UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
December 19, 2006
IN RE CITIGROUP PENSION PLAN ERISA LITIGATION
The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.
THIS DOCUMENT RELATES TO: ALL ACTIONS
OPINION AND ORDER
Michael Lonecke, Raymond Duffy, Anne Nelson, Robert S. Fash and Craig A. Harris, on behalf of themselves and a class of similarly situated individuals ("plaintiffs"), filed consolidated actions against Citigroup Inc., and its Plans Administration Committee ("defendants"), alleging that the Citibuilder Cash Balance Plan ("Plan") violates the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 U.S.C. § 1001 et seq. This ruling assumes familiarity with the Court's previous ruling on the parties' cross-motions for summary judgment, which describes the ways in which the Plan's design and execution violate ERISA.*fn1 By Opinion and Order, the Court granted summary judgment in plaintiffs' favor on Counts I, III, V and VII of their Consolidated Class Action Amended Complaint ("Complaint"),*fn2 denied defendants' motion for summary judgment, and directed defendants to reform the Plan to comply with ERISA.
In this Opinion, I address plaintiffs' motion for class certification, filed August 25, 2006. For the reasons stated, class certification is granted.
A. Citigroup's Cash Balance Plan*fn3
Both parties have agreed to all material facts.*fn4 The named plaintiffs are present or former employees of either Smith Barney or Citibank, N.A., both of which are divisions of Citigroup Inc. ("Citigroup").*fn5 They all accrued benefits under the Plan during all or part of the period since January 1, 2000 ("class period").*fn6 Two named plaintiffs were vested participants at the time their employment terminated.*fn7
1. January 1, 2000 Cash Balance Amendment
In a meeting on October 19, 1999, Citigroup's Board of Directors ("the Board") voted to incorporate a "cash balance design" into the Citigroup Pension Plan.*fn8 At this meeting, the Board did not discuss specific provisions of the newly adopted cash balance amendment ("CBA"), such as how it would calculate benefits. In fact, provisions of the amendment setting forth the Plan's formula in detail were not produced in an executed Citibuilder Retirement Plan document until May 27, 2001.*fn9
However, after the Board's vote, and prior to the CBA's effective date of January 1, 2000, plan participants did receive a summary notice of the new pension formula.*fn10 This notice was a letter mailed to all effected employees dated December 9, 1999, from Tim Peach, Director of Retirement Benefits.*fn11 Attached to the letter was a document entitled - in large boldfaced letters - "The Citigroup Pension Plan Notice of Significant Reduction in Benefit Accruals for Certain Employees of Citigroup Inc. and its Subsidiaries."*fn12 The document contained an overview of how the cash balance formula would work, as well as a table listing the percentages of salaries that would be credited to accounts annually, based on an employee's age and years of service.*fn13 Most importantly, the notice neither included nor summarized Plan Article 4.1(e), which adopts the "fractional rule" as the Plan's mechanism for complying with ERISA's minimum benefit accrual rates, and is the linchpin of plaintiffs' actuarial claims.*fn14
2. January 1, 2002 CBA
The 2002 CBA incorporated the same cash balance regime adopted in 2000, but recalibrated the range of benefit credits that would be allotted annually to employees' hypothetical accounts. Specifically, it lowered the floor from 2% to 1.5% of compensation for participants under age twenty-nine in their first five years of credited service. It also lowered the ceiling from 7% to 6% of compensation for participants fifty-five years or older with fifteen or more years of credited service ("2002-Present Benefit Credits").*fn15 The application of the fractional rule under Article 4.1(e) remained unchanged.
The first and only communication about this amendment to Plan participants which preceded its effective date, January 1, 2002, and which conceivably met statutory notice requirements, was an information package dated December 2001.*fn16 However, as with the December 1999 section 204(h) notices, there is no mention of the Plan's application of the fractional rule.*fn17 The named plaintiffs do not recall receiving these packages, nor do they recall being aware in December 2001 that the 2002 CBA "might substantially reduce benefit accruals for themselves or others."*fn18
Plaintiffs filed their Complaint on September 21, 2005, alleging numerous ERISA violations. Their prayer for relief includes injunctive and declaratory relief as well as monetary damages.*fn19
III. APPLICABLE LAW
A. Plan "Participants" Under ERISA
As a preliminary matter, plaintiffs seek certification of a class, pursuant to Rule 23 of the Federal Rules of Civil Procedure, consisting of all individuals who were "participants" in the Plan at any time during the class period, "their beneficiaries and Estates, and those who are subject to the Plan's cash balance formula  pursuant to ERISA."*fn20 Section 3(7) of ERISA defines a benefit plan "participant" as an 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 eligible to receive any such benefit . . . *fn21
"Congress intended the statutory scheme [in ERISA], in conjunction with state law, to afford broad protection."*fn22 Plaintiffs have standing to sue if they are "within the 'zone of interests" articulated by the statute.*fn23
B. Rule 23(a) Class Certification Requirements
Rule 23 of the Federal Rules of Civil Procedure governs class certification. To be certified, a putative class must first meet all four prerequisites set forth in Rule 23(a). Plaintiffs bear the burden of demonstrating that the class meets these requirements commonly referred to as numerosity, commonality, typicality, and adequacy.*fn24
The numerosity requirement mandates that the class be "so numerous that joinder of all members is impracticable."*fn25 Commonality requires a showing that common issues of fact or law affect all class members.*fn26
Typicality exists where the named plaintiffs' claims and the absent class members' claims arise from "the same course of events," and where each class member makes "similar legal arguments" to prove defendant's liability.*fn27 The adequacy requirement demands that "the representative parties will fairly and adequately protect the interests of the class."*fn28 Finally, although '"Rule 23(a) does not expressly require that a class be definite in order to be certified[,] a requirement that there be an identifiable class has been implied by the courts. "'*fn29
C. Rule 23(b) Class Certification Requirements
In addition to showing that the proposed class satisfies the four prerequisites of Rule 23(a), plaintiffs must also show that the class is "maintainable" under Rule 23(b). A class satisfies this requirement if it in fits into one of the three alternative categories delineated by Rule 23(b), subdivisions (1), (2), and (3).*fn30 A class may be certified under more than one category.*fn31
Rule 23(b)(1)(A) permits certification where multiple suits "could create a possibility of incompatible adjudications" or "establish incompatible standards to govern [defendants'] conduct."*fn32 Rule 23(b)(l)(B) is more specialized; it covers situations where individual actions "would create a risk of .. . 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."*fn33
Under Rule 23(b)(2), class litigation is appropriate where "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."*fn34 The Advisory Committee Note suggests that in this context, "[d]eclaratory relief 'corresponds' to injunctive relief when as a practical matter it affords injunctive relief or serves as a basis for later injunctive relief."*fn35
Although subdivision (b)(2) was designed with an eye towards equitable relief, certification of a class seeking both equitable and monetary relief may be appropriate "in light of the relative importance of the remedies sought, given all of the facts and circumstances of the case."*fn36 The Second Circuit has instructed that in assessing whether subdivision (b)(2) applies, a district court's first inquiry is whether '"even in the absence of possible monetary recovery, reasonable plaintiffs would bring the suit to obtain the injunctive or declaratory relief sought. "'*fn37 The court's next inquiry is whether '"the injunctive or declaratory relief would be both reasonably necessary and appropriate were the plaintiffs to succeed on the merits.'"*fn38
D. Standard of Proof
The Second Circuit recently articulated the requisite standard of proof for class certification in Miles et al. v. Merrill Lynch et al. ("Miles").*fn39 District courts may now certify classes only after assessing "all the relevant evidence admitted at the class certification stage," and finding that "each of the Rule 23 requirements has been met."*fn40 Furthermore,
such determinations can be made only if the [court] resolves factual disputes relevant to each Rule 23 requirement and finds that whatever underlying facts are relevant to a particular Rule 23 requirement have been established and is persuaded to rule, based on the relevant facts and the applicable legal standard, that the requirement is met.*fn41
A court's "obligation to make such determinations is not lessened by overlap between a Rule 23 requirement and a merits issue" - even where the two are "identical."*fn42 In making this determination, courts should refrain from considering "aspect[s] of the merits unrelated to a Rule 23 requirement."*fn43
A. Rule 23(a)
1.Numerosity and Commonality
Defendants do not dispute that plaintiffs' proposed class is sufficiently numerous under Rule 23(a)(1). Although the exact identity and number of class members remains unknown, the record shows that there are thousands of potential class members.*fn44 Nor do defendants dispute that the proposed class meets the commonality requirement of Rule 23(a)(2). Questions of law common to the potential class include whether the cash balance formula complies with ERISA, whether Plan participants received adequate notice of the 2000 and 2002 CBAs, and whether benefits under the Plan accrue at a rate that discriminates on the basis of age.*fn45
Because all absent class members were participants of the same cash balance plan and suffered the same ERISA violations the typicality requirement is also satisfied. All named plaintiffs' claims allege ERISA violations that affect the pensions of all Plan participants during the class period. Their claims arise from '"the same course of events' - the same unlawful accrual formula - and each participant makes the same '"legal arguments to prove the defendant[s'] liability. "'*fn46 Although the amount of harm suffered by individual class members depends on several factors, such as age and length of service, "differences in the degree of harm suffered, or even in the ability to prove damages, do not vitiate the typicality of a representative's claims."*fn47
Defendants allege that plaintiffs have not proved typicality because their claims "hinge on a demonstration of 'likely prejudice,' which will be based on facts and circumstances unique to each . . . purported class member."*fn48 Defendants presented the identical argument in their motion for summary judgment, and it is no more convincing here than it was there.*fn49 Even assuming that all of plaintiffs' claims require a showing of likely prejudice, plaintiffs have certainly met this requirement. I need not make "individualized assessments into each potential class member's proof and defenses, as the 'likely prejudice' showing [is] satisfied by the terms of the plan itself."*fn50 The defects in the Plan's accrual formula and in the section 204(h) notices were themselves "significant enough to establish a presumption of likely prejudice," common to all potential class members, and "this presumption has not been rebutted."*fn51
The record demonstrates that plaintiffs' interests are commensurate with those of the proposed class.*fn52 Defendants argue, without specificity, that adequacy is lacking because "the named Plaintiffs have already conceded facts that preclude them from prevailing on the claims they purport to assert on behalf of the purported class members."*fn53 This argument appears to be completely baseless as defendants never identify the alleged concessions. In fact, plaintiffs' claims are premised on the same Plan provisions and ineffective section 204(h) notices that give rise to the claims of absent class members, and plaintiffs state claims to pension benefits to which the potential class members are also entitled. Plaintiffs have clearly satisfied the adequacy requirement.
B. Class Certification Under Rule 23(b)
1. Rule 23(b)(1)
The proposed class is well-suited for certification under Rule 23(b)(1). The language of subdivision (b)(1)(A), addressing the risk of "inconsistent adjudications," speaks directly to ERISA suits, because the defendants have a statutory obligation, as well as a fiduciary responsibility, to "treat the members of the class alike."*fn54 The proposed class members number in the thousands; they all suffered the same statutory violations and are therefore entitled to similar forms of relief, including reformation of the Plan to comport with ERISA.
In opposition, defendants assert that there is no reason to believe that multiple actions will be brought for these violations in the absence of class certification, or that multiple actions would produce inconsistent results.*fn55 They argue that in the year that has passed since the commencement of this action, there have been no additional complaints, nor were any previous complaints filed in the five year history of the cash balance plan.*fn56 However, as other courts have noted, the fact that only a limited number of plaintiffs have come forward can weigh
significantly in favor of class certification.*fn57 Additionally, "[t]he Second Circuit itself, in several opinions . . . has noted that the absence of other lawsuits is meaningless in determining the interest of absent class members in the controversy.''*fn58
Because the claims here are premised on statutory violations caused by the terms of the Plan, and because plaintiffs seek injunctive relief - including the retroactive reformation of the Plan and recalculation of benefits - inconsistent dispositions of these claims by different courts "could create an untenable situation."*fn59 Thus, class certification under 23(b)(1)(A) is appropriate.
Defendants also argue, unpersuasively, that this Court's previous Consolidation Order weighs against class certification.*fn60 However, unlike the class action device, consolidation "does not merge the suits into a single cause, or change the rights of the parties, or make those who are parties in one suit parties in another."*fn61 Although other claimants have not yet come forward, plaintiffs have adequately alleged that many similarly-situated Plan participants suffered the same
statutory violations. In light of my previous ruling, there is little doubt that in the absence of class certification, others would be encouraged to commence litigation.*fn62
2. Rule 23(b)(2)
Class certification here also falls squarely within the purview of Rule 23(b)(2), because I find that "even in the absence of possible monetary recovery, reasonable [Plan participants] would bring the suit to obtain the injunctive [and] declaratory relief' plaintiffs seek.*fn63 For even if they were somehow precluded from monetary recovery, reasonable Plan participants would bring suit to enjoin the Plan's application of the fractional rule and to compel a reformation of the Plan to comply with ERISA's minimum rates of benefit accrual. Additionally, I find plaintiffs' prayers for relief - including monies prescribed by the recalculation of benefits under a statutorily compliant formula - to be both reasonably necessary and appropriate "in light of the facts and circumstances of the case."*fn64 In other words, given the import and necessity of plaintiffs' prayers for declaratory and injunctive relief, they "predominate" over other prayers for relief under Robinson.*fn65
Defendants assert that Rule 23(b)(2) certification is unavailable to plaintiffs with respect to certain statutory violations because plaintiffs seek "restitutionary relief' in the form of "the greater of the benefit calculated under the pre-cash balance formula or the cash balance formula."*fn66 This argument misses the mark because it is well established that a prayer for monetary relief in addition to equitable relief will not defeat a Rule 23(b)(2) class action.*fn67 While it is true that Plan participants are suing to recover benefits, the primary relief being sought is declaratory. Indeed,
[w]hat is sought is a declaration that [Citigroup's] method of computing [accrued benefits] is unlawful. That is a ground common to all the members of the class . . . . True, the declaration sought and obtained [is] merely a prelude to a request for damages . . . . [b]ut a declaratory judgment is normally a prelude to a request for other relief, whether injunctive or monetary; so there is nothing suspicious about the characterization of the suit as one for declaratory relief. The hope that motivates casting a request for relief in declaratory terms is that if the declaration is granted, the parties will be able to negotiate the concrete relief necessary to make the plaintiffs whole without further judicial proceedings. No one wants an empty declaration.*fn68
Here, because the recalculation and crediting of withheld pension benefits will be "the direct, anticipated consequence" of my previous ruling, the suit can be maintained under Rule 23(b)(2)*fn69
For the foregoing reasons, certification of the proposed class is granted pursuant to Rule 23(b)(1)(A) and (b)(2) of the Federal Rules of Civil Procedure. The Clerk of Court is directed to close this motion [Docket No. 39]. A conference is scheduled for January 2, 2007, at 4:30 p.m., at which the parties should be prepared to discuss the scope of the class and the possible need for subclasses.