Earlier this year, in Bellon v. The PPG Employee Life & Other Benefits Plan, 41 F.4th 244 (4th Cir. 2022), the Fourth Circuit remanded a decision from the Northern District of West Virginia addressing whether a class of retirees and their spouses may recover life insurance benefits promised to them by their employer. While the opinion adds insight into the applicability of the Employee Retirement Income Security Act of 1974 (ERISA), arguably the most important part of the case is unstated and remains for the district court’s consideration on remand – fail-safe classes. This post will condense the current state of the law surrounding the “fail-safe” issue and the need for the Fourth Circuit to clarify its approach on the issue.

What is a “Fail-Safe” Class?

            A “fail-safe” class is one “that is defined so that whether a person qualifies as a member depends on whether the person has a valid claim.” Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 825 (7th Cir. 2012). Fail-safe classes are often based on legal conclusions. Certifying a “fail safe” class could leave losing class members unbound by any judgment, providing an opportunity for claims to be relitigated against the same defendant. Id. Thus, they “fail to provide the resolution of the claims of all class members that is envisioned in the class action litigation.” Young v. Nationwide Mut. Ins. Co., 693 F.2d 532, 538 (6th Cir. 2012).

Bellon v. PPG Employee Life & Other Benefits Plan

         In Bellon, approximately 1,000 retired employees and beneficiaries of retirees from PPG Industries’ former commodity chemicals business filed an action in the Northern District of West Virginia seeking to recover life insurance coverage and associated benefits. 41 F.4th at 246. Each plaintiff was either a former employee of the company’s commodity chemical business or a spouse of a former employee that worked in the sector between 1969 and 1984. Id. During that time, employees were given two options for life insurance in PPG’s benefit plan: (1) a lump sum payment, consisting of half the employee’s annual salary, or (2) a “surviving spouse benefit”. Id. Under the surviving spouse option, employees could designate their payments to be given to their spouses. Id.

            In 2013, PPG merged its commodity chemicals business to form Axiall. Id. Following this transaction, Axiall terminated life insurance coverage for company employees. Id. The plaintiffs’ alleged that deprivation of these benefits violated ERISA. Id. at 245–46.

            The district court granted the PPG defendants summary judgment on all claims, holding in part that the benefits never vested. Id. at 251. In opposition to the motion, the plaintiffs contended that such a determination was inappropriate because official documents and meeting notes from 1984 indicating that a reservation clause permitting modification of the insurance plan was absent from the benefit packages between 1969 and 1984. Id. at 248–49. The district court was unconvinced that these documents added merit to plaintiffs’ case. Id. at 251

            On appeal, the Fourth Circuit held that there was a genuine issue of material fact as to whether the life insurance benefits vested prior to the plan’s termination. Id. at 251–52. The court noted that while ERISA does not prevent employers from terminating an employee welfare plan that has not vested, this protection can be waived “by voluntarily undertaking an obligation to provide vested, unalterable benefits.” Id. at 252. Here, the court found that the plaintiffs’ evidence cast doubt on whether the plan vested, and that the matter should be remanded to the district court in light of this consideration. Id. at 255.

            By granting summary judgment, the district court never decided the plaintiffs’ motion for class certification. Should the district court change course on remand, it will likely have to decide this and could provide the Fourth Circuit a great opportunity to explain the ramifications of a fail-safe class in this Circuit.

A Possible Fail-Safe Issue in Bellon

           The plaintiffs’ class definition in Bellon shows the difficulty of defining a class without delving too deeply into the underlying merits of a party’s claim. In Bellon, the plaintiffs defined their classes to acknowledge the differences between former employees and spouses of retirees. In doing so, the plaintiffs proposed a “class” and “subclass.” Relevant to this article are the plaintiffs’ proposed subclass definition. The proposed subclass was defined to include:

All participant-class members who elected a lower level of retiree
life insurance in exchange for a commitment by PPG to provide
“lifetime income” benefits to their spouse upon the participant-class
member’s death.

          The PPG defendants opposed the plaintiffs’ motion for certification arguing that the   proposed subclass was impermissibly defined as a “fail-safe” class. 

          First, the defendants argued that the proposed “subclass” impermissibly included disputed facts and “presuppose[d] the validity of Plaintiffs’ claim.” Essentially, the PPG defendants contended that the plaintiffs’ definition for their subclass was impermissible as it defined the class as persons in a subjective manner based on a legal consideration not yet adjudicated by the court.  In opposition to the proposed subclass, the PPG defendants requested that the proposed definition be restated as “[a]ll Class members who elected a Retired Employees’ Life Insurance Surviving Spouse Benefit (REL/SSB) under the PPG Plan.” Plaintiffs opposed the change, contending that their proposed subclass was not a fail-safe class, but rather an objective description that wholly reflects PPG’s retirement documentation indicating that a surviving spouse is entitled to these benefits.

The Law on Fail-Safe Classes

         The Supreme Court has yet to determine how judges should deal with fail-safe class definitions. Circuit courts that have considered the issue of whether a fail-safe class can be certified have often held that it cannot.[1] The Fifth Circuit, on the other hand, reached the opposite conclusion in in re Rodriguez, 695 F.3d 360 (5th Cir. 2012) (concluding that a fail-safe class was not precluded from being certified because “precedent reject[ed] the fail-safe class prohibition.”).

        The Fourth Circuit has not expressly addressed whether fail-safe class definitions preclude certification and Bellon could possibly give it the opportunity to do so.

        Separately, proposing a fail-safe class definition generally does not bar a class action. Generally, courts will seek to resolve this issue in one of three ways:

       (1) a fail-safe defined class is not deemed dispositive, and the court will allow for the plaintiffs to revise its proposed definition;

       (2) a fail-safe defined class is not deemed dispositive, and a court will intervene and revise the definition itself; or

       (3) a fail-safe class is deemed dispositive, and dooms class certification.

         Most courts choose not to view fail-safe definitions as dispositive of a party’s action. However, a few courts have deemed the classification as determinative. See Zarichny v. Complete Payment Recovery Servs., Inc., 80 F. Supp. 3d 610 (E.D. Pa. 2015) (striking plaintiff’s class allegations because proposed class was fail-safe).

        Over the years, several district courts when faced with a fail-safe class issue have opted to give plaintiffs leave to amend their improperly proposed definition. Alternatively, and most commonly in New York, the court itself can attempt to revise proposed definitions to make them proper. See Hardgers-Powell v. Angels in Your Home LLC, 330 F.R.D. 89 (W.D.N.Y. 2019) (“[t]he court will redefine the NYLL Wage-Notice Subclass in a manner that cures any fail-safe problems.”); Spread Enters., Inc. v. First Data Merch. Servs. Corp., 298 F.R.D. 54 (E.D.N.Y. 2014) (“[t]herefore, the court modifies the definitions for Contested SubClass 1 and Contested SubClass 2 and removes the offending language [. . .] thereby resolving the fail-safe problem.”).

        Another area that may need judicial clarification is that if the plaintiffs are allowed to revise their proposed class definitions, whether there is a limitation on revisions that would justify disposition of the claims in their entirety. One case from D.C. Circuit suggests there must be. In White v. Hilton Hotels Ret. Plan, No. 16-856 (CKK), 2022 WL 1050570 (D.D.C. Mar. 22, 2022), the United States District Court for the District of Columbia denied class certification to a putative class seeking vested retirement benefits. Id. at *1, *6. On its third motion for certification the court denied class certification as “plaintiffs [were] offered three opportunities to remedy the problem.” Id. at *6.

Fail-Safe Classes in the Fourth Circuit

       Although the Fourth Circuit has yet to adopt a specific approach to addressing fail-safe issues, the decision in EQT Production Co. v. Adair, 764 F.3d 347 (2014), suggests that, if presented the issue, it would fall in line with most circuits in giving plaintiffs an opportunity to correct the fail-safe definition. In EQT Productions, the Fourth Circuit reversed a decision from the Western District of Virginia based on ascertainability issues. Id. at 357–60.  In coming to this conclusion, the Fourth Circuit directed the district court to consider whether “it is possible to define the classes without creating a fail-safe class [. . .] as a part of its class definition analysis.” Id. at n. 9.  Along these lines, district courts within the circuit have consistently allowed plaintiffs to revise their proposed definitions, which provides plaintiffs a safe harbor from having their case dismissed in its entirety.[2]

*  *  *

       On remand it will be interesting to see whether the parties continue their discourse of the proposed subclass definition. If so, it is very possible that the issue of the propriety of a fail-safe class could be presented to the Fourth Circuit, providing it an opportunity to clarify the appropriate standards for challenging class definitions and limit the possibility for inconsistencies amongst lower courts.

      Until then, defense attorneys practicing in this Circuit should consider adding such challenges to their litigation toolbox to make certain that their clients aren’t susceptible to future litigation based on opposing counsel’s formulation of class definitions. In contrast, plaintiff attorneys should ensure that their class definitions are written as objectively as possible to avoid fail-safe challenges.

 

[1] See e.g., Orduno v. Pietrak, 932 F.3d 710, 716–17, (8th Cir. 2019). Cordoba v. DIRECTV, LLC, 942 F.3d 1259, 127 –77 (11th Cir. 2019); McCaster v. Darden Rests., Inc., 845 F.3d 794, 799–800 (7th Cir. 2017); Torres v. Mercer Canyons, Inc., 835 F.3d 1125, 1138 n.7 (9th Cir. 2016); Randleman v. Fid. Nat’l Title Ins. Co., 646 F.3d 347, 352 (6th Cir. 2011); In re Nexium Antitrust Litig., 777 F.3d 9, 22 (1st Cir. 2015); Byrd v. Aaron’s, 784 F.3d 154, 167 (3d Cir. 2015).

[2] See Mr. Dee’s Inc. v. Inmar, Inc., No. 1:19CV141, 2022 WL 1750537 (M.D.N.C. Apr. 27, 2022) (denying plaintiff’s motion for class certification without prejudice due to plaintiff’s definition being an improper fail-safe class); Bryant, 2020 WL 6876292 at *5 (giving plaintiffs fourteen days to amend their proposed class definitions); Richards v. NewRez LLC, No. ELH-20-1282, 2021 WL 1060286 (D. Md. Mar. 18, 2021) (“[a]ccordingly I shall strike the classes as plaintiffs have defined them. But, I shall grant plaintiffs leave to file an amended complaint.”).

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