The opinion of the court was delivered by: J. Phil Gilbert District Judge
This matter comes before the Court on the plaintiffs' motion for class certification (Doc.
68). The plaintiffs also ask the Court to appoint plaintiffs Joseph J. Mezyk, Mary P. Mulqueeny, Doris L. Carthy, Peggy B. Raymond, Shirley Chatman, Thomas L. Pellett and Richard A. Williams as representatives of the class and to appoint Matthew H. Armstrong and David L. Steelman as class counsel. Defendants U.S. Bank Pension Plan and U.S. Bancorp, Inc. (collectively, "U.S. Bank") have responded to the motion (Doc. 76), and the plaintiffs have replied to that response (Doc. 81).*fn1 The Court held a hearing on the motion on January 25, 2011.
This matter involves provisions in the Mercantile Bancorporation Inc. ("Mercantile") Retirement Plan ("Plan"), a predecessor of the U.S. Bank Pension Plan,*fn2 that governed the transition between Mercantile's prior traditional "final average pay" defined benefit pension plan to a cash balance defined benefit pension plan on December 31, 1998. As part of the conversion from the traditional defined benefit plan to the cash balance plan, the Plan calculated the opening balance of each participant's cash balance account using a whipsaw type calculation. It first projected the annuity to which the participant would have been entitled as of December 31, 1997, under the prior plan at age 65 (the Plan's normal retirement age) using the statutory annual interest rate of 5.05%. It then discounted that sum using a discount rate of 7% for those under 45 years old. For those 45 years old and older, it added early retirement subsidy credits to the annuity calculated as of December 31, 1997, and discounted the sum using a discount rate of 8%. Finally, the Plan added to those amounts "pay credits" (calculated as a percentage of pay depending on the participant's age) and "interest credits" (calculated as a percentage of the discounted annuity amounts) for the year of 1998 to arrive at the participant's opening balance of his cash balance account as of December 31, 1998. Participants were then able to continue to receive pay credits and interest credits (calculated as a variable percentage of the cash balance account balances) annually to augment those cash balance account balances.
Under the Plan, when a participant who had participated in both the traditional final average pay defined benefit and the cash balance features of the Plan retired, he would receive the greater of (1) the value of the accrued benefit as of December 31, 1998, under the traditional final average pay defined benefit feature, (2) the actuarial equivalent of the cash balance account balance determined using a whipsaw calculation or (3) the actual balance of the cash balance account.*fn3 For those participants for whom the value of option (1) exceeded the value of options (2) and (3), the effect of the Plan amendment was to impose a "wearaway" transition, that is, a transition that guaranteed a retiring participant would receive only the accrued benefit under option
(1) unless he had received sufficient pay and interest credits to cause the option (2) or (3) benefit to exceed the value of the option (1) benefit. There would be, in effect, no further benefit accruals for such a participant until the balance tipped in favor of option (2) or (3).
On December 14, 1998, the Plan distributed notice and a new Summary Plan Description ("SPD") to participants describing the conversion from the traditional defined benefit plan to the cash balance plan. The notice informed participants that, among other things, under the cash balance plan they would immediately begin to receive "cash balance credits" and "interest credits."
The plaintiffs in this case, all former employees of Mercantile, were Plan participants and were 45 years old or older at the time of conversion. Thus, the Plan applied the deeper discount rate to them when it calculated the opening balances of their cash balance accounts. Subsequently, plaintiffs Mezyk, Mulqueeny, Pellett, Williams, Sunder and Jarodsky retired and elected to take their benefits in the form of a lump sum, while plaintiffs Carthy, Raymond and Chatman retired and elected to take their benefits in the form of an annuity. All of the retirements occurred between June 2000 and December 2002.
In this lawsuit, filed May 21, 2009, the plaintiffs claim the Plan failed to give adequate notice of a plan amendment that significantly reduces the rate of future benefit accruals as required by the version of § 204(h) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1054(h), that was effective at the time of conversion (Count I, the "notice claim"). They also claim the SPD distributed with the notice provided a misleading and inaccurate description of certain Plan terms, in violation of the version of § 102 of ERISA, 29 U.S.C. § 1022, that was effective at the time of conversion (Count II, the "SPD claim"). The plaintiffs also claim the Plan committed a breach of contract when it assign an opening cash balance amount less than the actuarial present value of the prior plan balance (Count III, the "anti-cutback claim").*fn4
Alternatively to Counts I through III, the plaintiffs claim they are entitled to benefits under § 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B), that they did not receive in their retirement distributions as a result of the allegedly improper notice and opening cash balance account balance calculations (Count IV).
In addition, the plaintiffs claim the application of a higher discount rate to participants 45 years old and older, and the calculation of additional credits based on their wrongfully calculated opening balances, violated the prohibition on a cessation or reduction in the rate at which an employee accrues benefits on account of age as set forth in § 204(b)(1)(H)(i) of ERISA, 29 U.S.C. § 1054(b)(1)(H)(i) (Count V, the "age discrimination claim"). Finally, and alternatively to Count V, the plaintiffs claim they are entitled to benefits under § 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B), that they did not receive in their retirement distributions as a result of the allegedly improper conversion formula (Count VI).
With respect to Counts I, II and V, the plaintiffs seek relief consisting of a declaration that the challenged Plan provisions and practices are illegal and, with respect to Counts I and II, that the Plan amendments were void ab initio. With respect to Count III, they seek damages for breach of contract. For Counts I through III and Count V, they seek an order requiring reformation of the offending Plan provisions and practices, requiring recalculation of pension benefits in accordance with ERISA, and creating a common fund equal to the amount of those benefits. With respect to Counts IV and VI, the plaintiffs seek a judgment in the amount of the additional benefits due and the creation of a common fund equal to the amount of those benefits.
The plaintiffs asked the Court to certify this case as a class action and to define two classes as follows:
Class 1 (for Counts I through IV): All current and vested former U.S. Bank Pension Plan participants, and their beneficiaries, who accrued benefits prior to January 1, 1999, and who had active cash balance accounts on and after January 1, 1999.
Class 2 (for Counts V and VI): All current and vested former U.S. Bank Pension Plan participants age 45 and older as of January 1, 1999, and their beneficiaries, who accrued benefits prior to January 1, 1999, and who had active cash balance accounts on and after January 1, 1999.
U.S. Bank agrees that class certification is appropriate for Count III, the anti-cutback claim, and Count IV, the claim for benefits under the anti-cutback theory. It objects, however, to certification of Counts I and II, the notice and SPD claims, because it believes there are intra-class conflicts such that the named plaintiffs cannot serve as adequate class representatives. Some participants, they argue, received a larger retirement benefit under the cash balance plan than they would have received under the prior plan and would not want to see the Plan amendments declared void ab initio. It also opposes certification of Count V, the age discrimination claim, and Count VI, the claim for benefits under the age discrimination theory, on the grounds that, should the plaintiffs prevail, they would actually receive a smaller retirement benefit than they did. They believe that application of the 8% discount rate along with early retirement subsidies and mortality assumptions actually yielded a higher opening cash balance account balance than application of the 7% discount rate without the subsidies and with different mortality assumptions.
The Court approaches this case cognizant of the decision of the Court of Appeals for the Eighth Circuit in Sunder v. U.S. Bancorp Pension Plan, 586 F.3d 593 (8th Cir. 2009). In Sunder, Edward W. Sunder III and Louis R. Jarodsky, who were plaintiffs in this case and situated similarly in relevant respects to named plaintiffs Mezyk, Mulqueeny, Pellett and Williams, sued over the same Plan conversion at issue in this case. Sunder, 586 F.3d at 595. Sunder and Jarodsky brought an anti-cutback claim substantively identical to the one in the case at bar and an anti-discrimination claim based on the disparate impact of the time value of money, that is, that younger participants generally have more years for interest to accrue on their notional cash balances than older participants. Id. at 598. On appeal, the Sunder court rejected Sunder and Jarodsky's anti-cutback argument, holding that the discount rate the Plan used to calculate the opening balance of a participant's cash balance account was not excessive as long as the participant received at least the actuarial equivalent of his accrued benefit under the prior plan-calculated using the Internal Revenue Code § 417(e)(3) discount rate-when he or she received the final lump-sum distribution. Id. at 600-03. The Sunder court also found that Sunder and Jarodsky had waived an anti-discrimination argument based on the higher discount rates applied on conversion to participants 45 years old and older by failing to raise it at the trial court level. Id. at 603.
A principal purpose of class certification is to save the resources of both the courts and the parties by permitting an issue potentially affecting every class member to be litigated in an economical manner. See General Tel. Co. of S.W. v. Falcon, 457 U.S. 147, 155 (1982). The Court may certify a class if it satisfies all four provisions of Federal Rule of Civil Procedure 23(a), at least one provision of Rule 23(b) and the implied prerequisites that a class be ascertainable and that the class representatives be within the class. It is the moving party's burden to establish that each of the prerequisites of Rule 23 are satisfied. General Tel. Co. of S.W. v. Falcon, 457 U.S. 147, 161 (1982); Oshana v. Coca-Cola Co., 472 F.3d 506, 513 (7th Cir. 2006). A plaintiff's failure to satisfy any of the Rule 23 requirements precludes class certification. Retired Chicago Police Ass'n v. City of Chicago, 7 F.3d 584, 596 (7th Cir. 1993) (citing Harriston v. Chicago Tribune Co., 992 F.2d 697, 703 (7th Cir. 1993)).
Generally, when ruling on a motion for class certification, the Court does not consider the merits of the case; rather, the Court focuses on whether the certification requirements are satisfied. See Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 178 (1974). "'[T]he question is not whether the plaintiff or plaintiffs have stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met.'" Id. (quoting Miller v. Mackey Int'l, Inc., 452 F.2d 424 (5th Cir. 1971)). Thus, the Court's role in the action currently under review is to "determine whether the plaintiff[s are] asserting a claim which, assuming its merits, would satisfy the requirements of Rule 23." See H. Newberg, 8 Newberg on Class Actions, § 24.13 (3d ed. 1992).
Nonetheless, the determination of a class certification motion may involve some consideration of the factual and legal issues that comprise the plaintiff's cause of action. Coopers & Lybrand v. Livesay, 437 U.S. 463, 469 (1978). While the Court may not consider arguments directly on the merits, it may make a preliminary inquiry into the merits of the action when necessary to determine whether the requirements for class certification have been met. Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 676-77 (7th Cir. 2001). For example, it may take into account the substantive elements of a plaintiff's claims and the proof necessary to those elements so as to envision the form trial on those issues would take. Elliott v. ITT Corp., 150 F.R.D. 569, 573 (N.D. Ill. 1992) (citing Simer v. Rios, 661 F.2d 655, 672 (7th Cir. 1981)).
The Court must rigorously assess whether the prerequisites have been met, see Falcon, 457 U.S. at 161, and, if the party seeking class certification meets each of them, the Court must certify the proposed class, see Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 130 S. Ct. 1431, 1437 (2010) (noting "a categorical rule entitling a plaintiff whose suit meets the specified criteria [of Rule 23] to pursue his claim as a class action"); Vickers v. Trainor, 546 F.2d 739, 747 (7th Cir. 1976); Fujishima v. Board of Educ., 460 F.2d 1355, 1360 (7th Cir. 1972). The Court has broad discretion to determine whether a proposed class satisfies the requirements, Keele v. Wexler, 149 F.3d 589, 592 (7th Cir. 1998); Patterson v. General Motors Corp., 631 F.2d 476, 480 (7th Cir. 1980), and should err in favor of maintaining class actions, King v. Kansas City S. Indus., Inc., 519 F.2d 20, 26 (7th Cir. 1975).
Before the Court can address the issues raised by Rule 23, the moving party must satisfy two implied prerequisites of Rule 23. The first is that the class is sufficiently defined so as to be identifiable as a class. Oshana v. Coca-Cola Co., 472 F.3d 506, 513 (7th Cir. 2006); Simer v. Rios, 661 F.2d 655, 669 (7th Cir. 1981) ("It is axiomatic that for a class action to be certified a 'class' must exist."); Alliance to End Repression v. Rochford, 565 F.2d 975, 977 (7th Cir. 1977); Duffin v. Excelon, No. CIV A 06 C 1382, 2007 WL 845336 at *3 ...