                                   In the

    United States Court of Appeals
                    For the Seventh Circuit
                         ____________________
No. 16-4127
SUSAN PRIDDY, et al., on behalf of themselves and all others
similarly situated,
                                          Plaintiffs-Appellees,

                                      v.

HEALTH CARE SERVICE CORPORATION,
                                                     Defendant-Appellant.
                         ____________________

           Appeal from the United States District Court for the
                      Central District of Illinois.
              No. 3:14-cv-03360 — Richard Mills, Judge.
                         ____________________

     ARGUED APRIL 21, 2017 — DECIDED AUGUST 31, 2017
                 ____________________

  Before WOOD, Chief Judge, SYKES, Circuit Judge, and
COLEMAN, District Judge.*
    WOOD, Chief Judge. Health Care Service Corporation
(HCSC) is one of the nation’s largest health insurance provid-
ers. This appeal presents the question whether the district


   *Of   the Northern District of Illinois, sitting by designation.
2                                                      No. 16-4127

court erred by certifying a class action against HCSC. The
named representatives assert that HCSC is violating federal
and Illinois law by the way in which it is using third-party
affiliates to provide various services. We conclude that the
record fails to support class certification, and so we vacate the
certification and remand for further proceedings.
                                 I
     HCSC is an Illinois not-for-profit corporation that offers
Blue Cross and Blue Shield insurance through licensed affili-
ates in five states: Illinois, Montana, New Mexico, Oklahoma,
and Texas. To help provide that coverage, HCSC contracts
with outside affiliates for prescription drug services, claim
payments, and other administrative work. These relation-
ships are often not at arm’s length—HCSC owns or controls
its affiliates, and places its officers on their boards. HCSC does
not disclose the extent of these ties to its insureds. Its policy
terms state that the affiliates pay it rebates, but it does not
share those rebates with its customers.
    Alleging that these arrangements violated Illinois law and
the Employee Retirement Income Security Act of 1974
(ERISA), 29 U.S.C. §§ 1001, et seq., Susan Priddy and ten other
named plaintiffs filed the present case as a putative class ac-
tion against HCSC in November 2014. (Some of them have
since been eliminated from the case, but their departure does
not affect our analysis.) Their theory is that HCSC’s affiliates
overcharge beneficiaries and then return the proceeds to
HCSC via rebates. Customers are unaware that these hidden
financial transactions are taking place because HCSC hides its
control of the affiliates. This self-dealing, the plaintiffs believe,
violates HCSC’s fiduciary duties to beneficiaries under ERISA
and Illinois law.
No. 16-4127                                                     3

    Before much else happened in the district court, the ques-
tion of class certification arose. See FED. R. CIV. P. 23(c)(1)(A)
(“At an early practicable time after a person sues … the court
must determine by order whether to certify the action as a
class action.”). Plaintiffs moved for certification, and the dis-
trict court granted their request. It certified four classes under
Federal Rule of Civil Procedure 23(b)(3): (1) employers who
purchased HCSC plans for employees in any of the five states
served by HCSC; (2) beneficiaries of employer-furnished
plans provided by HCSC in any of the five states; (3) individ-
uals who purchased insurance directly from HCSC in any of
the five states; and (4) Illinois insureds who were protected by
Illinois insurance regulations. The court also spelled out some
exclusions not relevant here. Altogether, the four classes in-
cluded approximately ten million people. The court named
Susan Priddy and Michael Beiler as the class representatives,
and it designated counsel for the named plaintiffs as class
counsel.
    The certification decision was concise. Turning first to the
four requirements of Rule 23(a), the court found that numer-
osity was obvious, given the putative class’s size. So was com-
monality: the theory in every case was that HCSC had over-
charged its beneficiaries, and “the contract language and the
treatment of the putative class members in both classes rests
on a uniform corporate policy.” Typicality was present, the
court thought, because every class member’s claim rested on
the same legal theory. And it held that the lead plaintiffs pro-
vided adequate representation since Priddy’s insurance was
employer-sponsored, whereas Beiler had bought his individ-
ually. (It did not explain why either Priddy or Beiler could
represent the employer class; Priddy is from Illinois, which
4                                                    No. 16-4127

might have explained why she could stand for the group of
Illinois insureds.)
    Turning to Rule 23(b), the district court recognized that it
was looking at a “common question,” Rule 23(b)(3) class ac-
tion. That required it to find that “questions of law or fact
common to class members predominate over any questions
affecting only individual members,” and that a class action is
a superior way of handling the litigation. The court made
short work of both inquiries. A class action was a superior
way of proceeding, it thought, both because of the class size
and the slim likelihood that the members would pursue relief
on their own. It concluded that the insurance policies govern-
ing each class member’s relationship to HCSC were uniform,
and thus that the common question of the legality of those
terms predominated. HCSC disagreed vociferously with all
this, pointing out many ways in which the proposed classes
were heterogeneous and thus not suited to common treat-
ment. HCSC filed this appeal pursuant to Federal Rule of
Civil Procedure 23(f), and a panel of this court agreed to ac-
cept it.
                                II
    As the district court recognized, there are two steps in cer-
tifying a class under Rule 23. First, the party seeking certifica-
tion must show numerosity, commonality, typicality, and ad-
equacy, though commonality and typicality “tend to merge.”
General Telephone Co. of S.W. v. Falcon, 457 U.S. 147, 157 n.13
(1982). Rule 23(a) lays out the details of each requirement:
    (1) the class is so numerous that joinder of all members
    is impracticable;
No. 16-4127                                                    5

   (2) there are questions of law or fact common to the
   class;
   (3) the claims or defenses of the representative parties
   are typical of the claims or defenses of the class; and
   (4) the representative parties will fairly and adequately
   protect the interests of the class.
The second step requires the party to satisfy “at least one of
the three requirements listed in Rule 23(b).” Wal-Mart Stores,
Inc. v. Dukes, 564 U.S. 338, 345 (2011). Because this suit seeks
money damages on behalf of the class, based on common
questions, it may proceed only under Rule 23(b)(3), which re-
quires both that common questions predominate and that the
class form is superior to other ways of adjudicating the case.
    These are not inquiries that the court is free to make in a
fact-free zone. Unlike a motion under Federal Rule of Civil
Procedure 12(b)(6), a motion to certify a class under Rule 23(c)
is not one for which the court may “simply assume the truth
of the matters as asserted by the plaintiff.” Messner v.
Northshore Univ. HealthSystem, 669 F.3d 802, 811 (7th Cir. 2012).
Instead, “[i]f there are material factual disputes, the court
must receive evidence … and resolve the disputes before de-
ciding whether to certify the class.” Id. (internal quotation
marks omitted). Sometimes it is necessary to conduct a pre-
liminary inquiry into the merits, when the merits overlap with
the considerations under Rule 23(b)(3). Szabo v. Bridgeport Ma-
chines, Inc., 249 F.3d 672, 676 (7th Cir. 2001).
    The plaintiff bears the burden of proving by a
preponderance of the evidence all necessary prerequisites to
the class action. This normally means that some discovery
related to the class certification issue must take place. Ever
6                                                    No. 16-4127

since the Supreme Court underscored this point in Wal-Mart
and related cases, as a practical matter the time when a
potential class action is ripe for a certification decision has
been pushed back, and the burden on the party seeking to
proceed with a class has increased. But this is an inevitable
and understandable consequence of the transformation of a
lawsuit that occurs when a class is certified: it suddenly
morphs from a simple A versus B dispute, often with very low
monetary stakes, to a gargantuan matter involving
thousands, if not millions, of people, and vastly expanded
potential liability.
    We generally review certification decisions deferentially
and reverse only when the lower court went beyond the
bounds of its discretion. Arreola v. Godinez, 546 F.3d 788, 794
(7th Cir. 2008). We examine questions of law de novo, and we
also assess de novo whether the court followed the correct pro-
cedures when making its certification decision. See Reliable
Money Order, Inc. v. McKnight Sales Co., 704 F.3d 489, 498
(7th Cir. 2013).
    HCSC challenges the certification decision on nearly every
front, but it devotes special attention to its claim that the dis-
trict court failed adequately to grapple with Rule 23(a)’s com-
monality and typicality requirements. The plaintiffs urge that
they have presented common questions, typical to the whole
group, because everything turns on the fiduciary duty HCSC
owes to its insureds. That argument is sound only insofar as
the plaintiffs are challenging something actually covered by a
fiduciary duty.
   Determining whether a fiduciary duty was violated is a
context-specific endeavor, because a plan administrator is “a
fiduciary only to the extent that he acts in such a capacity in
No. 16-4127                                                      7

relation to a plan.” Pegram v. Herdrich, 530 U.S. 211, 225–26
(internal quotation marks omitted). ERISA recognizes that a
party might be acting in a fiduciary capacity at some points
and in an ordinary capacity at other points. It allows a fiduci-
ary to have “financial interests adverse to beneficiaries” pro-
vided the fiduciary “wear[s] the fiduciary hat when making
fiduciary decisions.” Id. at 225. The first question here is there-
fore not the ultimate one concerning the possibility that HCSC
acted to its beneficiaries’ detriment, but rather the preliminary
one whether it did so while wearing a fiduciary hat. The an-
swer depends on HCSC’s relationship to the insured—a given
decision may be fiduciary in nature for HCSC’s directly in-
sured customers, while not being so if the company’s only
connection to a class member is that it administered her ben-
efits.
    It is not even clear that HCSC owed many class members
any fiduciary duty at all, and the district court did not under-
take this inquiry. Three of the four classes it certified include
people whom HCSC does not insure and who do not pay it
premiums—it only administers their health benefits. Moreo-
ver, ERISA applies only to plans “established or maintained
by an employer or by an employee organization, or by both
… .” 29 U.S.C. § 1002(1); accord 29 C.F.R. § 2510.3-3(b). It is
therefore unclear at best how class members who bought in-
surance directly from HCSC can plausibly claim relief under
the statute. Again, the district court did not explore this angle.
We are thus unable to divine whether and how these concerns
affected its ultimate certification decision. Even seemingly
glaring problems went unaddressed—we are uncertain, for
instance, why the class expressly includes members who “ob-
8                                                   No. 16-4127

tained health care coverage from … a benefit plan underwrit-
ten, administered, or otherwise provided by Defendant,
HCSC, but not subject to ERISA.” (emphasis added).
    We offer no opinion on how these issues should be re-
solved on the merits; our point is that they should have been
addressed before the district court certified any of the four
classes it identified. Both facts and legal analysis supporting
those proposed classes are missing at this stage. It is possible,
we assume, that even if HCSC owed no fiduciary duty to the
people whose benefits it merely administered, it may have
worn the fiduciary hat for others. Providing an insured with
medicine and deciding whether to cover her claims does not
usually bring to mind a duty-free relationship. But the district
court did not tell us how it approached these and other crucial
points, or why they did or did not guide its certification deci-
sion. Even if each individual omission does not compel a find-
ing of abuse of discretion, the court’s certification order faces
the analytic equivalent of death by a thousand cuts—cumula-
tively, the failure to provide a reasoned explanation on a
string of important points compels reversal. Explanations are
necessary; complex certification decisions cannot be made by
judicial fiat.
   The order granting class certification is REVERSED and the
case is REMANDED for further proceedings. Circuit Rule 36
shall apply on remand.
