No Class Certification in Nationwide Asset-Based Fee Suit

A federal court judge has rejected proposed classes of defendants and plaintiffs in a lawsuit seeking the return of “excessive and unreasonable asset-based fees” charged by Nationwide for recordkeeping and administrative services, “and to prevent Nationwide from charging those excessive fees in the future.”

Federal Rule of Civil Procedure 23(a) says to obtain class certification, the putative class must establish four prerequisites: (1) the class is so numerous that the joined of all members is impractical; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the respective parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.

Two classes are described in the suit. The first is a plaintiff class of all participant-directed individual 401(k) plan accounts during the class period that have total plan assets of less than $10 million, paid Nationwide for recordkeeping and other administrative services through Nationwide’s Retirement Flexible Advantage Retirement Plans Program; and paid recordkeeping and administrative service fees to Nationwide in excess of $64 per participant.

The original suit called out the employer for potentially breaching the Employee Retirement Income Security Act (ERISA) by willingly entering into an arrangement with Nationwide, but it did not actually name the plan sponsor, law firm Andrus Wagstaff PC, as a defendant. However, upon the court’s order, a second amended complaint was filed naming the law firm as a defendant.

There is a defendant class proposed to be represented by Andrus Wagstaff. It is described as all sponsors of participant-directed individual 401(k) plan accounts during the class period that have total plan assets of less than $10 million, entered into program agreements with Nationwide for recordkeeping and other administrative services through Nationwide’s Retirement Flexible Advantage Retirement Plans Program; and paid recordkeeping and administrative service fees to Nationwide in excess of $64 per participant.

The plaintiff contended that “a juridical link exists among the defendant class members.” She pointed out that a juridical link may exist where contractual agreements bind the defendant class “in certain crucial respects,” and where “the legality of certain provisions of those agreements is at issue in the case.” She also said all members of the proposed defendant class are “subject to a common rule or practice, namely ERISA’s prohibition against paying excessive fees for administrative services.”

But, Chief U.S. District Judge Edmund A. Sargus, Jr. of the U.S. District Court for the Southern District of Ohio found the defendant class members do not share a judicial link and the plaintiff does not have standing to sue each individual plaintiff. He said the plaintiff’s alleged injury—excessive fees—is not traceable to a specific provision of the shared contract. In addition, she presented no evidence to suggest that the defendants in the class acted in concert when investing the terms of their proposed plan agreements.

As for the plaintiff class, Nationwide contended that because the named plaintiff has no standing to sue a class of defendants that have in no way injured her, her class allegations on behalf of plans “to which she is a complete stranger” also fail. Sargus agreed with the defendants. Sargus first noted that he previously decided Nationwide could not adequately protect the plaintiff’s employer in its absence and that the law firm is an indispensable party to the lawsuit. That is why it ordered an amended complaint naming Andrus Wagstaff PC as a defendant.

Sargus also said the plaintiff can only assert an action against Nationwide and her plan sponsor. In addition, each of the 250,000 putative class members can only assert causes of action against Nationwide and their own plan sponsors.

Sargus’ opinion is here.