Jacobs v. Verizon Communications Inc.

Background

Melina N. Jacobs brought a proposed class action under the Employee Retirement Income Security Act of 1974 (ERISA). She alleged that Verizon Communications Inc., Verizon Investment Management Corp., the Verizon Employee Benefits Committee, and individual committee members breached their duties by failing to properly monitor and take corrective action regarding the Global Opportunity Fund, an investment option in the Verizon Savings Plan for Management Employees.

Jacobs was a former Verizon employee and participant in the Plan. She invested part of her retirement savings in the Verizon 2040 Target Date Fund. Because that fund included the Global Opportunity Fund, part of her investment was automatically allocated to the Global Opportunity Fund. Jacobs alleged that the Global Opportunity Fund consistently performed poorly, ranked near the bottom of comparable funds and the Plan’s investment options, and had the highest expense ratio among the Plan’s investment choices. The defendants removed the fund as a Plan investment option in 2017.

The complaint originally asserted three fiduciary-duty claims. In a 2017 order, the Court granted the defendants’ motion to dismiss claims concerning the target-date funds and compensation disclosures, but denied dismissal of Jacobs’s claim that the defendants failed to prudently monitor the Global Opportunity Fund and take corrective action. The class-certification motion concerned that remaining claim.

Report and Recommendation

The Court had referred the class-certification motion to Magistrate Judge Lehrburger. Judge Lehrburger recommended granting class certification and appointing class counsel. The defendants specifically objected to the recommendation’s conclusion that Jacobs had constitutional standing. They did not object to the recommendation’s findings on the other class-certification requirements or appointment of counsel. Judge Gardephe reviewed the standing issue independently and reviewed the remaining recommendations for clear error.

Standing

Constitutional standing requires an injury that is concrete and particularized, caused by the challenged conduct, and likely to be redressed by a favorable decision. The defendants argued that Jacobs did not invest directly in the Global Opportunity Fund, that her target-date-fund claims had already been dismissed, and that she had not shown an actual injury.

The Court rejected those arguments at the class-certification stage. It explained that diminished investment returns compared with available alternatives, as well as excessive fees, can constitute a concrete financial injury under ERISA. Jacobs alleged that the Global Opportunity Fund’s persistent underperformance and high fees reduced the Plan’s investment returns and that the defendants’ failure to monitor the fund and take corrective action caused those losses. The Court also concluded that the indirect nature of Jacobs’s investment through a target-date fund did not prevent her from alleging an injury. The Court found that Jacobs had adequately alleged personal injury and therefore had constitutional standing. It also agreed that she had statutory standing under ERISA, and noted that Judge Lehrburger had not reached Jacobs’s alternative argument for derivative standing on behalf of the Plan.

Class Certification

Federal Rule of Civil Procedure 23 requires a proposed class to satisfy requirements including numerosity, common questions, typical claims, and adequate representation. The class must also fit within one of Rule 23’s additional categories. Jacobs sought certification under Rule 23(b)(1), which applies when separate individual lawsuits could affect or impair the interests of other class members.

The Court found no clear error in Judge Lehrburger’s conclusions that the proposed class satisfied these requirements. The proposed class included tens of thousands of participants and possibly more than 200,000 participants, making individual joinder impractical. The class members shared legal and factual questions concerning the alleged mismanagement of the Global Opportunity Fund, and Jacobs’s claims were typical because the alleged mismanagement and resulting injury formed the basis of the claims of all class members.

The Court also found that the class was ascertainable, meaning that membership could be determined using objective and definite criteria. The proposed class period ran from April 1, 2010, through August 2016, when the defendants removed the fund as an investment option. The Court agreed that the proposed start and end dates were supported by the record.

The defendants challenged Jacobs’s adequacy as class representative based on her limited knowledge about some facts and her reliance on counsel. The Court agreed with Judge Lehrburger that Jacobs knew the fundamental aspects of the case and had shown considerable interest and engagement in the litigation. The Court therefore found no clear error in the conclusion that she was an adequate representative.

The Court certified this class:

All participants or beneficiaries of the Verizon Savings Plan for Management Employees for the period from April 1, 2010 to August 1, 2016, excluding the defendants, other VIMCO or Verizon employees with responsibility for the Plan’s investment or administrative functions, and members of the Verizon Board of Directors, who had any portion of their accounts invested directly in the Global Opportunity Fund or indirectly through any of the Verizon Target Date Funds.

Appointment of Counsel

Rule 23 requires the court to consider counsel’s work investigating the claims, experience with class actions and related litigation, knowledge of the applicable law, and resources available to represent the class. The Court agreed with Judge Lehrburger that these factors supported appointing Schneider Wallace Cottrell Konecky Wotkyns LLP, Edgar Law Firm LLC, and Glancy Prongay & Murray LLP as class co-counsel.

Disposition

Judge Gardephe adopted the Report and Recommendation in its entirety. The Court granted Jacobs’s motion for class certification and appointment of counsel and directed the Clerk of Court to terminate the motion.