ORDER DENYING PLAINTIFFS' MOTION TO CORRECT TLIC EXCESSIVE FEE CLASS DEFINITION

[Dkt. No. 391]

DEAN D. PREGERSON, District Judge.

Presently before the Court is Plaintiffs' Motion to Correct TLIC Excessive Fee Class Definition. (Dkt. No. 391.) After hearing oral argument and considering the parties' submissions, the Court adopts the following Order.

I. BACKGROUND

The facts of this case are well-known to the parties and the Court. The Court adopts in full the background section of the previous class certification order. (Dkt. No. 393.) This Order addresses the last class Plaintiffs seek to certify, the TLIC Excessive Fee class. At the previous class certification motion hearing, Plaintiffs withdrew their proposed definition of this particular class because of an error counsel had found with the definition. (Mot. Correct Definition of Class ("Mot.") at 1.) The Court ordered counsel to confer regarding correcting the definition, but because they were unable to agree on a procedure for doing so, Plaintiffs filed this Motion. (Id.)

II. LEGAL STANDARD

The party seeking class certification bears the burden of showing that each of the four requirements of Rule 23(a) and at least one of the requirements of Rule 23(b) are met. See Meyer v. Portfolio Recovery Assocs., LLC, 707 F.3d 1036, 1041 (9th Cir. 2012); Hanon v. Dataprods. Corp., 976 F.2d 497, 508-09 (9th Cir. 1992). In determining whether to certify a class, a court must conduct a "rigorous analysis" to determine whether the party seeking certification has met the prerequisites of Rule 23 of the Federal Rules of Civil Procedure. Valentino v. Carter-Wallace, Inc., 97 F.3d 1227, 1233 (9th Cir. 1996). Rule 23(a) sets forth four prerequisites for class certification:

Fed. R. Civ. P. 23(a); see also Hanon, 976 F.2d at 508. These four requirements are often referred to as the numerosity, commonality, typicality, and adequacy requirements. See General Tel. Co. v. Falcon, 457 U.S. 147, 156 (1982).

In determining the propriety of a class action, the question is not whether the plaintiff has stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 178 (1974). The court, therefore, considers the merits of the underlying claim to the extent that the merits overlap with the Rule 23(a) requirements, but does not conduct a "mini-trial" or determine at this stage whether the plaintiff could actually prevail. Ellis v. Costco Wholesale Corp., 657 F.3d 970, 981, 983 n.8 (9th Cir. 2011); see also Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2551-52 (2011).

Rule 23(b) defines different types of classes. Leyva v. Medline Indus. Inc., 716 F.3d 510, 512 (9th Cir. 2012). Relevant here, Rule 23(b)(3) requires that "questions of law or fact common to class members predominate over individual questions . . . and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed. R. Civ. P. 23(b)(3).

III. DISCUSSION

Plaintiffs propose a corrected class definition for its TLIC Excessive Fee Class:

(Mot. at 1-2 (paragraphing added).) According to Plaintiffs, this corrected class definition only changed the previous definition by adding "both collected and" (underlined and bolded above). (Id. at 2.) Thus, Plaintiffs claim that all previous arguments in the second class certification motion's papers still apply and are incorporated into this motion. (Id. at 1-3.)

The essential mathematical formula for determining whether a plan falls into the class definition is "the difference between (i) the total fees TLIC collected from the plan and (ii) the reasonable fees for the services provided to the plan," aggregated over the time the plan contracted with TLIC. (Id. at 1.) According to Plaintiffs, "[i]f a positive number results from the formula, a plan is included in the `TLIC Excessive Fee Class' because TLIC's `total fee' — taking into account any `subsidy' of plan-level costs with separate-account-level (i.e., investment level) fees — is excessive." (Id.) The changed language effects Plaintiffs' mathematical calculation for whether there is an excessive fee charged for a particular plan because it now credits for service fees that TLIC both waived and collected, whereas the previous calculation only credited TLIC for waived fees.

A. Rule 23(a) Requirements

1. Numerosity

Numerosity is satisfied when "the class is so numerous that joinder of all members is impracticable." Fed. R. Civ. P. 23(a)(1). Although there is no minimum number of class members below which numerosity cannot be satisfied per se, the Supreme Court has held that a class of fifteen was too small. General Tel. Co. v. EEOC, 446 U.S. 318, 330 (1980). In addition, courts have held that a class of forty or more members will generally satisfy the numerosity requirement. See EEOC v. Kovacevich "5" Farms, No. CV-F-06-165, 2007 WL 1174444, at *21 (E.D. Cal. Apr. 19, 2007); Ikonen v. Hartz Mountain Corp., 122 F.R.D. 258, 262 (S.D. Cal. 1988). In general, "`impracticability' does not mean `impossibility,' but only the difficulty or inconvenience of joining all members of the class." Harris v. Palm Springs Alpine Estates, Inc., 329 F.2d 909, 913-14 (9th Cir. 1964).

Here, Plaintiffs argue that "at least" 479 plans in addition to Plaintiff Gain Capital Group LLC 401(k) Plan are members of this class, thus satisfying numerosity. (Mot. at 4 (citing Kra Decl., Dkt. No. 391-2, ¶¶ 22, 24-27).) Plaintiffs' expert Dr. Kra based this number on an analysis of Defendants' expert Dr. Strombom's opinions and data. (Id.) Defendants do not raise any issues as to Plaintiffs' calculation. (See generally Opp'n, Dkt. No. 398; Opp'n to Second Class Cert. Mot., Dkt. No. 370.) Therefore, the Court finds that numerosity is satisfied.

2. Commonality

Commonality is satisfied if "there are questions of law or fact common to the class." Fed. R. Civ. P. 23(a)(2). However, "[t]he requirements of Rule 23(a)(2) have been construed permissively, and all questions of fact and law need not be common to satisfy the rule." Ellis v. Costco Wholesale Corp., 657 F.3d 970, 981 (9th Cir.2011) (internal quotation marks and brackets omitted). However, merely showing that there are common questions of fact is not enough; the questions must be ones that will "generate common answers apt to drive the resolution of the litigation." Dukes, 131 S. Ct. at 2551 (internal quotation omitted).

As the Court stated in the last Class Certification Order, in the ERISA context, "a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets." 29 U.S.C. § 1002(21)(A)(i). A person may also be a fiduciary if the person "has any discretionary authority or discretionary responsibility in the administration of such plan." 29 U.S.C. § 1002(21)(A)(iii). "In every case charging breach of ERISA fiduciary duty . . . the threshold question is . . . whether that person was acting as a fiduciary (that is, was performing a fiduciary function) when taking the action subject to complaint." Pegram v. Herdrich, 530 U.S. 211, 226 (2000).

The Court previously determined that TLIC's fiduciary status is a question common to the first proposed class definition. (Order, Dkt. No. 354, at 8-15.) There, the Court analyzed fiduciary duty as to Plaintiffs' charge of excessive fees as well as to other actions by TLIC, such as not investing in lowest-cost share classes and other fee collection actions. (Id.) Additionally, the Court held that there were common questions as to separate account and investment-level fees, although the Court acknowledged that commonality may be defeated by an examination of the total fees. (Id. 15-18 & n.4.) Further, the Court noted that Defendants raised a defense based on the total fees being reasonable, particularly for individual plans, but the Court held these arguments were "more properly addressed in the predominance analysis under Rule 23(b)(3)." (Id. at 18.)

The question of TLIC's fiduciary status underlies all three of Plaintiffs' classes. (See Second Mot. Certify Class, Dkt. No. 358, at 15-16.) For the TLIC Excessive Fee class here, Plaintiffs allege that the common issues to the class are whether TLIC is a fiduciary and whether the IM/Admin fees are excessive under 29 U.S.C. § 1104 (a)(1)(A), (a)(1)(A)(ii), and (a)(1)(B). (Second Mot. Certify Class, Dkt. No. 358, at 16.) The IM/Admin fees do not vary by plan, and the class is now limited to unsubsidized plans or plans that pay an excessive fee even after accounting for the subsidy. (Id.) This means, Plaintiffs argue, that there are no individualized issues. (Id.)

As noted in the previous Order, Defendants did not contest commonality in their Opposition to the Second Class Certification other than to preserve their previous objections and arguments. (Opp'n to Second Class Cert., Dkt. No. 370, at 10 n.8; Opp'n to First Class Cert., Dkt. No. 300, at 9-26.) Defendants did this based on the Court's first Class Certification Order that instead evaluated Defendants' objections and arguments under the predominance factor. (See Opp'n to Second Class Cert, Dkt. No. 370 at 10 n.8.)

The Court holds that common questions of fact and law exist among the TLIC Excessive Fee Class. Underlying this class, as with the other two certified classes, is the issue of whether TLIC acted as a fiduciary with respect to the fees. Further, the class addresses the common question of whether the plans paid excessive fees by using a standard formula to determine each plan's aggregate fees compared to TLIC's aggregate expenses as reflected by the sum of certain fees. This formula is common to the class and would resolve the same question of law. Defendants' arguments are analyzed, as before, in the following predominance analysis. Therefore, commonality is satisfied.

3. Typicality

Typicality is satisfied if "the claims or defenses of the representative parties are typical of the claims or defenses of the class." Fed. R. Civ. P. 23(a)(3). The Ninth Circuit explains the typicality requirement as revolving around a broad-based inquiry to ensure the interests of the class are the same as the interests of the named plaintiff:

Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (internal quotation marks and citations omitted).

The Court's first Order Denying Class Certification found typicality satisfied because the named Plaintiffs were not subject to the individual defenses Defendants raised, such as TLIC's post-2011 fee disclosures and that fees varied by plan size. (Order, Dkt. No. 354, at 22-23.)

In the second class certification motion, Plaintiffs argued that one of the Plaintiff plans, the Gain Capital 401(k) Plan in which Plaintiff Santomenno participated, "was charged an IM/Admin Fee that exceeded the amount needed to subsidize plan-level expenses and needed to pay the .08% Investment Platform Service Fee." (Second Mot. Class Cert., Dkt. No. 358, at 17.) Thus, Plaintiffs argued that the Gain plan fell into the TLIC Excessive Fee Class and was a typical member of the class. (Id.) Now, Plaintiffs continue to argue that the Gain Capital Plan is a member and typical of the TLIC Excessive Fee Class. (Mot. at 3 (citing Kra Decl. ¶ 20).)

In the Second Class Certification Motion, Defendants responded that Plaintiffs' new theories of the case failed typicality. For the Excessive Fee class, Defendants noted that Gain Capital joined TLIC after 2008, but Defendants claimed that "Gain's contract files indicate that the sponsor negotiated an asset bridge for one of the two plans, likely also excluding the combined plan from class membership." (Opp'n to Second Class Cert., Dkt. No. 370, at 23.)

Further, Defendants argued that both Plaintiff plans, Gain Capital and QualCare, only paid reasonable overall fees: TLIC's expenses exceeded the revenue for the Gain plan and both Plaintiff plans "sought competitive bids for their services and selected TLIC because it offered the lowest price," including after both plans left TLIC. (Id. (citing Dkt. No. 305, Ex. C at 66:16-67:17; Vergara Decl., Ex. D at 19-21; Dkt. No. 305, Ex. I at 142:10-17; Ex. S at 647; Ex. J ¶ 63; Ex. K ¶ 71).) Thus, Defendants argued, Plaintiffs' plans and the named Plaintiffs never paid unreasonable, excessive fees, barring them from representing such classes. (Id. at 23.)

Plaintiffs replied that the Gain Plan involved two different plans, and that named Plaintiff Santomenno participated in the named Plaintiff Gain Capital plan that lacked an asset bridge. (Reply ISO Second Mot. Class Cert., Dkt. No. 373, at 16-17.) Plaintiffs acknowledge that the other Gain Capital plan included a provision for an asset bridge, but Plaintiffs claimed that TLIC never paid the asset bridge (and so cannot recoup it through fees) because the plan participants paid the previous 401(k) provider's termination fees. (Id. (citing Obrist Decl. Ex. A, TRAN-19401,50; Vergara Decl. Ex. E at 36; Obrist Decl. Ex. C, Gain-648; Ex. D, Gain-602).) This remained true after the two Gain Capital plans merged because there was no asset bridge in the merged plan's contract. (Obrist Decl. Ex. E TRAN-17691 (Jan. 7, 2009 amendment), Ex. F TRAN-29880 (May 21, 2010 amendment).)

No new arguments were made in the Motion to Correct Class Definition or Opposition regarding typicality. (See generally Mot., Dkt. No. 391; Opp'n, Dkt. No. 398.)

The Court holds that this class satisfies the typicality requirement based on the Gain Capital plan without an asset bridge. Other members of the class have similar injuries based on excessive fees and the alleged conduct of TLIC is not unique to Plaintiffs.

4. Adequacy

Adequacy of representation is satisfied if "the representative parties will fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a)(4). Inasmuch as it is conceptually distinct from commonality and typicality, this prerequisite is primarily concerned with "the competency of class counsel and conflicts of interest." Gen. Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 158 n. 13 (1982). Thus, "courts must resolve two questions: (1) do the named plaintiffs and their counsel have any conflicts of interest with other class members and (2) will the named plaintiffs and their counsel prosecute the action vigorously on behalf of the class?" Ellis, 657 F.3d at 985.

The Court previously found adequacy of representation satisfied because there are no standing issues for the named Plaintiffs and no conflicts of interest based on other class members not belonging to the same plans. (Order, Dkt. No. 354, at 24-25 & n.7.) Plaintiffs did not add anything new to this analysis in the second class certification motion. (Second Mot. Class Cert., Dkt. No. 358, at 17-18.) Defendants also added nothing new beyond arguments articulated above for typicality. Defendants maintained through both class certification oppositions that there is a lack of standing and that none of the named Plaintiffs or Plans fit into the excessive fee class described. (Opp'n, Dkt. No. 370, at 22-23 & n.16.)

As before, the Court holds that the Plaintiffs and their counsel are adequate for class certification purposes. Plaintiffs Gain Capital and Santomenno are members of the TLIC Excessive Fee class as defined and therefore adequacy is satisfied here.

B. Rule 23(b) Requirements

A class action may be certified under Rule 23(b)(3) if "the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed. R. Civ. P. 23(b)(3).

According to the Federal Rules of Civil Procedure, courts consider the following factors in making these determinations:

Fed. R. Civ. P. 23(b)(A)-(D).

1. Predominance

"The Rule 23(b)(3) predominance inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation." Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623 (1997). "Even if Rule 23(a)'s commonality requirement may be satisfied by [a] shared experience, the predominance criterion is far more demanding." Id. at 623-24. Predominance cannot be satisfied if there is a much "greater number" of "significant questions peculiar to the several categories of class members, and to individuals within each category." Id. at 624. However, Rule 23(b)(3) predominance "requires a showing that questions common to the class predominate, not that those questions will be answered, on the merits, in favor of the class." Amgen Inc. v. Connecticut Ret. Plans & Trust Funds, 133 S.Ct. 1184, 1191 (2013).

The Court's first Order denied class certification based on Plaintiffs' failure to satisfy the predominance requirement. (Order, Dkt. No. 354, at 27-35.) The Court first noted that due to the potential size of the class ("300,00 participants in about 7,400 plans"), "individual inquiries potentially loom large" because "any difference in facts or legal posture among plans is potentially multiplied a thousandfold." (Id. at 27-28.) Defendants argued, and the Court agreed, that the problem with Plaintiffs' prior class definition was that it gave rise to individualized defenses that overwhelmed the common questions. (Id. at 28-29.)

The Court explained that "if Plaintiffs wish to assert a claim under TLIC's fiduciary duty to defray only reasonable expenses, they must do so by considering TLIC's fees as a whole compared to TLIC's total reasonable expenses in providing its services." (Id. at 30-31.) One of the Court's concerns was that the individual IM/Admin fee that Plaintiffs were alleging was excessive could be subsidizing the plan-level expenses that Plaintiffs did not contest. (See id. at 31.) This concern led the Court find that "fees charged to individual plans must be compared to the expense of providing services to those plans" and that "[t]hese individualized inquiries would be significantly more complex than Plaintiffs' proposed inquiry into a single fee whose reasonableness (Plaintiffs argue) could be straightforwardly determined as to all plans equally." (Id.)

Then, Plaintiffs moved the Court for full or partial class certification with three separately-defined classes. (Second Mot. Class Cert, Dkt. No. 358.) After Plaintiffs withdrew the Excessive Fee Class at the hearing, the Court certified the two other classes. (Order, Dkt. No. 393; Mot. at 391.) Now, the Court addresses the corrected Excessive Fee Class in this Motion.

In the Second Class Certification motion, Plaintiff explained the TLIC Excessive Fee class as "limited to those plans in which plan-level fees were adequate to defray plan-level costs over the life of the plan or, for those plans in which plan-level fees were insufficient, the IM/Admin Fees sufficiently subsidized any shortfall and the remaining IM/Admin fee exceeded the Investment Platform Service Fee." (Second Mot. Class Cert., Dkt. No. 358, at 25.) The class brought claims under 29 U.S.C. § 1104 (a) (1) (A) (general duty of loyalty); (a) (1) (A) (ii) (duty to defray only "reasonable expenses of administering the plan"); and (a) (1) (B) (general duty of prudence), alleging that TLIC was a fiduciary and charged excessive fees to the class, thus breaching its fiduciary duties. (Second Mot. Class Cert., Dkt. No. 358, at 25.)

These claims are predominated by common questions of law and fact, Plaintiffs claimed, because "TLIC's status as a fiduciary and TLIC's statutory liability all implicate common questions, and the class definition eliminates all individualized inquiries." (Id.) Plaintiffs argued that any defense argument that there are individualized inquiries based on the reasonableness of the IM/Admin fees at the time the fees were authorized by each GAC is foreclosed by a fiduciary's "continuing duty to monitor its fees" based on Supreme Court precedent. (Id. at 26 (citing Tibble v. Edison Int'l, 135 S.Ct. 1823, 1828 (2015).) Lastly, Plaintiffs defended the class against any charge that the need to assess damages would undermine predominance. (Id. at 26-27.) Plaintiffs explained the measure of damages for this class as the "difference between any excess IM/Admin Fee that remains after any subsidization." (Id. at 26.) This calculation can be done with "a common method that is a mechanical process." (Id. (citing Dec. RL, Ex. 16, pp. 40-44; Ex. 22, pp. 19-24, 30-36).)

Plaintiffs' proposed corrected class definition maintains the same commonalities as Plaintiffs set forth previously. (See generally Mot., Dkt. No. 391.) As before, Plaintiffs do not challenge the Service Agreement fees as unreasonable. (Id. at 2.) The corrected class definition fixes the mathematical formula for class member determination by accounting for the total service fees — waived and collected. (Id.)

Otherwise, the calculation remains that for the plans that fit the first parts of the definition ((a), (b), and (c)), that if the sum of the plan's (i) CAC, collected Service Agreement fees, and investment-level IM/Admin fees are greater than the sum of (ii) commissions TLIC paid to the plan's advisor/broker, fees paid to any third party administrators, collected or waived Service Agreement fees, and the Investment Platform Service Fee, then those plans were charged an excessive fee. (Id.) That is, if the sum of the first set is greater than the second set, both of which are aggregated over the plan's GAC with TLIC, then the plan fits into the excessive fee class. (See, e.g., Kra Decl. ¶¶ 18-22, Dkt. No. 391-2 (using this formula to calculate Plaintiff Gain Plan's membership in the Excessive Fee class).) Plaintiffs claim that TLIC keeps records of both collected and waived fees; thus, the information Plaintiffs are correcting is also not subject to individualized defenses and is known to Defendants. (Id. at 3 (citing Kaese Decl., Ex. A, Dkt. No. 391-3).)

Defendants' initial issue with the TLIC excessive fee class was that the benchmark against which Plaintiffs seek to measure the reasonableness of the fees — the standard fee schedule under the Services Agreement — is unsupported as to its appropriateness as a benchmark, and it suffers from the same individualized proof that caused the first class definition to fail. (Opp'n to Second Class Cert., Dkt. No. 370, at 14-15.) According to Defendant, Plaintiffs are challenging "just that percentage of collected IM/Admin charges that was not absolutely necessary to pay compensation to third party providers, to defray the estimated costs of investment platform services, and to cover the nominal fees described in the Services Agreement." (Id. at 15.) This proposed class definition gives rise to individualized inquiries because "these sums varied considerably across plans, and between participants in the same plan." (Id.)

Defendants claim that plans negotiated separately with TLIC for CAC charges, "often producing a schedule that changed by year and by asset level." (Id. (citing Dkt. 305, Ex. J ¶¶ 35-37, Ex. 1.) Fees collected under the Services Agreements also varied. (Id.) Further, "the proportion of a plan's investment-level fees paid via IM/Admin charges on Ret Opt funds varied not only by plan, but by participant, according to each plan's choice of options for its investment lineup and each plan participant's allocations across that lineup." (Id.) All of this leads to, Defendants argue, a wide array of different fees that precludes class certification. (Id. at 16.)

Defendants' expert "found huge variations in annual plan/participant-level fees across plans, whether expressed as a percentage of each plan's overall assets or as a per-participant sum," and "whether any of these fee levels was reasonable in light of the relevant benchmarks" would require individualized inquiries. (Id.) Defendants provided the Court with one sample excessive fee calculation, and claimed that other plans paid different amounts than that one example. (Id.) Defendants also claimed that participant-level data is not in the discovery record generally, but that there is information for Plaintiff Gain Plan, and that data shows that the Gain Plan would qualify for membership in the class (absent Defendants' allegation that the plan received an asset bridge) but that "nearly 40% of its participants would not have paid allegedly excessive fees to TLIC by plaintiffs' measure." (Id. at 16-17 (citing Vergara Decl., Ex. F at Ex. 4).)

Further, Defendants claimed that the costs TLIC incurred in providing plan-and participant-level services were significant and varied widely across plans. (Id. at 17-20.) According to Defendants, some plan-level costs pass through to third parties, but TLIC also bears internal expenses — and contrary to Plaintiffs' argument, the fees in the Services Agreements do not cover TLIC's internal costs for any plan. (Id. at 18 (citing Dkt. 358 at 13:24-25; Dkt. 305, Ex. J ¶ 20; Vergara Decl., Ex. F at Ex. 4; Dkt. 305, Ex. C at 66:16-67:17; Vergara Decl., Ex. D at 19-21).) Without revealing confidential information, the Court notes that Defendants provided specific examples of the wide variation of internal costs borne by TLIC in different size plans, and Defendants claim that Plaintiffs still fail to take into account TLIC's internal servicing costs. (Id. at 19-20 & n.14 (citing Rico Decl., Ex. A; Vergara Decl., Ex. F at 2b).)

Lastly, Defendants argued that they have the right to use individualized proof in defense of any particular class member's fee — that Defendants would do by showing "the reasonableness of the total fees that each plan paid for the total package of services delivered." (Id. at 20.) As Defendants argued before, "the use of investment fees to pay for plan services is a common industry practice, blessed by the [Department of Labor]." (Id. at 20-21.) Further, Defendants argue that they would introduce evidence to defend its fees such as "market benchmarks for plans sharing the same characteristics, . . . competitive bids that the plan received from other providers before retaining TLIC's services, or . . . other proof that is unique to each plan relationship," such as the individual bidding or negotiations that a particular plan undertook with TLIC. (Id.)

In response to the present Motion to correct the class definition, Defendants have argued that even the corrected class definition and its formula fail to take into account the total fees collected based on TLIC's bundled services: "no plan was able to purchase TLIC's administrative services without also purchasing investments under a GAC." (Opp'n, Dkt. No. 398, at 2-3.) Defendants argue that they "would have a due process right to argue against plaintiffs' misguided effort to sever a package deal into hypothetical components, and to defend each plan's total fee as reasonable based on evidence that is specific to each plan." (Id. at 3.) This individualized evidence includes the bidding process for each plan, a comparison of the cumulative fees to the cumulative costs for TLIC during the relevant time period, and industry fee benchmarks for plans similar to the plan at issue. (Id. at 3-4.) Thus, Defendants state that the formula may not give rise to the same predominance issues as before, but the liability phase of a class proceeding would result in many mini-trials on each plan, thereby defeating predominance. (Id. at 4.)

In reply, Plaintiffs explain the corrected class definition is challenging the total fee: "The revenue side of Plaintiffs' class definition captures all revenues (TLIC's total fees) and the expense side captures all reasonable costs." (Reply, Dkt. No. 399, at 6.) Plaintiffs also argue that there has been no discovery or evidence or expert report that contests its determination that the Service Agreement fees are a measure of reasonable costs. (Id.) Plaintiffs claim that their calculation takes into account "all of TLIC's permissible costs," meaning that TLIC may argue that additional costs are involved in the plans, but that Plaintiffs do not agree that those costs can be charged to fiduciary beneficiaries like the plans. (Id. at 7-8.) According to Plaintiffs, "TLIC may only use plan assets for providing benefits to participants and to defray reasonable expenses of `administering the plan.'" (Id. (quoting 29 U.S.C. § 1104(a)(1)(A)(i) and (ii)).) Plaintiffs cite an Department of Labor advisory opinion about what constitutes "plan administration expenses": "direct expenses properly and actually incurred in the performance of a fiduciary's duties to the plan." (Id. at 8 (quoting DOL Adv. Op. 97-03A (Jan. 23, 1997)).) Therefore, Plaintiffs maintain that predominance is met here.

In the Court's previous Order, the Court held that Plaintiffs' excessive fee allegations were not predominated by common questions, and faced logical problems. The Court said:

(Order, dkt. no. 354, at 31.)

Here, Plaintiffs have now addressed some of the logical issues the Court raised with the previous excessive fee class definition. Plaintiffs' formula accounts for total fees and total expenses, albeit perhaps not all the expenses Defendants would seek to include. Plaintiffs' standard formula for defining membership in the class also provides the formula for calculating the damages — the amount of fees paid by a plan that Plaintiffs argue is excessive because it is greater than the amount of expenses Defendants incurred (that Plaintiffs claim are the only expenses appropriate to charge to the class). This means that there are individual damages calculations required for the proposed class. Individualized damages calculations do not defeat class certification as a matter of law. See, e.g., Leyva v. Medline Indus. Inc., 716 F.3d 510, 513-14 (9th Cir. 2013). However, individualized damages calculations that require individualized analysis as to parts of the equation and that are subject to individualized defenses do raise class certification problems.

Here, even if Plaintiffs' standard formula captures the total fees and expenses (which Defendants do not agree it does), the formula entails many individualized determinations that even a standard formula cannot resolve the class certification problems. For example, each plan has different contract negotiation history with TLIC that results in different fees and expenses being plugged into the formula — which is not necessarily a problem — but this also raises individual issues as to the reasonableness of those fees as to each plan. As Defendants argued, there are different service agreement fees, separate and often changing CACs, and changes in the IM/Admin fees per plan based on the participants' choices. And all this analysis is multiplied by each plan that is calculated to fit the excessive fee class.

Further, there are individualized defenses that increase the complexity of this analysis. Defendants will introduce evidence of the competitive bidding process as to each plan that engaged in one, which is relevant to both the reasonableness of the total fees TLIC charged as well as to the reasonableness of any particular fee. This evidence would demonstrate that perhaps a plan chose TLIC over a different provider based on the plan's determination that the total fees and total services offered to it by TLIC was the best deal for that plan; such evidence would necessarily vary from plan to plan.

Additionally, Defendants would introduce evidence of the costs in incurred as to each plan, which also varies from plan to plan based on the size, number of plan participants, services chosen by the plan, length of time with TLIC, amount of assets, and other considerations — and Defendants claim these costs are not adequately captured by the service agreement fees. This evidence would effect the analysis and calculation of the total fees versus the total services and expenses for those services. Lastly, Defendants would seek to introduce evidence of industry benchmarks to show that the total fees charged for the total services provided are within industry norms as set by a competitive market.

The Court holds that these considerations demonstrate how common issues of fact do not predominate over the individualized issues required to demonstrate whether a plan paid fees that were reasonable or excessive. Thus, if used at all, Plaintiffs' formula would need to be used by each plan on an individual basis. An individual analysis would allow the Court to properly consider Defendants' proposed defenses and arguments as to the reasonableness of its fees based on the services provided, as well as Plaintiffs' contention that for certain plans, this analysis demonstrates that the plan paid too much. Therefore, predominance is not satisfied. But the Court notes that the merits question as to the reasonableness of the fees is not addressed in making this determination, and the fees TLIC charges certain plans could be excessive after undertaking the above analysis.

2. Superiority

Rule 23(b)(3) also requires a class action to be "superior to other available methods for fairly and efficiently adjudicating the controversy." Fed. R. Civ. P. 23(b)(3). The Rule further provides four factors the Court must consider in Rule 23(b)(3)(A) through (D):

Here, because the Court holds that predominance is not met, the Court need not determine whether a class action is superior. The individualized issues discussed above make a class action not superior in this instance because of the need to have hundreds of mini-trials on the individual issues each plan raises. Otherwise, a class action would have been superior to individual suits, particularly because the costs of bringing an action likely exceed the potential individual damages awards for certain plans, as this Court mentioned in its previous Orders. (Order, Dkt. No. 393, at 38-39; Order, Dkt. No. 354, at 35.)

C. Ascertainability

Although not strictly a part of the requirements of Rule 23, courts have held that a threshold requirement for class certification is that the class, as defined, "must be adequately defined and clearly ascertainable before a class action may proceed." Wolph v. Acer Am. Corp., 272 F.R.D. 477, 482 (N.D. Cal. 2011) (quoting Schwartz v. Upper Deck Co., 183 F.R.D. 672, 679-80 (S.D. Cal. 1999)). The class definition should be "precise, objective and presently ascertainable" such that "it is administratively feasible to determine whether a particular person is a class member." Id. (quotation marks and citations omitted).

However, the Manual for Complex Litigation indicates that the concerns that motivate the ascertainability inquiry are less pressing in an action under Rule 23(b)(1) or 23(b)(2) as compared to a Rule 23(b)(3) action: "[b]ecause individual class members must receive the best notice practicable and have an opportunity to opt out, and because individual damage claims are likely, Rule 23(b)(3) actions require a class definition that will permit identification of individual class members, while Rule 23(b)(1) or (b)(2) actions may not." Federal Judicial Center, Manual for Complex Litigation, Fourth, § 21.222 (2004).

Defendants argue this corrected class definition is still not ascertainable. According to Defendants, "[a]n unimaginably complex series of calculations based on each plan's constantly shifting balances in a distinct (and frequently changing) menu of investment accounts would be required" to ascertain the class. (Opp'n, Dkt. No. 398, at 1.) Further, Defendants argue, "[t]he daily investment menu and balance information required to perform these calculations has not even been produced" in class discovery. (Id.) Defendants also claim that the issue with determining plans with an asset bridge discussed in the second certification motion's briefing is one that would result in thousands of individualized inquiries that would likely require more than just an examination of the footer of the GAC, as demonstrated by Plaintiffs' arguments about one of the Gain plans. (Id.)

Plaintiffs respond that the use of a formula to determine class membership is far from an "unimaginably complex series of calculations," as demonstrated by the experts Strombom and Kra doing so for the Gain plan. (Reply, Dkt. No. 399, at 3.) Further, it is not a bar to class certification that electronic or paper records would have to be reviewed, such as for determining the asset bridge situation of each plan. (Id. at 3-4 (citing Cummings v. Starbucks Corp., No. CV 12-06345-MWF (FFMx), 2014 WL 1379119, at *16 (C.D. Cal. Mar. 24, 2014) (finding class ascertainable based on objective criteria even if it may require a manual examination of personnel files).)

Here, the Court need not determine whether the proposed class is ascertainable because the Court has found that predominance is not satisfied. To the extent that ascertainability is reviewed as to this proposed class, the Court would find that the use of a standard formula to determine the class is an objective criterion by which membership in the class is determined. But as discussed in the predominance analysis, determining the otherwise "objective criteria" that would go into each calculation raises many individualized issues as to the costs of a plan, the fees charged to a plan, the services provided to a plan, the reasonableness of those fees in relation to those services, taking into account the competitive bidding process and market, and other similar questions. Therefore, because of these individualized issues, the class cannot be certified even if it is ascertainable.

IV. CONCLUSION

For all the reasons discussed above, the Court DENIES Plaintiffs' Motion to Correct Definition of the TLIC Excessive Fee Class.1

IT IS SO ORDERED.