The Fifth Circuit affirmed the dismissal, for lack of standing, of a fiduciary breach representative action against American Airlines and its 401(k) plan investment committee.  Ortiz v. American Airlines, Inc., No. 20-10817, 2021 WL 3030550 (5th Cir. July 19, 2021).  As discussed in an earlier post, two former American Airlines employees brought this suit in 2016 on behalf of the American Airlines 401(k) plan, alleging that the plan fiduciaries’ investment decisions breached their fiduciary duties of loyalty and prudence and violated ERISA’s prohibited transaction rules.  In particular, plaintiffs alleged the defendants imprudently selected and retained a demand-deposit fund—sponsored and managed by American Airlines Federal Credit Union—as a plan investment option instead of a stable value fund, which had a higher rate of return.  Both named plaintiffs invested in the credit union fund but did not invest in a stable value fund that was added to the plan’s investment menu during the relevant statutory period.

Last year, a judge in the Northern District of Texas dismissed the case, holding that plaintiffs lacked Article III standing to pursue their claims.  In so holding, the court explained that any harm from defendants’ failure to offer a stable value fund was speculative since:  (i) plaintiffs did not show they would have invested in a stable value fund had it been available to them; and (ii) even when it did become available, plaintiffs did not invest in it.

The Fifth Circuit agreed with the district court’s conclusion that the plaintiffs lacked standing to bring their claims, but employed slightly different reasoning.  At the outset, the Court rejected the application of a recent Supreme Court case, Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020), to the issue of whether plaintiffs suffered a cognizable injury for purposes of Article III standing.  The Court wrote that the defendants could not rely on Thole to argue that plaintiffs did not suffer a concrete injury because the Supreme Court “explicitly drew a distinction” between the defined benefit plan at issue there—in which participants’ entitlements to benefits are fixed independent of fiduciaries’ investment decisions—and defined contribution plans such as the American Airlines 401(k) plan, in which participants’ benefits are tied to their account value and thus to plan fiduciaries’ investment decisions.

The Fifth Circuit’s decision instead focused on the causation prong of the Article III standing analysis.  Unlike the district court, the Court did not focus only on whether plaintiffs would have invested in a stable value offering if one was available, but on whether plaintiffs would have done so if, counterfactually, the plan never offered the demand-deposit option at all.  Here, because plaintiffs did not transfer out of the demand-deposit fund even when a stable value option became available, the Court found it unlikely that plaintiffs would have invested in a stable value option even if the demand-deposit fund was never available.  Accordingly, the Court held that to the extent plaintiffs suffered injuries, those injuries were caused by their own investment decisions and not by defendants.

Proskauer’s Perspective

Ortiz is notable because it appears to be the first appellate court to consider whether Thole’s holding applies in the defined contribution plan context.  The decision is also notable for its causation analysis for purposes of determining Article III standing.  This could prove to be significant in light of the Supreme Court’s ruling in CIGNA Corp. v. Amara, 563 U.S. 421 (2011), which held that plaintiffs seeking plan reformation to remedy a misleading plan communication need not prove detrimental reliance on the communication.  Ortiz suggests that, in spite of Amara, defendants may be able to effectively reinstate a detrimental reliance requirement by arguing that, in the absence of detrimental reliance, there is no showing of causation and harm sufficient to satisfy constitutional standing requirements.

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Photo of Myron Rumeld Myron Rumeld

Myron D. Rumeld has over thirty-five years of experience handling all aspects of ERISA litigation at both the trial and appellate level. His broad experience includes numerous representations of 401(k) plan fiduciaries defending class action employer stock and excessive fee claims, and representations…

Myron D. Rumeld has over thirty-five years of experience handling all aspects of ERISA litigation at both the trial and appellate level. His broad experience includes numerous representations of 401(k) plan fiduciaries defending class action employer stock and excessive fee claims, and representations of large multiemployer pension and health fund trustees in the defense of a large assortment of fiduciary breach lawsuits. He has defended class action suits against Charles Schwab, Barnabas Health, Inc., Neuberger Berman, and the American Federation of Musicians Pension Fund, among many other clients; and he has tried cases for The Renco Group and Foot Locker, Inc., among others.

Chambers USA cites Myron as a “brilliant” and “sensational litigator,” who is “sharp, articulate, clever, and deeply committed to the work he does.” Similarly, The Legal 500 United States has called Myron an “outstanding ERISA lawyer.”

Myron is presently co-chair of Proskauer’s ERISA Litigation Group.  He previously served as co-chair of Proskauer’s nationally renowned Employee Benefits & Executive Compensation Group. He also served as the past co-chairman of the Board of Editors for the American Bar Association publication, Employee Benefits Law (BBNA).

Photo of Sydney Juliano Sydney Juliano

Sydney L. Juliano is an associate in the Labor & Employment Department and a member of the Employee Benefits & Executive Compensation Group, where she focuses on ERISA Litigation.

Sydney works on a variety of ERISA litigation matters, including fee- and investment-related breach…

Sydney L. Juliano is an associate in the Labor & Employment Department and a member of the Employee Benefits & Executive Compensation Group, where she focuses on ERISA Litigation.

Sydney works on a variety of ERISA litigation matters, including fee- and investment-related breach of fiduciary duty claims, benefit claims, and claims by trustees of multiemployer plans for withdrawal liability and delinquent contributions. Sydney is also a frequent contributor to Proskauer’s Employee Benefits & Executive Compensation Blog.

Sydney maintains an active pro bono practice, including representing clients in immigration and family court matters.

Sydney received her J.D. from the University of Virginia School of Law, where she was an Articles Editor of the Journal of Law and Politics and Director of Coaching for the Extramural Moot Court team.  While at UVA, she worked at the U.S. Attorney’s office for the Southern District of Florida.