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In re Schering Plough Corp. ERISA Litigation

United States Court of Appeals for the Third Circuit · 2009 · Civil Procedure

Civil ProcedureClass CertificationERISARule 23class certificationERISA § 502(a)(2)ERISA § 410(a)typicality

Facts

Wendel participated in Schering-Plough's defined contribution savings plan, which offered a Schering-Plough Stock Fund as one of fourteen investment options. She alleged that defendants breached fiduciary duties by continuing to offer and maintain heavy investment in company stock despite knowing of problems involving FDA compliance, product delays, and illegal kickback schemes that allegedly caused the stock's decline. After leaving the company, Wendel signed a separation agreement in exchange for enhanced severance that included a general release and a promise not to sue the company in connection with her employment or termination. The district court held the release void under ERISA § 410(a) and certified a class of plan participants and beneficiaries whose accounts included Schering stock from July 29, 1998 to the present.

Issue

Whether the district court properly certified the class when it treated Wendel's release and covenant not to sue as void under ERISA § 410(a), did not fully analyze their effect on Rule 23 typicality and adequacy, and accepted an open-ended class period based solely on the complaint's allegations. The court also considered whether Wendel's release barred her from bringing a § 502(a)(2) claim on behalf of the plan.

Rule

ERISA § 410(a) voids only agreements or instruments that purport to alter or diminish a fiduciary's statutory duties, not an individual's release or covenant not to sue that merely settles a dispute. A participant's individual release does not bar a § 502(a)(2) action brought on behalf of the plan, because such claims belong to the plan. For class certification, Rule 23 requires a rigorous analysis that resolves genuine legal or factual disputes relevant to each requirement; typicality requires similarity of legal theory and underlying facts, absence of a unique defense likely to become a major focus, and sufficient alignment of interests, while adequacy requires absence of conflicts and adequate counsel.

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Dana Mercer, a former employee in Columbus, Ohio, is the only proposed representative in an ERISA fiduciary-breach class action brought on behalf of a retirement plan. When she left the company, she signed a severance agreement releasing all claims against the employer and promising not to sue; most proposed class members did not sign any such agreement.

How should the district court treat Dana's agreement at class certification?

Explanation. The majority held that ERISA § 410(a) does not automatically void an individual's release or covenant not to sue when it merely settles a dispute rather than altering fiduciary duties. But such an agreement can still matter greatly to Rule 23 because it may create a unique defense, reduce the representative's stake, or misalign her incentives with absent class members. Thus the court must conduct a rigorous analysis of its effect on typicality and adequacy before certifying. (Derived from In re Schering Plough Corp. ERISA Litigation (2009).)