Opinion
CAUSE NO. IP 02-0477-C H/K
September 30, 2003
ENTRY ON PLAINTIFFS' MOTION FOR CLASS CERTIFICATION
Plaintiffs Joseph Nelson and Michael Wycoff are participants in the Employees' Thrift Plan of Indianapolis Power Light Company ("the Thrift Plan"). Plaintiffs allege that defendants IPALCO Enterprises, Inc. ("IPALCO") and several former company officials who served as the Employees' Committee for Employees' Thrift Plan of Indianapolis Power 85 Light Company ("the Committee") breached fiduciary duties under Section 404 of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1104. Plaintiffs seek certification of a plaintiff class consisting of the Thrift Plan itself and its participants and beneficiaries who held beneficial interest in IPALCO stock that was exchanged for stock in AES Corporation on March 27, 2001. As explained below, plaintiffs' motion is granted pursuant to Rule 23(b)(3), so that class members are entitled to individual notice and an opportunity to exclude themselves from the class.
Background
IPALCO was a holding company whose principal subsidiary supplied electricity to retail customers in Indianapolis, Indiana. Plaintiffs' claims stem from the acquisition of IPALCO by the AES Corporation in a stock-for-stock transaction. On July 15, 2000, the IPALCO board of directors executed a share exchange agreement that called for each share of IPALCO common stock to be exchanged for $25 worth of AES common stock. The exchange was calculated based on the value of AES stock on the closing date, which was March 27, 2001.
Plaintiffs allege that approximately 77 percent of the assets of the Thrift Plan were invested in IPALCO stock, which upon closing was exchanged for AES stock. According to plaintiffs, IPALCO was a sound company with a long record of paying dividends and maintaining a relatively stable stock value. Plaintiffs allege that AES, by contrast, was a much larger but highly leveraged company that did not pay dividends and whose stock price was highly volatile. According to plaintiffs, AES stock was not a suitable investment for the Thrift Plan.
Several months after the March 27, 2001 closing, AES stock began a steep decline, losing roughly 80 to 90 percent of its value. According to plaintiffs, at least several of the individual defendants had sold some of their own shares of IPALCO stock for cash at the same time that defendants were urging plan participants and beneficiaries to hold IPALCO stock and then to exchange it for AES stock.
Plaintiffs filed this action in March 2002. The amended complaint asserts two counts based on the management of the separate Thrift Plan. Count One addresses the plaintiffs' individual accounts comprised of their own voluntary contributions. Those accounts in the Thrift Plan were invested among eight different investment vehicles according to each plan participant's individual instructions. The Thrift Plan allowed participants to contribute up to 21 percent of their eligible compensation to the plan. Participants were entitled to shift their voluntary contributions among the different investment vehicles on any business day. At no time were plaintiffs' investments of their own contributions locked in or frozen in IPALCO or AES stock.
On the merits of Count One, defendants have argued that the Thrift Plan did not authorize them to exercise any discretion regarding plan participants' investment decisions. However, plaintiffs contend that the defendants took upon themselves a fiduciary responsibility by making statements that amounted to advice about plaintiffs' investments. This theory presents a relatively new type of ERISA claim, but one that has at least some case support. See, e.g., In re Unisys Savings Plan Litigation, 74 F.3d 420, 443-46 (3d Cir. 1996) (reversing summary judgment for individual account plan and its fiduciaries). Plaintiffs also argue that the defendants breached their fiduciary duties by even permitting the plaintiffs to invest their plan assets in AES stock. See, e.g., In re WorldCom, Inc. ERISA Litigation, 263 F. Supp.2d 745, 764 (S.D. N.Y. 2003) (denying motion to dismiss in relevant part and finding that fiduciary could be liable under some circumstances for continuing to offer investments in employer's securities). The court has previously denied defendants' motion to dismiss Count One for failure to state a claim upon which relief can be granted.
Count Two addresses IPALCO's matching contributions to the individual accounts. Under the Thrift Plan, IPALCO matched 100 percent of an employee's contributions, up to a maximum of four percent of the employee's compensation. The Thrift Plan provided that these employer matching contributions were to be invested only in IPALCO stock. Plan §§ 304.20, 305.30. In Count Two, plaintiffs assert that defendants breached their fiduciary duties by keeping the employer's contribution assets invested in IPALCO and then AES stock after the share exchange agreement was signed on July 15, 2000.
In general, a plan sponsor is entitled to design a plan in such a way that the employer contributions are made only in the form of employer stock. See Akers v. Palmer, 71 F.3d 226, 231 (6th Cir. 1995); see also King v. National Human Resource Committee, Inc., 218 F.3d 719, 723-24 (7th Cir. 2000) (employer did not act as fiduciary when setting up terms of benefit plan); Ames v. Am. Nat'l Can Co., 170 F.3d 751, 757 (7th Cir. 1999) (employer did not act as fiduciary when making design changes to benefit plan in connection with transfer of control of business). However, the court previously denied defendants' motion to dismiss Count Two because plaintiffs may be able to show that IPALCO and other defendants acted as fiduciaries of the Thrift Plan when they directed that the existing employer-contribution plan assets be converted from IPALCO stock to AES stock.
Also, Count Two is more complex than the court indicated in its ruling on the motion to dismiss. With respect to so-called "old match" contributions made by IPALCO before 1995 for some employees and before 1997 for all others, employees controlled the investment of those employer contributions much as they controlled the investment of their own contributions. In addition, retired or former employees of IPALCO also had the right to demand lump sum distributions of their plan account balances, including all of the employer matching contributions. As a result, as applied to "old match" contributions and/or to former or retired employees, Count Two presents issues similar to those that arise under Count One.
Discussion
Plaintiffs propose that the court certify a class defined as the Employees' Thrift Plan of Indianapolis Power 85 Light Company and all plan participants and beneficiaries who held a beneficial interest in IPALCO stock on or about March 27, 2001 that was exchanged for AES stock.
To certify a plaintiff class under Rule 23, plaintiffs must first satisfy all four elements of Rule 23(a): (1) the class is too numerous to join all members; (2) there are questions of law or fact common to the class; (3) the claims of representative parties are typical of those of the class members; and (4) the representative parties will fairly and adequately represent the class. Fed.R.Civ.P. 23(a). Once these requirements are satisfied, the plaintiffs must also satisfy at least one of the subsections of Rule 23(b). The parties seeking class certification bear the burden of proof in establishing each of the requirements under Rule 23. Susman v. Lincoln American Corp., 561 F.2d 86, 90 (7th Cir. 1977). The failure to satisfy any one of these elements precludes certification. Retired Chicago Police Ass'n v. City of Chicago, 7 F.3d 584, 596 (7th Cir. 1993).
In deciding whether to certify a class, the court is not required to accept the allegations in the complaint as true. The court should make any factual and legal inquiries that are necessary to ensure that the requirements for class certification are satisfied, even if the underlying considerations overlap the merits of the case. Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 676 (7th Cir. 2001); In re Bromine Antitrust Litigation, 203 F.R.D. 403, 407 (S.D. Ind. 2001).
A. Rule 23(a) Requirements
1. Numerosity
To meet the numerosity requirement, the class must be so large "that joinder of all members is impracticable." Fed.R.Civ.P. 23(a)(1). There is no magic number required, and a plaintiff need not demonstrate the exact number of class members so long as a conclusion is apparent from good-faith estimates. See Peterson v. H R Block Tax Serv., Inc., 174 F.R.D. 78, 81 (N.D. Ill. 1997) (court can use common sense in evaluating numerosity); see also Wagner v. NutraSweet Co., 95 F.3d 527, 534 (7th Cir. 1996) (assuming that class of 60 would meet numerosity requirement). Plaintiffs assert that the proposed class has more than 1,900 members. The defendants agree that the proposed class satisfies the numerosity requirement.
2. Commonality
To meet the commonality requirement under Rule 23(a)(2), a plaintiff must show the presence of questions of law or fact common to the class. "A common nucleus of operative fact is usually enough to satisfy the commonality requirement of Rule 23(a)(2)." Rosario v. Livaditis, 963 F.2d 1013, 1018 (7th Cir. 1992). This element can be satisfied by showing that there is "`at least one question of law or fact common to the class.'" Arenson v. Whitehall Convalescent and Nursing Home, Inc., 164 F.R.D. 659, 663 (N.D. Ill. 1996) (citation omitted). Commonality does not require that all questions of fact or law be identical as long as "the class claims arise out of the same legal or remedial theory." Johns v. DeLeonardis, 145 F.R.D. 480, 483 (N.D. Ill. 1992); accord, Keele v. Wexler, 149 F.3d 589, 594 (7th Cir. 1998) (affirming class certification despite some variations: "Common nuclei of fact are typically manifest where . . . the defendants have engaged in standardized conduct towards members of the proposed class. . . ."); Rosario, 963 F.2d at 1017 (affirming class certification; "some factual variation among the class grievances will not defeat a class action" on commonality issue).
Defendants agree that the plaintiffs' proposed class meets the commonality requirement with respect to the following questions. On Count One, the question is whether defendants breached their fiduciary duties by not eliminating IPALCO stock as an investment option in the Thrift Plan. On Count Two, the question is whether defendants breached their fiduciary duties to Plan participants by retaining employer matching contributions to the Thrift Plan in IPALCO stock. Those questions as framed by defendants are common questions, as are the following: (a) whether the defendants had fiduciary duties to Thrift Plan participants; (b) whether they made recommendations to Thrift Plan participants in a fiduciary capacity about the participants' investment options; and if so, (c) whether the defendants acted with due care and with loyalty to participants and beneficiaries (Count One and parts of Count Two for "old match" and former employees); and (d) whether defendants acted in a fiduciary capacity in directing that Thrift Plan employer contributions be converted from IPALCO stock to AES stock (Count Two as applied to "new match" for current employees). The common issues of law and fact are sufficient to support class certification.
3. Typicality
Rule 23(a)(3) also requires plaintiffs to show that "the claims . . . of the representative parties are typical of the claims . . . of the class." A named plaintiff's claim is "typical if it arises from the same event or practice or course of conduct that gives rise to the claims of other class members and his or her claims are based on the same legal theory." Rosario v. Livaditis, 963 F.2d at 1018; De LaFuente v. Stokely-Van Camp, Inc., 713 F.2d 225, 232 (7th Cir. 1983), citing H. Newberg, Class Actions § 1115(b), at 185 (1977).
The typicality requirement, although closely related to the question of commonality, focuses on the class representatives and whether their pursuit of their own claims will work for the benefit of the entire class. See In re Prudential Ins. Co. of America Sales Practices Litigation, 148 F.3d 283, 311 (3d Cir. 1998); Whitten v. ARS National Services, Inc., 2001 WL 1143238, *4 (N.D. Ill. Sept. 27, 2001). "Typical does not mean identical, and the typicality requirement is liberally construed." Gaspar v. Linvatec Corp., 167 F.R.D. 51, 57 (N.D. Ill. 1996).
The claims of named plaintiffs Nelson and Wycoff easily satisfy the typicality standard. Nelson asserts claims under both Counts One and Two. He claims that he had substantial holdings in IPALCO stock that were converted to AES stock and that he lost a substantial part of his investment when AES stock plummeted. His claims arise out of the same course of conduct that affected all class members. Wycoff asserts a claim only under Count Two, involving the "new match" portion of his account. He also alleges a substantial loss arising out of the same course of conduct by defendants.
Defendants raise several arguments in opposition to a finding of typicality. None of those arguments are persuasive.
a. Reliance Issues
First, defendants contend that Nelson's claim under Count One cannot satisfy the typicality requirement because each Plan participant's claim will depend on individualized proof of oral inducements and misrepresentations by defendants, and reliance by each participant. See Broussard v. Meineke Discount Mufflers Shops, Inc., 155 F.3d 331, 340-41 (4th Cir. 1998) (reversing verdict in favor of class of franchisees claiming that franchisor had breached contracts and committed commercial torts; plaintiffs had relied on evidence of individualized oral representations to different class members, which defeated typicality); Sprague v. General Motors Corp., 133 F.3d 388, 399 (6th Cir. 1998) (reversing class certification where claims depended on different representations made to different class members); In re Sears Retiree Group Life Ins. Litigation, 198 F.R.D. 487, 490 (N.D. Ill. 2000) (denying class certification where the "total mix" of communications received by class members demonstrated too much variation among the class). Other cases, however, have allowed class certification in fraud claims based on alleged broad campaigns of fraud or ERISA allegations similar to those here. E.g., Prudential Insurance, 148 F.3d at 312 (district court properly found typicality and certified settlement class where plaintiffs alleged that they suffered harm as the result of the same company-wide conduct that injured the absentee class members); In re Ikon Office Solutions, Inc., 191 F.R.D. 457, 465 (E.D. Pa. 2000) (certifying plaintiff class in ERISA case alleging breach of fiduciary duties by investing plan assets in employer stock). Plaintiffs have indicated here that they intend to build their case on general statements and announcements rather than on individual conversations or representations. This approach distinguishes this case from Broussard and Sprague.
In re Sears Retiree Group also is different from this case. The plaintiffs in that case were initially denied class certification on their breach of fiduciary duty claims because the claims depended on numerous oral and written representations that varied across the putative class. The plaintiffs made a second attempt at class certification, arguing that their claim was based solely on two specific documents that were distributed to the entire class. The district court again denied certification, holding that the two documents could not be considered in isolation, that it was necessary to look at the "total mix" of communications received by each class member, and that different class members had received a wide variety of communications. 198 F.R.D. at 490-91, citing Ballone v. Eastman Kodak Co., 109 F.3d 117, 126 (2d Cir. 1997).
In this case, by contrast, at least at this preliminary stage, the "total mix" of the evidence available to the court on the promotion claim demonstrates that the relevant representations were distributed or made available on a class-wide basis. See Nelson Dep. at 65 (notice of special meeting of IPALCO shareholders); Wycoff Dep. at 66 (same); Nelson Dep. at 73-74 (statements of IPALCO leadership at special shareholders meeting); Wycoff Dep. at 81 (same); Am. Cplt. ¶ 40 (same); Am. Cplt. ¶ 48 (proxy statement mailed to all shareholders). While defendants have hypothesized the existence of individual representations and reliance, they have come forward with no supporting evidence on this point. The defendants' argument therefore does not defeat typicality to the extent that Count One is based on affirmative advice from defendants to plaintiffs about how to invest their Plan accounts.
To the extent that plaintiffs may later signal their intention to prove Count One by relying on private communications from defendants to class members, this decision certifying the plaintiff class may need to be revisited. See Fed.R.Civ.P. 23(c)(1). Also, any class members who believe they in fact relied on private communications from defendants when they decided to allow their IPALCO holdings to be converted to AES may wish to opt out of the class. Notice to class members should raise this concern explicitly.
Defendants' argument based on individual reliance also does not apply to Count One to the extent that Count One is based on plaintiffs' contention that defendants had a fiduciary duty to prevent plan participants from investing in AES stock, i.e., to remove IPALCO and AES stock as investment options after the agreement was signed. Without expressing a view on the merits of the theory, there is some case support for it. E.g., WorldCom, Inc. ERISA Litigation, 263 F. Supp.2d at 764-65. Whether the theory is viable or not, Nelson's claim is certainly typical of all class members' claims based on that theory.
The defendants' argument based on individual reliance also does not apply to those portions of Count Two governing the "new match" contributions for current employees, where the plaintiffs claim that the defendants themselves made a decision to convert the existing employer contributions in the Thrift Plan from IPALCO stock to AES stock. That theory does not present any issues of individualized reliance.
b. Release Issues
Defendants also contend that plaintiff Nelson's claims are not typical because, as part of a voluntary early retirement program, he signed a release that covers the claims asserted in this lawsuit. The threshold issue on this argument is whether Nelson's release even applies to the claims asserted in this lawsuit. The release is part of an agreement that provides it "shall not affect Employee's benefits under the Thrift Plan." Def. Ex. G ¶ 5. The release also applies only to legal or equitable liabilities "with respect to any circumstances existing prior to the execution of this agreement." Id., ¶ 2.1. The agreement was signed on July 13, 2001, apparently before the most substantial drop in the value of AES stock, and at a time when Nelson had no ripe and viable claim under ERISA.
Nelson's release does not defeat typicality for three independent reasons. First, the fact that the defendants may be able to raise different defenses against the claims of different class members does not necessarily defeat typicality. "Typicality under Rule 23(a)(3) should be determined with reference to the company's actions, not with respect to particularized defenses it might have against certain class members." Wagner v. NutraSweet Co., 95 F.3d at 534, citing Rosario, 963 F.2d at 1018, and 7A Charles Alan Wright, Arthur R. Miller Mary Kay Kane, Federal Practice 85 Procedure § 1764 (1986); accord, Riordan v. Smith Barney, 113 F.R.D. 60, 63 (N.D. Ill. 1986), citing Coleman v. McLaren, 98 F.R.D. 638, 647 (N.D. Ill. 1983) ("Rule 23(a)(3) mandates the typicality of the named plaintiffs' claims — not defenses."); see also Patrykus v. Gomilla, 121 F.R.D. 357, 362 (N.D. Ill. 1988) ("The fact that defendants hypothetically may assert individualized defenses does not undercut the significant similarities of plaintiffs' claims.").
Defendants rely on J.H. Cohn Co. v. American Appraisal Associates, Inc., 628 F.2d 994, 999 (7th Cir. 1980), which denied a writ of mandamus that would have ordered certification of a class after the district court had denied it. The Seventh Circuit noted that an individual defense to a named plaintiff's claim could destroy typicality and adequacy of representation because the representative could be distracted from class issues and focus on individual ones. The Seventh Circuit's later decision in Wagner shows that such individual defenses do not necessarily defeat class certification. If the problem of distraction arises later in a case, it is more likely to affect the issue of adequate representation, which could be solved by merely having a new class representative step forward rather than decertifying an otherwise proper plaintiff class.
Second, the release defense as applied to Nelson appears to be too weak to have any significant effect on typicality. The release provides broadly that it "shall not affect Employee's benefits under the Thrift Plan." When questioned about this language at the hearing, counsel for defendants noted that 29 U.S.C. § 1132(a)(1)(B), which authorizes civil enforcement of ERISA, authorizes a participant or beneficiary to bring a claim "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." From this language, defendants argue there is a difference between "benefits" and "rights," such that the release exception for "benefits" would still allow the release to be effective as to "rights." Defendants suggested that the sentence in the release form might have been drafted carefully to refer to plan "benefits" rather than "rights," so that claims for violations of ERISA would be covered by the release.
The court recognizes that this analysis requires a preliminary look at the merits of an affirmative defense. As defendants themselves have argued, however, and as noted above, the court may undertake such a preliminary evaluation where needed to address issues of class certification. Def. Br. at 13, citing Szabo, 249 F.3d at 675-76; accord, In re Bromine Antitrust Litigation, 203 F.R.D. at 407. Such a preliminary look is vital where the defense contends that an affirmative defense requires denial of class certification. Such defenses are easy to plead even when they are extremely weak. A defendant should not be able to defeat class certification by including specious or weak defenses in its pleadings.
The suggested distinction between benefits and rights was certainly subtle enough to escape the notice of the court until defendants argued it expressly at the hearing. It is difficult to believe that anyone who signed the form release would have understood the distinction and knowingly agreed to release claims for ERISA violations regarding the Thrift Plan assets and accounts.
Even if there were any substance to defendants' subtle interpretation of the release, moreover, Nelson's release did not apply to claims that arose after July 13, 2001. The day before, AES stock had closed at $39.19 per share. See Docket No. 36, Def. Br. on Motion to Dismiss, Ex. C. When he signed the release, Nelson had not been injured appreciably by any alleged breach of fiduciary duty. Even if the release could apply to any claims relating to the Thrift Plan, it would still be difficult to read the release as applying to claims that had not yet arisen. See generally Central States, Southeast and Southwest Areas Pension Fund v. Navco, 3 F.3d 167, 171 (7th Cir. 1993) (claims under ERISA do not accrue until the victim has been injured and becomes aware of that injury), abrogated on other grounds by Bay Area Laundry and Dry Cleaning Pension Trust Fund v. Ferbar Corp. of California, 522 U.S. 192 (1997). Accordingly, the release defense appears to be too weak to defeat typicality.
The court is aware that claims of breach of fiduciary duty under ERISA do not always require proof of actual injury. See, e.g., Leigh v. Engle, 727 F.2d 113, 122 (7th Cir. 1984) (finding breach of fiduciary duty of loyalty where plan fiduciaries invested plan assets to assist their hostile takeovers and ultimately made a profit for the plan; plan could recover fiduciaries' profits). Such claims are different from the claims that Nelson asserts here, which allege that plan participants suffered actual losses rather than that fiduciaries obtained improper enrichment from use of plan assets.
Third, apart from its apparent weakness, the release defense appears to be susceptible to resolution on a classwide basis. See Korn v. Franchard Corp., 456 F.2d 1206, 1210 (2d Cir. 1972) (reversing district court's denial of class certification; validity of release could be determined on broad basis and might call for creation of sub-class). The record indicates that the roughly 600 releases all contain the language stating that they do not affect the employees' benefits under the Thrift Plan. The effect of that language should be the same for all (with the possible exception of any class member who understood ERISA so well as to have been cognizant of defendants' suggested distinction between "rights" and "benefits" under ERISA). Also, the releases were signed in two batches for the two early retirement programs. Any timing issues therefore should be resolved in two large groups.
c. Plaintiff Wycoff
Defendants also contend that plaintiff Michael Wycoff has no claim under Count One because he did not retain any employee contributions in the form of IPALCO stock at the time of the AES closing. Plaintiffs agree that Wycoff has no claim under Count One. Defendants argue also that Wycoff's claims are not typical of class members' claims on Count Two because he had the opportunity to take a full distribution from the Thrift Plan when he terminated his employment in November 2000. However, the fact that defendants might raise this issue regarding Wycoff does not mean that his claims are not typical. In this respect, Wycoffs claim under Count Two is similar to the claims under Count One (where individual plan participants could make choices about investment of their assets). The additional wrinkle in his Count Two claim does not show a lack of typicality.
4. Adequacy of Representation
The final requirement under Rule 23(a) is that the named representatives fairly and adequately protect the interests of the class. Fed.R.Civ.P. 23(a)(4). The adequacy standard involves two elements. First, a class representative must have a sufficient stake in the outcome to ensure zealous advocacy and must not have claims antagonistic to or conflicting with claims of other class members. Second, counsel for the named plaintiffs must be experienced, qualified, and generally able to conduct the litigation on behalf of the class. Susman, 561 F.2d at 90. Defendants do not dispute the ability of plaintiffs' counsel to represent the prospective class.
Both Nelson and Wycoff have a sufficient stake in the outcome of this case. Both claim to have suffered substantial losses from the defendants' actions. Both have shown their willingness and ability to do the work required of a class representative.
Defendants contend that Nelson and Wycoff cannot adequately represent all class members because there is a conflict between the interests of about 600 class members who signed releases and the other 1300 or so class members. As defendants see the problem, the class members who signed releases cannot recover any benefit in the case. Those class members' interests could be hurt by an award to the class members who did not release their claims because that award could hurt the interests of IPALCO's only stockholder, AES, and the releasing class members might still have an interest in AES stock.
Conflicts of interest within a proposed class may defeat class certification. E.g., Gilpin v. American Fed'n of State, County Mun. Employees, AFL-CIO, 875 F.2d 1310, 1313 (7th Cir. 1989) (conflict between non-union members who were ideologically opposed to unions and those who merely wanted to minimize cost of union representation weighed against class certification); see also Broussard, 155 F.3d at 338 (reversing judgment in favor of plaintiff class; class members who had released claims could not benefit from damages award and could be injured by it). In this case, however, defendants' argument against certification is built upon the weak foundation of its release defense, and it is far too speculative to defeat class certification.
Defendants' theory of a potential conflict begins with the assumption that their release defense has some merit. As discussed above, that defense appears to have very little merit. In addition, defendants' suggestion that some class members would like to avoid any financial judgment against IPALCO because such a judgment might hurt their investment in AES is too speculative and sweeps too broadly. First, IPALCO is a small part of the larger AES empire. Defendants have not shown how an adverse judgment in this case might materially affect AES's stock price. Second, defendants' argument does not apply at all to claims against the individual defendants. Third, if any class members actually take this concern seriously, they will be able to opt out of the class and could even seek to intervene to support the defendants.
Further, defendants' conflict of interest argument, which relies on Melong v. Micronesian Claims Comm'n, 643 F.2d 10, 13-14 (D.C. Cir. 1980), suffers from a mirror-image problem. In Melong, the court found that a class representative who had not executed a release could not adequately represent class members who had executed arguably valid releases. The court reasoned that those class members who had executed releases needed a class representative who had a strong incentive to show that the releases in question were invalid, and a class representative who had not executed a release would not have such an incentive.
In this case, where Nelson did execute a release, he has ample incentive to raise arguments against the release defense. At the same time, it is possible for individual defenses applicable to a class representative to distract the representative so much that he or she cannot adequately represent the class. See J.H. Cohn Co., 628 F.2d at 999. After taking a preliminary look at the merits of the release defense in this case, however, the court is satisfied that the defense will not distract Nelson from pursuing adequately the claims of other class members. Also, because the release defense, such as it is, applies to hundreds of the class members, it simply presents one more issue of broad application suitable for classwide resolution. Accordingly, plaintiffs satisfy all four criteria of Rule 23(a).
B. Requirements of Rule 23(b)
After satisfying Rule 23(a), plaintiffs must also satisfy the criteria of one of the subsections in Rule 23(b). Plaintiffs contend that they can satisfy Rule 23(b)(1), (2), and (3). The court agrees that certification is proper under Rule 23(b)(3), which will give class members the right to opt out of the class.
1. Rule 23(b)(1)
Plaintiffs seek to certify this class pursuant to Rule 23(b)(1). This Rule provides that a class may be certified if:
(1) the prosecution of separate actions by or against individual members of the class would create a risk of
(A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or
(B) 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[.]
Plaintiffs rely heavily on Ikon Office Solutions, Inc., 191 F.R.D. at 466, which was a similar case challenging an ERISA plan's use of the employer's stock as an option for the participants' self-directed investments and the plan's practice of keeping all employer contributions in the form of employer stock. The district court in Ikon certified a plaintiff class under Rule 23(b)(1), and it rejected defense arguments that individual issues of reliance and causation should bar certification. Id. The court also expressed concern about the risk of inconsistent decisions and the risk that failure to certify a class would leave future plaintiffs without relief.
This court finds that certification under Rule 23(b)(1) is not appropriate here. The best argument for certification under Rule 23(b)(1) is that ERISA requires that any monetary relief be awarded directly to the Thrift Plan itself rather than to the individual plaintiffs. See Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 140 (1985); 29 U.S.C. § 1109(a) (remedy for plan fiduciary's breach of fiduciary duty is to "make good to such planany losses to the plan resulting from such breach. . . .") (emphasis added). Rule 23(b)(1) may apply where the final decisions on the merits for all class members will be the same. The existence of the individual accounts and individual investment decisions, however, means that the correct decisions for different class members may be different. There are individual issues of reliance and causation, as well as some individual issues presented by affirmative defenses. The case therefore fits the profile for Rule 23(b)(3), which requires opt-out rights as well as a showing that common issues predominate and that a class action is the superior method for resolving all claims. The presence of those individual issues and the prospect of different results for different class members means that Rule 23(b)(1) does not fit this case.
The reasoning in Ikon actually provides substantial support for certification of a class under Rule 23(b)(3), though the Ikon court certified a class under Rule 23(b)(1). See 191 F.R.D. at 466-67. The Ikon court noted that briefing of Rule 23(b)(3) had been "cursory at best," and the court left open the option of modifying its decision to certify the class under Rule 23(b)(3) instead. The decision provides substantial support for class treatment of a case strikingly similar to this one, but offers little guidance on the choice between Rule 23(b)(1) and (b)(3).
The Ikon court cited the 1966 advisory committee notes to Rule 23, which state that Rule 23(b)(1)(B) should apply to an action that "charges a breach of trust by an indenture trustee or other fiduciary similarly affecting the members of a large class of security holders or other beneficiaries, and which requires an accounting or like measures to restore the subject of the trust." Plaintiffs here also rely on this note and the Ikon citation for the broader point that certification under Rule 23(b)(1) is "appropriate in cases charging breach of trust by a fiduciary to a large class of beneficiaries"). Pl. Class Br. at 17.
The point actually made in the advisory notes is considerably narrower, applying where an accounting or similar measures are needed to restore the subject of the trust. Thus, Rule 23(b)(1) may apply where a fiduciary is alleged to have invested plan assets imprudently or for his own purposes, and where there is no issue of individualized relief for the beneficiaries. See, e.g., Banyai v. Mazur, 205 F.R.D. 160, 165 (S.D.N.Y. 2002) (certifying class under Rule 23(b)(1)(B) where plaintiffs claimed that welfare plan fiduciaries breached ERISA by terminating plan and transferring assets to union); Montgomery v. Aetna Plywood, Inc., 1996 WL 189347, at *5 (N.D. Ill. 1996) (certifying class under Rule 23(b)(1)(A) where plaintiffs claimed that plan fiduciaries sold employer stock to company founder for less than fair value). This case presents claims for individualized relief. Also, Rule 23(b)(1) may apply where multiple plaintiffs have claims to the same piece of property, or where there is a limited fund. See, e.g., Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999) (reversing approval of class settlement and holding that Rule 23(b)(1) did not apply to fund "limited" only by agreement of the parties); Fed.R.Civ.P. 23, 1966 advisory committee notes on Rule 23(b)(1) (describing proper applications of provision). This case does not fit the described situations.
The concern about inconsistent results also does not support certification under Rule 23(b)(1) in this case. As noted, there may be perfectly good reasons for different results among the claims of different members of the proposed class. Also, Rule 23(b)(1)(B) does not apply merely because a decision in one case may establish a bad precedent for others in the class. In re Dennis Greenman Securities Litig., 829 F.2d 1539, 1546 (11th Cir. 1987); Vaughter v. Eastern Air Lines, Inc., 817 F.2d 685, 690 (11th Cir. 1987); Specialty Cabinets Fixtures, Inc. v. American Equitable Life Ins. Co., 140 F.R.D. 474, 477 (S.D. Ga. 1991).
2. Rule 23(b)(2)
Plaintiffs also seek certification under Rule 23(b)(2), which applies 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." Where the plaintiffs seek monetary relief, Rule 23(b)(2) may still apply, but only if the plaintiffs seek relief that is predominantly injunctive or declaratory, and if the monetary relief they seek is "incidental" to the requested injunctive or declaratory relief. Lemon v. International Union of Operating Engineers, Local No. 139, AFL-CIO, 216 F.3d 577, 580 (7th Cir. 2000).
In Lemon, the Seventh Circuit explained what it means for monetary relief to be only incidental to declaratory and injunctive relief. Monetary relief is "incidental" when it flows directly from liability to the class as a whole, and when the monetary damages "do not depend in any significant way on the intangible, subjective differences of each class member's circumstances" and do not "require additional hearings to resolve the disparate merits of each individual's case." 216 F.3d at 581, quoting Allison v. Citgo Petroleum Corp., 151 F.3d 402, 415 (5th Cir. 1998).
Applying this standard, the estimated $170 million in monetary relief sought here is obviously not incidental to injunctive or declaratory relief. Plaintiffs seek an award of money to the Thrift Plan itself that would in turn credit specific sums to each individual account. Relief will depend on individualized calculations for each account. As noted, individual claimants may present issues of causation and reliance, so that a classwide determination that defendants violated ERISA's requirements would not necessarily lead to an award in favor of a particular claimant. Also, defendants may be able to raise individual defenses regarding each class member. Thus, monetary relief here would not "flow directly from liability to the class as a whole." Certification under Rule 23(b)(2) is not available here.
Also, as defendants point out, it is far from clear how the court could grant any meaningful injunctive relief against individual defendants, who are no longer fiduciaries and no longer involved with the Thrift Plan.
3. Rule 23(b)(3)
Because plaintiffs seek substantial monetary relief, Rule 23(b)(3) with its opt-out procedure is the portion of Rule 23(b) best suited for this case. See Jefferson v. Ingersoll Int'l, Inc., 195 F.3d 894, 899 (7th Cir. 1999); accord, Lemon, 216 F.3d at 581; O'Brien v. Encotech Construction Services, Inc., 203 F.R.D. 346, 351 (N.D. Ill. 2001) (class certification under Rule 23(b)(2) generally not appropriate when party primarily seeks monetary relief). Under Rule 23(b)(3), plaintiffs must show that common questions of fact or law predominate over issues affecting the individual members, and that a class action is superior to other available methods for fair and efficient adjudication of the controversy.
a. Predominance of Common Issues
The court finds that common issues will predominate over individual issues under both Counts One and Two.
The predominance of common issues is most pronounced with respect to those portions of Count Two directed to new employer matching contributions for current employees. Thrift Plan participants had no individual discretion or control over the investment of those funds, so there are no individual issues of reliance or causation. The common issues at trial will focus on the defendants' knowledge of AES and the probable effects of the transaction on the Thrift Plan, whether the defendants considered, and if so how, whether AES stock was a suitable investment for Thrift Plan participants, the defendants' public statements and/or silence on the decisions Thrift Plan participants should make about their own investment choices, and the defendants' own actions regarding their own investments in IPALCO stock. The two principal issues will be whether any defendant acted in a fiduciary capacity and whether any defendant breached any fiduciary duties of loyalty or due care under ERISA by allowing the employer matching contributions held in IPALCO stock to be converted to AES stock when the share exchange deal closed. The focus throughout will be on the defendants' conduct.
If plaintiffs can establish that one or more defendants breached a fiduciary duty under ERISA, the court will then need to address issues of individual damages and any individual defenses. Individual damages issues on Count Two should be relatively straightforward. If a consistent method for measuring damages is applied across all class members, those issues would not predominate. The need for such individual damages calculations does not defeat class certification any more than the need to make similar calculations would defeat class certification in a typical securities fraud case. See generally Newberg on Class Actions § 4: 25, at 159 (4th ed. 2002) (failure to certify an action under Rule 23(b)(3) on the sole basis that individualized damage determinations make the class unmanageable is disfavored and should be the exception rather than the rule).
Defendants have indicated they may raise release as an affirmative defense against about 600 class members. Defendants also may contend that a plan participant who voted for the share exchange plan or who chose to leave his or her self-directed employee contributions in AES stock should be estopped from complaining that the defendants did the same thing — i.e., allowed the employer match assets to be invested in AES. These potential defenses do not undermine the predominance of common issues over individual issues.
First, the release defense will present broadly applicable issues: hundreds of plan participants signed essentially identical releases in two relatively brief time periods. The release defenses therefore are unlikely to present a plethora of individual issues. They will instead present a few more common issues that support class treatment, and perhaps some individual issues that will not undermine the predominance of common issues.
Second, the legal effects of an individual participant's vote on the share exchange plan or her decision not to modify the investment of her own plan contributions will also present questions with broad application to many class members. To the extent there might be individual variations on these defenses, there is no reason to expect those variations would be substantial enough to overcome the vast predominance of common issues.
With respect to the portions of Count Two involving former employees and/or "old match" employer contributions, the common issues remain those focused on defendants' conduct in allowing the IPALCO stock to be converted to AES stock. The issues will include whether any defendant acted in a fiduciary capacity and whether any defendant breached any fiduciary duties of loyalty or due care under ERISA by allowing the conversion. On these common issues, the focus will be on the defendants' conduct. These portions of Count Two will also present similar individual issues concerning damages and both common and individual issues concerning affirmative defenses similar to those arising under the current employee, new match portions of Count Two.
Thus far, therefore, common issues still clearly predominate over individual issues for the portions of Count Two dealing with former employees and/or "old match" contributions. The difference is that the former employees and current employees with "old match" assets had at least some opportunity to exercise control over the investment of the assets in question. As a result, these portions of Count Two will present some individual issues concerning causation and reliance. The court finds that these issues are not sufficient to defeat class certification because the common issues will still predominate. Plaintiffs have made clear that they do not intend to prove individual claims by relying on representations or advice given only to individuals. Instead, they intend to prove their case by focusing on the defendants' conduct toward the plaintiff class as a whole. That fact distinguishes this case from Broussard and Sprague, which involved claims based on different individual communications to class members. See Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331, 341 (4th Cir. 1998); Sprague v. General Motors Corp., 133 F.3d 388, 399 (6th Cir. 1998). Defendants will of course have an opportunity to develop evidence that an individual plaintiff did not rely on the defendants' actions or advice or representations. Such evidence can be addressed in individual hearings as necessary.
In considering whether common issues predominate over individual issues, the court must consider the practical prospect of a trial, or perhaps hundreds of trials in this case. If the court denied class certification, the roughly 1900 Thrift Plan participants and beneficiaries could bring separate cases. The trials on the merits of each claim would all involve essentially the same evidence of the same actions of the defendants. The court expects that such evidence — from both plaintiffs and defendants — is likely to be extensive. Based on the evidence submitted concerning the named plaintiffs, Nelson and Wycoff, the court expects that the evidence concerning any individual plaintiff's decisions and actions regarding his or her Thrift Plan assets would probably be much more limited in quantity and time. Evaluating predominance in such cases is not an exact science. It is instead a task that calls upon the district judge to exercise his or her sound discretion based on judgment and experience. The prospect of hearing dozens, scores, or even hundreds of claims in which essentially the same extensive evidence of the defendants' conduct would have to be repeated shows, in the court's view, the predominance of common issues over individual issues.
The analysis of the predominance question is essentially the same for Count One, which addresses the self-directed investment of employee contributions to the Thrift Plan. The focus of plaintiffs' case is on the common course of action, or inaction, by the defendants with respect to the individual investments in IPALCO and their conversion to AES stock. In Count One, plaintiffs contend that the defendants violated ERISA by even permitting plaintiffs to keep their investments in IPALCO after the share exchange agreement tied IPALCO to the more volatile AES. Regardless of the merits of the theory, the theory does not depend on or present issues of individual causation or reliance.
Plaintiffs also contend in part that the defendants affirmatively misled them. Again, however, plaintiffs are not relying on separate, individual courses of conduct or misrepresentation, which distinguishes the case from Broussard and Sprague. Instead, plaintiffs are relying on a few much more public statements made by defendants about the acquisition and its supposed benefits for employees and shareholders. Defendants have not come forward with evidence showing that the "total mix" of communications to class members will involve numerous private communications that would undermine the predominance of common issues. Under these circumstances, the court finds that the common issues will still predominate over individual issues.
b. Superiority of Class A ction
Under Rule 23(b)(3), even where common issues predominate, certification is proper only if the court finds "that a class action is superior to other available methods for the fair and efficient adjudication of the controversy." Relevant factors include the interest of individual class members in individually controlling the prosecution of their claims, the extent and nature of litigation already pending concerning the controversy, the desirability or undesirability of concentrating the litigation in the particular forum, and the difficulties likely to be encountered in managing a class action.
The interest of individual class members in individually controlling the prosecution of their claims does not weigh heavily for or against class certification. Plaintiffs' counsel estimate that the mean claim for individual damages for the proposed class is on the order of $80,000 to $90,000. There is a wide distribution of individual values, with some reaching several hundred thousand dollars and some just a few thousand or even a few hundred dollars. A claim of the mean magnitude is obviously more substantial than is often the case in class actions. However, in light of the nature of the controversy here and the expense of litigating these issues against IPALCO and the individual defendants, most individual plaintiffs and their attorneys could not afford to litigate their claims adequately. Perhaps a few with the largest claims would be able to attract attorneys with the prospect of a contingent fee, but most probably would not be able to do so. At the same time, the opt-out procedure under Rule 23(b)(3) will give any class member who wishes to proceed individually the opportunity to do so.
On the second factor, there is no indication that other litigation is already pending concerning this controversy. Class certification would not interfere with other pending cases. This factor does not weigh against class certification.
On the third factor, concentrating the claims of the class members in this forum is desirable, primarily from the standpoint of judicial economy. As noted above, the prospect of scores or even hundreds of separate and thoroughly repetitious lawsuits by these similarly situated plan participants threatens a great waste of judicial time and energy, to the detriment of many other litigants. This particular forum, moreover, is the center of gravity for IPALCO matters. IPALCO's home office is two blocks from the courthouse. Its retail service territory coincides closely with the boundaries of Marion County, Indiana, and most IPALCO employees have worked and lived in or near Marion County.
On the fourth factor, the court believes that difficulties in managing this case as a class action are likely to be manageable, so that a class action would be much more fair and efficient than a small avalanche of individual claims. The case can be managed as a class action by focusing discovery and the trial on the merits on the claims of the named plaintiffs and perhaps a small number of other class members. The principal focus of the trial should be the common issues relating to defendants' conduct and any broadly applicable defenses. Following resolution of those common issues, if there were to be a finding against defendants on any issue that would support a right to relief, individual issues relating to the representative plaintiffs could be tried. Representative plaintiffs in addition to the named plaintiffs could be selected so as to display the types of individual variations in cases that defendants contend are so important. After resolution of individual issues and defenses, the court would expect to confer with counsel to work out a process for evaluating those individual issues and defenses for the remaining hundreds of class members. See In re Visa Check/MasterMoney Antitrust Litigation, 280 F.3d 124, 141 (2d Cir. 2001) (affirming certification of class and noting several options for managing individual damage issues, including appointing a magistrate judge or special master to preside over individual damages proceedings). Also, the fact that the claims in this case are subject to court trial rather than jury trial eliminates the potential management problem posed in other cases by the Seventh Amendment. See generally In re Rhone-Poulenc Rarer Pharmaceuticals, Inc., 51 F.3d 1293, 1295 (7th Cir. 1995) (granting writ of mandamus to vacate certification of nationwide class involving claims of contamination of blood supplies). That is not to say that management of the case as a class action will be simple, but a 23(b)(3) class appears to be superior to other methods available for adjudicating these many hundreds of claims.
Conclusion
Accordingly, the court hereby grants plaintiffs' motion to certify a plaintiff class consisting of the Employees' Thrift Plan of Indianapolis Power Light Company and all plan participants and beneficiaries who held a beneficial interest in IPALCO stock on or about March 27, 2001 that was exchanged for AES stock. The certification is made under Rule 23(b)(3). Plaintiffs' counsel shall submit to defense counsel no later than October 15, 2003, a proposed form of class notice and related opt-out forms. See also note 1, above, regarding notice content. Defense counsel shall provide comments to plaintiffs' counsel within seven calendar days of receipt, and plaintiffs' counsel shall then submit a proposed form of notice to the court no later than October 29, 2003. Defendants shall file no later than November 5, 2003 any objections they have to the proposed form of notice.
So ordered.