Rothstein v. Am. Int'l Grp., Inc.

• Decision Date: 20 September 2016
• Docket Number: Docket Nos. 14–4067(L),14–4603(con),August Term, 2015
• Court: U.S. Court of Appeals — Second Circuit
• Parties: Sharyn Rothstein, Marisa Rothstein, Mollye Rothstein, Objector, Alan Rothstein, Objector, San Francisco Employees' Retirement System, Robert D. Jaffee, as Trustee of the Robert D. Jaffee Revocable Trust, Robert D. And Phyllis A. Jaffee Family Foundation, Robert D. Jaffee Ira Rollover, Anne E. Flynn, on behalf of herself and all others similarly situated, Michael Cassidy, on behalf of himself and all others similarly situated, Lisa M. Crouch, on behalf of herself and all others similarly situated, Robert J. Casey, II, on behalf of himself and all others similarly situated, Eugene Olson, Joseph Scuilla, Stephan Frank, on behalf of himself and all others similarly situated, Jerome Noll, on behalf of himself and all others similarly situated, Public Employees' Retirement System of Mississippi, Michael Feder, on behalf of himself and all others similarly situated, Public Employees Retirement Association Of New Mexico, Plaintiffs, Ohio Police and Fire Pension Fund, State Teachers Retirement System of Ohio, Ohio Public Employees Retirement System, Plaintiffs–Appellees, v. American International Group, Inc. Incentive Savings Plan, American General Agents and Managers Thrift Plan, American International Group, Inc. Retirement Plan, AIG Insurance Company –Puerto Rico Capital Growth Plan, FKA Chartis Insurance Co. Puerto Rico Capital Growth Plan, Evercore Trust Company, N.A., as independent fiduciary of the Plans, Appellants, American International Group, Inc., Howard Smith, John A. Graf, John Houldsworth, Wachovia Securities, LLC, Richard Napier, AXA Financial, Inc., Eli Broad, Evan Greenberg, Union Excess Reinsurance Co., Richmond Insurance Co., Ltd., Pricewaterhousecoopers LLP, Michael L. Murphy, Morgan Stanley, Merrill Lynch & Co., Inc., JPMorgan Chase & Co., Goldman Sachs & Co., Citigroup Global Market F/K/A Salomon Smith Barney, Michael J. Castelli, C.V. Starr & Co., Inc., Maurice R. Hank Greenberg, Corinne P. Greenberg, Starr International Company, Inc., General Reinsurance Corporation, Ronald Ferguson, Patricia R. McCann, Donald P. Kanak, Richard A. Grosiak, Axel I. Freudmann, Frank J. Hoenemeyer, Christian Milton, Martin J. Sullivan, Thomas Tizzio, Howard Smith, Defendants.

837 F.3d 195

Sharyn Rothstein, Marisa Rothstein, Mollye Rothstein, Objector, Alan Rothstein, Objector, San Francisco Employees' Retirement System, Robert D. Jaffee, as Trustee of the Robert D. Jaffee Revocable Trust, Robert D. And Phyllis A. Jaffee Family Foundation, Robert D. Jaffee Ira Rollover, Anne E. Flynn, on behalf of herself and all others similarly situated, Michael Cassidy, on behalf of himself and all others similarly situated, Lisa M. Crouch, on behalf of herself and all others similarly situated, Robert J. Casey, II, on behalf of himself and all others similarly situated, Eugene Olson, Joseph Scuilla, Stephan Frank, on behalf of himself and all others similarly situated, Jerome Noll, on behalf of himself and all others similarly situated, Public Employees' Retirement System of Mississippi, Michael Feder, on behalf of himself and all others similarly situated, Public Employees Retirement Association Of New Mexico, Plaintiffs,Ohio Police and Fire Pension Fund, State Teachers Retirement System of Ohio, Ohio Public Employees Retirement System, Plaintiffs–Appellees,

v. American International Group, Inc. Incentive Savings Plan, American General Agents and Managers Thrift Plan, American International Group, Inc. Retirement Plan, AIG Insurance Company –Puerto Rico Capital Growth Plan, FKA Chartis Insurance Co. Puerto Rico Capital Growth Plan, Evercore Trust Company, N.A., as independent fiduciary of the Plans, Appellants,American International Group, Inc., Howard Smith, John A. Graf, John Houldsworth, Wachovia Securities, LLC, Richard Napier, AXA Financial, Inc., Eli Broad, Evan Greenberg, Union Excess Reinsurance Co., Richmond Insurance Co., Ltd., Pricewaterhousecoopers LLP, Michael L. Murphy, Morgan Stanley, Merrill Lynch & Co., Inc., JPMorgan Chase & Co., Goldman Sachs & Co., Citigroup Global Market F/K/A Salomon Smith Barney, Michael J. Castelli, C.V. Starr & Co., Inc., Maurice R. Hank Greenberg, Corinne P. Greenberg, Starr International Company, Inc., General Reinsurance Corporation, Ronald Ferguson, Patricia R. McCann, Donald P. Kanak, Richard A. Grosiak, Axel I. Freudmann, Frank J. Hoenemeyer, Christian Milton, Martin J. Sullivan, Thomas Tizzio, Howard Smith, Defendants.^*

Docket Nos. 14–4067(L)

14–4603(con)

August Term, 2015

United States Court of Appeals, Second Circuit.

Argued: February 11, 2016

Decided: September 20, 2016

H. DOUGLAS HINSON, (Richard S. Siegel, Jonathan G. Rose, on the brief), Alston & Bird LLP, Washington, D.C. for Appellants.

LOUIS GOTTLIEB, (Thomas A. Dubbs, Nicole M. Zeiss, on the brief) Labaton Sucharow LLP, New York, NY for Plaintiffs–Appellees.

Lorie E. Almon and James Randolph Napoli, Seyfarth Shaw LLP, New York, NY for amicus curiae American Benefits Council in support of Appellants.

Before: POOLER and SACK, Circuit Judges, and FAILLA, District Judge.¹

POOLER

, Circuit Judge:

This case concerns a securities class action settlement agreement with American International Group, Inc. (“AIG”). Like many disputes over finite settlements, this case concerns who gets a “slice” of the settlement “pie.” Appellants American International Group, Inc. Incentive Savings Plan (the “AIG ISP”), American General Agents' and Managers' Thrift Plan (the “Thrift Plan”), American International Group, Inc. Retirement Plan (the “Retirement Plan”), and AIG Insurance Company—Puerto Rico Capital Growth plan (the “Capital Growth Plan”) (collectively, the “Plans”) are employee benefit plans sponsored by AIG or its affiliates under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq.

In this case, we consider whether the Plans are “affiliates” of AIG for the purposes of a class action settlement agreement. The district court below held that Appellants were “affiliates” of AIG and thus ineligible for their own slice of the settlement pie. We disagree. Because ERISA imposes important statutory limits on an employer's control over the management and policies of an employee benefit plan, those plans do not fall within the ordinary meaning of “affiliate.” Thus, Appellants are entitled to their own slice of the settlement pie and Appellees will have to live with a somewhat smaller portion.

Accordingly, we vacate the district court's denial of the Plans' motion to direct.

BACKGROUND

I. Factual Background

A. The Settlement Agreements

Lead Plaintiffs reached several agreements with both AIG and PricewaterhouseCoopers (“PwC”) to settle certain class action lawsuits alleging violations of federal securities laws. Appellees resolved the class actions by way of four separate settlements: (1) the AIG Settlement; (2) the PwC Settlement; (3) the Gen Re Settlement; and (4) the Starr Settlement (the “Settlement Agreements”). The four settlements are substantially similar and all define the “Settlement Class” as follows:

[The Settlement Class includes] all persons and entities who purchased or otherwise acquired AIG Securities during the period of time from October 28, 1999, through April 1, 2005, inclusive (the “Class Period”), as well as all persons and entities who held the common stock of HSB Group, Inc. (“HSB”) at the time HSB was acquired by AIG in a stock for stock transaction, and all persons and entities who held the common stock of American General Corporation (“AGC”) at the time AGC was acquired by AIG in a stock for stock transaction, and were damaged thereby (the “Settlement Class”). Excluded from the Settlement Class are (i) the Defendants, as named in the Consolidated Third Amended Class Action Complaint, dated December 15, 2006 (the “Complaint”) in this Action; (ii) the immediate families of the Individual Defendants, as named in the Complaint; (iii) any parent, subsidiary, affiliate, officer, or director of AIG ; (iv) persons who made requests for exclusion from the Settlement Class in the manner and within the time period provided by Section IV of the Agreement and/or by order of the Court and did not thereafter rescind such requests, such excluded persons being listed on Exhibit A hereto; (v) any entity in which any excluded person has a controlling interest; and (vi) the legal representatives, heirs, successors and assigns of any excluded person.

Special App'x at 6 (emphasis added); see also, e.g. , App'x at 1034–35. Both Appellants and Appellees agree that the term “affiliate” is not defined in the Settlement Agreements. See Special App'x at 7. “AIG Securities” is defined in the agreement as

any and all publicly-traded securities issued by American International Group, Inc., whether debt or equity securities, including, without limitation, AIG common stock, the Zero Coupon Convertible Senior Debentures referenced in paragraph 189 of the Complaint, the 0.5% Cash Exchangeable Equity–Linked Senior Notes referenced in paragraph 193 of the Complaint, the 2.85% Medium-Term Notes, Series F referenced in paragraph 203 of the Complaint, the 2.875% Notes 144A securities referenced in paragraph 212 of the Complaint that were exchanged into registered like coupon bonds and the 4.25% Notes 144A securities referenced in paragraph 217 of the Complaint that were exchanged into registered like coupon bonds.

App'x at 2546 (emphasis added). Accordingly, to be a member of the Settlement Class, an investor, among other things, must have purchased publicly-traded AIG Securities and must not be an “affiliate” of AIG.

Claims were to be administered by Rust Consulting, Inc. (“Rust”). Rust's principal responsibility was to calculate the recognized loss for each claim based on the claimant's acquisition of AIG securities during the class period (the “Recognized Loss”) and to distribute corresponding settlement funds, all according to formulas provided in the agreements.

After holding separate final approval hearings, the district court approved each of the settlements. On February 3, 2012, the District Court entered the Order and Final Judgment granting final approval to the AIG Settlement, which provided for the payment of $725 million.

B. The Plans

The Plans are of two different types. The Retirement Plan is a defined benefit plan, under which AIG guarantees each participating employee a set annual benefit upon retirement. AIG sets aside a pool of assets, including its own stock, to fund those benefits, and it assumes responsibility for providing additional funding if the pool proves inadequate for any reason—including market losses. The remainder of the Plans are defined contribution plans (the “Defined Contribution Plans”), under which AIG guarantees a set payment into participating employees' accounts each year before retirement. Participants may choose to invest those payments in the market through several funds that hold securities on the employees' behalf, including one fund that holds AIG common stock. If employees make such investments, however, they—and not AIG—take the risk of market losses.

The parties have identified two distinct methods of tabulating how much AIG common stock the Defined Contribution Plans acquired during the class period: the “plan level” and the “participant level.” Claims submitted at the plan level list the total number of AIG shares that the Defined Contribution Plans purchased on behalf of all participating individuals. Claims submitted at the participant level, in contrast, list the total number of AIG shares that participating employees elected to acquire by investing money in their accounts.

Claims made at the plan and participant levels can diverge significantly. When an employee elects to acquire a share of AIG stock through one of the Defined Contribution Plans, the plan will not necessarily purchase a share on the open market; it may instead transfer a share previously held on behalf of a different employee who has since elected to sell it, thereby avoiding certain transaction costs. In this way, the number of AIG shares that the Defined Contribution Plans purchased on the open market during the class period (the plan level calculation) could be lower than the...