Northrop Grumman Corp v. Axis Reinsurance Co ( 2020 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
No. 19-1949
_______________
NORTHROP GRUMMAN CORPORATION
v.
AXIS REINSURANCE COMPANY; NATIONAL UNION FIRE
INSURANCE COMPANY OF PITTSBURGH, PENNSYLVANIA
Axis Reinsurance Company,
Appellant
_______________
On Appeal from the United States District Court
for the District of Delaware
(D.C. No. 1:17-cv-01738)
District Judge: Honorable Matthew W. Brann
_______________
Argued: February 5, 2020
Before: CHAGARES, RESTREPO, and BIBAS, Circuit Judges
(Filed: April 22, 2020)
______________
Kim W. West [ARGUED]
Alec H. Boyd
Clyde & Co US
101 Second Street, 24th Floor
San Francisco, CA 94105
Carmella P. Keener
Cooch & Taylor
1007 North Orange Street
The Nemours Building, Suite 1120
P.O. Box 1680
Wilmington, DE 19899
Counsel for Appellant Axis Reinsurance Company
Barry J. Fleishman [ARGUED]
Pillsbury Winthrop Shaw Pittman
1200 17th Street, Northwest
Washington, DC 20036
David J. Baldwin
Berger Harris
1105 North Market Street, 11th Floor
Wilmington, DE 19801
Counsel for Appellee Northrop Grumman Corporation
Sean P. Mahoney [ARGUED]
Edward M. Koch
Felix S. Yelin
White & Williams
1650 Market Street, Suite 1800
Philadelphia, PA 19103
Timothy S. Martin
White & Williams
600 North King Street, Suite 800
Wilmington, DE 19801
Counsel for Appellee National Union Fire Insurance Company of
Pittsburgh, Pennsylvania
2
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OPINION*
_______________
BIBAS, Circuit Judge.
In families, as in insurance disputes, “related” is a relative term. But whether they are
twins, other siblings, or cousins, all members of a family are just that: related. In this
appeal, we must decide whether one set of allegations against a policyholder in a class
action is “related,” either causally or logically, to another set in an earlier class action
against the same policyholder. If so, then Axis Reinsurance has a duty to defend Northrop
Grumman, the policyholder, against the latest lawsuit. If not, that duty falls on National
Union Fire Insurance.
Some allegations in the two class actions are like siblings; others are more like cousins.
But all of them belong to the same family. Because the District Court correctly concluded
that the two class actions are related, we will affirm.
I. BACKGROUND
A. The insurance policies
Northrop is a large defense contractor and one of the nation’s biggest companies. It
offers various retirement plans to its many current and former employees. Collectively,
those obligations are substantial: at the end of 2015, for instance, one of Northrop’s retire-
ment plans had more than $19 billion in assets and more than 100,000 participants.
*
This disposition is not an opinion of the full Court and, under I.O.P. 5.7, is not binding
precedent.
3
These retirement plans are governed by the Employee Retirement Income Security Act
of 1974 (ERISA), 29 U.S.C. §§ 1001–1461. Under ERISA, Northrop owes strict fiduciary
duties to its plan participants. See id. §§ 1002(9), (21)(A), 1104(a); Sweda v. Univ. of Pa.,
923 F.3d 320, 333 (3d Cir. 2019), cert. denied, No. 19-784, 2020 WL 1496631 (U.S.
Mar. 30, 2020). Because of these duties, Northrop’s retirement plans put it at risk of con-
siderable liability.
To offload some of that risk, Northrop bought several insurance policies that covered
claims under ERISA and similar laws. The policies covered Northrop, its plan-management
committees, and their members. They included coverage for the costs of Northrop’s legal
defense and, if it ultimately suffered a covered loss, indemnity for that payout.
In most material respects, Northrop’s various insurance policies worked the same way.
Take its 2016 policy with National Union, for example. If a party alleged a “Wrongful Act”
against Northrop, meaning an “actual or alleged violation” of an employee-benefit law like
ERISA, that “Claim” would trigger coverage under the policy. App. 342, 350. Northrop
could then submit the “Claim” to National Union, which would have a duty to defend the
lawsuit. App. 332. Under that duty, after Northrop paid the first $2.5 million of its defense
costs (its self-insured retention), National Union had to fund Northrop’s defense of that
claim until its “final disposition,” even if it was “groundless, false or fraudulent.” App. 323,
332–33.
4
B. The coverage towers
For the years at issue (2006 and 2016), Northrop bought several layered policies with
different insurers: a primary policy with National Union and a series of excess policies
with other insurers. The excess policies stacked on top of the primary policy and kicked in
when the primary policy reached its liability limit. Collectively, they formed a “tower” of
coverage for each year, which we will call the 2006 Tower and the 2016 Tower. The terms
of the policies explained how coverage responsibility could shift both vertically (among
the insurers within one year’s tower) and horizontally (from one year’s tower to another).
See generally Barry R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage
Disputes § 13.14 (19th ed. 2018) (discussing horizontal and vertical interactions).
1. Liability limits governed vertical shifts. Under the policies, coverage responsibility
would shift vertically among the insurers within the same tower when a policy reached its
liability limit. In 2006 and 2016, National Union’s primary policies covered the first
$15 million in insurable losses, defense costs, and the like. Once those liabilities reached
that $15 million limit, the excess policies would kick in, each covering another $15 million
tier of liability. In both years, Continental Casualty covered the first tier beyond the primary
policy. Axis Reinsurance covered the second tier. To ensure uniformity among the policies
within one tower, the excess policies “appli[ed] in conformance with the provisions of”
National Union’s primary policy, with certain limited exceptions. App. 310, 312.
2. Two clauses triggered horizontal shifts. Responsibility could also shift horizontally
from one tower to another. Ordinarily, Northrop’s coverage would come from the tower of
the year the claim was filed. In other words, if a plaintiff sued Northrop in 2016 for a breach
5
of its fiduciary duty under ERISA, Northrop’s coverage would typically come from the
2016 Tower.
But responsibility could shift horizontally from the 2016 Tower back to the 2006 Tower
if a plaintiff brought a claim in 2016 that was “related” to one filed in 2006. Two provisions
in National Union’s primary policies worked together to govern these horizontal shifts: the
2016 policy’s “prior-notice exclusion” and the 2006 policy’s “relation-back clause.” The
former transferred coverage from one tower to the other; the latter ensured that coverage
stayed in the transferee tower.
Here is how these two clauses interacted: The 2016 policy’s prior-notice exclusion dis-
claimed coverage for claims “arising out of . . . the same or related Wrongful Act[s] alleged
. . . in any claim which has been reported [for coverage] prior to the inception of this policy.”
App. 397 (emphasis added). And the 2006 policy’s relation-back clause accepted coverage
for claims “alleging any Wrongful Act which is the same as or related to any Wrongful
Act alleged in the [first] Claim” by treating the later claim as “related to the first Claim
and made at the time the first Claim was made.” App. 287 (emphases added).
Thus, if a plaintiff sued Northrop in 2016 alleging “Wrongful Act[s]” that were “re-
lated” to those alleged in a lawsuit filed against Northrop in 2006, then coverage responsi-
bility for the 2016 lawsuit would shift horizontally to the 2006 Tower. And that shift could,
in turn, cause vertical ripples within the 2006 Tower: if, by 2016, National Union’s primary
tier of coverage in the 2006 Tower had been exhausted, then the excess insurers would
become responsible for defending the later lawsuit.
6
C. The ERISA class actions
Over time, two classes of plaintiffs sued Northrop for breaches of fiduciary duty under
ERISA. These suits triggered Northrop’s 2006 and 2016 Towers, along with the policy
relationships between and within them.
1. The Grabek Action. In 2006, a group of plan participants including Gary Grabek
filed a class action in the Central District of California against Northrop, two of its plan-
management committees, and their members. The Grabek class included participants in
two retirement plans from September 28, 2000 to May 11, 2009. The operative complaint
levied three claims relevant here:
• Fee-capture claim: The class accused Northrop of overpaying itself for plan-
management services that it internalized. Thus, Northrop “captured” the fees for
those services, rather than bidding them out to third parties who could provide them
more cheaply. The class asserted that Northrop did this out of its own financial self-
interest, rather than the plans’ best interest, in violation of its duty of loyalty. See 29
U.S.C. § 1104(a)(1)(A)(i).
• Excessive-fees claim: The class alleged that even when Northrop did outsource plan-
management functions, it failed to set the rates for those services prudently, instead
letting third parties bill the plans at above-market rates. The class alleged that this
violated Northrop’s duty of care. See id. § 1104(a)(1)(B).
• Pay-for-play claim: The class also accused Northrop of disloyally selecting certain
investment managers for the plans at issue because those managers gave Northrop
preferential discounts on other plans.
Roughly a decade into this litigation, the class discovered even more alleged wrongdo-
ing. But those allegations reached beyond the class and discovery periods, both of which
ended in 2009. So when the class moved for discovery on that wrongdoing, the court denied
its motion, citing the “dramatic” prejudice to Northrop of eleventh-hour discovery.
7
App. 644. The court thus reaffirmed that the Grabek action did not extend to misconduct
that took place after May 2009.
After Northrop filed a claim for coverage of the Grabek Action, National Union cov-
ered Northrop’s defense costs under the 2006 Tower. Eventually, those costs exceeded
Northrop’s $2.5 million self-insured retention and National Union’s $15 million liability
limit. That triggered the excess policies, starting first with Continental’s. When Northrop
later settled the Grabek Action, the combined cost of the defense and that settlement ex-
ceeded the $15 million cap on Continental’s excess policy. So coverage responsibility
shifted vertically to Axis, putting it on the hook for the next $15 million in liabilities as-
signed to the 2006 Tower.
2. The Marshall Action. In response to the district court’s ruling limiting the scope of
the Grabek Action, the lawyers representing that class filed another class action in the same
court and before the same district judge (the Marshall Action). The Marshall Action
brought the claims that the class could not raise in the Grabek Action.
The Marshall Action was different in a few ways. First, because of the order limiting
the temporal scope of the Grabek Action, the class periods were not the same: the Marshall
Action concerned wrongdoing beginning sixteen months after the Grabek class period
ended. Second, the individual defendants changed because the membership of Northrop’s
plan-management committees had changed over time. Third, the Marshall class was nar-
rower than the Grabek class because the Marshall Action concerned only one of the two
retirement plans at issue in Grabek.
8
In addition, because the Marshall complaint had the benefit of a decade’s worth of
discovery from the Grabek Action, its allegations were much more particularized. The op-
erative Marshall complaint brought three claims:
• Fee-capture claim: The Marshall class accused Northrop of overpaying itself for
internally managed administrative services rather than bidding them out to more
cost-efficient third parties.
• Active-management claim: The class also alleged that Northrop had mismanaged a
particular fund, the Emerging Markets Equity Fund, in which the plan’s participants
could invest. The class claimed that Northrop kept using a costly “active” manager
even though cheaper and better-performing “passive” managers were available.
• Recordkeeping-fees claim: The class alleged that Northrop had overpaid a particular
third party for the plan’s recordkeeping services. It alleged that cheaper alternatives
were available, but that Northrop had failed to engage in competitive bidding for
those services, violating its duty of care.
Eventually, Northrop and the Marshall class reached an initial settlement. The Central
District of California preliminarily approved that settlement in February 2020 and ordered
counsel to send out notices to the class for approval. That court has yet to enter a final
settlement.
D. This coverage action
After the Marshall Action was filed, Northrop filed a claim with National Union for
coverage under the 2016 Tower. In response, National Union disclaimed coverage. It ar-
gued that the “factual relationship” between the wrongful acts alleged in the two actions
triggered the 2016 policy’s prior-notice exclusion and the 2006 policy’s relation-back
clause. App. 833–36. Thus, National Union asserted, coverage responsibility shifted hori-
zontally to the 2006 Tower, for which Axis was now responsible due to vertical exhaustion.
9
So Northrop tried again. It filed a claim with Axis, asking it to defend the Marshall
Action. Disagreeing with National Union, Axis also disclaimed coverage. It read the prior-
notice exclusion and the relation-back clause differently.
This left Northrop exposed. With both insurers refusing coverage, it had to defend the
Marshall Action out of pocket. To resolve the quarrel between the insurers, Northrop sued
them both in the District of Delaware. It sought a declaration that one of them was respon-
sible for defending the Marshall Action and an order compelling that insurer to pay
Northrop’s past and future defense costs. Both insurers answered the complaint and cross-
claimed against each other for a declaration affirming the other’s obligation to defend the
Marshall Action. All the parties then cross-moved for summary judgment.
The District Court granted in part Northrop’s and National Union’s summary-judgment
motions against Axis and ordered it to defend the Marshall Action. Northrop Grumman
Corp. v. AXIS Reins. Co., No. 1:17-cv-01738, 2018 WL 5314918, at *1 (D. Del. Oct. 26,
2018). The court construed the term “related” broadly in both the prior-notice exclusion
and the relation-back clause, understanding it to encompass causal or logical connections.
Id. at *3. Under that standard, the court found that “Marshall and Grabek alleged related
Wrongful Acts.” Id. at *4. So it ruled that “Northrop Grumman’s claim for coverage of the
Marshall action should . . . be considered made at the time Northrop Grumman made its
claim for coverage of the Grabek action—i.e., during the 2006–2007 policy year.” Id. The
court thus ordered Axis to compensate Northrop for its existing defense costs and to defend
the Marshall Action going forward until it exhausted its $15 million liability limit.
10
E. This appeal
Axis now appeals the District Court’s grant of summary judgment to Northrop and Na-
tional Union and the denial of its own summary-judgment motion. “We review the grant
or denial of summary judgment de novo.” Cranbury Brick Yard, LLC v. United States, 943
F.3d 701, 708 (3d Cir. 2019).
After filing its appeal, Axis agreed to “exhaust[ ] its 2006–07 policy limits by contrib-
uting toward the Marshall settlement.” C.A. Dkt. No. 83. Because it did so “under reser-
vation of rights, including the right to recoup [those costs] pending the outcome of th[is]
appeal,” that agreement does not moot this case. Id.; see, e.g., Wilcher v. City of Wilming-
ton, 139 F.3d 366, 370 n.2 (3d Cir. 1998).
In this appeal, we need resolve only whether Axis has a duty to defend Northrop. We
need not and do not decide whether it has a duty to indemnify, for two reasons: First, the
judgment from which Axis appeals imposed only a duty to defend the Marshall Action.
See App. 4–5 (entering judgment against Axis on Northrop’s Count III and National Un-
ion’s cross-claim). Second, the question of indemnification is not yet ripe; Northrop has
yet to suffer any indemnifiable losses because the Central District of California has not
entered a final settlement in the Marshall Action. Courts usually refrain from deciding
whether an insurer must indemnify the insured until after the insured is found liable for
damages in the underlying action. See, e.g., Evanston Ins. Co. v. Layne Thomas Builders,
Inc., 635 F. Supp. 2d 348, 353 (D. Del. 2009) (discussing Step-Saver Data Sys., Inc. v.
Wyse Tech., 912 F.2d 643, 647–48 (3d Cir. 1990)).
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II. THE TERM “RELATED” ENCOMPASSES BOTH
CAUSAL AND LOGICAL CONNECTIONS
The issue here is whether the Marshall Action alleges wrongful acts that are “related”
to those alleged in the Grabek Action. If they are related, then the Marshall claims trigger
the 2016 Tower’s prior-notice exclusion and the 2006 Tower’s relation-back clause, shift-
ing the duty to defend that action to Axis under its 2006 excess policy. If they are unrelated,
then the duty to defend remains with National Union under its 2016 primary policy.
Our analysis hinges on the term “related.” Because we must interpret the policies to
decide the term’s scope, we look to state law. Ruhlin v. N.Y. Life Ins. Co., 304 U.S. 202,
205 (1938). As we explain below, the relevant states construe that term broadly, embracing
both causal and logical relationships.
A. California and Virginia law govern this dispute
At the outset, we determine which states’ laws apply. To do that, we apply the choice-
of-law rules of Delaware, the forum state. See, e.g., Auto-Owners Ins. Co. v. Stevens &
Ricci Inc., 835 F.3d 388, 403 (3d Cir. 2016). In insurance-policy disputes, Delaware applies
the “most significant relationship” test. Certain Underwriters at Lloyds, London v.
Chemtura Corp., 160 A.3d 457, 464 (Del. 2017) (citing Restatement (Second) of Conflict
of Laws (Am. Law. Inst. 1971)). When multijurisdictional policies like Northrop’s are at
issue, the state in which the insured is headquartered weighs heavily in determining which
state has the most significant relationship to the dispute. See id. at 460 (applying New York
law “in particular as the headquarters of the insured” was there).
12
Because Northrop’s headquarters moved during the period at issue, California law gov-
erns the 2006 Tower and Virginia law governs the 2016 Tower. Thus, California law gov-
erns the relation-back clause while Virginia law governs the prior-notice exclusion.
Fortunately, we need not parse finely the application of either state’s laws. The parties
agree that California and Virginia law do not conflict materially on the relevant issues.
When there is no “true conflict,” we “may refer interchangeably to the laws of the states
whose laws potentially apply.” Huber v. Taylor, 469 F.3d 67, 74 (3d Cir. 2006). So we will
apply California and Virginia law interchangeably to both towers.
B. Both states construe the term “related” broadly
When construing insurance policies, both the Golden State and Old Dominion interpret
the text based on its plain meaning. See, e.g., Waller v. Truck Ins. Exch., Inc., 900 P.2d
619, 627 (Cal. 1995); TravCo Ins. Co. v. Ward, 736 S.E.2d 321, 325 (Va. 2012). The ordi-
nary meaning of “related” is unambiguously broad in scope. See, e.g., Related, Black’s Law
Dictionary (11th ed. 2019) (“[c]onnected in some way”); Related, Oxford English Diction-
ary (3d ed. 2009) (“Connected or having relation to something else.”); accord Morales v.
Trans World Airlines, Inc., 504 U.S. 374, 383 (1992).
Both states have adopted that expansive reading. Under California law, “the term ‘re-
lated’ as it is commonly understood and used encompasses both logical and causal connec-
tions.” Bay Cities Paving & Grading, Inc. v. Lawyers’ Mut. Ins. Co., 855 P.2d 1263, 1274
(Cal. 1993); see id. (“ ‘[R]elated’ is not ambiguous and is not limited only to causally re-
lated acts.”). Still, California law recognizes that the term does not “encompass every con-
ceivable logical relationship.” Id. at 1275. “At some point, a relationship between two
13
claims, though perhaps ‘logical,’ might be so attenuated or unusual that an objectively rea-
sonable insured could not have expected they would be treated as a single claim under the
policy.” Id.Likewise, Virginia law recognizes that the term related is “very broad in its coverage,”
embracing diverse connections. Brush Arbor Home Constr., LLC v. Alexander, 823 S.E.2d
249, 251 (Va. 2019) (internal quotation marks omitted). And while Virginia courts have
yet to hold specifically that the term “related” includes both causal and logical ties, Axis
and National Union each conceded at oral argument that Virginia’s approach does not con-
flict with California’s. Plus, our sister circuits have adopted this causal-and-logical ap-
proach too (though under other states’ laws). See Cont’l Cas. Co. v. Wendt, 205 F.3d 1258,
1262–63 (11th Cir. 2000) (per curiam); Gregory v. Home Ins. Co., 876 F.2d 602, 606 (7th
Cir. 1989). We will do the same here.
Thus, to determine whether the wrongful acts alleged in Marshall relate to those alleged
in Grabek, we review the record for a causal or a logical relationship.
III. ALL THE WRONGFUL ACTS ALLEGED IN MARSHALL
RELATE TO THOSE ALLEGED IN GRABEK
In the duty-to-defend posture, our review is strictly textual: we look to the policies’ text
and to each action’s complaint to figure out whether the Marshall Action relates to the
Grabek Action. Our review confirms that each of the wrongful acts alleged in Marshall
relates to a wrongful act alleged in Grabek.
14
A. The “four corners” rule narrows our review
To decide whether an insurer owes a duty to defend, we apply the “four corners” rule
(sometimes called the “eight corners” rule). Lupu v. Loan City, LLC, 903 F.3d 382, 389
(3d Cir. 2018); AES Corp. v. Steadfast Ins. Co., 725 S.E.2d 532, 535 (Va. 2012). That rule
limits our review to allegations within the four corners of the operative complaints in the
liability actions and the four corners of the insurance policies. AES Corp., 725 S.E.2d
at 535.
The parties agree that the four-corners rule applies. And the insurance policies confirm
its applicability: each defines the term “Claim” by referring to a written document alleging
wrongful behavior, like a civil complaint.
Even so, Axis and National Union argue that various statements made by the litigants
and the district judge in the Marshall and Grabek Actions bear on the relatedness of the
claims. But those statements fall beyond the four corners of the complaints and the policies.
So we will not consider them in deciding which insurer must defend the Marshall Action.
Even if we did, these cherry-picked statements from a decade’s worth of litigation are
hardly reliable indicators of relatedness.
Thus, to decide whether the two actions allege related wrongful acts, we compare each
of the complaints and the insurance policies. Because the Marshall complaint is narrower
and more particularized, we consider whether its claims are a subset of Grabek’s. To do
that, we focus on three factors rooted in the text of the allegations: what went wrong, who
did it, and when. See Bay Cities Paving, 855 P.2d at 1274 (assessing relatedness by looking
15
to the nature of the injury, the identity of the actors, and the alleged wrongdoing). We
address each factor in turn.
B. Each of the wrongful acts alleged in Marshall relates to those alleged in Grabek
Our review confirms that each of the Marshall Action’s three claims alleges wrongful
acts that relate to those alleged in the Grabek Action.
1. The fee-capture claims are nearly identical. The Marshall Action’s fee-capture
claim is nearly identical to the Grabek Action’s fee-capture claim.
The Marshall complaint alleges that Northrop “hire[d] itself” to provide “administra-
tive services,” without ensuring that its fees “were reasonable and that the quality of the
services and the amount of the charges were equivalent to what an independent third party
would charge.” App. 794–95. The class claimed that Northrop “did not put the[se] services
. . . out for competitive bidding to determine the market rate for such services.” App. 796.
So the defendants “allowed Northrop to receive Plan assets in the guise of compensation
that was not reasonable or necessary for the administration of the Plan.” Id.The Grabek complaint similarly alleged that the plans’ fees were “excessive” because
of: (1) “the high fees paid to Northrop for administrative services it provided”; (2) the
defendants’ failure “to bring these administrative costs in line with market rates”; and
(3) the fact that these services “could have been more effectively outsourced consistent
with the practices of prudent fiduciaries.” App. 493–94.
The text of the complaints reveals a clear logical and causal relationship between the
two claims: both allege the same self-interested wrongdoing, through the same practices,
causing the same harm.
16
2. The active-management claim relates to the excessive-fees claim. A close examina-
tion of Marshall’s active-management claim shows its roots in Grabek’s excessive-fees
claim. The former alleges that Northrop mismanaged its Emerging Markets Equity Fund
by continuing to retain an active investment manager. This decision, the class argued,
caused two harms: the fund “underperformed lower-cost passively managed alternatives,”
and it paid “$12 million [more] in unreasonable investment management fees compared to
lower-cost passively managed alternatives.” App. 803–04.
Both of these allegations relate causally and logically to Grabek’s excessive-fees claim.
That claim alleged that Northrop generally overpaid third parties for plan-management ser-
vices. Among those allegations, the Grabek class claimed specifically that several funds—
including the same Emerging Markets Equity Fund—“charged excessive investment man-
agement fees,” yet still “failed to meet their stated performance objectives” by “fail[ing] to
outperform . . . their relevant benchmarks.” App. 491–92. And the Grabek class accused
Northrop of breaching its duty of care by “continu[ing] to hire and retain excessively ex-
pensive investment managers” even though “far less expensive passive management[ ]
w[as] readily available.” App. 493. Once again, the text shows a causal and logical con-
nection between the two claims: both complain that Northrop made poor fund-management
decisions that led to increased fees and hampered fund performance.
3. The recordkeeping-fees claim is a type of excessive-fees claim. The closest call of
the three is the recordkeeping-fees claim. Still, a careful review of each complaint reveals
that Marshall’s recordkeeping-fees claim is a causal and logical subset of Grabek’s
excessive-fees claim.
17
The crux of Marshall’s recordkeeping-fees claim is that Northrop overpaid a third party
that provided recordkeeping services for one of its plans. The Marshall class alleged that
the market for those services is “highly competitive” because “every” plan needs record-
keeping. App. 797. But, the class asserted, Northrop “pa[id] unreasonable administrative
expenses to [that entity]” because it failed to “engage an independent third party to bench-
mark the reasonableness” of those fees and “failed to conduct a competitive bidding pro-
cess” for those services in the relevant period. App. 799–800. The class also maintained
that Northrop’s recordkeeping fees were unusual: they rose with the amount of assets under
management when they should have dropped, on a percentage basis, as the number of plan
participants increased.
Those allegations relate to the Grabek Action’s excessive-fees claim, which alleged
that Northrop’s third-party fees “were excessive and unreasonable when compared to the
market rate[s] . . . [and] to known and readily available alternatives.” App. 491. It further
alleged that Northrop’s external fees remained stubbornly high even though “[i]ndustry
studies” showed that those fees should have “decline[d]” as a “percentage of assets . . . as
asset size increase[d].” Id.Thus, a close review of the text reveals the causal and logical connections between the
Marshall Action’s recordkeeping-fees claim and the Grabek Action’s excessive-fees
claim. Both concern the same kind of wrongdoing: a failure to monitor and limit third-
party fees prudently.
18
4. Axis’s counterargument misses the mark. Axis argues that the active-management
and recordkeeping-fees claims are unrelated to any of the claims in the Grabek Action.
This argument fails because it misconstrues the Grabek complaint’s scope.
Axis argues that the Grabek complaint contains only the fee-capture claim (which it
calls the “2000–2009 Excessive Fee Claim”) and the pay-for-play claim. Appellant’s
Br. 10–11. It concedes that the two complaints allege common wrongdoing related to
Northrop’s internal fees. But it argues that Marshall’s active-management and
recordkeeping-fees claims are unrelated either to Northrop’s internal fees or to the pay-for-
play claim. Thus, it maintains, these two claims are unrelated to any levied in the Grabek
Action.
To be sure, neither of Marshall’s duty-of-care claims relates to Grabek’s pay-for-play
claim, which is a duty-of-loyalty claim. Still, this argument falls flat. It reads too narrowly
the Grabek complaint’s allegations about Northrop’s failure to prudently control the inter-
nal and external fees that it charged the plans. Indeed, what Axis calls the “2000–2009
Excessive Fee Claim” is really two claims: the internal fee-capture claim and the external
excessive-fees claim. Compare id., with App. 491 (alleging that the plans paid “excessive
and unreasonable” fees both to Northrop and to third parties). Because Axis’s reading
omits the portion of this claim that relates to third-party expenses, its counterargument falls
short.
In sum, each of the wrongful acts alleged in the Marshall Action relates—both causally
and logically—to one of the wrongful acts alleged in the Grabek Action.
19
C. The parties in each action overlap substantially
We next consider the commonality between the parties in the two actions. We find a
considerable overlap for each.
1. The Marshall class is largely a subset of the Grabek class. We evaluate this subfactor
on two axes: overlap in plans and overlap in time periods. Both show substantial
commonality.
First, the classes overlap in the plans to which they belonged. The Marshall class mem-
bers were participants in one of the two retirement plans at issue in Grabek. So the two are
logically related because the former is largely a subset of the latter.
Second, the classes also overlap in time. Despite a sixteen-month gap between the two
actions’ class periods, the District Court correctly found it “likely” that there was “a very
large overlap between members of the [two] classes.” 2018 WL 5314918, at *3. True, it is
likely that some number of Grabek class members were no longer plan participants when
the Marshall Action was filed, and that some Marshall class members were not yet eligible
to participate in a plan during the earlier Grabek class period. But the plans at issue are
defined-benefit plans (also called 401(k) plans), which are vehicles for long-term financial
savings. So it is likely that many participants kept their money invested the whole time.
2. The defendants overlap substantially too. We also evaluate this subfactor on two
axes: the corporate defendants and the individual defendants. The overlap in the former
overcomes the differences in the latter.
For the corporate defendants, the overlap is complete: each class sued Northrop and its
two committees responsible for plan management. For the individual defendants, it is true
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that none is named in both actions. But the classes allege wrongdoing over more than a
decade. And ERISA limits personal liability to the periods in which the defendant was a
fiduciary. See 29 U.S.C. § 1109(b). So an exact match is unnecessary. In any case, the de-
fendants’ names are less relevant than their official capacities. In both actions, each of the
defendants served on one of the two committees at issue. So their official capacities
overlap.
In sum, there is a significant overlap between both the plaintiffs and the defendants in
the two actions. That shows a logical relation between them.
D. A common, continuing breach bridges the temporal gap between the actions
Lastly, we consider the timing of the alleged wrongs. At first glance, this factor appears
to cut against the actions’ relatedness because a sixteen-month gap separates their class
periods. But when two actions concern a continuing breach, or a “single course of conduct,”
this bridges the temporal gap between them. Cont’l Cas. Co., 205 F.3d at 1264. That is
what happened here: as discussed, the Marshall Action concerns wrongful acts that began
during the Grabek class period and whose causal and logical descendants continued into
the Marshall class period. So this factor favors relatedness too.
E. Axis must thus defend the Marshall Action
In short, the “what,” “who,” and “when” of the Marshall and Grabek Actions overlap
considerably. We thus conclude that under the 2016 policy’s prior-notice exclusion and the
2006 policy’s relation-back clause, the claims alleged in the Marshall Action are causally
or logically related to those in the Grabek Action. So the duty to defend the Marshall Ac-
tion shifts horizontally from the 2016 Tower to the 2006 Tower, and then vertically to
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Axis’s excess tier. We will thus affirm the District Court’s judgment requiring Axis to
defend the Marshall Action.
In reaching this result, we need not decide which insurer would be on the hook if only
a subset of the claims were related. Thus, we need not discuss any differences between the
duty to defend and the duty to “advance defense costs.” See Appellant’s Br. 47–50; Reply
Br. 15–18.
* * * * *
Some relatives are more closely related than others. But all branches of a family tree
share the same roots. Here, each of the wrongful acts alleged in the Marshall Action is
rooted in those alleged in the Grabek Action: the fee-capture claims are siblings (if not
twins), the active-management claim is a first cousin of the excessive-fees claim, and the
recordkeeping-fees claim is a second cousin of the excessive-fees claim. Even so, all these
claims are causally or logically related. So we will affirm the District Court’s judgment
requiring Axis to defend those claims under its 2006 excess policy.
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