Rothstein v. American International Group, Inc.
2016 U.S. App. LEXIS 17201
| 2d Cir. | 2016Background
- Four related securities class settlements (AIG, PwC, Gen Re, Starr) defined a Settlement Class of persons who purchased publicly traded AIG securities during the class period, excluding “any parent, subsidiary, affiliate, officer, or director of AIG.” Rust Consulting administered claims and calculated Recognized Losses.
- The appellants are four ERISA employee benefit plans sponsored by AIG (one defined-benefit Retirement Plan and three defined-contribution Plans) that submitted claims at plan- and/or participant-levels seeking distributions from the settlements.
- Rust issued Notices of Ineligibility finding the Plans ineligible on two grounds: (1) the Plans were “affiliates” of AIG and thus excluded by the settlement terms; and (2) participant-level claims failed to identify purchases of publicly traded AIG securities.
- The district court denied the Plans’ motion to direct distribution and denied their untimely motion to intervene; the Plans appealed the denial of the motion to direct (and intervened order, later dismissed as moot).
- The Second Circuit considered (1) whether the Plans may appeal despite non-appealability language in the settlement, and (2) whether ERISA-sponsored plans are “affiliates” of their sponsor for purposes of the settlement exclusion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the settlement’s non-appealability clause bars the Plans’ appeal | Plans: not bound by clause because they aren’t Settlement Class members and were not parties to the agreement | Lead Plaintiffs/Appellees: clause prevents appeals from administrator disputes | Held: Clause does not bar appeal; nonparties not bound when not class members and clause cannot be used to trap nonparties into waiver |
| Whether the Plans may appeal as nonparties | Plans: have a concrete, affected interest (millions in Recognized Loss) and may appeal denial of motion to direct | Appellees: permitting appeal would open door to any third-party claimant | Held: Plans may appeal as nonparties because they plausibly show an affected interest; appeal of intervention denial dismissed as moot |
| Whether ERISA-sponsored plans are “affiliates” of their employer for settlement exclusion (i.e., whether employer “controls” plan management/policies) | Plans: ERISA imposes fiduciary duties and statutory limits that prevent employer control; thus plans are not affiliates | Appellees: sponsorship, appointment/removal power, and ability to disband show control (relying on Motorola and Marsh) | Held: Vacated district court. Under ordinary securities/SEC definitions of “affiliate” (control = power to direct management and policies), ERISA’s statutory fiduciary constraints mean sponsor lacks the requisite control; plans are not affiliates |
| Whether participant-level claims by defined-contribution plans are improper because plans (not participants) bought the securities | Plans: participant-level data reflects actual individualized losses and should be accepted; conversion increases Recognized Loss but is permissible | Rust/Appellees: trusts/plan-level purchases may be transfers (not public market purchases), so participant-level claims may fail to show purchase of publicly traded securities | Held: Second Circuit remanded this factual/administrative issue for the district court to decide in the first instance |
Key Cases Cited
- In re Motorola Sec. Litig., 644 F.3d 511 (7th Cir.) (affirming exclusion of a 401(k) plan as an affiliate based on appointment/removal and structural control)
- Waldman v. Riedinger, 423 F.3d 145 (2d Cir.) (trustee not an affiliate where he neither controlled nor was controlled by defendants)
- Devlin v. Scardeletti, 536 U.S. 1 (U.S.) (discussing when nonparties may be considered parties for purposes of appeal)
- Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359 (U.S.) (ERISA’s statutory findings and purposes)
- Official Comm. of Unsecured Creditors of WorldCom, Inc. v. SEC, 467 F.3d 73 (2d Cir.) (standards for nonparty appeals and affected interests)