Langbecker, et al v. Electronic Data Sys, et al

United States Court of Appeals
Fifth Circuit
F I L E D
January 18, 2007
Charles R. Fulbruge III
Clerk
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________
No. 04-41760
_______________________
RICHARD LANGBECKER, ET AL.,
Plaintiffs-Appellees,
versus
ELECTRONIC DATA SYSTEMS CORP., ET AL.,
Defendants,
ELECTRONIC DATA SYSTEMS CORP., ET AL.,
Defendants-Appellants.
Appeal from the United States District Court
for the Eastern District of Texas
Before JONES, Chief Judge, and REAVLEY and GARZA, Circuit Judges.
EDITH H. JONES, Chief Judge, joined by GARZA, Circuit Judge:
Although legal remedies exist for the alleged wrongs
committed by Electronic Data Systems (“EDS”) and its associated
defendants for allegedly mismanaging the company’s 401(k)
Retirement Plan, the Rule 23(b)(1) or (b)(2) class action certified
by the district court is not among them. The district court
erroneously interpreted the impact, inter alia, of intraclass
conflicts and fact-specific defenses arising from ERISA § 404(c)
and individual releases. Rule 23(b)(2) is unsuited to provide
classwide relief, and Rule 23(b)(1) is conceptually unclear. As a

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1 The Plaintiffs-Appellees include both participants in the EDS Plan
and their beneficiaries. They are referenced collectively as Participants in our
discussion. The named Plaintiffs include Jeffrey Clay Smith and Richard Mizell.
2 More American employees now participate in defined contribution plans
such as 401(k) plans than in defined benefit plans. U.S. Department of Labor,
Bureau of Labor Statistics, Employee Participation in Defined Benefit and Defined
Contribution Plans, 1985-2000, http://www.bls.gov/opub/cwc/cm20030325tb01.htm
(last visited Apr. 27, 2006).
2
result, we must VACATE and REMAND the class certification for
further consideration.
I. BACKGROUND
Plaintiffs are current and former employees of EDS1 who
participated in the company’s 401(k) defined contribution
Retirement Plan (“Plan”).2 Like many employers, EDS offers its
employees a menu of retirement options and agrees to match a
portion of each employee’s annual contribution to his 401(k)
account. Participants then select their individual portfolios and
decide when and whether to change the mix of investments.
Participant accounts, commingled for management purposes, become
the assets of the Plan. The Plan’s trustees, who are subject to
the rigorous fiduciary requirements of ERISA, manage the Plan,
select and monitor the investment options, and handle each
Participant’s account. Significantly, the Plan also invokes ERISA
§ 404(c), which relieves plan fiduciaries of liability for any loss
or breach “which results from such participant’s or beneficiary’s
exercise of control [over the assets in his account].” 29 U.S.C.
§ 1104(c). The tension between the fiduciary obligations and the

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3 Whether or to what extent the EDS Stock Fund qualified as an employee
stock ownership plan or an eligible individual account plan exempt from certain
fiduciary duties pursuant to, for example, 29 U.S.C. §§ 1104(a)(2), 1107(b), is
not at issue in this appeal.
4 As its name implies, the EDS Stock Fund could invest up to ninety-
nine percent of its assets in company stock.
3
employee-directed nature of the accounts provides the backdrop to
the instant case.
During the class period, EDS offered Plan Participants
between thirteen and eighteen investment options, including an EDS
Stock Fund.3 Plan documents discussed the different funds,
explained that employees could direct contributions to a fund or
funds of their choice, and rated the fund options on a scale of one
to five for risk (one being the least risky and five being the
riskiest). Plan documents rated the EDS Stock Fund as “5+” on the
risk scale and warned Participants that investing in only one stock
violated the diversification principle of portfolio management.4
The Plan documents also explained that EDS agreed to match up to
twenty-five percent of each employee’s annual investment, up to six
percent of salary, with an investment in the EDS Stock Fund. The
matched investments had to remain in the Stock Fund for two years,
after which the employee could move the funds as he chose.
On September 18, 2002, EDS published an earnings warning,
which precipitated a substantial drop in its stock price (from
$36.46 to $17.20 a share). Although the stock price rebounded

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5 This court recently upheld Rule 23(b)(3) class certification in a
consolidated securities fraud suit brought against EDS concerning the same events
and alleging that the Defendants’ actions concealed accounting problems and
improperly inflated the value of EDS stock. Feder v. Elec. Data Sys. Corp.,
429 F.3d 125 (5th Cir. 2005).
6 The Defendants-Appellants include, inter alia, EDS executives charged
with monitoring the committees running the Plan, as well as members of the
Benefits Administration Committee and the Investment Committee.
4
somewhat in the short term and more in the longer term, a flurry of
lawsuits commenced.5
This case, while predicated on the same accounting and
business irregularities as the securities actions, is brought on
behalf of Participants in the Plan. (Participants may be members
of the securities lawsuit class as well as the alleged Plan class.)
The operative Class Complaint alleges three ERISA fiduciary
violations relevant on appeal. In Count I, the Participants allege
that the EDS Appellants6 breached their fiduciary duties of
prudence when, despite knowledge of EDS’s financial problems,
Appellants continued to offer company stock as a Plan investment
option; directed and approved investment in the stock rather than
in safer alternatives; invested matching funds in EDS stock; failed
to take adequate steps to prevent the Plan from suffering losses
from its EDS stock investment; and failed to implement a strategy
to compensate for the high risk of EDS stock as a Plan investment.
Count II alleges that Appellants breached their fiduciary duties by
failing to monitor the Benefits Administration Committee and
Investment Committee members who supervised the Plan and by failing
to provide the committees with accurate information about company

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7 Count III, another fiduciary duty claim based on misrepresentation
under ERISA § 502(a)(3) (29 U.S.C. § 1132 (a)(3)), was not certified as a class
action by the district court, after it concluded that this claim rested on
disparate individual fact issues. The Plaintiffs have not cross-appealed this
ruling.
8 Appellants’ expert David Ross calculated about eighty-five thousand
class members through the Appellees’ original class cutoff date of February 24,
2004. Since the class as certified cuts off in October, 2002, the actual number
is probably lower.
5
problems. Count IV7 alleges breach of their duties of loyalty to
the Plan because the Appellants failed to act solely in the
Participants’ interests and for the exclusive purpose of providing
Plan benefits. All three Counts proceed under ERISA § 409 and
§ 502(a)(2) (29 U.S.C. § 1109 (a) and § 1132(a)(2)). The crux of
the allegations is the imprudence of company stock as a retirement
offering.
Participants request reimbursement to “make good” the
losses on behalf of the Plan, but they concede such damages must
eventually be allocated among the Participants’ accounts. They
also seek injunctive relief either to remove the EDS Stock Fund as
an optional investment or to replace the current fiduciaries with
one or more independent fiduciaries. The district court certified
a FED. R. CIV. P. 23(b)(2) class for these claims consisting of all
Plan participants and their beneficiaries, excluding the
Defendants, for whose accounts the Plan made or maintained
investments in EDS stock through the EDS Stock Fund between
September 7, 1999, and October 9, 2002. As framed, the Class
includes up to eighty-five thousand members.8

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9 The court did, however, conclude that the claims for misrepre-
sentation by the fiduciaries were more properly brought under § 502(a)(3) because
of the reliance element.
6
Appellants sought and were granted interlocutory review
pursuant to FED. R. CIV. P. 23(f).
A summary of the district court’s closely reasoned
opinion regarding certification of these claims is essential to
further analysis. Several of the court’s legal rulings underpin
its conclusion that these claims are amenable to class
certification. If the court erred in any of its threshold
decisions, the class certification is put at risk.
First, the court rejected Appellants’ contention that
Appellees’ claim should be characterized as individual claims for
“other appropriate equitable relief” to redress breaches of
fiduciary duty under ERISA § 502(a)(3).9 See Varity Corp. v. Howe,
516 U.S. 489, 116 S. Ct. 1065 (1996). Instead, the court adopted
the Participants’ contention that theirs is a “derivative” suit
brought on behalf of the Plan pursuant to ERISA § 502(a)(2), in
which recovery must “inure[] to the benefit of the plan as a
whole,” Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 140, 105
S. Ct. 3085, 3089 (1985).
Fastening on the derivative suit characterization, the
court then ruled that ERISA § 404(c), which relieves fiduciaries of
liability where loss results from a participant’s exercise of
direction and control of his own account, is inapplicable to a suit

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10 In order to merit class action treatment, the allegations of a
complaint must initially demonstrate numerosity, commonality of issues,
typicality of the class representatives’ claims among those of the class, and the
adequacy of the representatives and their counsel. See FED. R. CIV. P. 23(a);
Feder, 429 F.3d at 129. Neither numerosity nor commonality is at issue here, as
the district court noted.
7
on “behalf of the plan as a whole.” Finally, the court determined
that post-employment releases of claims executed by up to nine
thousand potential class members not only did not release claims
for the Appellants’ breached fiduciary duties but in any event were
irrelevant to the maintenance of a classwide claim for derivative
relief to the Plan.
Turning to the class action rule, the court emphasized
and discussed in tandem the typicality and adequacy factors,10 which
bear on the qualification of class representatives. Because of its
focus on the derivative nature of the claims, the court did not
consider as stumbling blocks to adequacy and typicality two
circumstances arguably at odds with the single-minded focus
required of class representatives. First, one of the representa-
tives, Mizell, was a day-trader in EDS stock who continued to buy
and sell, to his occasional profit, throughout the tumultuous
period following the September 19 price decline. Yet both Mizell
and Smith, who also traded in EDS stock short-term, now contend, as
putative class representatives, that Appellants should have
withdrawn EDS stock as a permissible investment option for all Plan
Participants during the class period. Second, the court
discounted, also on its overarching derivative suit construct, the

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11 It is undisputed that the Plan Participants who bought or sold EDS
stock are members of the class certified in Feder, supra.
8
highly individual nature of class members’ stock trading patterns.
In a securities fraud suit,11 class members seek recovery for
specific transactions affected by fraud. Here, in contrast, the
EDS Participants are joined as class members irrespective whether
they bought or sold any EDS stock during the relevant period;
irrespective whether they traded at a profit in shares that other
Participants (fellow class members) sold for a loss simultaneously;
and irrespective that some class cutoff dates would be vastly more
profitable for some Participants than others. Further, thousands
of class members remained invested in EDS stock notwithstanding
allegations that it was imprudent to offer or invest in EDS stock
during the class period. The court held that because this is a
derivative suit on the Plan’s behalf for losses “to the Plan as a
whole,” the class representatives are not asserting claims for
losses to individual accounts. Thus, the derivative characteriza-
tion superseded conflicts among class members or between the class
representatives and the class itself.
To the extent that the releases of claims might raise
individual defenses, the court, while acknowledging this
possibility, reiterated that a plan-wide lawsuit need not be
defeated by the peculiarities of individual participants’ claims.
Similarly, the court attempted to reconcile the ERISA § 404(c)
defense with the derivative ERISA § 502(a)(2) action by concluding

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9
that (1) the defense is inapplicable to a fiduciary duty breach
consisting of imprudent plan management and selection of investment
options, and (2) the defense, being personal and transactional to
a participant, cannot be applied where claims are made on behalf of
the plan.
Having disposed of objections to the maintenance of a
“derivative” suit for the Plan and to class action treatment, the
court concluded that certification under Rules 23(b)(1) and (2) was
appropriate.
Respecting Rule 23(b)(1), the court held that because the
claims are asserted on behalf of the Plan as a whole the Appellants
are “obligated to treat class members alike via their treatment of
the Plan itself.” Further, the court foresaw a risk of inconsis-
tent adjudication if multiple separate § 502(a)(2) cases were
pursued against the Plan.
The court justified its Rule 23(b)(2) certification
reasoning that (1) the complaint seeks “predominately” injunctive
relief, i.e., removal of the EDS Stock Fund as an investment option
and/or removal of the current fiduciaries, and (2) the monetary
relief requested is a “group remedy” and “subservient” to the
injunctive relief. In a footnote attached to this paragraph, the
court acknowledged that a fiduciary would have to be appointed to
oversee allocation of any monetary recovery among Plan
Participants. Neither a Rule 23(b)(1) or (2) class action requires
notice to class members or the option to opt-out.

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12 E.g., Stirman v. Exxon Corp., 280 F.3d 554, 558-59 (5th Cir. 2002).
10
II. DISCUSSION
This court reviews the district court’s certification
decision for abuse of discretion. Gulf Oil Co. v. Bernard,
452 U.S. 89, 100, 101 S. Ct. 2193, 2200 (1981). The district
court’s discretion must be exercised within the boundaries of
Rule 23. Id. Where a district court rests its legal analysis on
an erroneous understanding of governing law, it has abused its
discretion. Unger v. Amedisys Inc., 401 F.3d 316, 320 (5th Cir.
2004). Although federal courts cannot assess the merits of the
case at the certification stage, they must evaluate with rigor “the
claims, defenses, relevant facts and applicable substantive law in
order to make a meaningful determination of the certification
issues.” Id. at 321 (quoting Castano v. Am. Tobacco Co., 84 F.3d
734, 744 (5th Cir. 1996)).
The party seeking class certification bears the burden of
meeting all the Rule 23 requirements. Berger v. Compaq Computer
Corp., 257 F.3d 475, 479-80 (5th Cir. 2001). As was alluded to
above, the requirements fall into two general groups: the four
23(a) requirements (numerosity, commonality, typicality, and
representativeness), which must be met by all proposed class
actions; and the three groups of Rule 23(b) requirements, one of
which must be met by the proposed class.12

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13 These duties under the statute include, “the care, skill, prudence,
and diligence under the circumstances then prevailing that a prudent man acting
in a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims.” Id. § 1104(a)(1)(B). The
DOL’s regulation under § 404(a)(1)(B) says that a fiduciary must “give[]
appropriate consideration to those facts and circumstances that, given the scope
of such fiduciary’s investment duties, the fiduciary knows or should know are
relevant to the particular investment or investment course of action involved .
. .” and must act accordingly. 29 C.F.R. § 2550.404a-1(b)(1)(i)-(ii).
Appropriate consideration includes “[a] determination by the fiduciary that the
particular investment or investment course of action is reasonably designed, as
part of the portfolio, . . . to further the purposes of the plan, taking into
consideration the risk of loss and the opportunity for gain (or other return)
associated with the investment or investment course of action.” Id. § 2550.404a-
1(b)(2)(i). For a non-§ 404(c) plan, the fiduciary’s selecting an investment (as
provided in § 404(a)(1)(B)) is not only like a fiduciary’s selecting an
investment option, but also like a participant’s investing in an option under
§ 404(c).
11
Courts should not confuse rulings on the merits of claims
with the class certification decision. As noted above, however,
the district court’s threshold legal rulings are essential to its
conclusion that this case may be maintained as a class action. We
must accordingly consider briefly whether (1) ERISA § 502(a)(2)
entitled Plan Participants to seek derivative relief for “the plan
as a whole” to recover “plan losses” that allegedly resulted from
Appellants’ fiduciary duty breaches; and (2) whether either ERISA
§ 404(c) or the releases executed by about nine thousand
Participants bar class certification.
A. Section 502(a)(2).
An ERISA fiduciary must act with prudence, loyalty and
disinterestedness, requirements carefully delineated in the
statute. See generally 29 U.S.C. § 1104(a)13. ERISA § 502(a)(2)
authorizes any plan participant or beneficiary to sue on behalf of
the plan to remedy a breach of these duties, to require the

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14 In this “comprehensive and reticulated statute,” Nachman Corp. v.
Pension Benefit Guar. Corp., 446 U.S. 359, 361, 100 S. Ct. 1723, 1726 (1980),
ERISA § 502 (29 U.S.C. § 1132) authorizes two other types of remedial actions.
Section 502 (a)(1) enables beneficiaries to sue for plan “benefits.” Section 502
(a)(2), as noted above, provides for suits against fiduciaries on behalf of the
plan. Section 502 (a)(3) is a “catchall” provision entitling a beneficiary to
“other appropriate equitable relief” for fiduciary duty breaches. See Great-West
Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 221 & n. 5, 122 S. Ct. 708, 718
(2002).
12
fiduciaries personally to “make good” any “losses to the plan” so
caused, or to replace the fiduciaries.14 29 U.S.C. § 1132(a)(2);
§ 1109(a). Appellants strenuously contend that this suit, which
alleges that Appellants breached fiduciary duties by failing to
limit the Plan’s offering of and investment in EDS stock, cannot
proceed under § 502(a)(2) because the Plan consists of individual
Participant-directed investments. More precisely, Appellants
contend that since any recovery of monetary damages would have to
be allocated among up to eighty-five thousand class members based
on each Participant’s widely divergent stock trading and holding
strategy, no Plan-wide relief can be fashioned.
To the extent Appellants’ contention is that no plan-wide
fiduciary duties exist with respect to 401(k) participant-directed
plans, it is clearly overbroad. ERISA does not distinguish
fiduciary duties according to the type of employee investment or
pension plans at issue. The Supreme Court described Congress’s
concern about “the possible misuse of plan assets, and with
remedies that would protect the entire plan,” also without
limitation concerning the type of plan. Russell, 473 U.S. at 142,
105 S. Ct. at 3090. Certain fiduciary duty breaches can injure

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15 When employee funds are transferred from one plan to another, some
companies use a process called “mapping.” With “mapping,” each of the displaced
investment options is compared to the new options. During conversion, amounts
are automatically transferred or “mapped” from the displaced option to the most
comparable new option. See Wiseman v. First Citizens Bank & Trust Co.,
212 F.R.D. 482, 484 (W.D.N.C. 2003).
16 This opinion does not concern, and we do not opine on the subjects
covered in the recent opinion, Milofsky v. American Airlines, 418 F.3d 429 (5th
Cir. 2005), vacated en banc, 442 F.3d 311 (5th Cir. 2006).
17 To the extent allegations of nondisclosure were made against
Appellants in this case, the district court ruled that individual reliance issues
precluded certification of a § 502(a)(2) class.
18 Under ERISA, the prudence of investments or classes of investments
offered by a plan must be judged individually. See In re Unisys Sav. Plan
Litig., 74 F.3d 420, 438-41 (3d Cir. 1996).
13
401(k) participants generally and indiscriminately: theft from the
plan; mapping;15 noncompliance with ERISA-mandated duties to inform;
engaging in transactions that involve conflicts of interest; and
setting unreasonable blackouts are among the possibilities.16
Allegations that ERISA fiduciaries promoted company stock to prop
up its value or misled participants could also state plan-wide
breaches of fiduciary duties.17
In this case, however, the description and indeed
existence of a Plan-wide fiduciary breach are elusive at this
preliminary stage of the case. The key contention is that the
fiduciaries “knew” EDS stock was too risky to be offered or allowed
as an investment by any Participant (or the vast bulk of them) in
the 401(k) Plan during the period in question. This contention
challenges the fiduciaries’ judgment that EDS was or remained a
prudent investment for the Plan to offer.18 Hindsight is easy in
a case like that of Worldcom, a company so infected by over-

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19 The Third Circuit wisely balanced the competing policies of ERISA
fiduciary duties with statutory exemptions to those duties crafted by Congress
to encourage employees’ investments in their companies’ stocks. See Moench v.
Robertson, 62 F.3d 553, 568-73 (3d Cir. 1995). The Moench standard was adopted
by the Sixth Circuit, see Kuper v. Iovenko, 66 F.3d 1447, 1458-59 (6th Cir.
1995), and favorably commented on by the Ninth Circuit, Wright v. Oregon
Metallurgical Corp., 360 F.3d 1090, 1097-98 (9th Cir. 2004).
20 We note that Participants would not be eligible to pursue relief
under § 502(a)(3) for “other equitable relief” under Great-West because the
damages they seek do not restore to them specific funds that were inequitably
kept in the Defendants’ possession. At best, their action would seem to be one
for legal restitution, which is not cognizable under § 502(a)(3). See Great-
West, 534 U.S. at 214, 122 S. Ct. at 714-15.
14
extension and fraud that it collapsed, and its stock became
worthless. EDS, despite its alleged failings, is not in that
category. From the facts adduced at the class determination stage,
it is far from clear that EDS stock became too risky to be a
permissible 401(k) offering or the basis for the employer-matching
contribution. Thousands of Plan Participants continued to purchase
EDS stock regularly after the company’s adverse disclosures and
after the price dropped. Thousands held on to their EDS stock
rather than sell. The stock price has slowly but steadily
rebounded. Given these facts, plus the long-term horizon of
retirement investing and the favored status Congress has granted to
employee stock investments in their own companies, ascribing a
Plan-wide fiduciary failure to Appellants seems fraught with
uncertainty.19 Nevertheless, at this preliminary stage, we cannot
rule out Appellees’ theories as a matter of law. Correlatively,
the possibility of a suit on behalf of the Plan as a whole is not
eliminated simply by the fact that any recovery would have to be
allocated among individual Participants’ 401(k) accounts.20

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21 ERISA § 404(c), 29 U.S.C. § 1104(c), entitled “Control over assets
by participant or beneficiary,” reads in full:
(1) In the case of a pension plan which provides for individual
accounts and permits a participant or beneficiary to exercise
control over the assets in his account, if a participant or
beneficiary exercises control over the assets in his account (as
determined under regulations of the Secretary)
(A) such participant or beneficiary shall not be deemed to
be a fiduciary by reason of such exercise, and
(B) no person who is otherwise a fiduciary shall be liable
under this part for any loss, or by reason of any breach,
which results from such participant's or beneficiary's
exercise of control.
(2) In the case of a simple retirement account established
pursuant to a qualified salary reduction arrangement under section
408(p) of Title 26, a participant or beneficiary shall, for purposes
of paragraph (1), be treated as exercising control over the assets
in the account upon the earliest of--
(A) an affirmative election among investment options with
respect to the initial investment of any contribution,
(B) a rollover to any other simple retirement account or
individual retirement plan, or
(C) one year after the simple retirement account is
established.
No reports, other than those required under section 1021(g) of this
title, shall be required with respect to a simple retirement account
established pursuant to such a qualified salary reduction
15
B. Section 404(c) Defense.
While a brief look at the Participants’ theories confirms
the district court’s conclusion that § 502(a)(2) claims could be
brought on behalf of the Plan, the same cannot be said for the
court’s rejection of § 404(c) as a defense to the derivative
claims. Just as ERISA’s fiduciary duties may be breached on a
plan-wide basis, so, too, must the § 404(c) defense be considered
in its relation to the causes of action for recovery on behalf of
a plan as a whole. Section 404(c) relieves a fiduciary from
liability “for any loss” or “by reason of any breach” if the plan
is an individual account plan and the loss “results from” a
participant’s exercise of control over assets in his account.21

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arrangement.
16
This provision places responsibility for the success or failure of
a participant’s investments on his own choices among the portfolio
offered in the plan. The defense does not apply to all plans,
however. The Department of Labor is charged with defining the
term “exercises control.” In its regulations, the Department
implemented the Congressional purpose to qualify plans for this
defense only if, inter alia, they offer a diversified array of
investments; provide adequate information concerning the
investments to the participants; and authorize flexible and
autonomous control by the participants. See 29 C.F.R. § 2550.404c-
1 (2005). EDS’s Plan claims to fulfill the § 404(c) criteria for
purposes of the allegations at issue in this appeal. Nevertheless,
the district court held that “[a]s a separate entity, the Plan
should not be subject to a defense that can only apply to
particular participants and particular transactions.” We disagree
with this conclusion.
Neither ERISA’s remedy provision, § 502(a)(2), nor
§ 404(c) articulates an exception to the availability of the
§ 404(c) defense when a plaintiff sues on behalf of a plan. It is
the courts’ duty to harmonize statutory provisions, not, as the
district court did, to eliminate one for the sake of crafting a
more expansive remedy. In any event, the provisions do not
conflict. The EDS 401(k) Plan is by definition the sum of the

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17
investment choices of its participants. If plan fiduciaries
violate their duties, § 502(a)(2), as noted above, often affords a
classwide remedy. Determining whether the fiduciary is relieved of
liability because of § 404(c) is merely part of the statutory
calculus.
A simple example will suffice to demonstrate how the
provisions can work together. Suppose Plan fiduciaries neglected
to credit 401(k) plan accounts with stock dividends that had been
received. A Participant could sue under § 502(a)(2) to recover the
amount of the dividends and allocate them among accounts. The
§ 404(c) defense would play no role, because losses were
unconnected to the Participant’s exercise of control over his
individual account.
This case raises a more complex interpretive question
whether the losses “result from” the participants’ exercise of
control pursuant to § 404(c). The losses here could not have
occurred but for two separate acts: the fiduciary’s inclusion of
“bad” stocks into the pot, and the participants’ choices to invest
in those “bad” stocks with full § 404(c) disclosure. When there
are two actual causes of the loss, assuming the plan complies with
§ 404(c) regulations, how does a court determine whether the loss
“results from” the participants’ exercise of control, which in turn
determines whether the defense applies? Section 404(c) appears to
leave the question open. Accordingly, the Department of Labor
regulations come into play.

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18
The Department has decided that § 404(c) may be a defense
to liability when the loss is “the direct and necessary result of
that participant’s or beneficiary’s exercise of control.”
29 C.F.R. § 2550.404c-1(d)(2)(i) (emphasis added). The DOL’s
regulation gives the statutory term “result from” a narrow
construction, but it is consistent with the statutory language—no
liability when the losses “result from such participant’s or
beneficiary’s exercise of control.” See 29 U.S.C.
§ 1104(c)(1)(A)(ii) (emphasis added).
An explanatory footnote to the regulation, however,
narrows the statutory language even more in cases where the
allegation is that the fiduciary was imprudent in its designation
of investment options:
[T]he Department points out that the act of limiting or
designating investment options which are intended to
constitute all or part of the investment universe of an
ERISA § 404(c) plan is a fiduciary function which,
whether achieved through fiduciary designation or express
plan language, is not a direct or necessary result of any
participant’s direction of such plan.
Final Regulations Regarding Particular Directed Individual Account
Plans (ERISA § 404(c) plans), 57 Fed. Reg. 46906, 46924-225, n.27
(General Preamble, n.27). The DOL as amicus, the dissent and the
Appellees take this footnote to mean that when a plan loses money
by reason of the fiduciary’s inclusion of an imprudent investment
option, none of the loss is the direct and necessary result of the

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22 There is much disagreement over whether the DOL’s footnote is
entitled to Chevron deference. It can be asserted that the footnote itself was
subject to notice and comment rulemaking and therefore is subject to the Chevron
steps. The “Final Regulation Regarding Participant Directed Individual Account
Plans” includes the footnote, even though it is not in the actual “Code of
Federal Regulations.” 57 F.R. 46906-01. This is because the CFR never publishes
the preambles of the Final Regulations, even though the preambles were part of
the notice and comment process. The final rule in its entirety, including the
preamble, is published only in the Federal Register. For an explanation of what
portions of regulations are published in certain books, see
www.11sdc.org/sourcebook/fed-reg-cfr.htm. In this case, footnote 27 was included
in the original notice, see 52 F.R. 33508, and received comments before final
passage.
Nevertheless, the footnote constitutes at best a comment on the
regulations, and is not itself a regulation. Thus, an alternative argument can
be made that neither Chevron nor Auer deference is owed. See Auer v. Robbins,
519 U.S. 452, 461, 117 S.Ct. 905, 911 (1997); Chevron USA Inc. v. Natural
Resources Defense Counsel Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 2781-82
(1984). The dissent asserts that the footnote represents an “interpretation”
of the DOL regulation, to which Chevron deference is due. What the dissent
overlooks, however, is that this rule only applies if the regulation was
ambiguous. See Wells Fargo Bank of Texas and A.V. James, 321 F. 3d 488, 494
(5th Cir. 2003); Christensen v. Harris County, 529 U.S. 585, 120 S.Ct. 1655, 1663
(2000). Neither the dissent nor any of the authorities it cites points to an
ambiguity in the regulation.
19
participant’s exercise of control. If the footnote is correct, it
bars § 404(c) as a defense to EDS’s alleged breach in such cases.
Because application of the standard of judicial deference
owed to the agency’s footnote is not determinative, we assume
arguendo that the more demanding Chevron standard applies.22 The
issue then becomes whether the DOL’s footnote reasonably interprets
§ 404(c) under Chevron Step II. We conclude it is not reasonable.
Most important, the footnote does not reasonably interpret § 404(c)
itself, because it contradicts the governing statutory language in
cases where an individual account plan fully complies with the
regulations’ disclosure, diversification and participant-control
provisions, and loss is caused, notwithstanding some other
fiduciary duty breach, by the participants’ investment decisions.

-- 19 of 57 --

20
The DOL footnote would render the § 404(c) defense applicable only
where plan managers breached no fiduciary duty, and thus only where
it is unnecessary. Similarly, the footnote is in tension with the
actual DOL regulation, which does no more than narrowly construe
§ 404(c) to authorize the defense for a fiduciary when a loss is a
“direct and necessary result” of a participant’s exercise of
control. See 29 C.F.R. § 2550.404c-1(d)(2)(i). The regulation
also stresses that, “whether a participant . . . has exercised
independent control in fact with respect to a transaction depends
on the facts and circumstances of the particular case.” 29 C.F.R.
§ 2550.404c-1(c)(2). The footnote is at odds with these provisions
by appearing to eliminate a § 404(c) defense altogether, rather
than determining its scope on a transactional, case-by-case basis.
While various courts have deferred to the footnote with
little or no discussion, the only circuit court to address § 404(c)
found its meaning tolerably plain and explained that the provision
“allows a fiduciary, who is shown to have committed a breach of
duty in making an investment decision, to argue that despite the
breach, it may not be held liable because the alleged loss resulted
from a participant’s exercise of control.” In re Unisys Sav. Plan
Litig., 74 F. 3d 420, 445 (3rd Cir. 1996). Unisys predated the DOL

-- 20 of 57 --

23 See also, Wiseman, supra, where the court noted that individual
assessments of § 404(c) defenses were required where, despite plan managers’
alleged fiduciary duty breach, some participants had made deliberate decisions
to hold onto declining stocks.
21
regulations but embodies a common sense interpretation of the
statute.23
Disregarding the footnote and relying solely on the
statute and the regulation does not, as the district court and
Appellees fear, leave plan participants without a remedy for the
type of fiduciary duty breaches alleged here. Instead, it
correlates the potential recovery with the sum of participants’
decisions regarding their individual accounts. The Plan “as a
whole” is not entitled to recover money damages for breach where an
individual participant, suing on his own behalf, could not recover.
The district court implicitly recognized this limitation in holding
that with respect to the misrepresentation claims, which it did not
certify for class treatment, § 404(c) affords an individual a
transactionally oriented defense. Put otherwise, the § 404(c)
defense is no different from a limitations defense in a class
action. A classwide claim may be stated, but the potential
recovery is limited to those class members whose claims have not
prescribed. Moreover, § 404(c) in no way limits the recovery of
equitable relief.
The dissent fears that if a § 404(c) defense applies,
Plan participants and beneficiaries will be left “at the mercy of
the wisdom of whoever made these limited [plan investment]

-- 21 of 57 --

22
choices.” The dissent is also concerned that no duty of prudence
will attach to the selection and monitoring of plan investment
choices if § 404(c) is applied as written. These fears are both
overblown and misdirected. Principally, we are not holding that a
plan fiduciary’s duties do not include the selection and monitoring
of plan investment alternatives. The question, rather, is how to
harmonize the enforcement of the fiduciary’s duty with the § 404(c)
defense when a § 502(a)(2) action is pursued “on behalf of the
plan.” A plan fiduciary may have violated the duties of selection
and monitoring of a plan investment, but § 404(c) recognizes that
participants are not helpless victims of every error. Participants
have access to information about the Plan’s investments, pursuant
to DOL regulations, and they are furnished with risk-diversified
investment options. In some situations, as happened here, many of
the Participants will react to the company’s bad news by buying
more of its stock. Other Participants will, like Mizell, trade
their way to profit no matter the calamity that befell the stock.
Section 404(c) contemplates an individual, transactional defense in
these situations, which is another way of saying that in
participant-directed plans, the plan sponsor cannot be a guarantor
of outcomes for participants.
If the Appellees’ negation of § 404(c) prevails, then the
EDS fiduciaries would be liable not just for losses in individual
accounts, but also for failures to realize gains (measured against

-- 22 of 57 --

24 Finally, contrary to the dissent, while we “agree that § 404(c)
provides no shield” for the two-year retention of matching contributions in EDS
stock, that match cannot be the subject of any ERISA fiduciary duty violation if
the requirement embodied a settlor decision, not a decision subject to the
fiduciaries’ discretion. The issue has not been briefed before us, the district
court did not decide it, and we do not speculate on its resolution.
23
some entirely speculative standard) and even for catch-up amounts
where participants bought into a declining EDS stock value.
The harmonization of § 502(a)(2) actions with the
§ 404(c) defense, however, limits the amount of “plan losses” for
which a fiduciary may be held liable. This harmonization also
bears on the susceptibility of this case to class action treatment,
because § 404(c) individualizes the consequences of fiduciary duty
violations. Finally, there is no inconsistency between this
harmonization and the courts’ decisions in the Enron and Worldcom
cases, because in those cases, where the company’s stock value
ultimately rested on a financial house of cards, no trading
strategy in the company’s stock could have salvaged a participants’
company stock ownership.24
Because the district court incorrectly eliminated the
§ 404(c) defense from its evaluation of the suitability of the
allegations on appeal for class treatment, we must vacate and
remand for further consideration of the extent to which § 404(c)
decisions by participants undermine the feasibility of class action
treatment.
C. Participant Releases.

-- 23 of 57 --

25 The pertinent language in the releases states:
This Release does not include, however, a release of Employee’s
right, if any, to benefits he/she is entitled to under any EDS plan
qualified under Section 401(a) of the Internal Revenue Code,
including the EDS Retirement Plan and the EDS 401(k) Plan, and COBRA
benefits pursuant to Internal Revenue Code section 4980B.
24
While conceding that ordinarily the fact that up to nine
thousand potential class members have signed releases of claims
against EDS would defeat typicality and preclude class
certification, the district court found a distinction here for two
reasons. First, the court determined that the releases (which are
otherwise quite broad, discharging “all claims or demands” against
EDS) authorize the instant suit as one for “benefits.”25 Appellants
contend, with some force, that this exception only permits suits
under ERISA § 502(a)(1)(b) to recover specific benefits owed a
participant under the terms of an employee plan. As the Supreme
Court explained in Russell, ERISA § 502(a)(1)(b) allows a
beneficiary to recover plan “benefits,” whereas § 502(a)(2) allows
recovery that inures to the benefit of the plan as a remedy for
breach of fiduciary duties. Russell, 473 U.S. at 146-47,
105 S. Ct. at 3093; see also Rhorer v. Raytheon Eng’rs &
Constructors, Inc., 181 F.3d 634, 639 (5th Cir. 1999) (noting the
numerous differences between causes of action under §§ 502(a)(1)(b)
and 502(a)(2)). On the other hand, a release does not ordinarily
preclude claims based on subsequent conduct. The enforceability of
the releases presents difficult questions.

-- 24 of 57 --

26 Even if, as the dissent suggests, the effect of the releases may be
considered on a classwide basis, the named Plaintiffs may not be adequate
representatives of those class members who did sign them. See JAYNE E. ZANGLEIN
& SUSAN J. STABILE, ERISA LITIGATION 479-80 (2d ed. 2005)(“[C]ourts have regularly
found standing, typicality, or adequacy lacking where the defense of a release
of claims was not shared by the named plaintiffs and the purported class. . . .
[I]f none of the named plaintiffs signed releases, they are inadequate
representatives because none of them would have any need to litigate or interest
in litigating the release issue.”)
25
Additionally, the district court refused to consider
individual releases pertinent to the maintenance of a derivative
suit on behalf of the Plan. For the reasons stated in regard to
the § 404(c) defense, however, this conclusion is untenable. The
impact of the releases should not have been excluded from the
district court’s certification analysis.
Without commenting further on the enforceability of the
releases or application of the “benefits” exception, we note that
holders of releases could become a subclass if a class action is
otherwise deemed appropriate. Contrary to the dissent, we are not
holding that the releases foreclose any § 502(a)(2) suit on behalf
of the Plan or foreclose any class certification. We do stress,
however, that the status of perhaps nine thousand claimants is not
a trifle — either to the Appellants or the claimants themselves.
The district court must consider the releases more thoroughly on
remand.26
D. Class Action Issues.
Applying the § 404(c) defense and factoring in the nine
thousand releases may well change the district court’s decision to
certify a class action. Nevertheless, we must also address the two

-- 25 of 57 --

26
Rule 23(a) class certification issues challenged directly by
Appellants — typicality of the representative Plaintiffs’ claims
and adequacy of their representation — as well as the court’s
ultimate authorization of a Rule 23(b)(1) and (2) no-notice,
no-opt-out class action. We conclude that Smith and Mizell hold
sufficiently typical claims, but the court must reconsider whether
they are adequate representatives in light of inherent intraclass
conflicts. Finally, various difficulties demonstrate the impro-
priety of maintaining a Rule 23(b)(2) class action and the court’s
superficial analysis of the Rule 23(b)(1) alternative.
1. Typicality.
Rule 23(a) requires that the named representatives’
claims be typical of those of the class. Appellants question
whether Smith’s and Mizell’s claims are typical because Mizell
continued to invest in EDS stock even after it declined following
the September 18th disclosures, and Smith actually made money on
his EDS investments (although not as much as he thinks he should
have). The district court ruled these inquiries inappropriate
since the representatives’ derivative claims on behalf of the Plan
transcend individual claim variations. On the contrary, the
requirements of Rule 23(a) cannot be waved away by artful
characterization. Even if the typicality requirement did not
apply, Smith and Mizell would have the burden to prove, as

-- 26 of 57 --

27
derivative representatives of the Plan, that their claims fairly
represent those of the absent Participants.
Stated broadly, the representatives’ claims are typical
of those of the class. Smith and Mizell both allege that they
suffered harm as Participants who lost money on EDS stock
investments through the Appellants’ imprudent Plan management. The
fact that Mizell continued to trade in EDS stock after the
company’s adverse disclosures may signify an intraclass conflict of
interest and may cut against his attempt to avert a § 404(c)
defense, but it does not disable him from being a typical class
representative. This court recently noted that “the key typicality
inquiry is whether a class representative would be required to
devote considerable time to rebut Defendants’ claims.” Feder,
429 F.3d at 138 (quoting Lehocky v. Tidel Techs., 220 F.R.D. 491,
501-02 (S.D. Tex. 2004). Feder went on to join numerous decisions
which have held that securities class action plaintiffs are not
categorically precluded from asserting typical claims despite their
own post-disclosure trading in the target defendant’s stock. Id.
Such trading becomes harmless where, after the company has made
adverse disclosures, the stock price reverts to valuation based on
an efficient market. The analogy between securities fraud and
ERISA fiduciary violation plaintiffs is inexact, as Appellants
point out, in the face of Mizell’s contentions that even after the
September 18th disclosures, EDS stock remained an imprudent Plan
investment. A trading strategy adopted for Mizell’s personal

-- 27 of 57 --

28
benefit is, however, distinguishable from the Plan fiduciaries’
execution of their duties. Similar reasoning vindicates Smith’s
claim to typicality, reducing Appellants’ complaint over his profit
to questions of damages and the § 404(c) defense.
2. Adequacy.
In addition to measuring the competence of class counsel
and the class representatives’ willingness and ability to serve,
neither of which criteria are challenged here, the Rule 23 adequacy
inquiry also uncovers “‘conflicts of interest between the named
plaintiffs and the class they seek to represent.’” Berger v.
Compaq Computer Corp., 257 F.3d 475, 479-80 (5th Cir. 2001)
(quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625,
125 S. Ct. 2231, 2236 (1997)).
Substantial conflicts exist among the class members,
raising questions about the adequacy of the lead Plaintiffs’
ability to represent the class. Even after the EDS earnings
warning and the drop in its stock price, thousands of Plan
Participants (would-be class members), including Mizell, continued
to direct money into the EDS Stock Fund. Over forty-four thousand
Participants maintained investments in EDS stock as of February,
2004. This aggregate conduct seriously undermines the claim that
the EDS Stock Fund was an imprudent investment that Appellants
should not have offered in the first place. The intraclass
conflict is exacerbated because Appellants seek injunctive relief

-- 28 of 57 --

27 More pointedly, even if Appellees prevail without receiving an
injunction, their assertion that the mere existence of the EDS Stock Fund
violated a fiduciary duty under ERISA will have won the day. It is hard to
imagine that the Fund would continue to exist after such a finding.
29
that would dissolve the EDS Stock Fund;27 the Fund cannot be
partially shut down for the litigating Plaintiffs and remain open
for absent class members who desire this investment option.
Additionally, Plan Participants were affected by the drop
in price in dramatically different ways. Class discovery revealed
that Smith and sixteen thousand absent class members made money on
their stock fund investments, while others, including Mizell, lost
money. Further conflicts exist among those who lost money.
According to David Ross’s report, for 17,890 class members, maximum
recovery would inure to the Plan (and eventually be allocated to
their accounts) if February 4, 2000, is established as the date on
which the stock fund became an imprudent investment. For 37,689
class members, maximum recovery would be attained if November 27,
2001, were the designated date. Appellees dismiss these concerns
by asserting that all Plan Participants share the goal of attaining
maximum payment to the Plan, regardless of the designated date.
This is true as a general matter and surely promotes the interest
of the class representatives and their counsel. Appellees gloss
over the inconvenient fact that these conflicts have implications
not only for dividing the pie at recovery but also for discovery
and preparation for trial. Unlike a securities fraud lawsuit, in
which class members have a uniform purpose in proving material

-- 29 of 57 --

28 Indeed, intraclass problems can present problems of constitutional
magnitude. See Hansberry v. Lee, 311 U.S. 32, 43-44 61 S. Ct. 115, 119-120
(1940). The dissent’s suggestion that although “some members may not want EDS
stock removed as an investment alternative [this] does not present a conflict”
is not far from saying that the fact that the Hansberry family did not want to
enforce the covenant barring blacks from living in their neighborhood does not
present a class conflict with those who sought, through a class action judgment,
to enforce the covenant against them. A few class members cannot hijack
litigation “on behalf of the plan” to pursue their preference at the expense of
others who are not given notice of this purported representation. The interests
of all class members must be fundamentally consistent.
30
misrepresentations by company defendants at specific points in
time, here the goal is to second-guess judgments made by the
Appellants involving a multitude of considerations over a period of
years. The facts, once known, may bear out different legitimate
theories as to when EDS Stock Fund became an imprudent investment;
each theory will have different consequences for class members’
recovery.
Numerous courts have held that intraclass conflicts may
negate adequacy under Rule 23(a)(4). See Valley Drug Co. v. Geneva
Farms, Inc., 350 F.3d 1181, 1189-92 (11th Cir. 2003) (finding class
representatives inadequate where their economic interests and
objectives conflicted substantially with those of absent class
members); Pickett v. Iowa Beef Processors, 209 F.3d 1276, 1280
(11th Cir. 2000)(representation inadequate where class includes
those “who claim harm from the very acts from which other class
members benefitted”).
The trial court too readily succumbed to Appellees’
minimization of the intraclass problems in this case.28 That the
court recognized a fiduciary would need to be appointed to allocate

-- 30 of 57 --

31
recovery among Plan Participants concedes at least the possibility
of intraclass apportionment problems. The problem goes to the
heart of proving the allegations of fiduciary imprudence. On
remand, the district court must more fully consider the
implications of the proven intraclass conflicts for the adequacy of
representation by Smith and Mizell. If a class is certified, the
court may have to consider certifying subclasses to represent the
participants with conflicting interests.
3. The Allison Rule 23(b)(2) Inquiry.
With little difficulty, the district court concluded that
because Plaintiffs’ derivative lawsuit was filed on behalf of the
Plan and sought “predominately” equitable remedies, it should be
certified as a class pursuant to Rule 23(b)(2). The court did not
afford absent class members the option of notice or self-exclusion
from the class. Certification of a class under Rule 23(b)(2) is
appropriate where “the party opposing the class has acted or
refused to act on grounds generally applicable to the class,
thereby making appropriate final injunctive relief or corresponding
declaratory relief with respect to the class as a whole.” FED. R.
CIV. P. 23(b)(2). The district court cited this court’s decision
in Allison v. Citgo Petroleum Corp., 151 F.3d 402 (5th Cir. 1998),
which held that “monetary relief predominates in (b)(2) class
actions unless it is incidental to requested injunctive or
declaratory relief.” Id. at 415. This Allison (b)(2) predominance

-- 31 of 57 --

29 “Allison reflects our concern that Plaintiffs may attempt to shoehorn
damage actions into the Rule 23(b)(2) framework, depriving class members of
notice and opt-out protections.” Bolin v. Sears, Roebuck & Co., 231 F.3d 970,
976 (5th Cir. 2000).
32
requirement, “by focusing on uniform relief flowing from
defendants’ liability, ‘serves essentially the same functions as
the procedural safeguards and efficiency and manageability
standards mandated in (b)(3) class actions.’” In re Monumental
Life Ins. Co., 365 F.3d 408, 417 (5th Cir. 2004) (quoting Allison,
151 F.3d at 414-15).29
Allison also imposed standards for determining whether
monetary relief sought in a Rule 23(b)(2) class action is truly
incidental, or whether such relief is the true pursuit of the class
action:
Ideally, incidental damages should be only those to which
class members automatically would be entitled once
liability to the class (or subclass) as a whole is
established. That is, the recovery of incidental damages
should typically be concomitant with, not merely
consequential to, class-wide injunctive or declaratory
relief. Moreover, such damages should at least be
capable of computation by means of objective standards
and not dependent in any significant way on the
intangible, subjective differences of each class member’s
circumstances. Liability for incidental damages should
not require additional hearings to resolve the disparate
merits of each individual’s case; it should neither
introduce new and substantial legal or factual issues,
nor entail complex individualized determinations.
Allison, 151 F.3d at 415 (internal citations omitted). Allison’s
test has been cited in connection with other ERISA class action
determinations. See Nelson v. Ipalco Enters. Inc., No. 1P02-
477CHK, 2003 WL 2310192 (S.D. Ind. Sept. 30, 2003) (unpublished).

-- 32 of 57 --

33
Two considerations persuade us that the district court
got it backwards. This court has refused to permit certification
of a class where many members “have nothing to gain from an
injunction, and the declaratory relief they seek serves only to
facilitate the award of damages.” Bolin v. Sears, Roebuck & Co.,
231 F.3d 970, 978 (5th Cir. 2000). As just noted, many potential
class members have voted with their investments to remain in the
EDS Stock Fund and, inferably, do not want it closed; other
potential class members profited from stock swings caused by the
alleged fiduciary violations; and still other potential class
members would gain or lose damages based on the breach date
selected by the court. In light of these real, not simply alleged,
problems caused by such conflicts, the inability of absent class
members to receive notice of this suit or have an opportunity to
opt out is extremely troubling.
Second, to effectuate Appellees’ principal goal —
reimbursement into the individual accounts of each Plan Participant
— numerous individualized hearings would be required. Final
resolution of class members’ claims will involve “new and
substantial legal and factual issues,” Allison, 151 F.3d at 415,
including the § 404(c) defense, whether an individual class member
was actually harmed by the purported breaches of fiduciary duty,
and the releases. Resolution of these claims will require “complex
individualized determinations,” Allison, 151 F.3d at 415. Again,
the district court’s acknowledgment that a fiduciary would have to

-- 33 of 57 --

34
sort out the claims of individual class members demonstrates how
little the “incidental damages” (which would total many millions of
dollars) will “be more in the nature of a group remedy,” as Allison
intended. See id.
The inappropriateness of Rule 23(b)(2) in this case is
strongly supported by the court’s decision in Nelson, which states:
Relief will depend on individualized calculations for
each account. As noted, individual claimants may present
issues of causation and reliance, so that a classwide
determination that defendants violated ERISA’s
requirements would not necessarily lead to an award in
favor of a particular claimant. Also, defendants may be
able to raise individual defenses regarding each class
member. Thus, monetary relief here would not “flow
directly from liability to the class as a whole.”
Certification under Rule 23(b)(2) is not available here.
Id. at * 11.
It may be objected that because Plaintiffs’ suit is
characterized as a derivative action on behalf of the Plan, resort
to the Rule 23 class action requirements is not mandated, and
Rule 23(b)(2) best represents a compromise between the derivative
nature of the claims and the ultimate relief that may be granted in
individual Participants’ accounts. Lower court cases are in fact
divided over which provision of Rule 23 applies. Compare Piazza v.
EBSCO Indus., Inc., 273 F.3d 1341, 1352-53 (11th Cir. 2001) (abuse
of discretion for the district court to certify a (b)(3) class)
with Coan v. Kaufman, 349 F. Supp. 2d (D. Conn. 2004)(“. . . Courts
. . . have nonetheless applied the procedural safeguards of either
Rule 23 or Rule 23.1 in order to protect the plan and absent
participants.”) (citing cases). Perhaps no general procedural rule

-- 34 of 57 --

35
can be enunciated. In this case, we are confident that the
subtlety of the fiduciary claims alleged, the intraclass conflicts
and the individualized nature of potential defenses mandated that
the case proceed as a class action and equally mandated, on the
facts before us, against the propriety of a Rule 23(b)(2) class.
On remand, after further consideration, the court may adduce
sufficient grounds to approve a class pursuant to the standards
this court has developed.
4. Rule 23(b)(1).
The district court also purported to certify a class
under Rule 23(b)(1). Although certification must be reversed under
Rule 23(a), we point out the court’s cursory Rule 23(b)(1) analysis
in the interest of judicial efficiency and to provide guidance on
remand. See United States v. Murillo-Lopez, 444 F.3d 337, 339 &
n.5 (5th Cir. 2006).
Numerous courts, like the district court, have
conclusionally declared that a (b)(1) class is appropriate in an
ERISA lawsuit “on behalf of the plan.” Of course, a Rule
23(b)(1)(B) limited fund class action is plainly not appropriate.
See Ortiz v. Fibreboard Corp., 527 U.S. 815, 119 S. Ct. 2295
(1999). What the court evidently meant was a certification under
Rule 23(b)(1)(A), which authorizes a class action where the party
opposing the class would be subject to “incompatible standards” if
separate actions were brought. Such a remedy has some intuitive

-- 35 of 57 --

30 The dissent contends that no intraclass conflict exists with respect
to the class members’ competing views on injunctive relief since the propriety
of injunctive relief will be determined at the end of litigation and an
injunction may be unnecessary.
36
appeal to the extent that Plaintiffs here seek equitable relief:
A judgment removing the fiduciaries in one lawsuit would be
inconsistent with a judgment in another permitting them to stay.
On the other hand, as even the dissent recognizes, achieving
injunctive relief is not the principal goal of this litigation.30
The focus on monetary damages would set this case apart from the
examples of classic Rule 23(b)(1) class actions, which are based on
situations “in which different results in separate actions would
impair the opposing party’s ability to pursue a uniform course of
conduct.” C.WRIGHT, A.MILLER, & M.KANE, 7A FEDERAL PRACTICE & PROCEDURE
§ 1773, at 16 (2005 ed.).
If the district court eventually reaches a Rule 23(b)
analysis, it should consider the extent to which the due process
concerns inherent in Allison apply to a (b)(1)(A) class and whether
a (b)(1)(A) class can be maintained if damages are the primary
remedy sought. See Zinser v. Accufix Research Inst., Inc.,
253 F.3d 1180, 1193-95 (9th Cir. 2001). The resolution of these
issues is still uncertain in the Fifth Circuit. What seems fairly
clear is that depriving tens of thousands of EDS shareholders of
notice and opt-out protections, where there are undeniable
intraclass conflicts pertinent to significant monetary outcomes,

-- 36 of 57 --

31 The Eleventh Circuit decision in Piazza v. Ebsco Indus., Inc., 273
F.3d 1341 (11th Cir. 2001), certified a Rule 23(b)(1)(A) class action to redress
fiduciary duty breaches to an ERISA plan pursuant to § 502(a)(2), but no
intraclass conflicts were asserted against the maintenance of the class or as a
basis for questioning the denial of notice and opt-out.
37
would create an unacceptable risk of unfair treatment of class
members.31
III. CONCLUSION
For the foregoing reasons, the class certification by the
district court is VACATED and REMANDED. The court may reconsider
its class certification pursuant to the standards discussed herein.
VACATED AND REMANDED.

-- 37 of 57 --

38
REAVLEY, J., Circuit Judge, dissenting:
I would affirm the order certifying the class action. The
majority decides that plaintiffs must return to the district
court for further pondering of whether Title 29 U.S.C. §
1104(c)(1) relieves the fiduciary of liability, that
certification under Rule 23 (b)(2) would be inappropriate
because of conflict between members of the class, and that Rule
23(b)(1) is “conceptually unclear.” As I understand the
opinion, it misapplies § 1104(c)(1), reflects an incorrect view
of conflict, and ignores the unique applicability of Rule
23(b)(1) in this case.
A. Control Over Assets
EDS employees could choose among a dozen or more options,
including an EDS stock fund, for investment of their plan
contributions. Matching plan contributions made by the company
on the employees’ behalf were mandatorily invested in the EDS
stock fund, where they were required to remain for two years.
In this suit, the employees who selected the EDS stock fund sue
for fiduciary imprudence in affording them that option, but the
majority holds that the statute and regulations count the

-- 38 of 57 --

1 The majority and many writers use the ERISA §
404(c) designation and I will do so hereafter.
39
employee selection of the EDS option to be control of assets
that absolves the fiduciary of liability.
Title 29 § 1104(c)(1) (also ERISA § 404(c)1) provides in
relevant part that “[i]n the case of a pension plan which
provides for individual accounts and permits a participant or
beneficiary to exercise control over the assets in his account,
if a participant or beneficiary exercises control over the
assets in his account [then] no person who is otherwise a
fiduciary shall be liable [] for any loss, or by reason of any
breach, which results from such participant’s or beneficiary’s
exercise of control.” The statute further provides that the
circumstances in which a participant or beneficiary is
considered to have exercised independent control over assets
in his account as contemplated by § 404(c) are to be determined
under regulations of the Secretary of the Department of Labor
(“DOL”). Id. at (c)(1). The agency’s regulations describing
those circumstances, and the consequences of a participant’s
or beneficiary’s exercise of control are set forth at 29 C.F.R.
§ 2550.404c-1. Under these regulations, in order to qualify
for relief from fiduciary liability, plans must meet certain

-- 39 of 57 --

40
general requirements, including provision of sufficient
investment information and disclosure of material facts. 29
C.F.R. §§ 2550.404c-1(b)(2)(B), (c)(2)(ii) (2004). The EDS
plan’s full compliance with these requirements is, at this
stage, undetermined.
For present purposes, we need not consider questions about
what information the law requires a fiduciary to give
participants about investments in a selected stock option, but
I would hold that imprudent designation of an option for
participants to choose constitutes grounds for fiduciary
liability, and falls outside the scope of participant control
envisaged by § 404(c). That is the position of the Department
of Labor, of the commentators, and of the case law.
The DOL regulation provides that a plan fiduciary will not
be liable for any loss that “is the direct and necessary result
of [a] participant’s or beneficiary’s exercise of control.”
29 C.F.R. § 2550.404c-1(d)(2)(i)(2004). The DOL has made clear
that § 404(c) does not relieve fiduciaries of their prudence
duty in selecting and monitoring plan investment options. See
Final Regulation Regarding Participant Directed Individual
Account Plans (ERISA Section 404(c) Plans), 57 Fed. Reg. 46906-
01, 1992 WL 277875 (Oct. 13, 1992). (General preamble, n.27)

-- 40 of 57 --

2 See, e.g., DOL Advisory Opinion No. 98-04A, 1998 WL
326300, at *1, *3 n.1 (May 28, 1998); DOL Advisory Letter,
1997 WL 1824017, at *2 (Nov. 26, 1997), amicus briefs in this
case and in In re Enron Corp. Securities, Derivative & ERISA
Litig., 284 F. Supp. 2d 511 (S.D. Tex 2003) and In re Schering-
Plough Corp. ERISA Litig., 420 F.3d 231 (3d Cir. 2005).
3 See Auer v. Robbins, 519 U.S. 452, 457, 117 S. Ct.
905, 909 (1997); Wells Fargo Bank of Texas N.A. v. James, 321
F.3d 488, 494-95 (5th Cir. 2003).
41
(“[T]he Department points out that the act of limiting or
designating investment options which are intended to constitute
all or part of the investment universe of an ERISA 404(c) plan
is a fiduciary function which, whether achieved through
fiduciary designation or express plan language, is not a direct
or necessary result of any participant direction of such
plan.”) (emphasis added). The DOL has consistently reiterated
this interpretation.2
An agency’s reasonable interpretation of its own
regulation is entitled to the highest deference under Chevron
U.S.A., Inc. v. National Resource Defense Council, Inc., 467
U.S. 837, 104 S. Ct. 2778 (1984).3 The majority says the DOL’s
preamble is entitled to deference only to the extent it has
power to persuade, citing Louisiana Environmental Action
Network v. EPA, 382 F.3d 575 (5th Cir. 2004), where we held
that an interpretation set forth in the preamble of a proposed

-- 41 of 57 --

42
regulation, which had not yet been subjected to formal notice-
and-comment rulemaking, was entitled to less than Chevron,
deference. Id. at 583. But here the statute expressly
delegated to the agency the task of promulgating a regulation
governing when a participant will be viewed as having exercised
independent control over the assets in his or her account for
the purposes of § 404(c) relief from fiduciary liability. See
29 U.S.C. § 1104(c)(1).
The DOL’s interpretation, as quoted above, was contained
in the preamble to a revised version of the proposed § 404(c)
regulation, which was promulgated and noticed in March 1991.
See Participant Directed Individual Account Plans, 56 Fed. Reg.
10724-01, 1991 WL 301434 (Mar. 31, 1991). This version of the
regulation was the subject of further comment, and the final
regulation, containing the same interpretative passage in the
preamble, was adopted in October 1992. See Final Regulation
Regarding Participant Directed Individual Account Plans (ERISA
Section 40(c) Plans), 57 Fed. Reg. 46906-01, 1992 WL 277875
(Oct. 13, 1992). The DOL’s interpretation of the final notice-
and-comment regulation as preserving the fiduciary’s duty to
prudently select and monitor the plan investment options, which
was published in the federal register and uniformly adhered to

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43
in numerous public pronouncements, is entitled to controlling
weight to the extent that it is reasonable.
The DOL’s interpretation of its own § 404(c) regulation is
reasonable. Section 404(c) need not be read to shield
fiduciaries from liability for including an imprudent
investment option on the investment menu in a self-directed
plan. By allowing plans to limit their universe of investment
choices and still be considered 404(c) plans, the DOL left
participants and their beneficiaries at the mercy of the wisdom
of whoever made these limiting choices. There should be some
assurance that these limited investment choices will be
prudently selected. If no duty of prudence attaches to
selection of investment options, plan fiduciaries could
imprudently select a full menu of unsound investments, among
which participants would be free to choose at their peril,
while the fiduciaries remain insulated from responsibility.
The DOL was within its delegated authority in deciding not to
offer relief for the decision to offer a plan investment
option.
All commentators recognize that § 404(c) does not shift
liability for a plan fiduciary’s duty to ensure that each

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4 See, e.g., 1 MICHAEL J. CANAN, QUALIFIED RETIREMENT PLANS
§ 16.28 (2006 ed.) (“[T]o some degree, fiduciary liability
remains for selection of the investment choices.”); Paul J.
Donahue, Plan Sponsor Fiduciary Duty for the Selection of
Options in Participant-Directed Defined Contribution Plans and
the Choice Between Stable Value and Money Market, 39 AKRON L.
REV. 9, 12 (2006) (“Selection of a [directed contribution]
Plan’s investment options remains a fiduciary function, and
Plan Sponsors must choose those investment options
knowledgeably and thoughtfully.”); 1 RONALD J. COOKE, ERISA
PRACTICE AND PROCEDURES §6:30 (2d ed. 1996 & Supp. 2004)(“ERISA
Section 404(c) does not relieve plan fiduciaries of the
responsibility for determining whether it is appropriate to
offer employer stock as an investment option under the Plan.”);
MICHAEL B. SNYDER, 3 COMPENSATION & BENEFITS (HR Series) § 33.138
(2006) (“Plan fiduciaries of ERISA § 404(c) plans remain
responsible for . . . prudently selecting and monitoring plan
investment alternatives.”); Debra A. Davis, Do-it-Yourself-
Retirement: Allowing Employees to Direct the Investment of
Their Retirement Savings, 8 U. PA. J. LAB. & EMP. L. 353, 377
(2006) (recognizing that plan “fiduciaries remain responsible
for prudently selecting and monitoring investments” even if the
plans comply with section 404(c)); David W. Powell, The Public
Company ESOP in 2004, 30 J. PENSION PLANNING & COMPLIANCE 70 (Sept.
30, 2004) (“[T]he fiduciary will remain responsible for whether
it is prudent for the investment in question to be offered.”);
Kathleen Sheil Scheidt & David L. Wolfe, Prudence and
Diversification Revisited — ERISA Section 404(c) Protection in
the Wake of Enron, EMP. BENEFITS J. (March 2003) (“Even if a
plan fully complies with ERISA Section 404(c), the plan
fiduciaries retain responsibility for selecting the investment
alternatives to be offered under the plan and monitoring the
performance and costs of those alternatives to ensure that they
remain prudent investment alternatives. This includes periodic
analysis of the prudence of retaining employer stock as an
investment alternative it is available under the plan.”); 1
JEFFREY D. MAMORSKY, EMPLOYEE BENEFITS LAW § 12.05 (2002) (“It is
important to note, however, that even if Section 404(c)
applies, the mere selection of an investment alternative in a
plan which limits options is a fiduciary decision and
accordingly the fiduciary will remain potentially liable for
44
investment option is and continues to be a prudent one.4

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the selection of the investment alternatives.”); Morton A.
Harris, Working with Participant Directed Investments Under
ERISA § 404(c), SG008 ALI-ABA (July 2001) (“ERISA section
404(c) does not relieve a fiduciary from liability in choosing
the investment alternatives made available to participants and
beneficiaries under the plan nor in determining whether or not
to retain existing investment alternatives. In other words,
a plan fiduciary can never avoid potential liability for
negligence in picking the investments which constitute the
‘menu’ of investment alternatives made available to
participants . . .”); STEVEN J. SACHER, EMPLOYEE BENEFITS LAW 696
(2d ed. 2000) (selection of investment alternatives remains a
fiduciary function in a 404(c) plan); Frederick Reish and
Bruce L. Ashton, ERISA Section 404(c): Shifting Fiduciary
Liability in Participant-Directed Retirement Plans, PENSION &
BENEFITS WEEK NEWSLETTER, Vol. 4, No. 3, January 12, 1998 (“[T]he
responsibility for choosing and monitoring the investment
options — as opposed to participants choosing among a pre-
selected menu of investment options — cannot be transferred to
the employees. . . . In selecting the investment options, the
responsible fiduciary must act prudently and is liable for
losses resulting from an imprudent decision. . . . In addition
to the initial selection of the investment options, the
responsible fiduciary must monitor the options to ensure that
they continue to be a prudent choice for the plan.”) (internal
quotation and citation omitted); RIA Pens. Analysis P 54,204
(2006) (“[F]iduciaries are not relieved of other obligations
in dealing with § 404(c) plans. For example, fiduciaries must
continue (subject to liability for failure) to [inter alia]
prudently select investment alternatives . . .”).
5 See, e.g., DiFelice v. U.S. Airways, Inc., 397 F.
Supp. 2d 758, 774-78 (E.D. Va. 2005); In re Dynergy, Inc.
45
Further, the majority of courts that have considered the issue
have held that, even if a plan otherwise qualifies as a §
404(c) plan, the fiduciary retains the duty to prudently select
and monitor investment options such that § 404(c) does not
provide an absolute defense to breach claims.5

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ERISA Litig., 309 F. Supp. 2d 861, 893-94 (S.D. Tex. 2004);
In re Enron Corp. Securities, Derivative & ERISA Litig., 284
F. Supp. 2d 511, 574-79 (S.D. Tex. 2003); Rankin v. Rots, 278
F. Supp. 2d 853, 873 (E.D. Mich. 2003); In re Worldcom, Inc.
ERISA Litig., 263 F. Supp. 2d 745, 763-65 (S.D.N.Y. 2003);
Franklin v. First Union Corp., 84 F. Supp. 2d 720, 732 (E.D.
Va. 2000) (holding that plan fiduciaries are responsible for
selecting and removing their plans’ investment options when the
plans comply with section 404(c)).
46
The majority relies heavily on the Third Circuit’s
decision In re Unisys Sav. Plan Litigation, 74 F.3d 420 (3d
Cir. 1996), for its conclusion to the contrary. Unisys
concerned events occurring before the DOL’s § 404(c) regulation
became effective. Although some of the Unisys court’s
conclusions regarding the scope of the authorizing ERISA
statute, 29 U.S.C. § 1104(c), are similar to those contained
in the § 404(c) regulation, neither that regulation nor the
DOL’s interpretation were directly addressed. 74 F.3d at 444
n.21 (“As the regulation [29 C.F.R. § 2550.404c-1] was not in
effect when the transactions at issue occurred, it does not
apply or guide our analysis in this case.”). As courts have
recognized, Unisys and subsequent opinions that rely upon it
should not be considered controlling, particularly in light of
the DOL’s consistent contrary interpretation. See e.g.,
DiFelice v. US. Airways, Inc., 404 F. Supp. 2d 907, 909-10
(E.D. Va. 2005) (finding Unisys unpersuasive and noting that

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6 I could not equate the mandatory retention as a
settlor decision free of fiduciary responsibility. In this
specific regard, the DOL has clearly stated that “the act of
limiting or designating investment options which are intended
to constitute all or part of the investment universe of an
ERISA 404(c) plan is a fiduciary function which, whether
achieved through fiduciary designation or express plan
language, is not a direct or necessary result of any
participant direction of such plan.” 57 Fed. Reg. 46,906 at
46,924 n.27. The DOL has consistently maintained its position
that plan fiduciaries have the duty to decline to follow the
terms of the plan documents where those terms require them to
invest participants’ funds in an imprudent investment vehicle
— even, and perhaps especially, where that required investment
is in company stock. See, e.g, DOL Amicus Brief in Kirschbaum
47
“every court to consider this issue with the benefit of the DOL
regulation” had agreed with the DOL interpretation).
Holding plan fiduciaries responsible for imprudent choice
of a limited set of options does not, as EDS suggests, make it
a guarantor of participant investment returns. Plaintiffs
allege here that EDS stock had defects beyond mere riskiness
and that it was imprudent to offer it as an investment option
for anyone. Whether or not plaintiffs can prove that
allegation remains to be seen, but that is not before us at
this stage. Of course, it cannot be disputed that § 404(c)
provides no shield for the fiduciaries’ investment and
mandatory two-year retention of the matching contributions in
company stock, a decision guided by no participant direction
whatsoever.6

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v. Reliant, Case No. 06-20157 (appeal pending 5th Cir. 2006);
DOL Op. Letter No. 90-05A, 1990 WL 172964, *3 (Mar. 29, 1990).
Indeed, we have recognized that, even in the context of
ESOPs, which are designed to be primarily invested in employer
securities, “ESOP fiduciaries remain subject to the general
requirements of [s]ection 404.” Donovan v. Cunningham, 716
F.2d 1455, 1467 (5th Cir. 1983). Those requirements include
the duty to reconsider a potentially imprudent investment
option, even if it is specified in the plan documents. See
ERISA § 404(a)(1)(B) (requiring that plan fiduciaries exercise
prudence “solely in the interest of the participants and
beneficiaries”), and ERISA § 404(1)(D) (stating that a
fiduciary may only follow plan terms to the extent that the
terms are consistent with ERISA).
Most courts to address the issue have recognized that
fiduciaries for plans that hold employer stock (both ESOPs and
non-ESOP plans) are therefore obligated to consider whether it
continues to be prudent to invest in employer stock, and they
may continue to follow plan terms requiring such investment
only if prudent to do so. See, e.g., Laborers Nat’l Pension
Fund v. Northern Trust Quantitative Advisors, Inc., 173 F.3d
313, 322 (5th Cir. 1999); Kuper v. Iovenko, 66 F.3d 1447, 1457
(6th Cir. 1995); Fink v. Nat’l Sav. & Trust Co., 772 F.2d
951, 954-55 (D.C. Cir. 1985); Agway, Inc. Employees’ 401(k)
Thrift Investment Plan v. Magnuson, No. 5:03-CV-1060, 2006 WL
2934391 at *18 (N.D.N.Y. Oct. 12, 2006); Merck & Co., Inc.
Sec. Derivative & ERISA Litig., No. 05-2369, 2006 WL 2050577
at *7 (D.N.J. July 11, 2006); In re Ferro Corp. ERISA Litig.,
422 F. Supp. 2d 850, 859 (N.D. Ohio 2006) (“a fiduciary is not
required to blindly follow the terms of a plan if doing so
would be imprudent.”); In re CMS Energy ERISA Litig., 312 F.
Supp. 2d 898, 907-08 (E.D. Mich. 2004); In re Polaroid ERISA
Litig., 362 F. Supp. 2d 461 473 (S.D.N.Y. 2005); In re Sprint
Corp. ERISA Litig., 388 F. Supp. 2d 1207, 12,18-25 (D. Kan.
2004); In re Xcel Energy, Inc. Sec. Derivative & “ERISA”
Litig., 312 F. Supp. 2d 1165, 1181 (D. Minn. 2004); In re
Worldcom, 263 F.Supp.2d 745, 764-65 (S.D.N.Y. 2003); In re
Enron Corp. Sec. Derivative & “ERISA” Litig., 284 F. Supp. 2d
511, 548-49 (S.D. Tex. 2003); In re Ikon Office Solutions,
Inc. Sec. Litig., 86 F. Supp. 2d 481, 492-93 (E.D. Pa. 2000);
Canale v. Yegen, 789 F. Supp. 147, 154 (D.N.J. 1992); Ershick
48

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v. Greb X-Ray Co., 705 F. Supp. 1482, 1486-87 (D. Kan. 1989).
49
B. Intra-class Conflict
Beyond the § 404(c) dispute, I do not believe the fact
that a portion of the plan participants signed general releases
upon departing the company’s employ precludes class
certification. I find no fault with the district court’s
conclusion that these releases do not extend to the plan
participants’ right to recoup plan benefits and agree that,
even if this conclusion is incorrect, no individual participant
can unilaterally release the rights of other participants to
derivatively seek recovery on behalf of the plan under §
502(a)(2). See, e.g, Bowles v. Reade, 198 F.3d 752, 759-61
(9th Cir. 1999) (rejecting the argument that settlement of a
participant’s breach of fiduciary claims against a defendant
released the plan’s claims against that defendant). The
dispute over the breadth of the release can be resolved on a
class-wide basis and, whether or not these releases preclude
the relatively small percentage of signing participants from
receiving allocation of any recovered plan assets, this does
not deny class certification.
Further, the fact that some individual participants may
gain from allocation of any recouped plan assets and some may

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7 See Milofsky v. American Airlines, Inc., 442 F.3d
311, 313 (5th Cir. 2006) (subset of participants not precluded
from bringing breach of fiduciary duty claims under ERISA
sections 502(a)(2) and 409(a) where remedy would not benefit
all participants); In re Schering-Plough Corp. ERISA Litig.,
420 F.3d 231, 239-41 (3d Cir. 2005) (derivative action under
§ 502(a)(2) was available to a subset of participants to
recover losses sustained to plan by breaches of fiduciary
duty); Kuper v. Iovenko, 66 F.3d 1447, 1452-53 (6th Cir.
1995); In re CMS ERISA Litig., 225 F.R.D. 539, 543 (E.D. Mich.
2004); Woods v. Southern Co., 396 F. Supp. 2d 1351, 1361-62
(N.D. Ga. 2005)(rejecting argument that a participant cannot
be said to seek redress for losses to the plan unless every
participant in the Plan was affected by the challenged breach
of fiduciary duty).
50
not does not present a conflict. All courts that have
considered the issue, including this one, have rejected
arguments that a § 502(a)(2) ERISA action must allege harm to
all of a plan’s individual participants.7 To hold that
variances among allocation present a class conflict is a back-
door avoidance of this universal conclusion. In short, the
possibility that individualized benefit determinations will be
required is insufficient to bar class certification.
Further, because the plaintiffs are suing under section
502(a)(2) on behalf of the plan, it is not material whether or
not individuals lost money or had access to investment
information regarding EDS stock that might have prevented them
from doing so. The loss causation issue is whether the
defendants caused a loss to the plan (ERISA § 409(a), 29 U.S.C.

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51
§ 1109(a)) by including EDS stock as a plan option, regardless
of whether or not individuals like plaintiff Mizell “traded
[his] way to profit,” as the majority states, by continuing to
invest in allegedly imprudent employer securities. See In re
Enron Corp. Sec. Derivative Sec. & “ERISA” Litig., No. MDL
1446, Civ. A. H-01-3913, 2006 WL 1662596, *3-4 (S.D. Tex. June
7, 2006); DiFelice v. U.S. Airways, Inc., 235 F.R.D. 70, 78-
79, 83 (E.D. Va. March 22, 2006). We have already implicitly
ruled against the defendants’ argument — and the majority’s
position — on this front in affirming the class in the parallel
EDS securities fraud suit. See Feder v. Electronic Data
Systems Corp., 429 F.3d 125, 138 (5th Cir. 2005) (“We reject
the argument that a proposed class representative in a
fraud-on-the-market securities suit is as a matter of law
categorically precluded from meeting the requirements of Rule
23(a) simply because of a post-disclosure purchase of the
defendant company's stock.”).
Finally, our disposition of this appeal is not affected by
the fact that some participants may not agree with the request
for injunctive relief in the form of removing the EDS stock
fund as a plan option. While prudence will be evaluated as of
the time of the alleged fiduciary breach, the value of

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52
injunctive relief will be measured as of the current status
quo. That some class members may not want EDS stock removed
as an investment alternative does not present a conflict.
Rather, the district court will decide what is best for the
plan and, accordingly, will weigh the fact that members
continue to invest in and hold the company stock in that
determination.
For all of these reasons, I do not see either intra-class
conflicts or lack of typicality on the part of the named
plaintiffs that would preclude class certification under the
prerequisites of Rule 23(a).
C. The District Court’s Certification and Rule 23(b).
The majority’s primary focus on class action Rule 23(b)(2)
is misplaced because certification was also ordered under Rule
23(b)(1), and that rule is particularly suited to this
litigation. Rule 23(b)(1) provides that:
An action may be maintained as a class action if the
prerequisites of subdivision (a) are satisfied, and
in addition:

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53
(1) the prosecution of separate actions by or
against individual members of the class
would create a risk of
(A) inconsistent or varying adjudications
with respect to individual members of
the class which would establish
incompatible standards of conduct for
the party opposing the class, or
(B) adjudications with respect to
individual members of the class which
would as a practical matter be
dispositive of the interests of the
other members not parties to the
adjudications or substantially impair
or impede their ability to protect
their interests.
FED. R. CIV. P. 23(b)(1).
Although ERISA’s civil enforcement rules allow a single
plaintiff to sue for plan-wide relief, much of today’s ERISA
litigation is maintained on a class action basis. The

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8 The risk of inconsistency encompasses but is not,
as the majority implies, limited to injunctive considerations.
Further, I do not acknowledge, as the majority states, that
injunctive relief is not at issue here, only that the
appropriateness of such relief will be determined (1) as to the
good of the plan (rather than the individuals), and (2) at a
different point than that fixed for determination of monetary
damages.
54
fiduciary duty of prudence at issue is owed to the entire class
and separate actions would create the risk of establishing
inconsistent standards under ERISA. Were the individual class
members each left to bring separate § 502(a)(2) actions on
behalf of the plan, each case could conceivably result in
different courts reaching conflicting decisions regarding not
only the ultimate prudence of investment in EDS stock, but also
the applicability of the various defenses the defendants seek
to interpose. See In re CMS Energy ERISA Litig., 225 F.R.D.
at 543 (certifying class under Rule 23(b)(1) in face of
allegations similar to this case to avoid risk of inconsistent
rulings concerning fiduciary status and materiality of alleged
omissions where the “single overriding common issue is whether
CMS stock was an imprudent investment for the Plan”).
Contradictory rulings as to the appropriateness of injunctive
relief would also place imcompatible demands on the
defendants.8 In keeping with this rationale, a number of

-- 54 of 57 --

9 See, e.g., In re Tyco Int’l, Ltd., No. MD-02-1335-
PB, 2006 WL 2349338, *7-8 (D. New Hampshire, Aug. 15, 2006)
(certifying class suing on behalf of plan under Rule
23(b)(1)(B)); In re Enron Corp. Sec. Derivative Sec. & “ERISA”
Litig., No. MDL 1446, Civ. A. H-01-3913, 2006 WL 1662596, *13-
15 (S.D. Tex. June 7, 2006) (certifying a class suing on behalf
of a plan under Rule 23(b)(1), finding both subsections (A) and
(B) applicable); Rogers v. Baxter Int’l, Inc., No. 04 C 6476,
2006 WL 794734, *11 (N.D. Ill. Mar. 22, 2006) (same); Summers
v. UAL Corp. ESOP Comm., 2005 WL 1323262 (N.D. Ill. Feb. 17,
2005); In re Williams Companies ERISA Litig., 231 F.R.D. 416,
424-25 (N.D. Okla. 2005) (same); In re ADC Telecommunications
ERISA Litig., No. Civ. 03-2989ADMFLN, 2005 WL 2250782, *4-5 (D.
Minn. Sept. 15, 2005) (same); Baker v. Comprehensive Employee
Solutions, 227 F.R.D. 354, 360 (D. Utah 2005); Rankin v. Rots,
220 F.R.D. 511 (E.D. Mich. 2004); In re Worldcom, Inc. ERISA
Litig., WL 2211664 *3 (S.D.N.Y. Oct. 4, 2004) (“[C]ertification
is appropriate under Rule 23(b)(1)(B). Any adjudication with
respect to individual members of the class will as a practical
matter be dispositive of the interests of the other members of
the class.”); In re Ikon Office Solutions, 191 F.R.D. 457, 464
(E.D. Pa. 2000); Bunnion v. Consol. Rail Corp., 1998 WL 372644
(E.D. Pa. 1998); Gruby v. Brady, 838 F. Supp. 820, 828 (S.D.
N.Y. 1993); Specialty Cabinets & Fixtures, Inc. v. Am.
Equitable Life Ins. Co., 140 F.R.D. 474, 479 (S.D. Ga.
1991)(“Because individuals may bring class actions to remedy
breaches of fiduciary duty only on behalf of the plan, rather
than themselves, the court cannot allow absent participants or
beneficiaries to opt out of this class. The right to recovery,
after all, belongs to the plan.”)(citation omitted).
55
courts have certified ERISA fiduciary breach suits under Rule
23(b)(1).9 I would follow this lead and affirm the district
court’s certification order under Rule 23(b)(1).
The parties have devoted much of their extensive briefing
to discussion bearing on the merits of plaintiffs’ claims.
While plaintiffs may face factual obstacles on the way to

-- 55 of 57 --

56
proving their claim, such matters are not before us at this
stage. For example, the fact that, as the majority opinion
observes, EDS stock has recovered in large measure is not
relevant. We have recognized that prudence is a test which
measures the fiduciary’s conduct at the time of the decision,
rather than the success or failure of his or her course of
action. Metzler v. Graham, 112 F.3d 207, 209 (5th Cir. 1997)
(“Prudence is to be evaluated at the time of the investment
without benefit of hindsight.”). Class certification is
appropriate regardless of the ultimate outcome on the merits
because the Rule 23 prerequisites have been met as the district
court correctly determined.
It appears to me that the majority’s view of the effects
of section 404(c) and the general releases, and how they affect
all aspects of the class action certification, controls the
matter, and I have difficulty seeing how it leaves the district
court any room for certification on remand. In addition to
prolonging an already over-lengthy process, the majority’s
disposition presents the district court with a futile exercise.

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