248 F. Supp. 3d 786
N.D. Tex.2017Background
- Plaintiffs (participants in the American Airlines 401(k) Plan) brought a putative class ERISA suit alleging breaches of the duties of loyalty and prudence based on the Plan’s retention of American Beacon mutual funds.
- Plaintiffs allege American Airlines and several Plan committees (PAAC, PBAC, BSC, EBC) were fiduciaries or exercised fiduciary control; American Beacon was an investment manager/functional fiduciary.
- Core allegations: American Beacon funds were retained despite being affiliated, more expensive than identical alternatives, and underperforming; retention continued after a 2008 sale and purportedly facilitated AMR/AA financial interests in American Beacon.
- Plaintiffs also allege a failure-to-monitor claim against American Airlines and the Benefits Strategy Committee for appointing and failing to supervise plan fiduciaries.
- Defendants moved to dismiss under Rule 12(b)(6); the Court considered exhibits and denied most dismissal arguments, granting dismissal only as to the theory that offering mutual funds (versus separate accounts/collective trusts) was per se imprudent.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty of loyalty re: retaining affiliated American Beacon funds | Retention favored affiliated funds and served corporate interests, not participants | Use of independent reviewer and regulatory exceptions for affiliated investments defeat disloyalty | Denied dismissal — plausibly pleaded loyalty breach survives at this stage |
| Prudence: offering higher-cost identical index funds | AA kept higher-fee American Beacon index funds despite cheaper identical Vanguard options | No duty to pick the absolute cheapest index fund; lawful to offer funds with differing providers | Denied dismissal — plausible claim that identical lower-cost alternatives were readily apparent |
| Prudence: retaining underperforming actively managed funds | AA retained poorly performing American Beacon active funds without adequate investigation/removal | Performance and materials show lawful explanations; dismissal warranted | Denied dismissal — facts permit inference of flawed process; cannot resolve now |
| Prudence: failing to consider separate accounts/collective trusts | AA failed to evaluate lower-cost pooled vehicles as alternatives to mutual funds | Offering mutual funds instead of pooled vehicles is not per se imprudent | Granted dismissal as to this theory — offering mutual funds vs. pooled vehicles not imprudent |
| Fiduciary status of AA, PBAC, BSC | Plaintiffs allege naming/control/appointment authority making them fiduciaries | Fiduciary status must be shown for specific challenged acts; premature to decide now | Denied dismissal — sufficient allegations to proceed at pleading stage |
| Failure-to-monitor claim | AA and BSC failed to monitor appointees and remove imprudent fiduciaries | Fifth Circuit has not clearly recognized the claim; facts are insufficient | Denied dismissal — claim adequately pleaded; parties to brief Fifth Circuit cognizability |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard requires plausible factual allegations)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008) (ERISA fiduciary duties informed by trust law)
- Pegram v. Herdrich, 530 U.S. 211 (2000) (fiduciary must act solely in beneficiaries' interest)
- Kujanek v. Hous. Poly Bag I, Ltd., 658 F.3d 483 (5th Cir. 2011) (ERISA fiduciary duties of loyalty and prudence)
- Tibble v. Edison Int'l, 135 S. Ct. 1823 (2015) (continuing duty to monitor investments)
- Pension Benefits Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705 (2d Cir. 2013) (prudence inquiry focuses on process; circumstantial allegations can show flawed process)
- Braden v. Wal-Mart Stores, Inc., 588 F.3d 585 (8th Cir. 2009) (pleading a flawed decisionmaking process may survive dismissal)
- Hecker v. Deere & Co., 556 F.3d 575 (7th Cir. 2009) (no duty to pick absolute cheapest fund)
- Loomis v. Exelon Corp., 658 F.3d 667 (7th Cir. 2011) (offering mutual funds over pooled vehicles not per se imprudent)
- Perez v. Bruister, 823 F.3d 250 (5th Cir. 2016) (noting Fifth Circuit has not recognized a separate duty-to-monitor claim)