Appeals court backs class-action status in Universal Health ERISA case

A federal appeals court in Philadelphia has upheld a lower court's granting of class-action status in an ERISA complaint against Universal Health Services Inc., becoming the first appeals court to rule on a defined contribution sponsor's use of a U.S. Supreme Court decision about a defined benefit plan as a DC plan defense.

The June 1 unanimous ruling by the 3rd U.S. Circuit Court of Appeals in Boley et al. vs. Universal Health Services Inc. et al., added to DC defendants' losing streak in seeking to dismiss ERISA lawsuits based on the Supreme Court's 5-4 decision in Thole et al. vs. U.S. Bank NA et al. in July 2020.

The Supreme Court ruled that DB plan participants, in an overfunded plan, lacked standing to sue because they weren't harmed financially. The court also noted there is a difference between a DC plan and a DB plan.

Federal courts in multiple jurisdictions have cited the Supreme Court's DB vs. DC distinction in rejecting bids by sponsors to have ERISA complaints dismissed for participants' alleged lack of standing to sue.

One of those jurisdictions was Philadelphia where U.S. District Court Judge Mark A. Kearney in October 2020, rejected Universal's partial motion to dismiss an ERISA complaint based on Universal's reliance on the Thole decision.

"The Supreme Court in Thole and the Constitution require plaintiffs demonstrate a concrete stake in the outcome of each of their claims," Mr. Kearney wrote. "The employees have done so here."

Mr. Kearney granted plaintiffs class-action status covering an estimated 60,000 participants in a lawsuit that alleged a series of violations such as imprudently selecting investment options and charging excessive fees.

Universal Health appealed the class-action status ruling to the 3rd Circuit. A three-judge appeals court panel held a hearing in February and upheld Mr. Kearney's ruling June 1.

Universal contested the class certification because the plaintiffs did not invest in 30 of the Universal DC plan's 37 options.

Universal argued the plaintiffs' allegations "are really thirty-seven separate claims challenging thirty-seven investment options included in the plan," the appeals court wrote.

The plaintiffs "do not allege thirty-seven breaches of fiduciary duty, but rather several broader failures by Universal affecting multiple funds in the same way," the court wrote.

The plaintiffs' allegations of a "flawed fund selection process" and of the fiduciaries' failure to monitor expense ratios and explore ways to reduce fees "are the same for participants across all (of) the plan's thirty-seven funds," the judges wrote. However, the judges noted there may be instances in which legal standing for a class of participants "would not be satisfied unless the class representative invested in each of the challenged funds."

Writing that they didn't want to establish a rule for all ERISA lawsuits, they added that rulings are "best served (being) done on a case-by-case basis." The Universal Health Services Inc. Retirement Savings Plan, King of Prussia, Pa., had $2.81 billion in assets as of Dec. 31, 2020, according to the latest Form 5500.