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Laurent v. Pricewaterhousecoopers, LLP

United States District Court, S.D. New York

June 26, 2014



J. PAUL OETKEN, District Judge.

This case involves claims against Defendant PricewaterhouseCoopers ("PWC") under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et. seq. ("ERISA").[1] Plaintiffs move to certify a class of themselves and all others similarly situated pursuant to Rule 23 of the Federal Rules of Civil Procedure and to appoint Eli Gottesdiener as class counsel. Plaintiffs seek certification only as to the first and fifth counts of their Second Amended Class Action Complaint-both of which seek a declaration under ERISA § 502(a)(1)(B). For the reasons that follow, the motion is granted.

I. Background

This case concerns the "whipsaw" problem that arises when participants in certain ERISA plans end their employment before normal retirement age ("NRA"). See Edsen v. Retirement Plan of the First Nat'l Bank of Boston, 229 F.3d 154, 159-59 (2d Cir. 2000). Until 2006, [2] ERISA required that "(1) the accrued benefit under a defined benefit plan must be valued in terms of the annuity that it will yield at normal retirement age; and 2) if the benefit is paid at any other time... or in any other form... it must be worth at least as much as that annuity." Id. at 163. Under the pre-2006 regime, then, employees could cash out their retirement benefits at any time before NRA and still receive the actuarially discounted value of those benefits in the form of a one-time lump-sum payment. To make a one-time lump-sum payment worth as much as an annuity that begins in the future, two calculations are required: first, one must calculate what the annuity would have been worth had the employee worked until NRA; and second, one must discount that amount back to its present value to adjust for the time-value of money. This is called a "whipsaw" calculation because it requires a round-trip from the present to the NRA, conceptually resembling a saw that cuts back and forth. Whenever the rate at which the cashbalance account is predicted to increase (the "projection rate") exceeds the 30-year Treasury rate (which is the present-discount value rate under ERISA), a whipsaw calculation will increase the value of the employee's cashed-out benefits.

Defendant claims that the appropriate projection rate is the 30-year Treasury rate, in which case the whipsaw comes out in a wash: in step one, the whipsaw projects the value out to NRA using the 30-year Treasury rate, but on the return trip it reverses the same calculation, leaving the cash balance right where it started. Plaintiffs, on the other hand, claim that the fair projection rate ought to be higher than the 30-year Treasury rate. This is because, under the RBAP, Plaintiffs could invest the money in their accounts in one or more of a selection of mutual funds provided by the plan. On average, Plaintiffs claim, the investments selected by plan participants beat the 30-year Treasury rate of return.

II. Discussion

Plaintiffs and Defendants continue to dispute whether RBAP's NRA is valid under ERISA and, if it is not, how to remedy the problem. But the scope of their dispute with respect to class certification is considerably narrower. The parties agree that most issues could be solved on a class-wide basis. (Dkt. No. 168, Response to Motion to Certify Class, at 7). They disagree only on whether a class can be certified "with respect to adjudication of an alternative projection rate in the event the Court were to determine that the 30-year Treasury rate specified in the plan is invalid." Id. at 8.

A. Legal Standard

To certify a class, a "party seeking class certification must affirmatively demonstrate his compliance with [Rule 23]...." Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2551 (2011). Specifically, a party must "affirmatively demonstrate" compliance with all of Rule 23(a) and at least one subsection of Rule 23(b). The Court must undertake a "rigorous analysis" to determine that the requirements are met. Id.

Rule 23(a) requires that "(1) the class [be] so numerous that joinder of all members is impracticable; (2) there [be] questions of law or fact common to the class; (3) the claims or defenses of the representative parties [be] typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class." A class can be maintained if the requirements of Rule 23(a) are satisfied and the action is one of the three types described in Rule 23(b). The Supreme Court has recently held that actions for monetary relief cannot be maintained under 23(b)(1) or (b)(2) unless the monetary relief is "incidental to the injunctive or declaratory relief." Wal-Mart, 131 S.Ct. at 2557. To determine what constitutes "incidental" relief in the ERISA context, courts ask whether "the calculation of monetary relief will be mechanical, formulaic, a task not for a trier of fact but for a computer program." Johnson v. Meriter Health Servs. Employee Retirement Plan, 702 F.3d 364, 372 (7th Cir. 2012) (Posner, J.). If so, the class action can be maintained under Rule 23(b)(1) or (b)(2); if not, it must qualify under (b)(3) or not at all. Under Rule 23(b)(3), an action may be maintained only if damages are "capable of measurement on a classwide basis." Comcast Corp. v. Behrend, 133 S.Ct. 1426, 1433 (2012).[3]

The method for calculating the hypothetical projection rate will ultimately determine which legal standard will apply. If the hypothetical projection rate turns out to be merely a matter of "laying each class member's pension-related... records alongside the text of the reformed plan and computing the employee's entitlement, " Rule 23(b)(1) or (b)(2) will apply. See Johnson, 702 F.3d at 371. But if the appropriate projection rate requires the Court to engage in an individualized inquiry, the monetary relief sought by Plaintiffs will cease to be "incidental" under Dukes and Plaintiffs will be relegated to Rule 23(b)(3).

B. Class Certification

If Plaintiffs prevail on their claims that the NRA as originally written is invalid and that they are entitled to a whipsaw calculation, this Court will have to determine what projection rate is appropriate. This question, though, need not be resolved conclusively today. Rather, the Court must determine only that whatever method will be chosen is sufficiently mechanical to warrant class certification. This will entail some analysis of the merits of Plaintiffs' claim, but "[t]hat cannot be helped." Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2551 (2011). "The class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff's cause of action." Id. (internal quotation marks and internal citations omitted).

Courts tasked with fashioning whipsaw remedies under ERISA attempt to "find the [projection] rate that reasonable persons in the position of the plan drafters would have chosen to fairly reflect the value of the plan's retirement benefit." Ruppert v. Alliant Energy Cash Balance Pension Plan, 2010 WL 5464196, at *2 (W.D. Wis. Dec. 29, 2010). Plaintiffs claim that, whatever the appropriate projection rate may be, it will be "determined solely by reference to standardized actuarial computations based on a common methodology." (Dkt. No. 162, Plaintiff's Memorandum of Law, at 22 n.9.) Defendants, on the other hand, contend that "an individualized rate for each participant" is appropriate. (Dkt. No. 168, Defendant's Response, at 10.) Plaintiffs counter that an individualized rate for each participant would be illegal under ERISA because such a rate would ...

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