Compliance January 24, 2023

Fluor ERISA Lawsuit Dismissed

District Judge allowed one plaintiff 28 days to submit an amended complaint.

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A federal judge in Texas dismissed a proposed class action lawsuit, Locascio et. al. v. Fluor Corporation et. al., from former Fluor Corporation workers alleging mismanagement of their $3.4 billion 401(k) plan, determining the plaintiffs’ pleadings were insufficient to proceed.

Former Fluor workers Deborah Locascio and David Summers were the named representatives of the putative class.

Defendants Mercer Investment Management and Fluor each moved to dismiss the plaintiff’s entire complaint under Rule 12(b)(6), for failure to state a claim upon which relief can be granted. Fluor also argued Locascio lacked proper standing, under Article III of the U. S. Constitution, to bring the lawsuit and as putative party to the lawsuit, could not show an injury in fact, as demanded in the standard.

U.S. District Judge Brantley Starr, of the U.S. District for the Northern District of Texas, granted the motions to dismiss, although  he noted specifically that Summers may file an amended complaint within 28 days of the order “curing the deficiencies outlined.”

Starr concluded, “Summers may make no other changes than the ones this order addresses.”

Unlike for plaintiff Summers, Starr did not provide a deadline for Locascio to refile an amended complaint.

In the formal legal realm, while a claim dismissed with prejudice is tossed permanently, litigation dismissed without prejudice has not ended. A presiding judge can allow the plaintiff to submit an amended complaint to fix deficiencies, including the claim from Summers—Count 1 of the original complaint—that alleged breach of fiduciary duties of prudence and loyalty, Starr wrote with regards to the plaintiff.

“Summers consistently asserts conclusory allegations without directing the court to pleadings that would allow the court to make an inference of imprudence,” Starr wrote of the first ERISA count. “Regarding the duty of loyalty for both Fluor and Mercer, the court agrees with defendants that Summers failed to plead facts showing a plausible claim of fiduciary disloyalty.”

Starr instructs to demonstrate disloyalty, a plaintiff must show the court that a fiduciary failed to operate the retirement plan solely in the interests of the participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan, as ERISA requires.

“Instead, Summers simply alleges that Mercer did not remove the Fluor [target-date funds] from the plan because doing so ‘would conflict with its business relationship with BlackRock,’” Starr wrote, quoting the original complaint. “Summers must do more than conclude that because Mercer has a relationship with BlackRock it necessarily infringed on its duty of loyalty by maintaining the Fluor TDFs. To survive this motion to dismiss, Summers must plead specific facts regarding the breach of the duty of loyalty without simply recycling what he already stated regarding the duty of prudence.”

Starr’s order notes the relevant Constitutional law precedent, Ramming v. United States, as the roadmap for proceedings because “when a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, the court should consider the Rule 12(b)(1) jurisdictional attack before addressing any attack on the merits,” he wrote, quoting from the 5th Circuit decision, which was decided in 2001.

Fluor challenged Locascio’s standing to bring the lawsuit—under Article III—because she did not invest in any of the plan’s twelve options and challenged Summers’s standing to bring all claims involving the nine plan options in which he did not invest.

“Plaintiffs attempt to overcome the individual injury by arguing a generalized injury to the plan and its participants,” he wrote. “But an injury to the plan and its participants generally is insufficient under Article III to establish standing—plaintiffs must allege an individualized and particular injury. The burden of proving such an injury rests on the shoulders of plaintiffs.” 

Although Starr dismissed Locascio without prejudice, he also wrote “the Court GRANTS Defendants’ Rule 12(b)(1) motion as to Locascio’s standing,” effectively narrowing the legal grounds on which Locascio may argue proper cause to stand before the court as a party to the lawsuit.

“[Plaintiffs] do not carry that burden because they fail to demonstrate any injury to Locascio and only some injury to Summers,” Starr wrote. “Locascio suffered no injury, and therefore has no standing, because she invested in none of the twelve options of the Plan. So she pled her way out of court.”

While the 5th Circuit has not definitely answered the question of whether personal investment is necessary to demonstrate standing, Starr was not convinced by arguments made on behalf of plaintiff Locascio.

“[E]ven if they did, to establish Article III standing, plaintiffs need to allege personal injury by each challenged fund,” wrote Starr. “By her own admission, Locascio cannot do this.”

Mercer provided consulting and select investment services to the plan and had served as the designated 3(38) fiduciary investment adviser since 2017.

The plaintiffs’ complaint argued Fluor plan fiduciaries failed to fully disclose the expenses and risk of the plan’s investment options to participants; allowed unreasonable expenses to be charged to participants; and selected and retained high-cost and poorly performing investments when more prudent investments were readily available. The original complaint was brought in January 2022.

The complaint alleged plan mismanagement stemmed from underperforming investments managed by BlackRock—which the Fluor plan used for custom target-date funds as its default plan investment—that mirror the target-date suite, BlackRock LifePath Index Funds.

The BlackRock LifePath Index Funds were central to 11 other ERISA lawsuits, with almost identical fiduciary breach allegations, brought by law firm Miller Shah in 2022. BlackRock was not a named defendant in any of the lawsuits.

Similar fiduciary breach lawsuits against Capital One and Booz Hamilton were dismissed in December 2022.

Plaintiffs Locascio and Summers were represented in court by attorneys from Miller Shah, based in Philadelphia, and Fee, Smith, Sharp & Vitullo, based in Dallas, court documents show.

The Fluor Corporation did not respond to a request for comment.

Compliance January 24, 2023

TIAA Class Action Reversal May Impose Significant Procedural Hurdle for Future Cases

The 2nd Circuit Court of Appeals’ reversal of class certification will likely make it more difficult for ERISA class action lawsuits.

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TIAA may have won a victory for defendants in fiduciary breach lawsuits.

Retirement plan lawsuits brought by plaintiffs and their attorneys against retirement recordkeepers and administrative services providers, investment managers and employers could face a more rigorous standard to having their class certified in the wake of the 2nd U.S. Circuit Court of Appeals’ December 2022 decision in Haley et al v. Teachers Insurance and Annuity Association of America, explains Drew Oringer, a partner and general counsel at the Wagner Law Group, which was not involved in the litigation.

In a December 1, 2022 decision by a three-judge panel, the 2nd Circuit overturned a class certification and ordered the retirement plan lawsuit be remanded back to the  U.S. District Court for the Southern District of New York to proceed without the previous class certification.

“I really can’t overstate the significance of class certification in the ERISA context, because the certification as a class is what often opens the door to launch potentially large recoveries, and potentially large recoveries is what encourages plaintiffs’ lawyers to make the investment in these cases,” Oringer explains. “For individual claims without the benefit of class status, it’s much harder to get these large judgments, and therefore, the cases would become much less appealing to the plaintiffs’ bar.”

If the decision results in greater difficulty getting ERISA claims certified as a class, it will remove much of the appeal and monetary motivation for a significant percentage of ERISA cases, which have proliferated in recent years.

“Certainly the magnitude [in comparing] individual claims generating individual recoveries—each one of those individual claims may be relatively small,” Oringer says.

The original Employee Retirement Income Security Act case focused on the legality of a loan program offered in the plaintiffs’ retirement plan. The lower court had previously certified a class of retirement plan members whose fiduciaries had hired TIAA to offer the loan program. The appeals court accepted TIAA’s defense, which challenged the class certification based on the lower court’s failure to address “the effect of ERISA’s statutory exemptions on liability class wide and without making any factual findings as to the similarities of the loans,” according to the appeals court’s decision.

“The 2nd Circuit focused on the intersection of the ERISA rules with the predominance requirements in the class action rules, and the gist of the 2nd Circuit’s decision was that there was an inadequate consideration of the [affirmative] ERISA defenses, particularly regarding the prohibited transaction exemptions on the district court’s part, when the district court decided that the class should be certified,” Oringer says. “Essentially what they said is that the district court did not examine whether certain facts that are critical to the application of two prohibited transaction exemptions could be analyzed and assessed on a class-wide basis, and that should have been an essential part of the determination of whether class should be certified.”

Following the appellate court sending the case back to the Southern District of New York, attorneys for both parties filed a statement with the district court stating the plaintiffs’ plan to argue the case again to address the appeals court’s decision, explains the lead attorney for the plaintiffs, John Nestico, an ERISA and consumer class action counsel at the firm Schneider Wallace Cottrell Konecky Wotkyns LLP.  

The appellate court’s approach is likely to be seen as an important precedent and influential decision because of the region from which the court hears appeals, Oringer adds.

“The case could prove significant in its own right, just because of TIAA’s very significant footprint in the market,” he says. “Even forgetting its precedential value, [the lawsuit] has direct importance, just because of the number of employees that are covered in plans that are administered by TIAA.”

The district court had certified an 8,000-plan class in the lawsuit against TIAA for its participant loan practices.

The 2nd Circuit hears appeals from district courts in Connecticut, Vermont and New York, a jurisdiction that includes a robust number of insurers, investment management companies and banks. The 2nd Circuit is therefore seen as influential to setting precedent for other circuits, particularly in finance, banking and insurance, according to Oringer.

“This is a decision that will clearly be respected,” he says. “It may not be followed—different courts take different approaches—but it will certainly not be lightly ignored.”

The joint statement from the attorneys to U.S. District Judge J. Paul Oetken said the plaintiffs plan “to petition the court to allow targeted discovery focused on the affirmative defenses raised by TIAA to the extent they concern class certification.”

“There’s no reason why it can’t go forward as a class of plans,” Nestico says. “We’ve got to get past this hurdle [of] how we demonstrate that these particular details of two prohibited transaction exemptions can be determined on a class-wide basis.”

The initial complaint was brought in 2017 and the class certified in 2020. The plaintiffs alleged TIAA pocketed portions of the interest participants had paid on loans from their retirement plans, in violation of ERISA’s provisions against prohibited transactions.

TIAA declined to comment on the litigation.

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