@ Business Benefits Group

It’s 1974 and bell-bottom pants and platform shoes were in fashion…unfortunately. It was also the year that an odd federal law was passed that now governs $29 trillion in U.S. retirement plan assets. The law was ERISA or the Employee Retirement Income Security Act. And notwithstanding the word “retirement” in its title, it also covers all employer-sponsored health plans and most other employee benefit arrangements. The bell-bottoms and platform shoes may be gone but the growing impact of ERISA and explosion of class action litigation against employer plan sponsors in recent years is something that boards of directors, officers and other company executives should be concerned about – because under ERISA they may be personally on the hook for any plan breaches as fiduciaries – and often D&O insurance isn’t going to protect them.

The costs of ERISA litigation can be staggering. The 10 highest ERISA class action settlements in 2017 totaled nearly $1 billion. With courts increasingly siding with plaintiffs in these cases, there appears to be little hope that the trajectory of ERISA litigation will reverse. At the same time, plaintiffs are exploring new avenues of attack under employer sponsored health plans using the same ERISA fiduciary arguments developed over the last 45 years on the retirement side. It’s simply not enough that employers keep compliant with the Affordable Care Act and Internal Revenue Code (both of which have provisions embedded in ERISA amongst eight other federal laws including COBRA). They also need to focus on their fiduciary obligations under ERISA because that’s the focus of these class action lawsuits.

Historically, ERISA litigation has focused on the duties, responsibilities, and actions of retirement plan’s fiduciaries—typically, the board and company executives. Under ERISA, those fiduciaries are charged with one main objective: to act solely in the best interests of plan participants. Class action suits against companies have alleged that fiduciaries have violated that rule by, for example, making imprudent decisions regarding investment choices, or failing to manage plan documentation or monitor people hired to carry out plan duties.

In recent years, ERISA fiduciary litigation has increasingly focused on excessive plan fees and expenses. There has been an increase in class action litigation by plan participants who are basically saying that their employer’s 401(k) plan charged them too much—and the plan fiduciaries should have shopped around and found better deals. Those can be huge lawsuits. In some, the employer has ended up being on the hook for reimbursing retirement accounts for millions—sometimes hundreds of millions—of dollars.

Often, businesses will carry directors and officers (D&O) liability ERISA fiduciary insurance as a hedge against personal liability exposure. However, those policies might not be sufficient when it comes to ERISA fiduciary litigation. D&O policies may not cover ERISA-related liability at all, or there may be special provisions, such as requiring executives to get annual fiduciary training. Even if there is coverage, it might be woefully inadequate compared to the size of the plan or the risks involved.

Up Next: Health Plans Under ERISA

The United States spends approximately $3 trillion a year on health care, making the oversight of company health plans an attractive target for plaintiffs. Such plans have been covered by ERISA since it was passed, but over the course of four decades, there has been comparatively little litigation on that front. However, that has been changing with rapidly rising health care costs and the implementation of the Affordable Care Act. These factors prompted employers to collect cost-sharing premiums from employees or become self-insured, thus creating a new target for ERISA fiduciary breach actions.

The plaintiffs’ bar is now arguing that those employee premiums and other costs, such as co-pays, types of coverage, pharmacy rebates, should be considered protected ERISA plan assets, and that every decision a plan sponsor makes with respect to use of those plan assets is a fiduciary decision. Fiduciaries overseeing health plans have to be exceptionally careful to follow the same golden rule that they follow with retirement plans under ERISA, i.e., to ensure what they do is solely in the best interest of participants.

Looking ahead, fiduciaries’ decisions about monitoring costs and who they appoint and hire to administer health plans will be important drivers of ERISA litigation. The best protection for employers is to demonstrate that they have undertaken regular and in-depth compliance reviews of retirement and health plans. That means providing proof that the plan sponsor has reviewed plan documentation for compliance with applicable law, undertaken review of governance and delegation of authority structures, provided external fiduciary training, and demonstrated regular monitoring and benchmarking. In general, companies need to make sure that their fiduciaries perform due diligence and follow clear decision-making processes.

With the increasing emphasis on personal liability, companies also need to make sure that people in those roles are qualified to act as fiduciaries—a factor that may be getting more scrutiny. In September 2018, after losing a class action lawsuit against New York University over the handling of retirement funds, the plaintiffs turned around and sued for the removal of two fiduciaries on the retirement committee —an action based on the court’s ruling that noted that the two individuals lacked the capabilities needed to effectively oversee the plan.

This article originally appeared in Bloomberg BNA.

Image of ruler at the 10 inch mark
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When Subway faced a class action over its “footlong” sandwiches coming up short, a quick settlement seemed like a good bet. Instead the case became a memorable example of how the courts and the Justice Department are cracking down on settlements that often do little more than generate easy money for plaintiffs’ attorneys.

Companies facing meritless class actions often move to quickly settle to avoid costly drawn-out legal battles, but in this new legal climate, companies should reconsider their strategies for resolving these lawsuits.

One of the most famous examples of this trend is the proposed settlement of class action lawsuits filed after a picture of a Subway “footlong” sandwich measuring less than 12 inches went viral. The lawsuits claimed the sandwich company engaged in deceptive marketing and sales practices. But the company quickly provided discovery showing it used the same amount of dough in each “footlong” roll. Thus, any variation in length of the rolls was merely a fluke of the baking process and not an indication that consumers were receiving less food.

Still, Subway agreed to settle the case and committed to institute quality-control practices designed to ensure consumers received 12-inch rolls. The company also agreed to post notices explaining that, even with the quality-control practices, the bread-baking process sometimes results in rolls measuring less than 12 inches.

For obtaining these concessions, plaintiffs’ attorneys were to receive more than $500,000 in fees.

No Benefit to Class

Subway, like many companies, embraced the opportunity to quickly settle a meritless lawsuit for only the cost of legal fees and a few minor business changes. But the U.S. Court of Appeals for the Seventh Circuit, one of a number of increasingly skeptical courts, rejected the settlement because it provided “zero benefits for the class,” noting “[a] class settlement that results in fees for class counsel but yields no meaningful relief for the class is no better than a racket.”

Courts are not alone in turning a more critical eye on proposed class action settlements.

Earlier this year, the Department of Justice signaled it would be making a concerted effort to review class action settlements. For the past 13 years, the DOJ has had the authority to review and weigh in on the fairness of class action settlements but has rarely done so. But in February, departing Associate Attorney General Rachel L. Brand indicated that the DOJ would use its authority to ensure class action settlements provide meaningful value to class members.

Soon after, the DOJ made good on its promise and issued a statement of interest opposing a proposed consumer class action settlement in federal court in New Jersey. Again, the concern was that class counsel was receiving $1.7 million for a settlement of dubious value to consumers. The plaintiffs claimed that an online wine retailer had misled them by showing very high “original” prices for bottles of wines, leading consumers to believe they were getting a better discount. However, as the DOJ pointed out, the plaintiffs “actually received the products they ordered at the prices to which they agreed.”

But even assuming the plaintiffs could show they suffered a loss, the proposed settlement offered only rebate codes that would allow a plaintiff a $2 discount per bottle of wine purchased from the defendant. The DOJ determined that, either way, the settlement was not fair.

The court agreed and ultimately rejected the settlement.

Do Your Homework

With courts and the DOJ viewing class settlements more stringently, companies should carefully consider whether a settlement that appears to be an easy way out is truly the best approach.

Such settlements may prove a waste of time and resources if they are challenged by the DOJ or ultimately rejected by the court. Although plaintiffs’ attorneys could withdraw their claims following a rejected settlement, often companies are faced with months or even years of continued litigation. And even if the settlement survives the increased level of scrutiny, it will not necessarily reduce the risk of similar lawsuits by plaintiffs that were not bound by the agreement.

Instead, companies should determine whether, even if more costly in the short term, they may ultimately have more to gain from seeking a dismissal of the action on the merits.

If companies still decide to settle, they should avoid the hallmarks of settlements that were found not to provide benefits to the class. If the value to the class involves only business practice changes, the companies should make certain to include changes that were not already in place before the settlement and that will materially reduce the risk of harm to consumers.

And instead of offering consumers coupons, which have limited value because customers need to spend money to get the benefit, companies should offer them small credits instead. Apple showed benefit to its customers when it settled a 2016 class action lawsuit by agreeing to pay $400 million to consumers who bought e-books at an inflated price by automatically crediting their e-book accounts.

Given the increased scrutiny on class action settlements, a more thoughtful approach to settlements that seem like a quick fix could save companies time and money in the long run.

 

Join Us For A Complimentary Webinar – Thursday, October 25, 2018 – 12:00 – 1:00 PM ET

Two years into the Trump Administration and:

  • The Consumer Product Safety Commission finally has a Republican majority,
  • the Department of Transportation has released its 3.0 guidance on autonomous vehicles,
  • NIST has published a 375 page recommendation on medical device security,
  • the FTC is holding a series of hearings on the transformative nature of the digital transformation on markets.
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What does all this activity in the United States mean for companies following the rapidly evolving regulations globally related to the safety and security of products?

This PLAC webinar will describe the current landscape at the federal agencies setting policy for product safety and security. With all the recent talk of regulatory humility in the face of great technological change, we’ll discuss whether regulators practice what they preach and if recent actions encourage or stifle innovation. Our session will compare and contrast activities across the federal government relevant to consumer products broadly defined with a particular focus on product safety and security.

Presenters:

Cheryl Falvey, Partner, Crowell & Moring, Washington, DC
John Fuson, Partner, Crowell & Moring, Washington, DC
Peter Miller, Senior CounselCrowell & Moring, Washington, DC

Please click here to register for this webinar.

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Earlier this summer, President Trump nominated Republican Peter Feldman to serve as the fifth commissioner on the U.S. Consumer Product Safety Commission (CPSC). The Senate has now confirmed Mr. Feldman to both (1) serve out the remainder of former Commissioner Joe Mohorovic’s term, which expires in October 2019; and (2) serve a seven-year term beginning in October 2019.

Significantly, the confirmation of Mr. Feldman gives the Republicans their first majority control of the Commission in nearly twelve years, and presents an opportunity for Acting Chairman Ann Marie Buerkle to further move the agency in a direction that reflects her regulatory priorities, as well as those of the Administration. Notably, the Commission will soon consider its FY 2019 operating plan which sets the agency’s agenda for the coming year.

Interestingly, the Senate voted 80-19 to confirm Mr. Feldman to serve out the remainder of former Commissioner Mohorovic’s term. However, on the following day when it came to vote on Mr. Feldman’s own seven-year term that would start in October 2019, the Senate split along strictly partisan lines confirming Feldman by a slim 51-49 majority. Some had argued that since Mr. Feldman’s “new” term would not begin until 2019, the next Senate should take up the nomination after the midterm elections.

Mr. Feldman is well-known among the product safety community. Having served as legal counsel to Senator John Thune (R-SD) at the Senate Committee on Commerce, Science, and Transportation since 2011, he is experienced and well-versed in consumer product safety law and the activities of the Commission.

The CPSC released the following statement upon Mr. Feldman’s confirmation including this quote from Mr. Feldman himself:

“I believe strongly in the mission of the agency because American consumers have every right to expect that the products they purchase will be safe and will not pose an unreasonable risk of injury to themselves or their families,” Feldman said. “CPSC’s safety work is critical, particularly when it comes to protecting our most vulnerable populations. I look forward to advancing these agency priorities while ensuring fairness in the execution of its duties.”

We look forward to working with Commissioner Feldman in the years ahead and congratulate him on his confirmation.

 

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Recent years have seen federal courts applying increased scrutiny to proposed “multistate” class actions that invoke a hodgepodge of state consumer-protection laws. The main reason: The variations among these state laws are not only extensive but often case-determinative, preventing class representatives from proving their claims on a classwide basis.

These decisions have, in turn, raised another question that has divided judges, commentators, and practitioners: Does the same high bar apply to the certification of nationwide classes that are purely vehicles for settlement—meaning that the court will never have to address the practical and legal difficulties of managing an actual classwide trial involving fifty (or more) state laws? In late January the Ninth Circuit weighed in to answer that it does, in a potentially seminal opinion that could, in the words of one dissenting judge, strike a “major blow” to multistate class action settlements.

Continue Reading Don’t Settle for Less: Ninth Circuit Rules That Courts Must Consider Variations Among State Laws Before Certifying Nationwide Settlement Classes

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Surveys play an increasingly important role in consumer class actions, whether used to deny class certification, defeat plaintiffs’ allegations of consumer “deception,” or even refute damages arguments.

Recently, beverage giant Starbucks Corp. defeated a proposed class action alleging that Starbucks had violated consumer protection statutes in California, Florida, and New York by uniformly filling its lattes and mochas with more foam – and less actual beverage – than a reasonable consumer would expect. In dismissing the case on summary judgment and denying class certification as moot, U.S. District Judge Yvonne Gonzalez Rogers for the Northern District of California focused on the plaintiffs’ flawed survey results. Strumlauf et al. v. Starbucks Corp., No. 16-CV-01306-YGR, 2018 WL 306715 (N.D. Cal. Jan. 5, 2018). The plaintiffs had introduced an expert report presenting the results of two surveys purporting to show that 70-80% of consumers expected that the “Promised Beverage Volume” of Starbucks lattes did not include foam. The first survey showed respondents a sample menu board with small, medium, and large and asked how many fluid ounces of beverage they expected to receive. This survey was flawed, the court found, because it did not measure consumers’ understanding of what “fluid ounce” means. The second survey showed images of a cup with varying amounts of fluid and foam and then asked which “medium 16 fl. oz. beverage” the respondents expected to receive. This survey, too, fell short because it showed a “caricatured image” and “the ‘question begg[ed] its answer [and was] not a true indicator of the likelihood of consumer confusion.’” In sum, the Court attacked the surveys as “leading and suggestive” and ultimately found they failed to establish a triable issue on consumer deception.

Continue Reading Surveys Seal the Deal in Defeating Starbucks and 5 Hour Energy Class Actions

Baker’s dozen = 13 (not 12)

Easy.

Foot = 12 inches (the length of the average man’s foot)

Of course. I learned this in the second grade.

2 by 4 = 1.5 inches by 3.5 inches  

What?

4 by 4 = 3 ½ inches by 3 ½ inches

No way.

5/4 inches by 4 inches = 1 1/8 inches by 3 ½ inches

Mind. Blown… unless you’re a carpenter or in the construction industry.


In the United States, softwood lumber is governed by the American Softwood Lumber Standard which was developed by the American Lumber Standard Committee, in accordance with the Procedures for the Development of Voluntary Product Standards of the U.S. Department of Commerce. That’s a mouth full. However, the lumber standard is a government-approved codification of longstanding industry practices. And, while dimensional lumber is cut to a specific length, width, and depth, there is a difference between the nominal size (what the lumber is referred to) and its actual size.

Continue Reading Who “Wood” Have Thought? Plaintiffs Challenge Longstanding Lumber Labeling Practices

On June 19, 2017, the U.S. Supreme Court issued a decision clarifying the circumstances in which a lawsuit “arises out of” or “relates to” a corporation’s contacts with a particular jurisdiction, such that it can be sued there. In Bristol-Myers Squibb Co. v. Superior Court, writing for an 8-1 majority, Justice Alito held that California state courts do not have jurisdiction to hear the product liability claims of non-California residents against Bristol-Myers Squibb Co., a foreign corporation. The Court reasoned that the nonresident plaintiffs “do not claim to have suffered harm in that state” from their use of BMS’ drug Plavix, and “all the conduct giving rise to the nonresidents’ claims occurred elsewhere.” The Supreme Court found insufficient BMS’ substantial sales in California, including through its use of 250 sales representatives in that state.

Continue Reading U.S. Supreme Court: Shaping the Personal Jurisdiction Landscape in Product Liability Cases

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Daniel O’Neill (Flickr)

There’s a new tool for deceptive pricing class actions challenging “up to __%” savings promotional messaging:  A new lawsuit filed in New Jersey alleges that the clothing retailer’s “up to _% off” promotional messaging violates New Jersey’s consumer protection laws. The plaintiff sued Jos. A. Bank under the New Jersey Truth in Consumer Contract, Warranty and Notice Act (TCCWNA), N.J. Stat. § 56:12-15. This once-forgotten statute has recently been in the limelight, invoked in numerous class actions due to its generous civil penalties provision providing “not less than $100.00 or for actual damages, or both” at the choice of the consumer, plus attorney’s fees. See N.J. Stat § 56:12-17.

Continue Reading A New Twist on a Familiar Theme: NJ Lawsuit Targets Retailer’s Savings Claims, Seeking Damages Under Once Obscure Statute

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Last month, our colleague Joshua Foust analyzed the then-newly introduced Fairness in Class Action Litigation Act of 2017.  The bill, sponsored by House Judiciary Chairman Bob Goodlatte (R-VA), amends procedures used in federal court class action and mass tort litigation.  Last week, on March 9, just one month after Chairman Goodlatte (R-VA) introduced the bill, the full House of Representatives passed the bill by a vote of 220-201.  The legislation will now be considered by the Senate.   

Now that the bill has passed the House, we have drafted an alert providing additional analysis. Click here to read the alert on Crowell.com or read below.

The U.S. House Sets Out To Reform Class and Mass Actions

Continue Reading Update: Class Action Reform Bill Passes House 220-201