Haley v. Teachers Investment and Annuity Association

Background

Melissa Haley, an employee of Washington University and a participant in its retirement savings plan, brought a proposed class action against Teachers Insurance and Annuity Association of America (TIAA). The plan is governed by the Employee Retirement Income Security Act (ERISA). Haley alleged that TIAA’s administration of participant loans involved prohibited transactions under ERISA § 406.

The opinion describes TIAA’s loan structure as requiring participants, in some circumstances, to transfer 110% of the loan amount from their plan accounts into TIAA general-account products. That transferred amount served as collateral. Participants repaid the loan, with interest, to TIAA’s general account, and TIAA retained the difference between the amounts credited to participants on the collateral and the amounts TIAA earned from its general account and the loan interest.

In earlier rulings, the court dismissed Haley’s claims that TIAA itself was an ERISA fiduciary, while allowing other claims against TIAA as a nonfiduciary to proceed. The operative complaint alleged that TIAA was liable for prohibited transactions involving the loan program. Haley later moved to certify a class and to amend the complaint and class-certification motion to add two plaintiffs and class representatives.

Class Definition and Certification Analysis

Haley proposed a class covering individual-account retirement plans governed by ERISA for which, between February 5, 2011, and the date of judgment, TIAA provided collateralized loans; TIAA required borrowers to provide collateral equal to 110% of the loan principal and invested that collateral in its general account; and specified conditions involving loan interest, credited interest, TIAA’s retention of amounts, or losses to participants or plans were present.

The court held that the proposed class satisfied Rule 23(a)’s requirements. First, the numerosity requirement was met because the evidence showed thousands of plans and potentially very large numbers of participants and loans. The court rejected TIAA’s argument that no plan or participant could satisfy the class definition, explaining that the definition could reasonably be understood to require the 110% collateral investment before TIAA provided the loan, rather than requiring a net 110% increase in TIAA’s general-account assets.

Second, commonality was satisfied because TIAA used a substantially uniform collateralized-loan program. The court identified common questions about whether the program violated ERISA §§ 406(a)(1)(B), (C), and (D), whether statutory exceptions applied, whether plans suffered losses, how losses should be calculated, and what equitable relief might be available. Although the court recognized some individualized issues, including whether particular plans suffered losses and questions about the knowledge of fiduciaries and TIAA, it found that at least one common question capable of materially advancing the case was enough.

Third, Haley’s claims were typical because they arose from the same alleged loan-program practices and involved similar legal arguments. The court rejected TIAA’s arguments that differences in loan types, amounts, and financial results made Haley atypical. Fourth, Haley was an adequate class representative because she testified that she wanted to serve, understood the responsibilities, and had devoted substantial time to the case. The court also found Berger Montague PC and Schneider Wallace Cottrell Konecky LLP qualified to serve as class counsel.

The court further held that the class was ascertainable, meaning that objective criteria provided sufficiently definite boundaries for identifying class members. The court rejected TIAA’s argument that determining whether a plan was governed by ERISA made the class definition fundamentally indefinite, while noting that TIAA’s objections could be addressed at a later stage.

Rule 23(b) Requirements

The court denied certification under Rule 23(b)(1)(A) because Haley had not shown that separate rulings for different plans would require TIAA to follow incompatible standards of conduct. Mere differences in outcomes were not enough. The court also denied certification under Rule 23(b)(1)(B) because TIAA’s status as a nonfiduciary meant that a remedy for one plan would not necessarily affect all other plans or prevent them from protecting their interests.

The court granted certification under Rule 23(b)(3). It found that numerous significant questions could be resolved with common evidence, including the operation of TIAA’s loan program, whether the program violated ERISA, whether statutory exemptions applied, whether plans suffered losses, how losses should be measured, and what equitable relief should be imposed. The court also found that a class action was superior because it could promote consistent decisions and reduce the time, effort, and expense of resolving many claims, particularly where individual losses might be too small to justify separate litigation.

Motion to Amend

Haley sought to add two plaintiffs and class representatives after learning of them in February 2020. She argued that adding them would address concerns about her adequacy as representative, including a consent or ratification defense based on a later loan and possible differences in the total amounts paid on her loans.

TIAA opposed amendment, arguing that Haley waited too long, that the amendment would cause prejudice near the end of discovery and class-certification briefing, and that Haley’s own conduct created the need for new representatives. The court found that Haley acted diligently: counsel communicated with TIAA about the new plaintiffs on March 19, 2020, and moved to amend on April 1, 2020, after TIAA declined to stipulate. The court also found that adding the plaintiffs would not cause undue prejudice because the new plaintiffs raised no new theory, their loans were materially similar, and any additional discovery would be limited.

Disposition

Judge J. Paul Oetken granted Haley’s motion for class certification under Rule 23(b)(3), with Haley as class representative and Berger Montague PC and Schneider Wallace Cottrell Konecky LLP as class counsel. The court also granted Haley’s motion to amend the complaint and class-certification motion to add two plaintiffs and class representatives. The court denied certification under Rules 23(b)(1)(A) and 23(b)(1)(B).