The Second Circuit awarded victory to our client Teachers Insurance and Annuity Association of America (TIAA) in a December 1 decision that vacated the district court's certification of a nationwide class of 8,000 retirement plans, with hundreds of thousands of plan participants, and covering hundreds of thousands of transactions. TIAA is the leading provider of financial services in the academic field, serving more than 5 million participants with more than $1 trillion under management. The litigation involves a challenge to participant-loan services offered by TIAA — services that allow plan participants to take out loans backed by their individual retirement accounts. The named plaintiff — a single participant in a single plan — alleged that the fiduciaries of thousands of plans across the country violated ERISA when deciding to offer TIAA’s loan services. But rather than sue those plan fiduciaries, she sued TIAA for hundreds of millions of dollars, alleging that TIAA should be held liable as a non-fiduciary for knowingly participating in ERISA violations committed to the fiduciaries of each class-member plan. After the district court certified this unprecedented class in November 2020, the Second Circuit granted interlocutory review and, in its December 2022 opinion, vacated the district court’s decision.
The Second Circuit held that the district court erred by ignoring key statutory exemptions when evaluating predominance under Rule 23(b)(3). These exemptions, which TIAA had raised as affirmative defenses, are at the heart of the parties’ dispute about whether each plan’s loan-servicing arrangements complied with ERISA. For example, the court noted that under ERISA, one relevant exemption asks whether each plan paid and received “adequate consideration,” taking into account whether each plan’s fiduciaries exercised “good faith” in approving the amount the plan paid or received. Another considers whether the loans were consistent with each plan’s governing documents and whether each plan’s loans “bear a reasonable rate of interest.” The district court, however, “exclude[d]” these factors from the predominance analysis and failed to consider evidence demonstrating differences among plans, because it erroneously believed that, as affirmative defenses, ERISA’s exemptions were irrelevant to the class-certification analysis. The Second Circuit held that ERISA’s statutory and regulatory exemptions “do not carry ‘less weight’ on the class certification issue” simply because they are affirmative defenses. It vacated and remanded for the district court to undertake the appropriate predominance inquiry under the correct legal standard.