Unreliable securities for retirement income security: Certifying the ERISA stock-drop class

Vanderbilt Law Review

Volumn 64, Issue 1, 2011, Pages 301-348

  Fromme, Lauren N ^a  

^a NONE

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EID: 79952918506     PISSN: 00422533     EISSN: None     Source Type: Journal    
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References (302)

1. Declaration of Catherine Stevens in Support of Plaintiffs' Motion for Class Certification H 6, at 2, In re Enron Corp. Sec, Derivative & ERISA Litig., No. H 01-CV-3913 (S.D. Tex. June 7, 2006) [hereinafter Declaration of Catherine Stevens], available at http://external.hbsslaw.com/Enron/courtdoc-en- cstevensdecl.pdf.
2. Id.
3. See Andrea Coombes, Retirements in Peril: US System Full of Holes, DOW JONES NEWS SERVICE, Sept. 21, 2009, available at http://www.marketwatch.com/ story/retirements-in-peril-us-system-is-full-of-holes-2009-09-21 (arguing that the recent economic recovery has not reached retirement savings, which lost "40% or more in the downturn")
4. Editorial, From Here to Retirement, N.Y. TIMES, Jan. 26, 2009, at A22 ("So far, the cumulative wipe-out of household retirement savings totals about $2 trillion, and no one believes that the downturn is anywhere near over.")
5. Robert Powell, Retirement-Plan Recovery Still Far Off, DOW JONES NEWS SERVICE, Aug. 5, 2009, available at http://www.marketwatch.com/story/retirement- plan-recovery-still-far-off-2009-08-04 (citing a 16.4 percent decline in defined-contribution account holdings since 2007).
6. See Paul J. Lim, Don't Paint Nest Eggs in Company Colors, N.Y. TIMES, Mar. 30, 2008, at BU5 (explaining the risk associated with investing in employer stock, but noting that "nearly two of every five 401(k) participants" at the end of 2008 "were putting 20 percent of their money or more into employer stock")
7. see also Employers Begin to Reinstate 401(k) Matches as Economy Shows Signs of Improvement, MANAGING 401(K) PLANS, Jan. 2010 (reporting data that twenty-seven percent of companies that had suspended matches said that they have reinstated then-matches, or plan to reinstate in 2010).
8. See Mark Gimein, Don't Count on Your 401(k), WASH. POST, May 17, 2009, at G01 ("We're already witnessing the beginning of [this] catastrophe now ⋯.").
9. Employee Retirement Income Security Act (ERISA) of 1974, 29 U.S.C. §§ 1001-1461 (2006).
10. See Jerry Crimmins, Worker, Retiree Class Actions Surge: Report, CHI. DAILY L. BULL., Jan. 29, 2009, at 1, available at 2009 WLNR 22565321( "Class-action litigation over workplace retirement plans surged in 2008 both in filings and settlements as workers struggled to recoup 401(k) losses ⋯."). Many legal scholars have also predicted that the Supreme Court's 2008 decision in LaRue v. DeWolf is likely to increase the number of stock-drop lawsuits brought as class actions.
11. See, e.g., Meredith Z. Maresca, ERISA Practitioner Says LaRue Will Give Rise to Misrepresentation Claims in Lower Courts, 35 Pens. & Ben. Daily (BNA) 2305 (Oct. 7, 2008) (noting likely "surge of litigation in lower federal courts" after LaRue)
12. More Participant Claims Expected in Wake of LaRue Rule, MANAGING 401(K) PLANS, Apr. 2008 (explaining that the LaRue decision expands the scope of participants who may bring suit under ERISA section 502(a)(2)).
13. See Mertens v. Hewitt Assocs., 508 U.S. 248, 262 (1993) (explaining that ERISA is "an enormously complex and detailed statute that resolved innumerable disputes between powerful competing interests-not all in favor of potential plaintiffs").
14. Declaration of Catherine Stevens, supra note 1.
15. See Mark Casciari & Ian Morrison, Should the Securities Exchange Act be the Sole Federal Remedy for an ERISA Fiduciary Misrepresentation of the Value of Public Employer Stock?, 39 J. MARSHALL L. REV. 637, 637 (2006) (arguing that "ERISA does not provide an additional remedy" for misrepresentations or nondisclosures)
16. Craig C. Martin & Elizabeth L. Fine, ERISA Stock Drop Cases: An Evolving Standard, 38 J. MARSHALL L. REV. 889, 889-90, 912-18 (2005) (examining parallel and divergent factual bases and standards of liability under each regime)
17. Susan J. Stabile, I Believed My Employer and Didn't Sell My Company Stock: Is There an ERISA (or '34 Act) Remedy For Me?, 36 CONN. L. REV. 385, 388-89, 423-24 (2004) (investigating overlap of ERISA and securities laws and urging caution in allowing a cause of action for behavior that arguably constitutes a violation of both).
18. See Varity Corp. v. Howe, 516 U.S. 489, 510-15 (1996) (expanding the ERISA duty of loyalty to include nondisclosure and misrepresentation claims).
19. SEC Rule 10b-5 provides: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, To employ any device, scheme, or artifice to defraud To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b-5 (2010).
20. Casciari & Morrison, supra note 10, at 637.
21. Declaration of Catherine Stevens, supra note 1.
22. See Rogers v. Baxter Int'l, Inc., 521 F.3d 702, 704 (7th Cir. 2008) (Easterbrook, C.J.) ( "ERISA is a different statute, in a different title of the United States Code. Plaintiffs seek to use ERISA to recover for events that as a result of PSLRA could not support an action on behalf of shareholders at large."). Despite clear indications that courts will continue, in practice, to recognize ERISA misrepresentation and nondisclosure claims, many scholars argue that ERISA should not provide a separate remedy to the extent that it overlaps and even conflicts with securities laws
23. See, e.g., Casciari & Morrison, supra note 10, at 637 ("[F]or misrepresentation claims ⋯ the exclusive and appropriate federal remedy ⋯ should be the one provided by Congress under the federal Securities Exchange Act. In attempting to assert such claims under ERISA, the plaintiffs' bar is simply attempting to extract duplicative recovery and attorneys' fees, to the ultimate detriment of plan participants."). While this may inform the analysis of the scope of ERISA fiduciary duties, I recognize here only that ERISA misrepresentation claims exist. I will not attempt to argue whether they should exist.
24. For a more comprehensive overview of the substantive and procedural differences between ERISA stock-drop suits and securities law claims, see Clovis Trevino Bravo, ERISA Misrepresentation and Nondisclosure Claims: Securities Litigation under the Guise of ERISA?, 26 HOFSTRALAB. & EMP. L.J. 497, 501-27 (2009).
25. 15 U.S.C. § 78u-4(b)(l), (2), (3)(B) (2006).
26. Compare 15 U.S.C. § 78u-4(b)(l), (2), (4) (2006) (providing that a complaint must "state with particularity" all facts establishing the misleading statements and omissions and required state of mind), and Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 323-24 (2007) ("Congress did not merely require plaintiffs to 'provide a factual basis for their allegations,' i.e., to allege facts from which an inference of scienter rationally could be drawn. Instead, Congress required plaintiffs to plead with particularity facts that give rise to a "strong"-i.e., a powerful or cogent-inference."), with FED. R. ClV. P. 9(b) ("In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.").
27. Rogers, 521 F.3d at 704.
28. In re Dynergy Inc. ERISA Litig., 309 F. Supp. 2d 861, 867 (S.D. Tex. 2004) ("ERISA does not have heightened pleading requirements."); In re Enron Corp. Sec., Derivative & ERISA Litig., 284 F. Supp. 2d 511, 625 (S.D. Tex. 2003) ("ERISA does not even have heightened pleading requirements, but it is subject to ⋯ notice pleading.")
29. see also Ashcroft v. Iqbal, 129 S. Ct. 1937, 1953 (2009) (confirming the Twombly plausibility standard for FED. R. ClV. P. 8(a)).
30. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976).
31. James v. Pirelli Armstrong Tire Corp., 305 F.3d 439, 449, 452 (6th Cir. 2002).
32. Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 155 (1972) (providing that damages for violations of section 10b-5 are to be measured by the difference between the value of what the seller received for the shares and the fair market value of the shares at the time of the sale).
33. ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2) (2006).
34. See SEC Rule 10b-5, 17 C.F.R. § 240.10b-5 (2010) ("It shall be unlawful for any person, directly or indirectly ⋯.").
35. ERISA § 409(a).
36. Varity Corp. v. Howe, 516 U.S. 489, 500 (1996) (specifying that fiduciary status is a necessary element for an ERISA claim).
37. See infra Part III.l and accompanying notes.
38. See Bravo, supra note 16, at 498 (concluding that "the substantial overlap and potential conflict between the two actions warrants substantive clarification and procedural harmonization to prevent plaintiffs' lawyers from using ERISA to evade the protections that the federal securities laws provide against abusive litigation").
39. These settlements can be costly. See, e.g., Court Gives Final OK to $70.5M Settlement Ending ERISA Stock-Drop Claims Against Tyco, MANAGING 401(K) PLANS, Jan. 2010 (noting a $70.5 million settlement after seven years of litigation).
40. See Jones v. NovaStar Fin., Inc., 257 F.R.D. 181, 190 (W.D. Mo. 2009) ("The question on whether plaintiffs must individually show reliance on [section) 502(a)(2) communications claims-and, thus, whether class treatment is appropriate-has not been settled by the courts.").
41. Basic, Inc. v. Levinson, 485 U.S. 224, 243 (1988) ("Reliance provides the requisite causal connection between a defendant's misrepresentation and a plaintiffs injury.").
42. Id. at 242 ("Requiring proof of individualized reliance from each member of the proposed plaintiff class effectively would have prevented respondents from proceeding with a class action, since individual issues then would have overwhelmed the common ones."). This aspect of Rule 23(b)(3) is often called "the predominance requirement." See, e.g., Malack v. BDO Seidman, LLP, No. 09-4475, 2010 U.S. App. LEXIS 17090, at *2 (3d Cir. Aug. 16, 2010) (noting "predominance requirement of Rule 23(b)(3)").
43. Id. at 243-44, 248-50; see, e.g., Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-42 (2005) (noting basic elements of action under 10b-5).
44. See, e.g., Brieger v. Tellabs, Inc., 245 F.R.D. 345, 353-54 (N.D. 111. 2007) (certifying the class, finding that "[t]he Seventh Circuit has never expressly held that detrimental reliance is an element of an ERISA breach of fiduciary duty claim").
45. See infra Part III.A.3 (explaining the causation element for ERISA misrepresentation claims).
46. See, e.g., George v. Kraft Foods Global, Inc., 251 F.R.D. 338, 348 (N.D. 111. 2008) ("[T]he issue of individual detrimental reliance is irrelevant to class certification in an ERISA action under Section 502(a)(2) or (3).").
47. See, e.g., In re Cardinal Health ERISA Litig., 424 F. Supp. 2d 1002, 1046 (S.D. Ohio 2006) (disposing reliance question by deferring determination on sufficiency until after discovery)
48. In re Tyco Int'l, Ltd., MDL No.02-1335-PB, 2006 U.S. Dist. LEXIS 58278, at 23-28 (D.N.H. Aug. 15, 2006) (importing concepts of reliance from the securities fraud context where "[d]efendants have not cited, and [the court has] not located, a decision" refusing to apply such concepts in ERISA litigation)
49. In re AEP ERISA Litig., 327 F. Supp. 2d 812, 833 (S.D. Ohio 2004) (finding sufficient reliance in plain articulation of presumption in pleadings).
50. Rogers v. Baxter Int'l, Inc., 521 F.3d 702, 704 (7th Cir. 2008) ("ERISA is a different statute, in a different title of the United States Code.").
51. Tibbie v. Edison Int'l, No. CV 07-5359 SVW, 2009 U.S. Dist. LEXIS 120939, at *10-13 (CD. Cal., June 30, 2009)
52. In re Merck & Co., MDL No. 1658 (SRC), 2009 U.S. Dist. LEXIS 10243, at *15-21 (D.N.J. Feb. 9, 2009)
53. In re RadioShack ERISA Litig., 547 F. Supp. 2d 606, 616 (N.D. Tex. 2008)
54. In re Schering-Plough Corp. ERISA Litig., No. 03-1204, 2008 U.S. Dist. LEXIS 89718, at *34-37 (D.N.J. Jan. 31, 2008)
55. Lively v. Dynegy, Inc., No. 05-cv-00063-MJR, 2007 U.S. Dist. LEXIS 14794, at *55-56 (S.D. 111. Mar. 2, 2007); In re Elec. Data Sys. Corp. ERISA Litig., 224 F.R.D. 613, 630 (E.D. Tex. 2004).
56. See Deborah S. Davidson & Julia Y. Trankiem, Employer "Stock Drop" Litigation Under ERISA 1-2 (Nov. 17, 2009) (paper presented at ABA Joint Committee on Employee Benefits 19th Annual National Institute on ERISA Litigation, Chicago, 111.), available at http://new.abanet.org/calendar/19th- Annual-National-Institute-on-ERISA-Litigation/MeetingMaterials/I-StockDropPaper. pdf (explaining "the basic allegations of an ERISA stock drop lawsuit" based on the 200 that have been filed largely in the last five to six years).
57. See, e.g., Consolidated Class Action Complaint for Violations of the Employee Retirement Income Security Act 1 569, In re Delphi Corp. Sec, Derivative & "ERISA" Litig., 458 F. Supp. 2d 455 (E.D. Mich. 2006) (MDL No. 1725) ('The Director Defendants breached their duty to inform and disclose by failing to provide to the other fiduciaries of the Plan complete and accurate information regarding the true financial condition of the company and the risks of investing Delphi stock, when they knew, as described above, that the Company was engaging in accounting irregularities which artificially inflated the value of Delphi stock and rendered the stock an unsuitable retirement investment for the Plan.").
58. This is often called the "prudence claim." See Davidson & Trankiem, supra note 41 (identifying the "prudence claim" as one of two substantive claims that the basic allegations of a stock-drop lawsuit usually comprise).
59. This is often called the "misrepresentation/omission claim." See Davidson & Trankiem, supra note 41 (identifying the " misrepresentation/omission claim" as one of two substantive claims that the basic allegations of a stock-drop lawsuit usually comprise).
60. See ERISA § 102(a), 29 U.S.C. § 1022(a) (2006) ("A summary plan description of any employee benefit plan shall be furnished to participants and beneficiaries as provided in section 1024(b) of this title. The summary plan description shall include the information described in subsection (b), shall be written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.").
61. See In re Computer Scis. Corp. ERISA Litig., 635 F. Supp. 2d 1128, 1143 (CD. Cal. 2009) (providing that plaintiffs must show that "there was a fiduciary breach and that but for the breach, the [pjlan's assets would have been greater").
62. See ERISA § 3(34) ('The term 'individual account plan' or 'defined-contribution plan' means a pension plan which provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant's account.").
63. See Davidson & Trankiem, supra note 41 (identifying fiduciaries' misleading of participants through deceptive company communications as a theme of stock-drop lawsuit allegations).
64. See Jones v. NovaStar Fin., Inc., 257 F.R.D. 181, 190 (W.D. Mo. 2009) (collecting cases) (The question of whether plaintiffs must individually show reliance on [section] 502(a)(2) communications claims-and, thus, whether class treatment is appropriate-has not been settled by the courts.").
65. See, e.g., Craig C. Martin & Elizabeth L. Fine, ERISA Stock Drop Cases: An Evolving Standard, 38 J. MARSHALL L. REV. 889, 889-90 (comparing standards of liability for securities fraud and ERISA stock-drop litigation, and discussing the implications of the differences between the two) (2005)
66. Craig C. Martin, Matthew J. Renaud & Omar R. Akbar, What's Up on Stock-Drops? Moench Revisited, 39 J. MARSHALL L. REV. 605, 606 (2006) ('This article addresses the confusion regarding fiduciary duties engendered by ERISA stock-drop litigation ⋯.")
67. Stabile, supra note 10, at 388 (addressing whether "current ERISA case law allow for a claim of breach of fiduciary duty based on misrepresentations and nondisclosures concerning the value of a company and the prospects of its stock")
68. See, e.g., Brieger v. Tellabs, Inc., 245 F.R.D. 345, 353-354 (N.D. 111. 2007) (explaining that information was disseminated "through 'town hall' meetings, internal blast e-mail updates, and newsletters")
69. Declaration of Gary Scott Dreadin in Support of Plaintiffs' Motion for Class Certification at 2, Tittle v. Enron Corp., No. H-01-9313, 2008 U.S. Dist. LEXIS 68578 (S.D. Tex. Aug. 29, 2008) [hereinafter Declaration of Gary Scott Dreadin], available at http://external.hbsslaw.com/Enron/courtdoc-en- dreadindecl.pdf ("Enron management also used the Company's internal email network to assure the employees concerning the financial health of the company.").
70. See U.S. Parole Comm'n v. Geraghty, 445 U.S. 388, 402-03 (1980) ("The justifications that led to the development of the class action include ⋯the facilitation of the spreading of litigation costs among numerous litigants with similar claims.") (citing FED. R. Crv. P. 23 advisory committee's notes)
71. Deposit Guar. Nat'l Bank v. Roper, 445 U.S. 326, 339 (1980) ("Where it is not economically feasible to obtain relief within the traditional framework of a multiplicity of small individual suits for damages, aggrieved persons may be without any effective redress unless they may employ the class-action device.")
72. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 809 (1985) ("Class actions also may permit the plaintiffs to pool claims which would be uneconomical to litigate individually⋯. [TJhis lawsuit involves claims averaging about $100 per plaintiff; most of the plaintiffs would have no realistic day in court if a class action were not available.").
73. The "high variance" associated with class-action litigation stems from the possibility of having one enormous, aggregate verdict, as opposed to seeing losses spread out across multiple courts in multiple jurisdictions
74. See In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293, 1299 (7th Cir. 1995) (Posner, J.) (noting the concern "with forcing the[ ] defendants to stake their companies on the outcome of a single jury trial, or be forced by fear of the risk of bankruptcy to settle even if they have no legal liability"). Under Posner's theory, defendants would rather settle than risk bankruptcy from that large, aggregate verdict, no matter how small the chance of the verdict is. Id. As some scholars have noted, however, whether this "settlement pressure" is a bad thing is still up for debate, and may depend on why the variance exists. RICHARD A. NAGAREDA, THE LAW OF CLASS ACTIONS AND OTHER AGGREGATE LITIGATION 61-63 (2009).
75. See NAGAREDA, supra note 53 (highlighting the risks of a single, aggregate verdict).
76. See Taylor v. Sturgell, 553 U.S. 880, 884 (2008) (listing class actions as a mechanism for precluding future claims).
77. ERISA § 2(a), 29 U.S.C. § 1001(a) (2006).
78. Donovan v. Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir. 1982) (citing RESTATEMENT (SECOND) OF TRUSTS § 2 cmt. b (1959))
79. See also Kuper v. Iovenko, 66 F.3d 1447, 1453 (6th Cir. 1988) ("Such a result would clearly contravene ERISA's imposition of a fiduciary duty that has been characterized as 'the highest known to law.' ") (quoting Sommers Drug Stores Co. Emp. Profit Sharing Trust v. Corrigan Enters., Inc., 793 F.2d 1456, 1468 (5th Cir. 1986)).
80. See, e.g., Brown v. J.B. Hunt Transp. Servs., Inc., 586 F.3d 1079, 1086 (8th Cir. 2009) ("ERISA is remedial legislation and should be liberally construed ⋯.") (citing Starr v. Metro Sys., Inc., 461 F.3d 1036, 1040 (8th Cir. 2006)).
81. ERISA § 404(a).
82. itf. § 404(a)(1)(A).
83. Id. § 404(a)(1)(B).
84. Id. § 404(a)(1)(D).
85. Id. § 404(a)(1)(C). This diversification requirement does not apply to the holding of employer stock in eligible individual account plans (EIAPs), or defined-contribution accounts, which are the subject of misrepresentation suits. Id. § 404(a)(2).
86. Mertens v. Hewitt Assocs., 508 U.S. 248, 251-52 (1993) (explaining the high standards for fiduciaries under ERISA and its remedial and "comprehensive" aims).
87. 516 U.S. 489, 497 (1996).
88. Id. (finding that courts may consider "Congress' desire to offer employees enhanced protection for their benefits, on the one hand, and, on the other, its desire not to create a system that is so complex that administrative costs, or litigation expenses, unduly discourage employers from offering welfare benefit plans in the first place").
89. See ERISA § 4 (defining the scope of employer-sponsored benefits to which ERISA applies, but not requiring employers to sponsor such plans).
90. Id. §2(a).
91. S. REP. NO. 93-383, at 1069 (1973) ("At the same time, the committee recognized that private retirement plans are voluntary on the part of the employer, and, therefore, it has carefully weighed the additional costs to the employer and minimized them to the extent consistent with minimum standards for retirement benefits.")
92. see also H.R. REP. No. 93-533, at 2348-49 (1973) (identifying as a goal of ERISA the promotion of "a renewed expansion of private retirement plans and increase [in] the number of participants receiving private retirement benefits").
93. See infra notes 76-84 and accompanying text.
94. ERISA § 409(a) ("Any person who is a fiduciary with respect to a plan ⋯shall be personally liable to make good to such plan any losses to the plan resulting from each [fiduciary] breach, and to restore to such plan any profits of such fiduciary which have been made through the use of assets of the plan by the fiduciary ⋯.").
95. 7d.§ 502(a).
96. Davidson & Trankiem, supra note 41, at 30.
97. LaRue v. DeWolff, Boberg & Assocs., 552 U.S. 248, 253 (2008).
98. See Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 140 (1985) (finding that the representative nature of a section 502(a)(2) claim is "supported by the text of [section] 409, by the statutory provisions defining the duties of a fiduciary, and by the provisions defining the rights of a beneficiary").
99. 473 U.S. 134 (1985).
100. 552 U.S. 248 (2008).
101. Russell, 473 U.S. at 136-37.
102. Id. at 140-42.
103. LaRue, 552 U.S. at 256.
104. Id. (finding that section 502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries).
105. Id.; see also id. at 262 (Thomas, J., concurring) ('The allocation of a plan's assets to individual accounts for bookkeeping purposes does not change the fact that all the assets in the plan remain plan assets.")
106. Tullis v. UMB Bank, 515 F.3d 673, 680 (6th Cir. 2008) (finding that any assets recovered from the defendant under section 502(a)(2) "would first be paid into the plan, then allocated to [the plaintiffs'] individual accounts").
107. LaRue, 552 U.S. at 254 (quoting Russell, 473 U.S. at 140 n.8).
108. Id.
109. See H.R. REP. No. 104-369, at 31 (1995) (Conf. Rep.), reprinted in 1995 U.S.C.CA.N. 730, 730 (noting that the PSLRA was an attempt to curb "the abuse of the discovery process to impose costs so burdensome that it is often economical for the victimized party to settle")
110. Richard A. Posner, An Economic Approach to Legal Procedure and Judicial Administration, 2 J. LEGAL STUD. 399, 418 (1973) (stating that an increase in the parties' costs of litigation relative to their settlement costs will reduce the likelihood of litigation).
111. See Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L. REV. 97, 99 (2009) ("With vanishingly rare exception, class certification sets the litigation on a path toward resolution by way of settlement ⋯. In terms of their real-world impact, class settlements can be quite significant, potentially involving dollar sums in the hundreds of millions or requiring substantial restructuring of the defendant's operations.").
112. Gen. Tel. Co. v. Falcon, 457 U.S. 147, 155, 159 (1982)
113. 1 WILLIAM B. RUBENSTEIN, ALBA CONTE & HERBERT B. NEWBERG, NEWBERG ON CLASS ACTIONS § 1:6 (4th ed. 2010) [hereinafter NEWBERG] (explaining the objectives of the class-action device).
114. See supra note 52 and accompanying text.
115. Falcon, 457 U.S. at 155 (quoting Califano v. Yamasaki, 442 U.S. 682, 701 (1979)).
116. See Deposit Guar. Nat'l Bank v. Roper, 445 U.S. 326, 339 (1980) ("The aggregation of individual claims in the context of a classwide [sic] suit is an evolutionary response to the existence of injuries unremedied by the regulatory action of government.")
117. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 809 (1985) ("As commentators have noted, from the plaintiffs' point of view a class action resembles a 'quasi-administrative proceeding, conducted by the judge.'").
118. See Taylor v. Sturgell, 553 U.S. 880, 884 (2008) (citing Hansberry v. Lee, 311 U.S. 32, 40 (1940)) ("It is a principle of general application in Anglo-American jurisprudence that one is not bound by a judgment in personam in a litigation in which he is not designated as a party or to which he has not been made a party by service of process.").
119. See FED. R. ClV. P. 23(a)-(b) (outlining the prerequisites and requirements for class certification).
120. FED. R. Civ. P. 23(a)(1) ("[T]he class is so numerous that joinder of all members is impracticable."). Numerosity is not typically challenged in ERISA stock-drop cases, as there are usually several plaintiffs scattered across the nation challenging the defendant's conduct.
121. FED. R. Civ. P. 23(a)(2) ("[T]here are questions of law or fact common to the class.").
122. FED. R. Civ. P. 23(a)(3) ("[T]he claims or defenses of the representative parties are typical of the claims or defenses of the class.").
123. FED. R. ClV. P. 23(a)(4) ("[T]he representative parties will fairly and adequately protect the interests of the class.").
124. Gen. Tel. Co. v. Falcon, 457 U.S. 147, 159 n.13 (1982).
125. NEWBERG, supra note 87, § 3:10
126. see also RICHARD A. NAGAREDA, THE LAW OF CLASS ACTIONS AND OTHER AGGREGATE LITIGATION 73-75 (2009) (describing the commonality and typicality analysis in Falcon and explaining "minimal commonality").
127. NEWBERG, supra note 87, § 3:10
128. see also NAGAREDA, supra note 98, 73-75 (2009).
129. NEWBERG, supra note 87, § 3:13.
130. 133 F.3d 388, 399 (6th Cir. 1998).
131. Falcon, 457 U.S. at 158 n.13 (explaining that both commonality and typicality serve as guideposts for assuring that "the class claims are so interrelated that the interests of the class members will be fairly and adequately protected in their absence").
132. Id.
133. See, e.g., Sprague, 133 F.3d at 399.
134. See FED. R. Civ. P. 23(b).
135. NEWBERG, supra note 87, §§ 4:3, 4:11.
136. Professor Richard A. Nagareda, Complex Litigation Lecture, Vanderbilt University Law School (Spring 2010).
137. See FED. R. Crv. P. 23(b)(1)(B) (providing that a class action may be maintained when separate actions could result in a determination which "as a practical matter, would be dispositive of the interests of the other [class] members ⋯ or would substantially impair or impede their ability to protect their interests"). Examples of this type of class action provided by the Advisory Committee Notes include: "an action by policy holders against a fraternal benefit association attacking a financial reorganization of the society"; "an action by shareholders to compel the declaration of a dividend"; and "an action by a creditor to set aside a fraudulent conveyance ⋯ when the debtor's assets are insufficient to pay all creditors' claims." FED. R. ClV. P. 23(b)(1)(B) advisory committee's note. See Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999), for a fuller explanation of the limited fund doctrine generally.
138. NEWBERG, supra note 87, §§ 4:4, 4:11. no. id.
139. See id. §4:21.
140. FED. R. CIV. P. 23(b)(3).
141. 4 ALAN R. BROMBERG & LEWIS D. LOWENFELS, BROMBERG & LOWENFELS ON SECURITIES FRAUD AND COMMODITIES FRAUD § 7:462 (2d ed. 2010) (discussing the relationship of Rule 10b-5 to the class-action device).
142. Id. § 7:457 (citing Basic, Inc. v. Levinson, 485 U.S. 224 (1988)).
143. Id.
144. See, e.g., In re Schering Plough Corp. ERISA Litig., 589 F.3d 585, 604 (3d Cir. 2009) ("In light of the derivative nature of ERISA [section] 502(a)(2) claims, breach iduciary duty claims brought under [section] 502(a)(2) are paradigmatic examples of claims appropriate for certification as a Rule 23(b)(1) class, as numerous courts have held.")
145. Hochstadt v. Boston Sci. Corp., No. 08-12139-DPW, 2010 U.S. Dist. LEXIS 41007, at *27-30 (D. Mass. Apr. 27, 2010) (same).
146. Schering Plough, 589 F.3d at 604; Hochstadt, No. 08-12139-DPW, 2010 U.S. Dist. LEXIS 41007, at *27-30.
147. Schering Plough, 589 F.3d at 604; Hochstadt, No. 08-12139-DPW, 2010 U.S. Dist. LEXIS 41007, at *27-30.
148. See, e.g., In re Fremont Gen. Corp. Litig., No. 2:07-cv-02693-JHN-FFMx, 2010 U.S. Dist. LEXIS 85175 (CD. Cal. Apr. 15, 2010), at *12-20 ("Because [under LaRue] usual preclusion rules would not appear to adversely affect an individual's ability to bring his or her own claims in the event that another individual's claim is defeated, class certification under Rule 23(b)(1)(B) is unnecessary to protect the interests of unnamed class members.")
149. In re First Am. Corp. ERISA Litig., 258 F.R.D. 610, 621-22 (CD. Cal. 2009) (finding that neither certification under 23(b)(1)(A) nor under 23(b)(1)(B) was appropriate for claims under ERISA section 502(a)(2) because of the Supreme Court's decision in LaRue)
150. In re Computer Scis. Corp. ERISA Litig., No. CV 08-02398 SJO (JWJx), 2008 U.S. Dist. LEXIS 109027, at *8 (CD. Cal. Sept. 2, 2008) (finding certification under 23(b)(1)(B) to be inappropriate in light of LaRue).
151. First Am. Corp., 258 F.R.D. at 622 ("Here, the Plan Participants primarily seek monetary damages; damages to the Plan, and demands that the First American Defendants make the Plan whole, are the primary focus of this action.").
152. Mark A. Perry & Paul Blankenstein, The Inapplicability of Rule 23(b)(1) to ERISA Class Actions, 6 Workplace L. Rep. (BNA) 1571, 1575 (Dec. 5, 2008), available at http://www. gibsondunn.com/publications/Documents/Perry- Blankenship-ERISAClassActions.pdf ("LaRue confirms that most claims for breach of fiduciary duty under ERISA, brought by participants in 401(k) and other defined contribution plans seeking monetary relief, cannot be certified as mandatory class actions under Rule 23(b)(1)(B). Rather, such claimants must satisfy the more rigorous requirements, and the more robust protections, of Rule 23(b)(3) before their claims can proceed on a class basis.").
153. See In re Elec. Data Sys. ERISA Litig., 224 F.R.D. 613, 629-30 (E.D. Tex. 2004) (refusing to certify an ERISA section 502(a)(2) claim under Rule 23(b)(3) because of individualized issues of reliance).
154. See, e.g., In re Merck & Co., MDL No. 1658, 2009 U.S. Dist. LEXIS 10243, *15-21 (D.N.J. Feb. 9, 2009) (certifying the prudence claim under Rule 23(b)(1), but refusing to certify the communication claim under any of the three subsections because of problems of individualized reliance).
155. Steven Serajeddini, Note, Loss Causation and Class Certification, 108 MICH. L. REV. 255, 257 (2009).
156. Id. at 258; see supra Part II.B (analyzing securities fraud claims under the class certification standard).
157. In re Cardinal Health, Inc. ERISA Litig., 424 F. Supp. 2d 1002, 1045 (S.D. Ohio 2006).
158. See RESTATEMENT (THIRD) OF TRUSTS Introductory Note (2003) (explaining that "an executor, guardian, agent, or corporate officer or director is a fiduciary" simply by virtue of her title).
159. Richard L. Kaplan, Nicholas J. Powers, & Jordan Zucker, Retirees at Risk: The Precarious Promise of Post-Employment Health Benefits, 9 YALE J. HEALTH PoVY, L. & ETHICS, 287, 302 (2009).
160. 530 U.S. 211(2000).
161. Id. at 224.
162. Id. (citing Varity Corp. v. Howe, 516 U.S. 489, 497 (1996))
163. see also ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A) (2006) (providing a functional definition of fiduciary status).
164. See 17 C.F.R. § 240.10b-5 (2010) (specifying that any defrauding party may be liable under Rule 10b-5)
165. 15 U.S.C. § 78t(a) (creating control person liability for "[e]very person who directly or indirectly, controls any person liable ⋯.")
166. id. § 17t(e) (creating liability for an aidor or abettor, which is "any person that knowingly provides substantial assistance to another person in violation of a provision of this title, or of any rule or regulation issued under this title").
167. See Bravo, supra note 16, at 501.
168. Varity, 516 U.S. at 505 (finding that a fiduciary is not liable under ERISA "simply because it made statements about its expected financial condition" or "because an ordinary business decision turned out to have an adverse effect on the plan").
169. Davidson & Trankiem, supra note 41, at 22
170. But see In re Lehman Bros. Sec. & ERISA Litig., 683 F. Supp. 2d 294, 300 (S.D.N.Y. 2010) ("[PJlaintiffs contend that the Director Defendants are functional fiduciaries because they made or approved inaccurate statements in Lehman's SEC filings, which were incorporated into the Plan documents. The flaw in this argument, however, is that there is no basis for the assumption that the Director Defendants acted in an ERISA fiduciary capacity when making these statements.").
171. Under ERISA section 402(a), the Summary Plan Description ("SPD") is the primary mandatory disclosure mechanism for benefit plan fiduciaries. It requires that fiduciaries disclose basic information, which is "sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan."
172. Beverly Cohen, Divided Loyalties: How the MetLife v. Glenn Standard Discounts ERISA Fiduciaries' Conflicts of Interest, 2009 UTAH L. REV. 955, 956.
173. Id.
174. Kuper v. Iovenko, 66 F.3d 1447, 1458 (6th Cir. 1988) (quoting Berlin v. Mich. Bell Tel. Co., 858 F.2d 1154, 1162 (6th Cir. 1988))
175. see also Stabile, supra note 10, at 397 ("Executives in many of the companies now being sued were paid quite lavishly by their employers, and also held a lot of company stock in their own portfolios. Thus, they had personal interest in the company continuing to be perceived as a strong investment⋯ [creating] a very divided interest.").
176. Fisher v. Phila. Elec. Co., 96 F.3d 1533, 1538 (3d Cir. 1996) (noting also that the materiality of a representation is a mixed question of law and
177. Nelson v. Hodowal, 512 F.3d 347, 350 (7th Cir. 2008).
178. Varity Corp. v. Howe, 516 U.S. 489, 506 (quoting Peoria Union Stock Yards Co. v. Penn Mut. Life Ins. Co., 698 F.2d 320, 326 (7th Cir. 1983)).
179. Stabile, supra note 10, at 392.
180. Trevino, supra note 16, at 511 ("A more difficult duty question arises when the fiduciary remains silent about a material fact that a reasonable plan participant would need to know to protect his interest in the plan.").
181. See, e.g., Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 84 (1995) (explaining that Congress did not intend to supplement ERISA's reporting and disclosure scheme "by a faraway provision in another part of [ERISA.]").
182. See Stabile, supra note 10, at 399 ("In part, this reflects a concern with protecting an employer's legitimate business objectives and a feeling that it is inappropriate for the court to interfere with business decisions by requiring disclosures to participants.").
183. Amended Brief of the Secretary of Labor, Elaine L. Chao, As Amicus Curiae In Support of Plaintiffs-Appellants at 10, Hecker v. Deere, 569 F.3d 708 (7th Cir. Apr. 4, 2008) (No. 06-C-719-S) ("ERISA's duties of prudence and loyalty not only forbid fiduciaries from misleading plan participants, but may, under some circumstances, also require fiduciaries to disclose information that participants need to protect their interests, even if the disclosure is not specifically requested or otherwise mandated in ERISA's reporting and disclosure provisions.").
184. See, e.g., In re Computer Scis. Corp. ERISA Litig., 635 F. Supp. 2d 1128, 1132 (explaining the plaintiffs' cause of action for the defendants' failure to disclose "backdating and other imprudent mismanagement").
185. See Edward A. Zelinsky, The Defined-Contribution Paradigm, 114 YALE L.J. 451, 455-69 (2004) (outlining the differences between defined-contribution and defined benefit plans).
186. Id. at 512.
187. Id. at 457.
188. See, e.g., In re Schering Plough Corp. ERISA Litig., 420 F.3d 231, 234 (3d Cir. 2009) (describing a plan where plan participants had fourteen options in their defined-contribution account, with a cash employer contribution).
189. Id. at 233.
190. See LaRue v. DeWolff, Boberg & Assocs., 552 U.S. 248, 255 (2008) ("Defined-contribution plans dominate the retirement plan scene today.")
191. see also Craig C. Martin, Matthew J. Renaud, & Douglas A. Sondgeroth, Baby Ka-Boom! Coming Developments in ERISA Litigation Due to Social, Demographic, and Financial Pressures from the Baby Boom Generation, 41 J. MARSHALL L. REV. 1037, 1040 (2008) (describing the factors giving rise to the shift to defined-contribution plans).
192. Zelinsky, supra note 150, at 478.
193. Id. at 473.
194. Id. at 453.
195. ERISA § 404(c), 29 U.S.C. § 1104(c) (2006).
196. 29 C.F.R. § 2550.404C-l(d)(2)(i)(E)(4)(iii) to (vi) (2008).
197. The Department of Labor's section 404(c) regulations make clear that compliance with the regulations shields the employer from liability for losses caused by the participants' exercise of control over their plan accounts, but that the employer is not relieved from its duties of prudence and loyalty. 29 C.F.R. § 2550.404C-l(b)(2)(i).
198. ERISA § 402(a).
199. LaRue v. DeWolff, Boberg & Assocs., 552 U.S. 248, 254 (2008) (quoting Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134,141 (1985)) ("[T]he crucible of congressional concern was misuse and mismanagement of plan assets by plan administrators.").
200. ERISA § 409(a) (emphasis added).
201. Varity Corp. v. Howe, 516 U.S. 489, 497 (1996) (finding that courts may consider "Congress' desire to offer employees enhanced protection for their benefits, on the one hand, and, on the other, its desire not to create a system that is so complex that administrative costs, or litigation expenses, unduly discourage employers from offering welfare benefit plan in the first place").
202. Dura Pharms., Inc. v. Brudo, 544 U.S. 336, 341 (2005).
203. Basic, Inc. v. Levinson, 485 U.S. 224, 243 (1988).
204. Dura Pharms., 544 U.S. at 341.
205. See, e.g., In re Computer Scis. Corp. ERISA Litig., 635 F. Supp. 2d 1128, 1139 (CD. Cal. 2009); Davidson & Trankiem, supra note 41, at 27-28.
206. Davidson & Trankiem, supra note 41, at 22.
207. 635 F. Supp. 2d at 1139.
208. See, e.g., Brieger v. Tellabs, Inc., 245 F.R.D. 345, 354 (N.D. 111. 2007) (explaining that information was disseminated "through 'town hall' meetings, internal blast e-mail updates, and newsletters")
209. Declaration of Gary Scott Dreadin, supra note 51, at 2 ("Enron management also used the Company's internal e-mail system to assure the employees concerning the financial health of the company.").
210. Darnigans v. Grace Capital, Inc., 889 F.2d 1237, 1241 (2d Cir. 1989) (emphasis added). 173 485 U.S. 224 (1988).
211. Id. at 243.
212. FED. R. CIV. P. 23(b)(3).
213. See supra Part II.B.
214. Basic, 485 U.S. at 245.
215. Id.
216. Id.
217. Id. at 247 ("An investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price. Because most publicly available information is reflected in market price, an investor's reliance on any public material misrepresentations, therefore, may be presumed for the purposes of a Rule 10-b5 action.").
218. No federal appellate court has addressed the issue of detrimental reliance in the context of certifying classes of ERISA stock-drop plaintiffs.
219. E.g., Jones v. NovaStar Fin., Inc. 257 F.R.D. 181, 190 (W.D. Mo. 2009); In re Aquila ERISA Litig., 237 F.R.D. 202, 208-09 (W.D. Mo. 2006).
220. See, e.g., Aquila, 237 F.R.D. at 208-09; NovaStar, 257 F.R.D at 190.
221. See, e.g., In re Merck & Co., MDL No. 1658, 2009 U.S. Dist. LEXIS 10243, at *15-21 (D.N.J. Feb. 9, 2009)
222. In re Elec. Data Sys. Corp. ERISA Litig., 224 F.R.D. 613, 629-30 (E.D. Tex. 2004).
223. See, e.g., Merck, 2009 U.S. Dist. LEXIS 10243, at *15-21; Elec. Data Sys., 224 F.R.D. at 629-30.
224. ERISA § 409(a), 29 U.S.C. § 1109(a) (2006)
225. See, e.g., Darnigans v. Grace Capital, Inc., 889 F.2d 1237, 1241 (2d Cir. 1989).
226. See supra Part III.A.3 and accompanying notes.
227. 257 F.R.D. 181, 190-92 (W.D. Mo. 2009).
228. Id. at 191.
229. Id.
230. Id.
231. Id. (citing In re Aquila ERISA Litig., 237 F.R.D. 202, 208-09 (W.D. Mo. 2006)).
232. Brieger v. Tellabs, Inc., 245 F.R.D. 345, 353-54 (N.D. 111. 2007)
233. Shirk v. Fifth Third Bancorp, No. 05-cv-049, 2009 WL 692124, at *11 (S.D. Ohio Jan 29, 2009); Aquila, 237 F.R.D. at 208-09. 195 LaRue v. DeWolff, Boberg & Assocs., 552 U.S. 248, 254 (2008) (quoting Mass. Mut. Life Ins. Co. et al. v. Russell, 473 U.S. 134, 141, 142 n.9 (1985)).
234. ERISA § 409(a), 29 U.S.C. § 1109(a) (2006)
235. see also Michael C. Joyce, Note, Setting a Standard to Rely On: ERISA Benefit Claims Where the Summary Plan Description and Plan Document Conflict, 90 IOWA L. REV. 765, 786 (2005) (examining the reliance element of a different ERISA cause of action and finding that "[i]n short, reaching a no-reliance standard seems more like a policy decision than statutory construction").
236. The fact that the causal chain here also requires the decision of plan participants to invest in the "bad fund" does not affect this but-for causal connection. Fundamentally, it is always possible to have multiple but-for causes. That does not reduce the causal force of the initial actor. 198 257 F.R.D. at 191.
237. See In re Merck & Co., MDL No. 1658, 2009 U.S. Dist. LEXIS 10243, at *15-21 (D.N.J. Feb. 9, 2009) (emphasizing that communications are made to people, not plans). In coming up with an alternative causal account in Basic, the Court noted how important it was for the defendants to be able to refute the plaintiffs' evidence of a causal connection. In this case, because it is unclear what evidence would be necessary to establish that "the plan" relied to its detriment-except, perhaps, for plan-wide communication-it is equally unclear how defendants would be able to refute this evidence.
238. ERISA §§ 409(a), 502(a)(2).
239. In re Honeywell Int'l ERISA Litig., Civ. No. 03-1214, 2004 U.S. Dist. LEXIS 21585, at *30 (D.N.J. June 14, 2004).
240. See id. (finding that the section 404(c) safe harbor provided implicit proof for the plan participants as causal intermediaries). 203 Tibbie v. Edison Int'l, No. CV 07-5359 SVW, 2009 U.S. Dist. LEXIS 120939 (CD. Cal. June 30, 2009)
241. Merck, 2009 U.S. Dist. LEXIS 10243, at *15-21
242. In re Radioshack ERISA Litig., 547 F. Supp. 2d 606 (N.D. Tex. 2008)
243. In re Shering-Plough Corp. ERISA Litig., 2008 U.S. Dist. LEXIS 89718 (D.N.J. Jan. 31, 2008)
244. Lively v. Dynegy, Inc., No. 05-cv-00063-MJR, 2007 U.S. Dist. LEXIS 14794, at 7z.ast;55-56 (S.D. 111. Mar. 2, 2007)
245. In re Elec. Data Sys. ERISA Litig., 224 F.R.D. 613, 630 (E.D. Tex. 2004).
246. This statement was verified through a Martindale search, cross-referencing the terms "ERISA" and "securities."
247. 485 U.S. 224, 243 (1988) (citing Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54 (1972)).
248. See In re Uniphase Corp. ERISA Litig., No. 03-04743 CW, 2005 U.S. Dist. LEXIS 17503, at *43 (N.D. Cal. July 13, 2005) ("[T]he participants are presumed to have relied on such misrepresentations or omissions to their detriment.")
249. see also In re Diebold ERISA Litig., No. 5:06 CV 0170, 2008 U.S. Dist. LEXIS 42746, at *36 (N.D. Ohio May 28, 2008)
250. In re Coca-Cola Enters., ERISA Litig., No. l:06-CV-0953 (TWT) 2007 U.S. Dist. LEXIS 44991 (N.D. Ga. June 19, 2007)
251. In re AEP ERISA Litig., 327 F. Supp. 2d 812, 828 (S.D. Ohio 2004); In re Cardinal Health ERISA Litig., 424 F. Supp. 2d 1002, 1046 (S.D. Ohio 2006).
252. See cases cited supra note 206.
253. In re Tyco Int'l, Ltd., No. MD-02-1335-PB, 2006 WL 2349338, at *6-7 (D.N.H. Aug. 15, 2006).
254. 401(k) News Briefs: Court Gives Final OK to $70.5M Settlement Ending ERISA Stock-drop claims Against Tyco, MANAGING 401(K) PLANS, Jan. 2010.
255. Tyco, 2006 WL 2349338, at *6-7.
256. Id.
257. Id.
258. Id.
259. See In re Elec. Data Sys. Corp. "ERISA" Litig., 224 F.R.D. 613, 629-30 (E.D. Tex. 2004) (noting that in light of Martinez v. Schlumberger, Ltd., 338 F.3d 407 (5th Cir. 2003), individual assessments of whether class members knew or should have been aware of other information minimizing the alleged misrepresentations would be required)
260. In re Merck & Co., Nos. MDL 1658 (SRC), 05-1151 (SRC), and 05-2369 (SRC), 2009 U.S. Dist. LEXIS 10243, at *15-21 (D.N.J. Feb. 9, 2009) (noting that the case law suggested the plaintiffs would be required to show individual reliance on the defendants' alleged misrepresentations).
261. See Frederick C. Dunbar & Dana Heller, Fraud on the Market Meets Behavioral Finance, 31 DEL. J. CORP. L. 455, 460-66 (describing the efficient capital markets hypothesis, the fraud on the market theory, and how "Basic v. Levinson [s]olves the [p]roblem of [r]eliance in [c]lass [certification" ).
262. Basic, Inc. v. Levinson, 485 U.S. 224, 248 (1988).
263. Dunbar & Heller, supra note 215, at 465.
264. Basic, 485 U.S. at 244 (quoting In re LTV Sec. Litig., 88 F.R.D. 134, 143 (N.D. Tex. 1980)).
265. See Dunbar & Heller, supra note 215, at 471-97 (listing some objections).
266. See Jonathan R. Macey & Geoffrey P. Miller, Good Finance, Bad Economics: An Analysis of the Fraud-On-The-Market Theory, 42 STAN. L. REV. 1059,1082-83 (1990) (noting that the evidence regarding the semi-strong form of the efficient capital markets hypothesis is sufficiently persuasive such that this form of ECMH is an accepted working assumption in financial economics research).
267. See Dunbar & Heller, supra note 215, at 523 (noting that some believe the Supreme Court accepted the fraud-on-the-market doctrine in order to make securities class action litigation more feasible, believing that class actions are necessary to deter fraud and ensure efficient revelation of information to the market).
268. The New York Stock Exchange alone has nearly 2,800 listed companies. On an average day, 1.42 billion shares valued at more than $38 billion trade on the New York Stock Exchange. New Release, N. Y. Stock Exch., New York Stock Exchange and Shanghai Stock Exchange Sign Memorandum of Understanding (Oct. 15, 2003), http://www.nyse.com/press/1066215618814.html.
269. Zelinsky, supra note 149, at 479-80 (describing the nature of defined-contribution accounts).
270. The applicability of the ECMH to the price of employer stock in defined-contribution accounts is widely accepted among the district courts
271. See, e.g., Benitez v. Humana, Inc., No. 3:08CV-211-H, 2009 U.S. Dist. LEXIS 92323, at *29 (W.D. Ky. Sept. 30, 2009) ("[0]nce the mistake was made ⋯ continuing to invest in the stock could not have caused the claimed injury. Given the efficient market hypothesis, the stock market price would have decreased whenever the information about Humana's errors in its earnings guidance was released.").
272. See ERISA § 104(b), 29 U.S.C. § 1024(b) (2006) (providing the procedures by which the summary plan description and annual report should be published and made available to plan participants and beneficiaries).
273. Susan J. Stabile, The Behavior of Defined Contribution Plan Participants, 77 N.Y.U. L. REV. 71, 87 (2002) (citing Mark Kelman et al., Context-Dependence in Legal Decisionmaking, 25 J. LEGAL STUD. 287 (1996)).
274. Id. Moral philosophers and philosophers of mathematics and science have also long held that our choices may be guided primarily by our more immediate and past sensual perceptions, which are necessarily dependent on the context in which those perceptions arise. Hume, for example, writes that "[t]he chief spring or actuating principle of the human mind is pleasure or pain; and when these sensations are remov'd, both from our thought and feeling, we are, in a great measure, incapable of⋯volition." DAVID HUME, A TREATISE OF HUMAN NATURE 574 (P.H. Nidditch ed., Oxford Univ. Press 1978) (1888). In fact, Hume observed that even the principle of causation arises within the context of our perception of "constant conjunction"-which is when one thing is always coupled with another.
275. See id. at 82-83. Kant likewise theorized that we cannot know "things in themselves," but that experience is necessarily relational-a combination of perception and pure understanding.
276. See IMMANUEL KANT, PROLEGOMENA TO ANY FUTURE METAPHYSICS 46-47 (Gary Hatfield ed. & trans., Cambridge Univ. Press, rev. ed. 2004) (1783).
277. See Susan J. Stabile, Another Look at 401(k) Plan Investments In Employer Securities, 35 J. MARSHALL L. REV. 539, 547 (2002) (noting empirical demonstration of this theory).
278. Id. at 547 n.34 (quoting Amos Tversky & Itamar Simonson, Context-Dependent Preferences, 39 MGMT. SCI. 1179, 1187 (1993)).
279. Shlomo Benartzi & Richard H. Thaler, How Much is Investor Autonomy Worth?, 57 J. FIN. 1593, 1608-10 (2002), available at http://faculty. chicagobooth.edu/richard.thaler/research/pdf/Autonomy.pdf.
280. See Mark Kelman, Yuval Rottenstreich & Amos Tversky, Context-Dependence in Legal Decision Making, 25 J. LEGAL STUD. 287, 288 (1996) (explaining options in a limited set as subject to "compromise effects" or "contrast effects").
281. See Stabile, supra note 228, at 546-48 (explaining the findings of a study by the Employee Benefits Research Institute, which indicate that the quality and quantity of options available affect plan participant decisionmaking).
282. JEFFREY R. BROWN & SCOTT J. WEISBENNER, NATX BUREAU OF ECON. RESEARCH RETIREMENT RESEARCH CTR., 401(K) INVESTMENT OPTIONS, PORTFOLIO CHOICE AND RETIREMENT WEALTH 4 (2005), http://www.nber.org/programs/ag/rrc/NB05- 03%Brown%Final.pdf.
283. In fact, (although it is very rare) some 401(k) plans actually do.
284. See, e.g., Jon Christensen, When a Smorgasbord Replaces a Diet Plate in a 401(h), N.Y. TIMES, Feb. 22, 1998, § 3, at 1 (giving the example American Stores Company, whose 401(k) plan offers 137 choices).
285. Shlomo Benartzi, Richard H. Thaler, Stephen P. Utkus & Cass R. Sunstein, The Law and Economics of Company Stock in 401(k) Plans, 50 J.L. & ECON. 45 (2007).
286. Id. at 56; see also Stabile, supra note 228, at 547-52.
287. Stabile, supra note 228, at 548.
288. Benartzi et al., supra note 235, at 50-52; see also Stabile, supra note 226, at 80-86.
289. See Klay v. Humana, Inc., 382 F.3d 1241, 1259 (11th Cir. 2004) (noting that while each plaintiff must prove his own reliance, class action certification is still appropriate because the circumstantial evidence that can be used to show reliance is common to the whole class).
290. No. 06-cv-743-DRH, 2008 U.S. Dist. LEXIS 74924, at *19 (Sept. 29, 2008). 241. See supra notes 228-40 and accompanying text.
291. Dunbar & Heller, supra note 215, at 457.
292. A final, alternative solution would simply be to allow for class certification under the "certify now, ask questions later" standard of Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974), as adopted by some circuits in the context of RICO claims.
293. See, e.g., Loeb Indus., Inc. v. Sumitomo Corp., 306 F.3d 469, 480 (7th Cir. 2002) (noting that Eisen indicates a court should not refuse to certify a class on the ground that it thinks the class will eventually lose on the merits). This solution would be justified under the theory that merits determinations are inappropriate at the class certification stage, and that the Rule 23 standards are liberal given its efficiency goals. With the settlement pressure and importance associated with class certification, however, especially in the context of ERISA stock-drop actions, certifying now and asking questions later is a risky and high stakes endeavor. As the Supreme Court explained in General Telephone Company of the Southwest v. Falcon, "it may be necessary for a court to probe behind the pleadings before coming to rest on the class certification question." 457 U.S. 147, 160 (1982). "[A]ctual, not presumed, conformance with Rule 23(a) remains ⋯indispensable," and a court must perform a "rigorous analysis" before deciding that class certification is appropriate. Id. at 160-61. 244 LaRue v. DeWolff, Boberg & Assocs., 552 U.S. 248, 253 (2008).
294. Id.
295. Id. at 256.
296. See id. at 255-56 (noting that in the context of defined contribution plans section 502(a)(2) allows recovery for fiduciary breaches that impair the value of plan assets in individual accounts).
297. Id. at 256.
298. Id. at 254-56. 250 See Tullis v. UMB Bank, 515 F.3d 673, 680 (6th Cir. 2008) (finding that any assets recovered from the defendant under section 502(a)(2) "would first be paid into the plan[] then allocated to [the plaintiffs'] individual accounts").
299. LaRue, 552 U.S. at 262 (Thomas, J., concurring in judgment).
300. Id.; see also Tullis, 515 F.3d at 680 ("[A]ny assets recovered from the defendant would first be paid into the plans then allocated to [plaintiffs! individual accounts, and ultimately paid to [plaintiffs] in the form of benefits.").
301. Sprague, 133 F.3d at 399.
302. See Richard A. Nagareda, Common Answers for Class Certification, 63 VAND. L. REV. EN BANC 149, 154 (2010) ("Properly understood, class certification does not turn upon the mere raising of common questions by way of expert submissions or any other form of evidence. Class certification instead turns on the capacity of a unitary proceeding to yield common answers.").