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Rogers v. Baxter International Inc.

March 22, 2006


The opinion of the court was delivered by: Judge Joan B. Gottschall

Magistrate Judge Nan R. Nolan


Plaintiff David E. Rogers ("Rogers") brings this putative class action suit against Baxter International, Inc. ("Baxter," "the company") and certain of its officials and employees (collectively, "the defendants") for breach of fiduciary duty under the Employee Retirement Income Security Act ("ERISA"). Rogers alleges that the defendants wrongfully allowed participants to invest their retirement funds in Baxter common stock when they knew, or should have known, that the stock's value was inflated. Before the court is Rogers' motion for class certification. For the reasons explained below, the motion is granted in part and denied in part.


Baxter is a corporation that manufactures and distributes healthcare products. At all times relevant to this suit, Baxter sponsored a 401(k) plan ("the Plan") that allowed its employees to invest their retirement savings in one or more Plan-selected funds. Among the investment options was the Baxter Common Stock Fund, which consisted almost entirely of Baxter common stock.

In July 2002, the price of Baxter stock dropped after the company announced that it would not meet its financial projections. Rogers alleges that Baxter fell short of its public predictions because many of its divisions were performing poorly and experiencing serious difficulties. Rogers further claims that, although the defendants knew or should have known about these problems, the defendants failed to protect Plan participants and continued to include the Baxter Common Stock Fund as an investment alternative.

In July 2004, the stock's price dropped again, after Baxter announced that, due to allegedly improper accounting methods used in connection with its Brazilian operations, the company intended to restate several years' worth of financial statements. Again, Rogers alleges that the defendants knew or should have known that Baxter stock was overvalued but failed to take any steps to protect the Plan participants.

Rogers claims that the defendants' actions in connection with the 2002 and 2004 events breached a variety of ERISA-imposed fiduciary duties. Specifically, the complaint alleges that the defendants breached their fiduciary duties by failing to act solely in the interests of the Plan's participants; failing to disclose material facts to the participants; failing to manage the Plan's assets with care, skill, and prudence; continuing to permit participants to invest in Baxter common stock; and failing to appoint, inform, monitor, and supervise those in charge of managing the Plan.

Each of the complaint's five Claims*fn1 seeks both monetary damages under ERISA section 502(a)(2) and equitable relief under ERISA section 502(a)(3). Rogers purports to bring suit on behalf of all current and former Plan participants for whose individual accounts the Plan held shares of the Baxter Common Stock Fund at any time from January 1, 2001 to the present.


Fed. R. Civ. P. 23(a) allows for certification when: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative 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. Fed. R. Civ. P. 23(a). In addition to meeting all of Rule 23(a)'s requirements, a proposed class also must satisfy the requirements of at least one of Rule 23(b)'s three subsections. The burden is on the putative class representative to demonstrate that all of the requirements for class certification are satisfied. Retired Chicago Police Ass'n v. City of Chicago, 7 F.3d 584, 596 (7th Cir. 1993).

Courts have broad discretion in deciding whether to certify class actions. See, e.g., Keele v. Wexler, 149 F.3d 589, 592 (7th Cir. 1998). In general, however, Rule 23's requirements are to be applied liberally, particularly in early stages of litigation. See, e.g., Contract Buyers League v. F & F Inv., 48 F.R.D. 7, 14 (N.D. Ill. 1969) ("[T]he earlier the stage of the proceeding, the more liberally should the court construe the applicability of Rule 23."); 3 Alba Conte & Herbert B. Newberg, Newberg on Class Actions § 7:17 (4th ed. 2002) ("[B]ecause Rule 23 itself requires that the court make a class determination 'as soon as practicable' and permits the court to alter or amend its order before the decision on the merits, many presumptions are fairly invoked to aid the court in reaching an early determination. Since Rule 23 is generally required to be liberally construed, these presumptions, arising at an early stage of the litigation, are invoked for the most part in favor of upholding the class.").

Doubts about whether to grant certification generally are resolved in favor of certification. See, e.g., Rankin v. Rots, 220 F.R.D. 511, 517 (E.D. Mich. 2004) ("[W]hen in doubt as to whether to certify a class action, the district court should err in favor of allowing a class.") (citing Eisenberg v. Gagnon, 766 F.2d 770, 785 (3d Cir. 1985)); In re Vitamins Antitrust Litigation, 209 F.R.D. 251, 258 (D.D.C. 2002) ("[C]courts tend to favor class certification when in doubt."); Savino v. Computer Credit, Inc., 173 F.R.D. 346, 351 (E.D.N.Y. 1997) (Rule 23 should be given a broad rather than restrictive interpretation by the court so as to favor maintenance of class actions); Buford v. H & R Block, Inc., 168 F.R.D. 340, 346 (S.D. Ga. 1996)("Doubts regarding the propriety of class certification should be resolved in favor of certification.") aff'd, 117 F.3d 1433 (11th Cir. 1997); see also 3 Newberg, supra, § 9:46 ("Broad flexibility to modify an initial class ruling is built into Rule 23, so that courts have concluded that when any doubt exists concerning the propriety of class certification, it should be resolved in favor of upholding the class.").


A. Rule 23(a)

As noted above, Rule 23(a) consists of four requirements: (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy. The court concludes that the proposed class meets all four requirements.

1. Numerosity

The defendants concede that the proposed class meets the numerosity requirement. The court likewise finds that the requirement is met. While the exact number of participants who invested in the Baxter Common Stock Fund during the class period presently is not known, there is every reason to believe that the class will consist of hundreds and perhaps thousands. According to plaintiffs, in 2002, approximately 19,000 employees participated in the Plan. If just five percent of the participants invested in the Baxter Common Stock Fund, the class would include nearly 1,000 members. Pl.'s Mot. for Class Cert., at 6-7. This is more than sufficient to meet Rule 23(a)'s numerosity requirement.

2. Commonality

The threshold for commonality is not high. Forbush v. J.C. Penney Co., 994 F.2d 1101, 1106 (5th Cir. 1990). "A common nucleus of operative fact is usually enough to satisfy the commonality requirement of Rule 23(a)(2)." Rosario v. Livaditis, 963 F.2d 1013, 1018 (7th Cir. 1992). "[T]here need only be a single issue [of law or fact] common to all members of the class." Gomez v. Illinois State Bd. of Educ., 117 F.R.D. 394, 399 (N.D. Ill. 1987) (quoting Edmondson v. Simon, 86 F.R.D. 375, 380 (N.D. Ill. 1980)).

Rogers identifies several common questions, including: (1) whether defendants were plan fiduciaries; (2) whether the defendants breached one or more fiduciary duties by continuing to offer the Baxter Common Stock Fund as a Plan investment option when they knew or should have known that the stock was overvalued; and (3) whether the alleged breaches of fiduciary duty resulted in damage to the Plan. Pl.'s Mot. for Class Cert., at 7. The defendants concede -- and the court agrees -- that the proposed class meets the commonality requirement.

3. Typicality

The typicality requirement is met if the named plaintiff's claim "arises from the same event or practice or course of conduct that gives rise to the claims of other class members and his or her claims are based on the same legal theory." Keele, 149 F.3d 589, 595 (7th Cir. 1998) (internal quotation marks and citation omitted); see also Gaspar v. Linvatec Corp., 167 F.R.D. 51, 57 (N.D. Ill. 1996) ("Typical does not mean identical, and the typicality requirement is liberally construed.").

Rogers' claims are based on the same legal theory as that of the putative class -- viz., breach of fiduciary duty -- and his claims arise from the same course of conduct as that of the other class members: the defendants' alleged failure prudently to manage the Plan's assets and their failure to disclose critical information to Plan participants about Baxter's true financial condition.

Defendants vigorously contest Rogers' typicality on several grounds.*fn2 First, defendants contend that Rogers pursued a unique investment strategy of trading into and out of the Baxter Common Stock Fund throughout the class period, which allowed him at certain points to realize net gains. Def.'s Resp., at 11-12, 16. This, defendants argue, leaves Rogers vulnerable to the unique defense that, in his own case, Baxter stock in fact was a prudent investment.

It is not clear why defendants regard this as a defense that might apply uniquely to Rogers. Indeed, defendants elsewhere argue that the question of whether each class member actually lost money by investing in the Baxter Common Stock Fund (and thus whether the investment was an imprudent investment for him or her) is one that applies to all class members' claims. See Def.'s Resp. at 12. Moreover, even if the defense were unique to Rogers, it would not follow that his claims are atypical. Rather, typicality is destroyed only when a unique defense becomes such a focus of litigation that it will "consume the merits" of the case. See, e.g., In re Synthroid Marketing Litigation, 188 F.R.D. 287, 291 (N.D. Ill. 1999) (citations omitted); Gaspar, 167 F.R.D. at 58. Nothing in the litigation thus far suggests that questions about Rogers' investment strategy or about the extent of his losses will overshadow litigation of the case's merits. See, e.g., In re Louisiana-Pacific Corp., No. Civ. 02-1023-K1, 2003 WL 23537936, at *5 (D. Or. Jan. 24, 2003) (differences in representative's investment practices, including diversification, risk tolerance, access to information, and investment experience, did not prevent him from representing class); cf. In re Ikon Office Solutions, Inc., 191 F.R.D. 457, 465-66 (E.D. Pa. 2000) (plaintiffs who may have been subject to the unique defense that they held their stock even after learning of defendants' fraudulent activity were not atypical since "the focus of this inquiry is whether the named representatives rely on a similar legal theory as will the putative class, not whether the parties behaved identically in response to the alleged breaches of fiduciary duty").

Second, defendants argue that Rogers' claim is atypical because in order to prevail at trial, he will be required to show that the defendants made material misrepresentations to the class members. Def.'s Resp., at 14. The materiality of a statement, they argue, must be assessed in relation to the "total mix" of information available to investors. Id. (citing Ballone v. Eastman Kodak Co., 109 F.3d 117, 125-26 (2d Cir. 1997)). During his deposition, Rogers testified that he did not rely on Summary Plan Descriptions (SPDs), and that he instead consulted a variety of other information sources. As a result, defendants argue, Rogers' claims are not typical because they will require individualized proof as to whether the ...

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