Compliance August 15, 2023

ERISA Case Against Cisco Over BlackRock TDFs Dismissed

A judge dismissed a complaint against the retirement plan committee for Cisco, marking the fifth dismissal of similar lawsuits.

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A federal court in California dismissed a breach of fiduciary duty lawsuit brought against Cisco under the Employee Retirement Income Security Act, though plaintiffs were given the opportunity to amend their lawsuit.

This case is one of a series of lawsuits brought by the Miller Shah law firm which alleges that BlackRock Inc.’s LifePath target-date-fund suite underperformed other TDFs in the market and that sponsors that selected the TDF series as their QDIA only did so to pursue lower fees, not with overall performance in mind.

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The case, Robert Bracalente vs. Cisco Systems, was heard in the US District Court for the Northern District of California San Jose Division.

Miller Shah did not respond to a request for comment.

In addition to Cisco, similar complaints brought against Microsoft, Capital One, Booz Allen Hamilton, and Advance Publications have also been dismissed.

District Court Judge Edward J. Davila explained that the BlackRock fund series underperforming other TDFs from 2016 to 2021, such as those offered by Vanguard or T. Rowe Price, does not automatically make selection of the BlackRock funds an imprudent one. “Merely pointing to another investment that has performed better in a five-year snapshot of the lifespan of a fund that is supposed to grow for fifty years does not suffice to plausibly plead an imprudent decision,” Davila wrote in the decision.

According to the judge, in order for ERISA fiduciary duty to apply to investment underperformance, it must be accompanied by other facts, such as evidence of an imprudent process: “to the extent Plaintiffs attempt to state an ERISA claim for imprudence based solely on the BlackRock TDFs’ underperformance, the Court cannot reasonably infer from underperformance alone that the BlackRock TDFs were imprudent investments.”

Further, fiduciaries are not required to select the highest performing investments, and there are a range of choices that are consistent with prudence, Davila wrote:  “The Supreme Court has recognized that ‘the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, and courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise.’”

Davila continued, “’underperformance-only’ theory, however, would flatten this nuanced prudence evaluation into a one-dimensional comparison that considers only the funds’ three- and five-year performance data.”

The court also noted that though the class period ended in 2021, starting in the first quarter of 2022, the BlackRock TDF series outperformed the competitors listed in the lawsuit, underscoring the role of TDFs as a long-term investment. It would also lend support to the arguments found in industry amicus briefs that the plaintiffs in these cases were cherry picking the time periods to which their claims pertained.

Davila also signaled that he was aware of other U.S. district courts that rejected the same arguments in similar cases and that this influenced his decision.

“It is also worth noting that at least two other district courts have recently dismissed ERISA complaints with near-identical allegations also relating to the same BlackRock TDFs and their disappointing three- and five-year performance data,” Davila wrote.

Administration August 15, 2023

Judge Sets Trial Date for American Airlines ESG Lawsuit

The airline has sought to dismiss the litigation, but the trial could begin in late June of next year.  

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The judge assigned to a lawsuit against American Airlines in Texas federal court has slated a trial date to begin on June 24, 2024, a scheduling order in the case shows.  

“Counsel and the parties shall be ready for trial on two days’ notice at any time during this four-week period,” Judge Reed O’Connor wrote in the order filed August 9. “The Court, having considered the status report submitted by the parties, finds that the following schedule should govern the disposition of this case.”

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The class action complaint was brought by a former pilot in June. The plaintiff alleged the airlines’ 401(k) plan scarified performance for environmental, social and governance factors. 

The lawsuit is Spence et al. v. American Airlines et al, and was brought before U.S. District Court for the Northern District of Texas.  

O’Connor provided a summary of critical dates in the order, scheduling the first action on the roster, initial expert designation and report, for October 30, 2023.

“The Court has attempted to adhere to the schedule requested by the parties,” O’Connor wrote.

Completion of discovery is scheduled for January 26, 2024. Additional motions to dismiss and for summary judgment or summary adjudication of issues must be filed by February 24, 2024; pretrial disclosures May 15, 2024, and objections are due 14 days after that; pretrial materials due May 30, 2024; exchange of exhibits June 10, 2024; and pretrial conference to be set if necessary.   

Attorneys for American Airlines filed a motion to dismiss the lawsuit on August 4, arguing that the ESG-related funds in question were only available through the self-directed brokerage window and that the plaintiff had not invested in the funds listed in his complaint. 

“If the judge set a trial date after a motion to dismiss was filed, then it appears that the motion will be denied,” says Douglas Neville, Employee Retirement Income Security Act attorney, officer and practice group leader at St. Louis-based law firm Greensfelder, Hemker & Gale PC. “I would expect that the judge will issue an order denying the motion.”

Defendants Fidelity Investments and Edelman Financial Engines were severed from the lawsuit in July.

O’Connor ordered the parties to jointly select a mediator and mediate on or before December 27, 2023.

The judge also instructed that the individual parties and their counsel, along with representatives of their liability insurance providers (if they have such coverage) shall participate in person, not by telephone or other remote means, O’Connor wrote in the order.

Within seven days after the mediation, the parties are required to jointly prepare and file a written report, signed by counsel for each party, detailing the date on which the mediation was held, the people present including the capacity of any representative, and a statement informing the court of the effect of their mediation and whether this case has been settled by agreement of the parties, the order adds.

“This case could go either way in terms of settlement,” explains Neville. “The case doesn’t seem to be very strong, so American [Airlines] may not be inclined to settle. But going to trial can be costly, so settlement is always a possibility to avoid the expense and inconvenience of litigation.”

Neither the attorneys for the plaintiffs nor the counsel for defendants responded to requests for comment. Representatives for American Airlines did not reply to a request for comment.

The plaintiff is represented by Hacker Stephens LLP and Sharp Law LLP; the defendant is represented by attorneys with the law offices of Kelly Hart & Hallman LLP and O’Melveny & Myers LLP. 

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