In re American International Group, Inc. Securities Litigation
United States Court of Appeals, Second Circuit
September 20, 2016
In re American International Group, Inc. Securities Litigation
v.
AMERICAN INTERNATIONAL GROUP, INC. INCENTIVE SAVINGS PLAN, AMERICAN GENERAL AGENTS AND MANAGERS THRIFT PLAN, AMERICAN INTERNATIONAL GROUP, INC. RETIREMENT PLAN, AIG INSURANCE COMPANY-PUERTO RICO CAPITAL GROWTH PLAN, FKA CHARTIS INSURANCE CO. PUERTO RICO CAPITAL GROWTH PLAN, EVERCORE TRUST COMPANY, N.A., as independent fiduciary of the Plans, Appellants, SHARYN ROTHSTEIN, MARISA ROTHSTEIN, MOLLYE ROTHSTEIN, Objector, ALAN ROTHSTEIN, Objector, SAN FRANCISCO EMPLOYEES' RETIREMENT SYSTEM, ROBERT D. JAFFEE, as Trustee of the Robert D. Jaffee Revocable Trust, ROBERT D. AND PHYLLIS A. JAFFEE FAMILY FOUNDATION, ROBERT D. JAFFEE IRA ROLLOVER, ANNE E. FLYNN, on behalf of herself and all others similarly situated, MICHAEL CASSIDY, on behalf of himself and all others similarly situated, LISA M. CROUCH, on behalf of herself and all others similarly situated, ROBERT J. CASEY, II, on behalf of himself and all others similarly situated, EUGENE OLSON, JOSEPH SCUILLA, STEPHAN FRANK, on behalf of himself and all others similarly situated, JEROME NOLL, on behalf of himself and all others similarly situated, PUBLIC EMPLOYEES' RETIREMENT SYSTEM OF MISSISSIPPI, MICHAEL FEDER, on behalf of himself and all others similarly situated, PUBLIC EMPLOYEES RETIREMENT ASSOCIATION OF NEW MEXICO, Plaintiffs, OHIO POLICE AND FIRE PENSION FUND, STATE TEACHERS RETIREMENT SYSTEM OF OHIO, OHIO PUBLIC EMPLOYEES RETIREMENT SYSTEM, Plaintiffs-Appellees, AMERICAN INTERNATIONAL GROUP, INC., HOWARD SMITH, JOHN A. GRAF, JOHN HOULDSWORTH, WACHOVIA SECURITIES, LLC, RICHARD NAPIER, AXA FINANCIAL, INC., ELI BROAD, EVAN GREENBERG, UNION EXCESS REINSURANCE CO., RICHMOND INSURANCE CO., LTD., PRICEWATERHOUSECOOPERS LLP, MICHAEL L. MURPHY, MORGAN STANLEY, MERRILL LYNCH & CO., INC., JPMORGAN CHASE & CO., GOLDMAN SACHS & CO., CITIGROUP GLOBAL MARKET F/K/A SALOMON SMITH BARNEY, MICHAEL J. CASTELLI, C. V. STARR & CO., INC., MAURICE R. HANK GREENBERG, CORINNE P. GREENBERG, STARR INTERNATIONAL COMPANY, INC., GENERAL REINSURANCE CORPORATION, RONALD FERGUSON, PATRICIA R. MCCANN, DONALD P. KANAK, RICHARD A. GROSIAK, AXEL I. FREUDMANN, FRANK J. HOENEMEYER, CHRISTIAN MILTON, MARTIN J. SULLIVAN, THOMAS TIZZIO, HOWARD SMITH, Defendants.
Argued: February 11, 2016
Appeal
from a judgment of the United States District Court for the
Southern District of New York (Batts, J.) denying
Appellants' Motion to Direct the Settlement Claims
Administrator to approve the Settlement Claims of Appellants
(the "Motion to Direct"), as well as a related
judgment denying Appellants' Motion to Intervene on
timeliness grounds.
We
first hold that Appellants have standing to appeal the
district court's denial of the Motion to Direct. For this
reason, we dismiss Appellants' appeal as to the denial of
their Motion to Intervene as moot.
Second,
we hold that because the Employee Retirement Income Security
Act of 1974 ("ERISA") imposes important statutory
limits on an employer's control over the management and
policies of an employer-sponsored benefit plan, those plans
do not fall within the ordinary meaning of the term
"affiliate." Therefore, we vacate the district
court's judgment denying Appellants' Motion to Direct
and remand for further proceedings.
Vacated
in part, dismissed as moot in part, and remanded.
H.
DOUGLAS HINSON, (Richard S. Siegel, Jonathan G. Rose, on the
brief), Alston & Bird LLP, Washington, D.C. for
Appellants.
LOUIS
GOTTLIEB, (Thomas A. Dubbs, Nicole M. Zeiss, on the brief)
Labaton Sucharow LLP, New York, NY for Plaintiffs-Appellees.
Lorie
E. Almon and James Randolph Napoli, Seyfarth Shaw LLP, New
York, NY for amicus curiae American Benefits Council in
support of Appellants.
Before: POOLER and SACK, Circuit Judges, and FAILLA, District
Judge. [1]
POOLER, Circuit Judge.
This
case concerns a securities class action settlement agreement
with American International Group, Inc. ("AIG").
Like many disputes over finite settlements, this case
concerns who gets a "slice" of the settlement
"pie." Appellants American International Group,
Inc. Incentive Savings Plan (the "AIG ISP"),
American General Agents' and Managers' Thrift Plan
(the "Thrift Plan"), American International Group,
Inc. Retirement Plan (the "Retirement Plan"), and
AIG Insurance Company - Puerto Rico Capital Growth plan (the
"Capital Growth Plan") (collectively, the
"Plans") are employee benefit plans sponsored by
AIG or its affiliates under the Employee Retirement Income
Security Act of 1974 ("ERISA"), 29 U.S.C. §
1001 et seq. In this case, we consider whether the Plans are
"affiliates" of AIG for the purposes of a class
action settlement agreement. The district court below held
that Appellants were "affiliates" of AIG and thus
ineligible for their own slice of the settlement pie. We
disagree. Because ERISA imposes important statutory limits on
an employer's control over the management and policies of
an employee benefit plan, those plans do not fall within the
ordinary meaning of "affiliate." Thus, Appellants
are entitled to their own slice of the settlement pie and
Appellees will have to live with a somewhat smaller portion.
Accordingly,
we vacate the district court's denial of the Plans'
motion to direct.
BACKGROUND
I.
Factual Background
A.
The Settlement Agreements
Lead
Plaintiffs reached several agreements with both AIG and
PricewaterhouseCoopers ("PwC") to settle certain
class action lawsuits alleging violations of federal
securities laws. Appellees resolved the class actions by way
of four separate settlements: (1) the AIG Settlement; (2) the
PwC Settlement; (3) the Gen Re Settlement; and (4) the Starr
Settlement (the "Settlement Agreements"). The four
settlements are substantially similar and all define the
"Settlement Class" as follows:
[The Settlement Class includes] all persons and entities who
purchased or otherwise acquired AIG Securities
during the period of time from October 28, 1999, through
April 1, 2005, inclusive (the "Class Period"), as
well as all persons and entities who held the common stock of
HSB Group, Inc. ("HSB") at the time HSB was
acquired by AIG in a stock for stock transaction, and all
persons and entities who held the common stock of American
General Corporation ("AGC") at the time AGC was
acquired by AIG in a stock for stock transaction, and were
damaged thereby (the "Settlement Class") . Excluded
from the Settlement Class are (i) the Defendants, as named in
the Consolidated Third Amended Class Action Complaint, dated
December 15, 2006 (the "Complaint") in this Action;
(ii) the immediate families of the Individual Defendants, as
named in the Complaint; (iii) any parent, subsidiary,
affiliate, officer, or director of AIG; (iv) persons who
made requests for exclusion from the Settlement Class in the
manner and within the time period provided by Section IV of
the Agreement and/or by order of the Court and did not
thereafter rescind such requests, such excluded persons being
listed on Exhibit A hereto; (v) any entity in which any
excluded person has a controlling interest; and (vi) the
legal representatives, heirs, successors and assigns of any
excluded person.
Special
App'x at 6 (emphasis added); see also, e.g.,
App'x at 1034-35. Both Appellants and Appellees agree
that the term "affiliate" is not defined in the
Settlement Agreements. See Special App'x at 7.
"AIG Securities" is defined in the agreement as
any and all publicly-traded securities issued by
American International Group, Inc., whether debt or equity
securities, including, without limitation, AIG common stock,
the Zero Coupon Convertible Senior Debentures referenced in
paragraph 189 of the Complaint, the 0.5% Cash Exchangeable
Equity-Linked Senior Notes referenced in paragraph 193 of the
Complaint, the 2.85% Medium-Term Notes, Series F referenced
in paragraph 203 of the Complaint, the 2.875% Notes 144A
securities referenced in paragraph 212 of the Complaint that
were exchanged into registered like coupon bonds and the
4.25% Notes 144A securities referenced in paragraph 217 of
the Complaint that were exchanged into registered like coupon
bonds.
App'x
at 2546 (emphasis added). Accordingly, to be a member of the
Settlement Class, an investor, among other things, must have
purchased publicly-traded AIG Securities and
must not be an "affiliate" of AIG.
Claims
were to be administered by Rust Consulting, Inc.
("Rust"). Rust's principal responsibility was
to calculate the recognized loss for each claim based on the
claimant's acquisition of AIG securities during the class
period (the "Recognized Loss") and to distribute
corresponding settlement funds, all according to formulas
provided in the agreements.
After
holding separate final approval hearings, the district court
approved each of the settlements. On February 3, 2012, the
District Court entered the Order and Final Judgment granting
final approval to the AIG Settlement, which provided for the
payment of $725 million.
B.
The Plans
The
Plans are of two different types. The Retirement Plan is a
defined benefit plan, under which AIG guarantees each
participating employee a set annual benefit upon retirement.
AIG sets aside a pool of assets, including its own stock, to
fund those benefits, and it assumes responsibility for
providing additional funding if the pool proves inadequate
for any reason - including market losses. The remainder of
the Plans are defined contribution plans (the "Defined
Contribution Plans"), under which AIG guarantees a set
payment into participating employees' accounts each year
before retirement. Participants may choose to invest those
payments in the market through several funds that hold
securities on the employees' behalf, including one fund
that holds AIG common stock. If employees make such
investments, however, they - and not AIG - take the risk of
market losses.
The
parties have identified two distinct methods of tabulating
how much AIG common stock the Defined Contribution Plans
acquired during the class period: the "plan level"
and the "participant level." Claims submitted at
the plan level list the total number of AIG shares that the
Defined Contribution Plans purchased on behalf of all
participating individuals. Claims submitted at the
participant level, in contrast, list the total number of AIG
shares that participating employees elected to acquire by
investing money in their accounts.
Claims
made at the plan and participant levels can diverge
significantly. When an employee elects to acquire a share of
AIG stock through one of the Defined Contribution Plans, the
plan will not necessarily purchase a share on the open
market; it may instead transfer a share previously held on
behalf of a different employee who has since elected to sell
it, thereby avoiding certain transaction costs. In this way,
the number of AIG shares that the Defined Contribution Plans
purchased on the open market during the class period (the
plan level calculation) could be lower than the number of
shares participating employees elected to acquire (the
participant level calculation).
By
contrast, there is only one way to tabulate how much AIG
common stock the Retirement Fund, which is a defined benefit
plan, purchased during the class period: the plan level. The
Retirement Fund invests in AIG stock, among other securities,
in the hope of earning income sufficient to pay its set
obligations to participating employees. The fund never
purchases AIG stock on behalf of particular employees, which
renders a participant-level claim inapposite.
C.
Claims Administration
1.
PWC Settlement Submissions
As
institutional investors in AIG common stock during the class
period, the Plans submitted claims for a share of the PwC
settlement. On January 23, 2009, Vanguard Fiduciary Trust
Company ("Vanguard") submitted claims on behalf of
the AIG Stock Fund - Master Trust, Fund #1837 (the
"Master Trust") for, among other plans, the AIG
ISP, the Capital Growth Plan, and the Thrift Plan. The claim
was submitted at the plan-level. Rust estimated the
Recognized Loss for these plans as approximately $25.6
million with respect to the PwC Settlement and $25.7 million
with respect to the AIG settlement. On March 18, 2009, State
Street Bank and Trust Company submitted an omnibus claim in
the PwC Settlement that included the Retirement Plan, also at
the plan-level. Rust estimated the Recognized Loss for the
Retirement Plan as approximately $12.8 million with respect
to the PwC Settlement and approximately $17.4 million with
respect to the AIG Settlement.
On
January 20, 2012, Mercer Trust Company ("Mercer"),
which succeeded Vanguard as the Plans' trustee, submitted
a claim form with a cover letter on behalf of AIG ISP and the
Thrift Plan, along with several other employee benefit plans
that merged into the AIG ISP during the class period, stating
that "[t]he account transactional detail associated with
this claim will be provided under separate cover and should
be considered as an addenda to one or more previous
submissions submitted by [Vanguard]" and that Mercer
could ...