does not have standing because his
claim is barred by the statute of limitations.
Because the question is dispositive in this case, we begin our analysis with
Piazza’s standing to raise the claim against PwC. Without individual standing to
raise a legal claim, a named representative does not have the requisite typicality to
raise the same claim on behalf of a class. See Prado-Steiman, 221 F.3d at 1279. It
is by now clear that a class representative whose claim is time-barred cannot assert
the claim on behalf of the class. See Carter v. West Publ’g Co., 225 F.3d 1258,
1267 (11th Cir. 2000) (reversing class certification because the named plaintiff,
whose claim was time-barred, lacked standing to assert the claim); Great Rivers
8
Coop of S.E. Iowa v. Farmland Indus., Inc., 120 F.3d 893, 899 (8th Cir. 1997)
(“Here, [the class representative] is not and cannot be a class member because his
claim is time barred; consequently, he cannot represent the class.”). If Piazza’s
claim is time-barred, he cannot assert the claim against PwC on behalf of the class,
and it would not be necessary to reach PwC’s other arguments. We turn, then, to
the statute of limitations.
The claim against PwC is a professional negligence-accounting malpractice
claim. Under Alabama law, claims for negligence are subject to a two-year statute
of limitations. See Henson v. Celtic Life Ins. Co., 621 So. 2d 1268, 1274 (Ala.
1993). The statutory period of limitations for negligence actions, found at Ala.
Code § 6-2-38, is two years from the date the injury occurred. Id. It is well settled
under Alabama law that a negligence cause of action accrues when the plaintiff can
first maintain the action, regardless of whether the full amount of damage is
apparent at the time of the first injury. See Booker v. United American Ins. Co.,
700 So. 2d 1333, 1339 (Ala. 1997).
The district court never made a finding as to when the claim against PwC
accrued, but instead simply observed that the claim accrued “sometime after the
delivery of the valuation to the trustees.” The valuation on which the negligence
claim is based was delivered to the Trustee on January 31, 1994, the EBSCO stock
9
was sold on March 10, 1994, and the sale of the stock was completed in June 1994.
We need not resolve whether Piazza’s cause of action accrued when the valuation
was delivered, when the stock was sold, or when the sale of the stock was complete
because, even if Piazza did not realize any injury until the sale was actually
completed, his cause of action accrued by June 1994 at the latest. Piazza, however,
did not initiate this professional negligence suit against PwC until July 18, 1997.
Piazza does not dispute that he did not file suit until more than two years after his
cause of action accrued, but he argues that the Alabama “discovery rule” tolls the
statute of limitations. We are not persuaded.
The Alabama discovery rule tolls the statute of limitations for fraud claims,
but not for negligence claims. See Henson, 621 So. 2d at 1274. Piazza argues that
the discovery rule tolled the statute of limitations in this case because Alabama’s
tort of professional negligence is based on the tort of negligent representation as
described in the Restatement (Second) of Torts § 552, which is a combination of
fraud and negligence. The Alabama Supreme Court adopted Section 552 as the
test for professional negligence in Boykin v. Arthur Andersen & Co., 639 So. 2d
504, 509-10 (Ala. 1994). Section 552 provides:
(1) One who, in the course of his business, profession or employment,
or in any other transaction in which he has a pecuniary interest,
supplies false information for the guidance of others in their business
transactions, is subject to liability for pecuniary loss caused to them
10
by their justifiable reliance upon the information, if he fails to exercise
reasonable care or competence in obtaining or communicating the
information.
(2) Except as stated in Subsection (3), the liability stated in Subsection
(1) is limited to loss suffered
(a) by the person or one of a limited group of persons for whose
benefit and guidance he intends to supply the information or knows
that the recipient intends to supply it; and
(b) through reliance upon it in a transaction that he intends the
information to influence or knows that the recipient so intends or in a
substantially similar transaction.
(3) The liability of one who is under a public duty to give the
information extends to loss suffered by any of the class of persons for
whose benefit the duty is created, in any of the transactions in which it
is intended to protect them.
Restatement (Second) of Torts §552 (1977).
On its face, Section 552 is cast in terms of negligence. It imposes liability
for the breach of a duty, arising from a professional relationship, to exercise
reasonable care. Indeed, the Alabama Supreme Court has treated professional
negligence claims based on Section 552 as negligence claims. See Fisher v. Comer
Plantation, Inc., 772 So. 2d 455 (Ala. 2000); Boykin, 639 So. 2d 504. Piazza cites
no case, and we are not aware of any, to support the proposition that the tort of
professional negligence sounds also in fraud.
11
Moreover, the Alabama Supreme Court has expressly rejected expansive
readings of the discovery rule. In Travis v. Ziter, 681 So. 2d 1348 (Ala. 1996), the
plaintiff sought to toll a statute of limitations on the ground that she had repressed
memories of sexual abuse until they were “triggered” during therapy fifteen years
later. As compelling as the facts were, the Alabama Supreme Court stated that
“this Court will not apply the discovery rule unless it is specifically prescribed by
the Legislature.” 681 So. 2d at 1354; see also Garrett v. Raytheon Co., 368 So. 2d
516, 521 (Ala. 1979) (explaining that “as this Court is committed to the proposition
that the legislature has the Inherent power to establish statutes of limitation, we
have no other alternative than to leave it to the legislature to abrogate this rule and
adopt a more equitable one should it see fit.”). Here, Piazza has not offered any
basis for expansively reading the discovery rule. In the absence of any compelling
argument from Piazza, and considering the language of Section 552 and the
Alabama Supreme Court’s commitment to narrowly reading the discovery rule, we
conclude that the discovery rule does not apply here and that Piazza’s professional
negligence claim is barred by the statute of limitations. Since Piazza’s claim
against PwC is time-barred, we hold that the district court abused its discretion in
finding Piazza to be an adequate class representative. See Carter, 225 F.3d at
1263. Accordingly, we reverse the certification of the class against PwC.
12
B. The EBSCO Defendants
On appeal, the EBSCO Defendants argue that the district court abused its
discretion in certifying the class against them. They argue that Piazza lacks
standing to present some of the class’s claims, that irreconcilable conflicts exist
among the class members, and that it was an abuse of discretion to certify certain
claims pursuant to Rule 23(b)(3), rather than Rule 23(b)(1). We address these
arguments below.
As an initial matter, however, we note that our analysis of the EBSCO
Defendants’ challenges to the class certification order is hampered by the lack of
precision in the class certification order. The district court certified the class “with
respect to the claims against all defendants as such claims are stated in the June 30,
1999 amended complaint.” Although we read this to mean that the district court
intended to certify all of the claims stated in the amended complaint against all of
the defendants, we note that, prior to the class certification order, the district court
had granted PwC’s motion for summary judgment on several state law claims.
Moreover, when we turn to the amended complaint, it is difficult, if not impossible,
to discern precisely which claims are asserted against the EBSCO Defendants, and
therefore impossible to identify precisely the claims with respect to which the class
was certified.
13
In his argument to this court, Piazza identifies three general claims against
the EBSCO Defendants: (1) breach of fiduciary duty by operating competitor
companies which lowered the value of EBSCO stock and diminished the profits
EBSCO placed in the Plan from 1983 to the present; (2) breach of fiduciary duty
through the sale of EBSCO stock from the Plan in 1994 at an unreasonably low
price; and (3) breach of fiduciary duty by artificially lowering the value of the
stock between 1983 and the 1994 sale. Each of these claims is said to arise under
both § 502(a)(2) and § 502(a)(3) of ERISA. Given the lack of precision in the
certification order and incorporated complaint, we will assume that the district
court intended to certify each of these three general claims against the EBSCO
Defendants under § 502(a)(2) and (3).3 Since we find that it was an abuse of
discretion to certify some of these claims, we vacate the certification of the class
against the EBSCO Defendants and remand to the district court for a precise
statement of the class claims, if any, which it may permit.
1. Lost Profits
The EBSCO Defendants argue that Piazza lacks standing to assert, on behalf
of the class, the claim for breach of fiduciary duty by operating competing
3
The EBSCO Defendants argue that most of these claims are inadequately stated in the
complaint or not viable. We take no position on whether these claims are adequately stated or
would survive a motion to dismiss in the district court.
14
companies from 1983 to the present. The heart of this claim is that the EBSCO
Defendants’ operation of competing companies diminished EBSCO’s profits
during that period and, consequently, reduced EBSCO’s profit-sharing
contributions to the Plan. This claim is asserted on behalf of all class members,
and applies to the entire class period. Although the class period runs from 1983 to
the present, Piazza was a Plan participant only from 1988 to 1996. Accordingly,
EBSCO argues that Piazza lacks standing to assert a claim based on the operation
of competing companies from 1983 to 1988 (before he was an EBSCO employee
or Plan participant) or after 1996 (when he withdrew his funds from the Plan).
While we agree that Piazza lacks standing to assert a claim based on the operation
of competing companies either before or after his participation in the Plan, we do
not believe that this prevents him from acting as a representative of the class of all
Plan participants from 1983 through the pendency of the case.
The EBSCO Defendants argue, and we agree, that Piazza has a breach of
fiduciary duty claim on this ground against the EBSCO Defendants only for the
period when he was a Plan participant. The fiduciary duties which they are alleged
to have breached arise under ERISA. ERISA requires fiduciaries to “discharge
[their] duties with respect to the plan solely in the interest of the participants and
beneficiaries,” ERISA § 404(a), 29 U.S.C. § 1104(a), and requires plan
15
administrators to discharge their fiduciary duties “for the exclusive purpose of . . .
providing benefits to participants and their beneficiaries.” 29 U.S.C. §
1104(a)(1)(A)(i).
Furthermore, ERISA defines “participant” as
any employee or former employee of an employer, or any member or
former member of an employee organization, who is or may become
eligible to receive a benefit of any type from an employee benefit plan
which covers employees of such employer or members of such
organization, or whose beneficiaries may be able to receive any such
benefit.
29 U.S.C. § 1002(7). ERISA does not include in the definition of “participant” a
future employee. Plainly, the EBSCO Defendants did not owe Piazza a fiduciary
duty before he became an EBSCO employee, and Piazza can have no claim for
breach of that duty before it arose.
Moreover, under the terms of the Plan, Piazza’s retirement distributions were
determined only by the assets that were in the plan at the time of his retirement.
Consequently, the fact that EBSCO’s profit sharing contributions after his
retirement may have been smaller than they would have been without the alleged
breach of fiduciary duty cannot have had any effect on him whatsoever. Without
such an effect, there is no “injury in fact” and Piazza lacks standing to raise a claim
for the alleged breaches occurring after his retirement. Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560, 112 S. Ct. 2130, 2136, 119 L. Ed. 2d 351 (1992) (To
16
satisfy the first element of “the irreducible constitutional minimum of standing . . .
the plaintiff must have suffered an ‘injury in fact’--an invasion of a legally
protected interest which is (a) concrete and particularized, and (b) actual or
imminent, not conjectural or hypothetical.”) (citations and quotation marks
omitted).
Piazza therefore only has standing to assert this breach of fiduciary duty
claim for breaches occurring from 1988 to 1996, when he was a Plan participant.
The EBSCO Defendants argue that, since Piazza does not have standing to raise a
breach of fiduciary duty claim against them for breaches that occurred before or
after his participation in the Plan, he cannot represent a class making these claims
on behalf of some of its members. We disagree.
Even though Piazza only has standing to assert this breach of fiduciary duty
claim for the period of his participation in the Plan, he may still represent the class
if his claim has the requisite typicality. It is beyond dispute that in order to have
the requisite typicality to represent a class, a named plaintiff must have individual
standing to assert the claim. Prado-Steiman, 221 F.3d at 1279. However, there is
no similar requirement that “all putative class members share identical claims.” Id.
at 1279 n.14 (quoting Baby Neal v. Casey, 43 F.3d 48, 54 (3rd Cir. 1994)). In fact,
typicality and commonality “may be satisfied even if some factual differences exist
17
between the claims of the named representatives and the claims of the class at large
. . . [although] we do require that the named representatives’ claims share the same
essential characteristics as the claims of the class at large.” Id. (citations and
quotation marks omitted). In making this determination, we have concluded that
“a strong similarity of legal theories will satisfy the typicality requirement despite
substantial factual differences.” Id.; see also Kornberg v. Carnival Cruise Lines,
Inc., 741 F.2d 1332, 1337 (11th Cir. 1984) (stating that “a sufficient nexus is
established if the claims or defenses of the class and the class representative arise
from the same event or pattern or practice and are based on the same legal theory”).
Although Piazza only has standing to assert this breach of fiduciary duty
claim based on the operation of competing companies while he was a Plan
participant, his claim has “the same essential characteristics as the claims of the
class at large.” Prado-Steiman, 221 F.3d at 1279 n.14. The breach of fiduciary
duty claims of all class members are based on the EBSCO Defendants’ practice of
operating competing companies during the class period, reducing EBSCO’s profits
and, consequently, reducing EBSCO’s profit-sharing contributions to the Plan.
The class members’ claims therefore arise from precisely the same practice and the
legal issues are identical. Compare Kornberg, 741 F.2d at 1337. Their claims
differ from Piazza’s only in the particular time period in which the operation of
18
competing companies caused them injury. Although individual damage
calculations may vary with the periods during which the different class members
were Plan participants and the particular dates on which retired class members
received their retirement distributions, the essential core of their claims does not
vary. Piazza’s claim is therefore altogether typical of the claims possessed by the
class members; the factual differences between their claims and his are no barrier
to allowing him to serve as class representative. Quite simply, this argument
provides no basis for concluding that the district court abused its discretion by
certifying a class against the EBSCO Defendants on this claim.
2. The 1994 Stock Sale
The EBSCO Defendants concede that the requirements of Rule 23(a) are met
with regard to the claim for breach of fiduciary duty on the basis of their
participation in the Plan’s sale of the EBSCO stock at less than its true value. They
argue, however, that the district court abused its discretion in its application of
Rule 23(b) to this claim.4 We agree.
A class action may be maintained only when it satisfies the numerosity,
commonality, typicality, and adequacy requirements of Rule 23(a) and at least one
4
Although the EBSCO Defendants do not appear to have presented this argument with
respect to the lost profits claim, the argument and our analysis apply equally to that claim.
19
of the alternative requirements of Rule 23(b). See Jackson, 130 F.3d at 1005. The
district court certified the class against the EBSCO Defendants pursuant to Rule
23(b)(3), which allows certification when common questions of law and fact
predominate and a class action offers a superior method for fair and efficient
adjudication. The EBSCO Defendants argue that the district court abused its
discretion by certifying the class under Rule 23(b)(3) rather than Rule 23(b)(1),
which allows certification when the prosecution of separate actions by individual
class members would create a risk that inconsistent adjudications would establish
incompatible standards of conduct. The subsection under which the class action is
certified is significant to the EBSCO Defendants because Rule 23(c)(2) requires
the court to allow class members an opportunity to opt out of class actions
maintained under Rule 23(b)(3), but no such requirement applies to class actions
maintained under Rule 23(b)(1).
The EBSCO Defendants do not contest the district court’s determination that
common issues predominate, arguing instead that a class action under Rule
23(b)(1) is an available and plainly superior method for the fair and efficient
adjudication of this controversy. The EBSCO Defendants contend that, since
Piazza was not individually injured by the Plan’s 1994 sale of the EBSCO stock,
his only ERISA claim is pursuant to ERISA § 502(a)(2), “for appropriate relief” to
20
the Plan for alleged breaches of fiduciary duty. Since a § 502(a)(2) claim is
brought on behalf of the Plan, any recovery will benefit the Plan and, indirectly,
the members of the class. Allowing individuals to opt out of the class action and
pursue their own suits under ERISA § 502(a)(2), the EBSCO Defendants argue,
would require them to defend against multiple suits, each asserting what is actually
one claim belonging to the Plan. Clearly, the EBSCO Defendants assert, the
requirements of Rule 23(b)(1) are met, since “inconsistent or varying adjudications
with respect to individual members of the class” on this claim would “establish
incompatible standards of conduct” for them. See Rule 23(b)(1)(A). The EBSCO
Defendants conclude, therefore, that the possibility of such prejudice to them, and
the lack of any countervailing benefit5 to be obtained from certification of the class
under Rule 23(b)(3), renders it an abuse of discretion for the district court to have
certified the class on the ERISA § 502(a)(2) claim under Rule 23(b)(3) rather than
Rule 23(b)(1).
Under these particular circumstances, where the EBSCO Defendants have
identified potential prejudice arising from certification of the ERISA § 502(a)(2)
claim under Rule 23(b)(3), certification under Rule 23(b)(1) is also available, and
5
Piazza offers no basis for preferring certification of the ERISA § 502(a)(2) claim under
Rule 23(b)(3) to certification under Rule 23(b)(1).
21
Piazza has identified no basis for preferring certification of this claim under Rule
23(b)(3) to certification under Rule 23(b)(1), it was an abuse of discretion to
certify the § 502(a)(2) claim6 under Rule 23(b)(3). No other court has certified a
Rule 23(b)(3) class for a § 502(a)(2) claim, although such claims have been
allowed to proceed as class actions under subsections (b)(1) and (b)(2). See, e.g.,
Bradford v. AGCO Corp., 187 F.R.D. 600, 605 (W.D. Mo. 1999) (Rule 23(b)(2));
Gruby v. Brady, 838 F. Supp. 820, 828 (S.D.N.Y. 1993) (Rule 23(b)(1)); Specialty
Cabinets & Fixtures, Inc. v. American Equitable Life Ins. Co., 140 F.R.D. 474, 479
(S.D. Ga. 1991) (Rule 23(b)(1)) (“Because individuals may bring class actions to
remedy breaches of fiduciary duty only on behalf of the plan, rather than
themselves, the court cannot allow absent participants or beneficiaries to opt out of
6
As we have observed, our analysis in this section applies equally to the lost profits
claim. It therefore would be an abuse of discretion to certify pursuant to Rule 23(b)(3) a class on
a § 502(a)(2) claim for breach of fiduciary duty by operating competing companies and thereby
reducing EBSCO’s profit-sharing contribution to the Plan.
22
this class. The right to recovery, after all, belongs to the plan.”) (citation omitted).7
3. Pre-Sale Undervaluation
The EBSCO Defendants proffer two broad arguments against the district
court’s certification of the claim that they breached their fiduciary duties through
their roles in the alleged undervaluations of the EBSCO stock in the years
preceding the 1994 sale. First, they say that Piazza has no standing to raise this
claim because he suffered no injury in fact from this alleged breach of their
fiduciary duties. Second, they contend that there are irreconcilable conflicts
among the members of the class. Both of these arguments have at their heart the
assertion that any pre-sale undervaluations only harmed those who retired while
that undervaluation was in effect and actually benefitted those who retired later.
Since we agree with this idea, and that Piazza does not have standing as a
consequence, we need not address the EBSCO Defendants’ conflicts argument to
7
We note, however, that, in addition to presenting a basis for relief to the plan under
ERISA § 502(a)(2), Piazza may also have raised the EBSCO Defendants’ participation in the
1994 stock sale as a basis for appropriate individual relief under § 502(a)(3). Separate suits by
individual class members seeking these individual remedies do not appear to threaten the
EBSCO Defendants with the same possibility of conflicting or duplicative recoveries.
Accordingly, the EBSCO Defendants’ argument against the certification of a Rule 23(b)(3) class
does not apply to claims for individual remedies. Although we believe it was an abuse of
discretion to certify the § 502(a)(2) claims for relief to the plan under Rule 23(b)(3), no similar
abuse of discretion would occur in the certification under that subsection of claims under
§ 502(a)(3) for individual remedies. (We, of course, take no position in this opinion on whether
such a claim, or any other claim raised by Piazza, would survive a motion to dismiss.)
23
reach our conclusion that the district court abused its discretion by certifying a
class on this claim.
Each Plan participant’s retirement distribution is calculated as a share of the
value of the assets in the Plan when that participant retires. Up until the sale of the
Plan’s EBSCO stock in 1994, the Plan’s trustee, AmSouth, calculated a value for
the Plan’s EBSCO stock each year and used that value as a basis for determining
the retirement distributions for those who retired during that year.8 If the Plan’s
EBSCO stock was undervalued when a participant retired, that participant would
receive less than he would have if his retirement distribution had been calculated
based on the true value of the Plan’s assets. Any participant who retired while the
Plan owned EBSCO stock, therefore, would be injured by an undervaluation of the
EBSCO stock at the time of his retirement.
It should be obvious that Plan participants are not injured by any
undervaluation that occurs after they retire, since their retirement distributions are
not affected by the value of the Plan’s assets after they retire. Less obvious,
however, is the fact that Plan participants are actually benefitted by
undervaluations that precede their retirement, so long as the stock remains in the
8
For the 1994 stock sale, AmSouth hired PwC to conduct a valuation of the EBSCO
stock.
24
Plan. This is so since undervaluations reduce the size of the distributions to
participants who retire when the undervaluation is in effect, and therefore leave
more assets in the Plan for later retirees.9
After the stock sale, the Plan no longer held any EBSCO stock, holding in its
place the funds which had been used by EBSCO to purchase the stock (or other
assets that the Plan purchased with those funds). Post-sale retirees, like Piazza,
would have been harmed by the sale of the EBSCO stock at an improperly low
price, because that left the Plan with a less valuable pool of assets than it had
before the sale. They would not, however, have been harmed by any earlier
undervaluations. In fact, pre-sale undervaluations of the EBSCO stock would have
reduced the value of retirement distributions paid to pre-sale retirees, leaving more
9
The following simple illustration may clarify this point: Assume that there are ten
participants in the Plan, each having a right to a pro-rata share of the Plan’s assets upon
retirement. Assume also that the Plan holds $100,000 in cash and 1,000 shares of EBSCO stock.
Suppose also that the EBSCO stock has a true value of $100 per share. The Plan’s assets would
be worth $200,000 ($100,000 in cash and $100,000 in stock) and each participant’s pro rata
share would be $20,000. Thus, if five participants retire, their retirement distributions should
total $100,000. Paying their distributions from the Plan’s liquid assets (the cash) leaves the Plan
with only the 1,000 shares of EBSCO stock (worth $100,000).
If, however, the stock is falsely undervalued, at $500 per share, then the Plan would only
appear to have $150,000 in assets. The five retirees would receive only $15,000 each, rather
than $20,000, and remove only a total of $75,000. Their retirement would leave the plan with
$25,000 in cash and the 1,000 shares of EBSCO stock -- $25,000 more than it would have if the
stock had been properly valued. As this simple illustration demonstrates, later retirees are
benefitted, rather than harmed, by earlier undervaluations because earlier undervaluations leave
later retirees with rights to a share of a larger pool of assets.
25
assets in the Plan than if their retirement distributions had been based on the true
value of the Plan’s EBSCO stock, and actually increasing the value of distributions
to later retirees.
Since Piazza was not injured by the alleged pre-sale undervaluations (which,
if anything, increased his retirement distributions), he lacks standing to raise a
claim based on the pre-sale undervaluation of the EBSCO stock.10 See Lujan, 504
U.S. at 560, 112 S. Ct. at 2136 (As we have noted, to satisfy the first element of
“the irreducible constitutional minimum of standing . . . the plaintiff must have
suffered an ‘injury in fact’--an invasion of a legally protected interest which is (a)
concrete and particularized, and (b) actual or imminent, not conjectural or
hypothetical.”) (citations and quotation marks omitted). It therefore was an abuse
of discretion for the district court to certify a class represented by Piazza against
10
In this way, this breach of fiduciary duty claim differs from the lost profits claim.
Piazza has standing to raise a claim that the EBSCO Defendants breached their fiduciary duties
by operating competing companies, thereby reducing EBSCO’s profit-sharing contributions to
the Plan while he was a participant. That claim was typical of the lost profit claims possessed by
other members of the class; although the other members’ claims may have covered different
periods, they all suffered the same harm in the same way from the same course of conduct. The
pre-sale valuations, however, were routine matters carried out by the Plan’s trustee, AmSouth.
They differed in kind from the 1994 stock sale, which was carried out on the basis of a singular
valuation by PwC conducted specifically for the sale. Piazza’s claim based on the sale of the
Plan’s EBSCO stock, allegedly based on an undervaluation produced by PwC, is not typical of
the claims possessed by those who retired prior to the sale and received reduced distributions
because of AmSouth’s alleged undervaluation of the stock owned by the Plan. See Prado-
Steiman, 221 F.3d at 1279 (“[W]e do require that the named representatives’ claims share ‘the
same essential characteristics as the claims of the class at large.’”).
26
the EBSCO Defendants on the claim that they breached their fiduciary duties by
undervaluing EBSCO stock between 1983 and the 1994 stock sale. Prado-
Steiman, 221 F.3d at 1279 (“[T]here cannot be adequate typicality between a class
and a named representative unless the named representative has individual standing
to raise the legal claims of the class.”).
III.
In sum, we reverse the certification of the class against PwC. We vacate the
certification of the class against EBSCO and remand for further proceedings
consistent with this opinion.11 As part of the proceedings on remand, the district
court must clarify with particularity which class claims, if any, it intends to certify
against the EBSCO Defendants.
REVERSED IN PART, VACATED and REMANDED IN PART.
11
Although the EBSCO Defendants do not raise the issue, we are also concerned that the
adequacy requirement may not be met because Piazza’s legal representation may not be
adequate. See Falcon, 475 U.S. at 157 n. 13, 102 S. Ct. at 2370 (adequacy of representation
includes concerns about competency of class counsel). The district court did not expressly
consider whether Piazza’s counsel impacts the adequacy requirement. While we take no position
as to any outcome, we urge the district court to consider, on remand, whether the representation
is adequate.
27