Ortiz v. Am. Airlines, Inc.
| Decision Date | 05 August 2020 |
| Docket Number | NO. 4:16-CV-151-A,4:16-CV-151-A |
| Parties | SALVADORA ORTIZ AND THOMAS SCOTT, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, Plaintiffs, v. AMERICAN AIRLINES, INC., ET AL., Defendants. |
| Court | U.S. District Court — Northern District of Texas |
Before the court for decision are motions for summary judgment filed by defendants American Airlines, Inc. ("American"), and The American Airlines Pension Asset Administration Committee ("Committee"), and by American Airlines Federal Credit Union ("Credit Union").
This action has been pending for four and one-half years. Therefore, the reader of this opinion probably will benefit from a discussion of the most-significant developments in the action during that time period, which the court is providing under this heading.
The court has had, and defendants have expressed, uncertainty concerning the exact nature of the claims that are being asserted by plaintiffs, which were not resolved until plaintiffs clearly defined their claims in a document they filed November 12, 2019. Infra at 16-17.1 And, the court and the parties have had uncertainty as to whether this action should proceed as a class action or simply as a representative action as defined in In re AEP ERISA Litigation, No. C2-03-67, 2009 WL 3854943 (S.D. Ohio Nov. 17, 2009). The court made known its decision on that subject by informing the parties in an order issued June 15, 2020, that the court had concluded that the action should proceed as having been brought by plaintiffs in representative capacities, as contemplated by In re AEP ERISA Litigation. See Doc. 167 at 2 n.1.2 Those uncertainties had roles in the less than rapid progression of this case over the years
This action was initiated on February 10, 2016, by Salvadora Ortiz ("Ortiz") and Thomas Scott ("Scott")("plaintiffs"), on behalf of themselves and others similarly situated, by the filing of a "Class Action Complaint (ERISA)" naming as defendants American, Committee, and Credit Union.
A summary description of plaintiffs pleading follows:
Plaintiffs alleged that in filing the action, they were acting as representatives of a 401(k)3 retirement plan for employees of participating AMR Corporation subsidiaries (the "Plan") as authorized by §§ 502(a)(2) and (3) of the Employee Retirement Income Security Act of 1974, as amended, ("ERISA") [29 U.S.C. §§ 113.2(a)(2) and (3)]. Doc. 1 at 1-2, ¶¶ 1 & 2. Each defendant was alleged to be a fiduciary as to the Plan and its participants, and each allegedly violated fiduciary duties owed to the Plan and its participants. Each named plaintiff was a participant in the Plan, as defined in ERISA § 3(7) [29 U.S.C. § 1002(7)], and has owned, directly or indirectly, an interest in the Plan's investment option that is referred to in the complaint as the American Airlines Credit Union Demand Deposit Fund ("AA Credit Union Fund").
In addition to asserting actions on behalf of the Plan, plaintiffs alleged class action facts on behalf of all participants and beneficiaries of the Plan who invested directly or indirectly in the AA Credit Union Fund at any time fromFebruary 12, 2010, through the date of the judgment in this action (excluding certain categories of persons). Id. at 9-11.
The Plan is an employee pension benefit plan within the meaning of ERISA § 3(2)(A) [29 U.S.C. § 1002(2)(A)]. It is an eligible individual account plan, which provides an individual retirement account for each participant, as contemplated by ERISA § 3(34) [29 U.S.C. § 1002(34)], the benefits of which are based solely on the amount contributed to the participant's account, with adjustments for income, gains, losses, and expenses. Such a plan is commonly referred to as a "defined contribution plan." The participants select the investments to be made in their accounts from investment options provided for the participants by one or more Plan fiduciaries. The Plan is intended to comply with ERISA § 404(c) [29 U.S.C. § 1104(c)] and related regulations.
By ERISA regulation, one of the investment options that must be provided to the participants of such a plan is an income-producing, low-risk, liquid fund. The only option provided by defendants to the Plan participants for an investment in that category was the AA Credit Union Fund, which is a fund sponsored and managed by Credit Union.
Defendants violated their fiduciary duties by having the AA Credit Union Fund as the only Plan investment option that would qualify as an income-producing, low-risk, liquid fund. The AACredit Union Fund produced extremely poor investment returns. The return on the AA Credit Union Fund was at all material times less than a poorly managed checking account. At the same time that the AA Credit Union Fund was providing the Plan participants who invested in it the meager returns described above, checking accounts offered by Credit Union to its depositors paid better returns than those earned by the Plan participants who elected to invest in the AA Credit. Union Fund. One such account paid interest at the rate of 2.27%. Stable value funds, commonly used by large plans similar to the Plan, typically offered a greater return on a participant's investment than does the AA Credit Union Fund.
Had defendants properly performed their fiduciary obligations to the Plan and its participants, the income-producing, low-risk, liquid fund option would have been, or included, an option known as a stable value fund.
If the Plan funds invested in the AA Credit Union Fund had instead been invested in a stable value fund returning average benchmark returns during the proposed class period, plaintiffs and the other Plan participants would not have lost tens of millions of dollars in their retirement savings, and would not continue to suffer additional losses as a result of the existence of the AA Credit Union Fund option in the Plan.
American Airlines and Committee are liable under 29 U.S.C. § 1109(a) to make good to the Plan any losses to the Plan resulting from their breach of fiduciary duties related to the failure to provide a stable value fund as an investment option.
At all relevant times, Credit Union held $1 billion in Plan assets in the AA Credit Union Fund, which is a demand deposit account, for which it had a fiduciary obligation to pay a reasonable rate of interest. Rather than to pay a reasonable rate of interest to the Plan participants who elected to invest in the AA Credit Union Fund, Credit Union used the $1 billion in Plan assets it held as investments by Plan participants to provide loans to members of Credit Union and to make other investments for which it earned substantial income, which, in turn, permitted Credit Union to offer substantially higher interest rates on similar demand deposit accounts to customers other than the Plan participants who invested in the AA Credit Union Fund. Credit. Union should have paid to plaintiffs in the proposed class at least the same rate of interest it was offering to its other customers.
Consequently, Credit Union is liable under 28 U.S.C. § 1109(a) to make good to the Plan any losses to the Plan resulting from Credit Union's breach of fiduciary duty in failing to pay to the Plan participants a reasonable rate of return on investments they made in the AA Credit Union Fund option.American and Committee share with Credit Union, as co-fiduciaries, liability under 29 U.S.C. § 1105(a) for those losses by reason of having participated in Credit Union's breach of fiduciary duty, knowing that Credit Union's conduct was such a breach, by failing to take reasonable efforts under the circumstances to remedy the breach and by reason of ERISA § 406(a) [29 U.S.C. § 1106(a)], which prohibits transactions between the Plan and a party-in-interest.
Plaintiffs alleged three causes of action. First, in Count I, they alleged that American and Committee violated their fiduciary duties of loyalty and prudence by failing to remove the AA Credit Union Fund option from the Plan, as the Plan's "income producing, low risk, liquid fund." Doc. 1 at 11-12. Second, in Count II, they asserted that the Credit Union breached its duty of loyalty by dealing with Plan assets for its own account. Id. at 13-14. And, third, in Count III, plaintiffs asserted that American and Committee engaged in a transaction prohibited by ERISA by allowing Plan assets to be invested in AA Credit Union Fund's demand deposit account. Id. at 14-15.
In May 2016, American and Committee filed á motion to dismiss, asserting as its grounds that (a) the inclusion of the Credit Union option in the Plan did not signal imprudence ordisloyalty, (b) plaintiffs failed to allege facts stating a claim for co-fiduciary liability, and (c) the co-fiduciary liability claim must be dismissed because the Credit Union's above-average dividends show that its returns were reasonable. Doc. 26 at 7, 12, 13.
Credit Union filed a motion to dismiss in May 2016 for failure to state a claim on the grounds that the claims against Credit Union failed to allege sufficient facts to support plaintiffs' contention that Credit Union violated 28 U.S.C. § 1106(b)(1), because the alleged prohibited transactions fell within ERISA's exemptions, and the other counts pleaded by plaintiffs did not allege facts supporting a cause of action against the Credit Union, Doc. 20 at 5, 7, 9.
After having obtained extensions of time for the filing of responses to the motions to dismiss, rather than to file such a response, plaintiffs filed July 18, 2016, a document titled "Unopposed Motion for Order Preliminarily Approving (I) Conditional Certification of the Settlement Classes; (II) Appointment of Lead and Class Counsel; (III) Preliminary Approval of Settlement; and (IV) Approval of Form and Manner of Notice." Doc. 51. The proposed settlement contemplated that a settlement class...
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