Ortiz v. Am. Airlines, Inc.

• Decision Date: 19 July 2021
• Docket Number: No. 20-10817,20-10817
• Citation: 5 F.4th 622
• Parties: Salvadora ORTIZ; Thomas Scott, Plaintiffs—Appellants, v. AMERICAN AIRLINES, INCORPORATED; American Airlines Pension Asset Administration Committee; American Airlines Federal Credit Union, Defendants—Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

5 F.4th 622

Salvadora ORTIZ; Thomas Scott, Plaintiffs—Appellants,

v.AMERICAN AIRLINES, INCORPORATED; American Airlines Pension Asset Administration Committee; American Airlines Federal Credit Union, Defendants—Appellees.

No. 20-10817

United States Court of Appeals, Fifth Circuit.

FILED July 19, 2021

Todd M. Schneider, Schneider Wallace Cottrell Konecky, L.L.P, Emeryville, CA, Kyle Bates, Hausfeld, L.L.P., San Francisco, CA, John J. Nestico, Schneider Wallace Cottrell Konecky, L.L.P., Charlotte, NC, Jonathan Tad Suder, Esq., Friedman, Suder & Cooke, P.C., Fort Worth, TX, for Plaintiffs-Appellants.

Brian David Boyle, Shannon M. Barrett, Washington, DC, Lars Lee Berg, Dee J. Kelly, Jr., David E. Keltner, Esq., Kelly, Hart & Hallman, L.L.P., Fort Worth, TX, Karen Gillen, Jeffrey Kohn, Anton Metlitsky, O'Melveny & Myers, L.L.P., New York, NY, for Defendants-Appellees American Airlines, Incorporated, American Airlines Pension Asset Administration Committee.

Jonathan Danny Neerman, Jackson Walker, L.L.P., Dallas, TX, Peter Carl Hansen, Jackson Walker, L.L.P., Austin, TX, for Defendant-Appellee American Airlines Federal Credit Union.

Before Smith, Stewart, and Ho, Circuit Judges.

Carl E. Stewart, Circuit Judge:

On behalf of themselves and others similarly situated, Plaintiffs-Appellants Salvadora Ortiz and Thomas Scott have brought suit against Defendants-Appellees American Airlines, Inc. ("AA"); American Airlines Pension Asset Administration Committee (the "PAAC"); and American Airlines Federal Credit Union ("FCU"). Plaintiffs alleged that Defendants breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.¹ Nearly three years after declining preliminary approval of a settlement agreement, the district court awarded Defendants summary judgment. Plaintiffs appealed.

For the reasons that follow, we AFFIRM in part, REVERSE in part, and VACATE in part.

I. FACTS & PROCEDURAL HISTORY

AA offered a "$uper $aver" 401(k) plan ("Plan"), which allowed its employees to save for retirement by investing a portion of their pre-tax income in the Plan. The PAAC was a fiduciary body charged with selecting investment options for the Plan. Once the PAAC selected options, employees were responsible for deciding whether to invest in the Plan, how much, and in which option. Plaintiffs, who are former employees of AA, invested in the Plan.

The Plan is governed by ERISA since it is sponsored by an employer. Federal regulations urge fiduciaries of ERISA-governed plans to offer at least one "safe" investment option, meaning one that is "income producing, low risk, [and] liquid[.]" 29 C.F.R. § 2550.404c-1(b)(1)(ii), (b)(2), (b)(3). The instant dispute revolves around the Plan's safe offerings, which are also known as "capital preservation options." These options are designed to prioritize protection of the principal investment while still providing positive returns.

At various points between 2010 and 2016, AA offered two different capital preservation options: a demand-deposit fund and a stable value fund.²

A demand deposit fund is the functional equivalent of an interest-bearing checking account. Money invested in such a fund is payable on demand without transfer restrictions. See 12 C.F.R. § 204.2(b). Principal investments and any returns associated with them—the "book value"—are guaranteed up to $250,000 per participant by the full faith and credit of the United States government. FCU, which is independent from AA and the PAAC, held the demand deposit fund offered under the Plan (the "FCU Option"). Each month, FCU set the rate of return offered on the FCU Option. FCU notified the Plan in advance of rate changes. Between 2010 and 2017, the FCU Option's rate of return averaged just under 57 cents per every $100 invested. Because FCU held FCU Option investments in cash reserves and short-term investments, it was able, upon demand, to fund the withdrawal of the entirety of the FCU Option's assets.

A stable value fund exposes investors to greater risk than demand deposit accounts and provides only a contractually limited guarantee that participants may withdraw the book value of their accounts. And if the insurer of the fund defaults, the guarantee may be eliminated altogether. Additionally, a stable value fund contains liquidity restrictions. For instance, the fund may prohibit investors from transferring their investments into another low risk "competing" option. It may also restrict when a retirement plan incorporating such a fund may withdraw its entire balance, often requiring at least 12 months’ notice before the plan can move funds into another investment vehicle. The Plan added a stable value offering in late 2015.

Ortiz and Scott both invested in the FCU Option. Ortiz never moved her investments from the FCU Option once the Plan began offering a stable value fund in 2015. Scott likewise never moved his investments from the FCU Option into the stable value fund, though he did transfer those investments into a lower-yielding money market option.

In February 2016, Plaintiffs filed suit on behalf of a putative class of Plan participants who invested at least some of their money in the FCU Option. The complaint included three claims. The first asserted that AA and the PAAC breached their fiduciary duties of loyalty and prudence under 29 U.S.C. § 1104(a)(1)(A)–(B)³ by failing to remove the FCU Option from the Plan ("Count I").⁴ The second contended that FCU breached its fiduciary duty of loyalty under 29 U.S.C. § 1106(b)(1)⁵ by dealing with plan assets held by the FCU Option for its own benefit ("Count II"). The complaint also averred AA and the PAAC are liable as co-fiduciaries for FCU's breach. The final claim averred that AA and the PAAC engaged in a "prohibited transaction" under 29 U.S.C. § 1106(a)(1)⁶ by offering the FCU Option ("Count III").

Five months after bringing this lawsuit, Plaintiffs and Defendants agreed to settle the case pursuant to Federal Rule of Civil Procedure 23. Although the settlement would have required Defendants to pay $8.8 million to the proposed class, Plaintiffs claimed to have lost between $55 and $88 million. The district court therefore sought justification from Plaintiffs for the low payout amount, especially when as much as one third of the settlement funds were to be paid out in attorneys’ fees. After providing Plaintiffs with two extensions to supplement the record, the district court concluded that the evidence presented did not justify the settlement figure and so denied preliminary approval of the settlement in October 2017.

The parties proceeded through discovery. In July 2020, the district court declined to certify this case as a class action under Rule 23. The district court, however, permitted Plaintiffs to proceed as representatives of the Plan pursuant to 29 U.S.C. § 1132.⁷ AA and the PAAC then filed one summary judgment motion, while FCU filed another. In August 2020, the district court granted each of the defendant's motions.

Plaintiffs timely appealed the district court's decision to award summary judgment and its denial of settlement approval.

II. STANDARD OF REVIEW

"[W]e always have jurisdiction to determine our own jurisdiction." Tex. Democratic Party v. Hughs , 997 F.3d 288, 290 (5th Cir. 2021). "Standing is a component of subject matter jurisdiction." HSBC Bank USA, N.A. as Tr. for Merrill Lynch Mortg. Loan v. Crum , 907 F.3d 199, 202 (5th Cir. 2018). "The jurisdictional issue of standing is a legal question for which review is de novo." Id. (citation omitted).

Moreover, a district court's rejection of a class-action settlement is reviewed for abuse of discretion. See Newby v. Enron Corp. , 394 F.3d 296, 300 (5th Cir. 2004).

III. DISCUSSION

Before launching into the substantive analysis of the district court's summary judgment ruling, we take a moment to clarify our scope of review. We conclude that it is limited to part of Count I and all of Count II.

Regarding Count I, although Plaintiffs make a fulsome argument that AA and the PAAC breached their duty of prudence, they simply "allude[ ] to an argument" in their brief that these defendants additionally breached their duty of loyalty. See Curry v. Strain , 262 F. App'x 650, 652 (5th Cir. 2008) (per curiam). Accordingly, to the extent Plaintiffs seek review of that latter claim, they have forfeited the right to have the court consider it. See id. (citing United States v. Thames , 214 F.3d 608, 611 n.3 (5th Cir. 2000) ). Furthermore, Plaintiffs, by not briefing it, have also abandoned their claim that AA and the PAAC are liable as co-fiduciaries for FCU's purported breach of its own fiduciary duties. See Davis v. City of Alvarado , 835 F. App'x 714, 717 n.2 (5th Cir. 2020) (per curiam) (citing Bailey v. Shell W. E&P, Inc. , 609 F.3d 710, 722 (5th Cir. 2010) ).

There are no disputes as to whether we should review Count II and so we will proceed to do so.

Finally, with respect to Count III, Plaintiffs argue for the first time on appeal that FCU, rather than AA and the PAAC, is liable for engaging in a prohibited transaction under § 1106(a)(1). In addition to the fact that the complaint asserted Count III against AA and the PAAC, not FCU, Plaintiffs’ response to FCU's summary judgment motion does not in fact suggest that they intended to sue FCU under § 1106(a)(1) (Plaintiffs’ protestations notwithstanding). And by not raising before the district court their argument that FCU is liable under § 1106(a)(1), that argument is forfeited. See Salinas v. McDavid Houston-Niss, L.L.C. , 831 F. App'x 692, 695 (5th Cir. 2020) (per curiam) (citing LeMaire v. La. Dep't of Transp. & Dev. , 480 F.3d 383, 387 (5th Cir. 2007) ). Further, because Plaintiffs do not dispute the district court's conclusion that they failed to respond to AA and PAAC's summary judgment motion arguing that Plaintiffs could not prevail on their Count III claim, they have abandoned this claim entirely. See id.

A. Standing

To...