Case: 20-10817 Document: 00515943397 Page: 1 Date Filed: 07/19/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
July 19, 2021
No. 20-10817 Lyle W. Cayce
Clerk
Salvadora Ortiz; Thomas Scott,
Plaintiffs—Appellants,
versus
American Airlines, Incorporated; American Airlines
Pension Asset Administration Committee; American
Airlines Federal Credit Union,
Defendants—Appellees.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 4:16-CV-151
Before Smith, Stewart, and Ho, Circuit Judges.
Carl E. Stewart, Circuit Judge:
On behalf of themselves and others similarly situated, Plaintiffs-
Appellants Salvadora Ortiz and Thomas Scott have brought suit against
Defendants-Appellees American Airlines, Inc. (“AA”); American Airlines
Pension Asset Administration Committee (the “PAAC”); and American
Airlines Federal Credit Union (“FCU”). Plaintiffs alleged that Defendants
breached their fiduciary duties under the Employee Retirement Income
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Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq.1 Nearly three years
after declining preliminary approval of a settlement agreement, the district
court awarded Defendants summary judgment. Plaintiffs appealed.
For the reasons that follow, we AFFIRM in part, REVERSE in part,
and VACATE in part.
I. FACTS & PROCEDURAL HISTORY
AA offered a “$uper $aver” 401(k) plan (“Plan”), which allowed its
employees to save for retirement by investing a portion of their pre-tax
income in the Plan. The PAAC was a fiduciary body charged with selecting
investment options for the Plan. Once the PAAC selected options, employees
were responsible for deciding whether to invest in the Plan, how much, and
in which option. Plaintiffs, who are former employees of AA, invested in the
Plan.
The Plan is governed by ERISA since it is sponsored by an employer.
Federal regulations urge fiduciaries of ERISA-governed plans to offer at least
one “safe” investment option, meaning one that is “income producing, low
risk, [and] liquid[.]” 29 C.F.R. § 2550.404c-1(b)(1)(ii), (b)(2), (b)(3). The
instant dispute revolves around the Plan’s safe offerings, which are also
known as “capital preservation options.” These options are designed to
prioritize protection of the principal investment while still providing positive
returns.
1
ERISA “is a comprehensive federal statute that regulates employee benefit plans.
It covers defined contribution plans like 401(k) accounts,” such as the Plan. See Miletello v.
R M R Mech., Inc., 921 F.3d 493, 495 (5th Cir. 2019) (citations omitted).
2
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At various points between 2010 and 2016, AA offered two different
capital preservation options: a demand-deposit fund and a stable value fund.2
A demand deposit fund is the functional equivalent of an interest-
bearing checking account. Money invested in such a fund is payable on
demand without transfer restrictions. See 12 C.F.R. § 204.2(b). Principal
investments and any returns associated with them—the “book value”—are
guaranteed up to $250,000 per participant by the full faith and credit of the
United States government. FCU, which is independent from AA and the
PAAC, held the demand deposit fund offered under the Plan (the “FCU
Option”). Each month, FCU set the rate of return offered on the FCU
Option. FCU notified the Plan in advance of rate changes. Between 2010 and
2017, the FCU Option’s rate of return averaged just under 57 cents per every
$100 invested. Because FCU held FCU Option investments in cash reserves
and short-term investments, it was able, upon demand, to fund the
withdrawal of the entirety of the FCU Option’s assets.
A stable value fund exposes investors to greater risk than demand
deposit accounts and provides only a contractually limited guarantee that
participants may withdraw the book value of their accounts. And if the
insurer of the fund defaults, the guarantee may be eliminated altogether.
Additionally, a stable value fund contains liquidity restrictions. For instance,
the fund may prohibit investors from transferring their investments into
another low risk “competing” option. It may also restrict when a retirement
plan incorporating such a fund may withdraw its entire balance, often
requiring at least 12 months’ notice before the plan can move funds into
2
AA also offered a money market fund, but that offering is not relevant to the
disposition of this appeal.
3
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another investment vehicle. The Plan added a stable value offering in late
2015.
Ortiz and Scott both invested in the FCU Option. Ortiz never moved
her investments from the FCU Option once the Plan began offering a stable
value fund in 2015. Scott likewise never moved his investments from the
FCU Option into the stable value fund, though he did transfer those
investments into a lower-yielding money market option.
In February 2016, Plaintiffs filed suit on behalf of a putative class of
Plan participants who invested at least some of their money in the FCU
Option. The complaint included three claims. The first asserted that AA and
the PAAC breached their fiduciary duties of loyalty and prudence under 29
U.S.C. § 1104(a)(1)(A)–(B)3 by failing to remove the FCU Option from the
Plan (“Count I”).4 The second contended that FCU breached its fiduciary
duty of loyalty under 29 U.S.C. § 1106(b)(1)5 by dealing with plan assets held
by the FCU Option for its own benefit (“Count II”). The complaint also
averred AA and the PAAC are liable as co-fiduciaries for FCU’s breach. The
3
Section 1104 “sets out distinct but interrelated duties on fiduciaries, including the
duty of prudence and the duty of loyalty.” Kopp v. Klein, 894 F.3d 214, 219 (5th Cir. 2018)
(citing § 1104(a)(1)(A)–(B)). “A fiduciary ‘who breaches any of the[se] responsibilities,
obligations, or duties’ becomes ‘personally liable’ for ‘any losses to the plan resulting from
each such breach.’” Id. (quoting 29 U.S.C. § 1109(a)).
4
After the district court sought clarity on Plaintiffs’ theory of liability for the
purposes of class certification, they claimed that AA and the PAAC “breached [their]
fiduciary dut[ies] by imprudently and disloyally selecting and retaining [the FCU
Option][,] [which] had dramatically lower investment returns than other readily available
capital preservation investments, including stable value funds.” As AA and the PAAC did
select a stable value fund for the Plan in 2015, we (and the district court) take Plaintiffs’
theory to be premised on the assertion that AA and the PAAC should have selected a stable
value fund instead of—not in addition to—the FCU Option.
5
Section 1106(b)(1) prohibits a plan fiduciary from “deal[ing] with the assets of the
plan in [its] own interest or for [its] own account.” § 1106(b)(1).
4
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final claim averred that AA and the PAAC engaged in a “prohibited
transaction” under 29 U.S.C. § 1106(a)(1)6 by offering the FCU Option
(“Count III”).
Five months after bringing this lawsuit, Plaintiffs and Defendants
agreed to settle the case pursuant to Federal Rule of Civil Procedure 23.
Although the settlement would have required Defendants to pay $8.8 million
to the proposed class, Plaintiffs claimed to have lost between $55 and $88
million. The district court therefore sought justification from Plaintiffs for
the low payout amount, especially when as much as one third of the
settlement funds were to be paid out in attorneys’ fees. After providing
Plaintiffs with two extensions to supplement the record, the district court
concluded that the evidence presented did not justify the settlement figure
and so denied preliminary approval of the settlement in October 2017.
The parties proceeded through discovery. In July 2020, the district
court declined to certify this case as a class action under Rule 23. The district
court, however, permitted Plaintiffs to proceed as representatives of the Plan
pursuant to 29 U.S.C. § 1132.7 AA and the PAAC then filed one summary
judgment motion, while FCU filed another. In August 2020, the district
court granted each of the defendant’s motions.
Plaintiffs timely appealed the district court’s decision to award
summary judgment and its denial of settlement approval.
6
This provision prevents a plan fiduciary from “caus[ing] the plan to engage” in
certain enumerated transactions with a party-in-interest. § 1106(a)(1).
7
“A § 1132(a)(2) plaintiff acts ‘in a representative capacity on behalf of the plan as
a whole,’ because § 1109 is designed to ‘protect the entire plan[.]’” Pilger v. Sweeney, 725
F.3d 922, 926 (8th Cir. 2013) (alteration in original) (quoting Mass. Mut. Life Ins. Co. v.
Russell, 473 U.S. 134, 142 & n.9 (1985)).
5
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II. STANDARD OF REVIEW
“[W]e always have jurisdiction to determine our own jurisdiction.”
Tex. Democratic Party v. Hughs, 997 F.3d 288, 290 (5th Cir. 2021). “Standing
is a component of subject matter jurisdiction.” HSBC Bank USA, N.A. as
Tr. for Merrill Lynch Mortg. Loan v. Crum, 907 F.3d 199, 202 (5th Cir. 2018).
“The jurisdictional issue of standing is a legal question for which review is de
novo.” Id. (citation omitted).
Moreover, a district court’s rejection of a class-action settlement is
reviewed for abuse of discretion. See Newby v. Enron Corp., 394 F.3d 296, 300
(5th Cir. 2004).
III. DISCUSSION
Before launching into the substantive analysis of the district court’s
summary judgment ruling, we take a moment to clarify our scope of review.
We conclude that it is limited to part of Count I and all of Count II.
Regarding Count I, although Plaintiffs make a fulsome argument that
AA and the PAAC breached their duty of prudence, they simply “allude[] to
an argument” in their brief that these defendants additionally breached their
duty of loyalty. See Curry v. Strain, 262 F. App’x 650, 652 (5th Cir. 2008)
(per curiam). Accordingly, to the extent Plaintiffs seek review of that latter
claim, they have forfeited the right to have the court consider it. See id. (citing
United States v. Thames, 214 F.3d 608, 611 n.3 (5th Cir. 2000)). Furthermore,
Plaintiffs, by not briefing it, have also abandoned their claim that AA and the
PAAC are liable as co-fiduciaries for FCU’s purported breach of its own
fiduciary duties. See Davis v. City of Alvarado, 835 F. App’x 714, 717 n.2 (5th
Cir. 2020) (per curiam) (citing Bailey v. Shell W. E&P, Inc., 609 F.3d 710, 722
(5th Cir. 2010)).
6
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There are no disputes as to whether we should review Count II and so
we will proceed to do so.
Finally, with respect to Count III, Plaintiffs argue for the first time on
appeal that FCU, rather than AA and the PAAC, is liable for engaging in a
prohibited transaction under § 1106(a)(1). In addition to the fact that the
complaint asserted Count III against AA and the PAAC, not FCU, Plaintiffs’
response to FCU’s summary judgment motion does not in fact suggest that
they intended to sue FCU under § 1106(a)(1) (Plaintiffs’ protestations
notwithstanding). And by not raising before the district court their argument
that FCU is liable under § 1106(a)(1), that argument is forfeited. See Salinas
v. McDavid Houston-Niss, L.L.C., 831 F. App’x 692, 695 (5th Cir. 2020) (per
curiam) (citing LeMaire v. La. Dep’t of Transp. & Dev., 480 F.3d 383, 387 (5th
Cir. 2007)). Further, because Plaintiffs do not dispute the district court’s
conclusion that they failed to respond to AA and PAAC’s summary judgment
motion arguing that Plaintiffs could not prevail on their Count III claim, they
have abandoned this claim entirely. See id.
A. Standing
To prove Article III standing, a plaintiff must show that he or she
“h[as] (1) suffered an injury in fact, (2) that is fairly traceable to the
challenged conduct of the defendant, and (3) that is likely to be redressed by
a favorable judicial decision.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547
(2016) (citing, inter alia, Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61
(1992)). “As Lujan emphasized, however, the standard used to establish
these three elements is not constant but becomes gradually stricter as the
parties proceed through ‘the successive stages of the litigation.’” In re
Deepwater Horizon, 739 F.3d 790, 799 (5th Cir. 2014) (quoting Lewis v. Casey,
518 U.S. 343, 358 (1996)). The plaintiff can establish standing at the summary
judgment stage only by “‘set[ting] forth by affidavit or other evidence
7
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specific facts, which[,] . . . taken [as] true,’ . . . support each element” of the
standing analysis. Texas v. Rettig, 987 F.3d 518, 527–28 (5th Cir. 2021)
(quoting Lujan, 504 U.S. at 561). A plaintiff must demonstrate standing for
himself or herself, not just for others he or she professes to represent. See
Hollingsworth v. Perry, 570 U.S. 693, 708 (2013). Finally, “[t]he court must
evaluate . . . Article III standing for each claim; ‘standing is not dispensed in
gross.’” Fontenot v. McCraw, 777 F.3d 741, 746 (5th Cir. 2015) (quoting
Lewis, 518 U.S. at 358 n.6).
Defendants argue that Plaintiffs do not have constitutional standing
for their claims. We agree.
i. Count I
The district court determined that Plaintiffs lacked standing as to their
live claim against AA and the PAAC. It first observed Plaintiffs’ theory of
liability to be “that they could have earned better returns had [AA and the
PAAC] selected a stable value fund instead of the [FCU Option][.]”8 The
district court then reasoned that to realize those returns, Plaintiffs had to
establish that they “would have chosen the stable value fund for their
investments.” Since Plaintiffs did not present any evidence showing that
they would have made such a choice, the district court concluded that “their
alleged injuries are at best speculative, not concrete.”
While we also conclude that Plaintiffs do not have standing regarding
Count I, we do so for a different reason. Plaintiffs’ purported injury is income
8
As the district court noted, although “Plaintiffs have from time to time mentioned
that a stable value fund is one alternative capital preservation investment to the [FCU
Option][,] [t]hey have never identified any other such alternative. Their complaint names
only a stable value fund as the alternative that should have been offered. And, in fact, their
expert on the subject, [James] King, opines that a stable value fund should have been
offered instead of the [FCU Option].”
8
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that they would have received had AA and the PAAC not offered the FCU
Option. Their expert has provided calculations for the returns that they
would have earned had they not invested in the FCU Option but had instead
placed their money in a stable value fund. This “lost investment income” is
a “concrete” and redressable injury for the purposes of standing. See Spokeo,
136 S. Ct. at 1547–48.9 That said, another question we must ask is whether
Plaintiffs would have in fact invested in a stable value fund to earn the higher
returns had AA and the PAAC never offered the FCU Option. In other
words, the question is whether Plaintiffs have demonstrated that it is
“substantially probable that the challenged acts of the defendant, not of some
. . . third party[]” (including themselves) caused the injury. See Fla. Audubon
Soc. v. Bentsen, 94 F.3d 658, 663 (D.C. Cir. 1996) (citations omitted). If
anything, the record reveals that Plaintiffs would not have invested in a stable
value fund in a counterfactual world since they did not place their money in
one when given the opportunity to do so. As AA and the PAAC observe,
“Plaintiffs could have submitted a declaration, affidavit, or testimony to the
effect that they would have invested in a stable value fund absent the [FCU
Option]. But they offered no such evidence. That is the end of the matter.”
Even so, Plaintiffs rely on several cases that in theory demonstrate that
they have standing. All of these decisions, though, are inapposite since they
9
AA and the PAAC’s reliance on Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020),
to illustrate that Plaintiffs have not suffered a cognizable injury is inapt. The plaintiffs in
Thole lacked a “concrete stake in the lawsuit” because as “participants in a defined-benefit
plan,” which guaranteed them a fixed payment each month no matter the plan’s value or
the results of the plan fiduciaries’ investment decisions, they “possess[ed] no equitable or
property interest in the plan.” Id. at 1619–20. In explaining why the plaintiffs lacked
standing, the Court explicitly drew a distinction between a defined-benefit plan and “a
defined-contribution plan, such as a 401(k),” in which “the retirees’ benefits are typically
tied to the value of their accounts, and the benefits can turn on the plan fiduciaries’
particular investment decisions.” Id. at 1618. Thus, on its own terms, Thole cannot be
extended to the case at bar.
9
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speak to the appropriate measure of damages, not to whether the plaintiff has
suffered an injury caused by the defendant in the first instance. In reality, all
but two of them do not address the issue of standing at all. The first outlier,
Sweda v. University of Pennsylvania, notes that a plaintiff does not lack
standing to sue simply because a retirement plan offers a “mix and range of
investment options.” See 923 F.3d 320, 333–34 (3d Cir. 2019). But AA and
the PAAC do not claim that Plaintiffs lack standing for this reason. The
second, In re Restasis (Cyclosporine Ophthalmic Emulsion) Antitrust Litig., also
addresses a standing issue not relevant to this action, namely whether all class
members had to be injured for there to be standing. See 335 F.R.D. 1, 16 n.12
(E.D.N.Y. 2020).
In sum, the district court correctly concluded that Plaintiffs lacked
standing as to Count I.
ii. Count II
In contrast to Plaintiffs’ claims against AA and the PAAC, the district
court determined that Plaintiffs had standing to sue FCU. It reasoned that
Plaintiffs incurred a cognizable injury by receiving a lower interest rate in the
FCU Option than they would have received had FCU not dealt with plan
assets. Plaintiffs averred that FCU “used . . . plan assets to provide loans to
[other] [FCU] members and to make other investments . . . for which it
earned substantial income, which in turn permitted [FCU] to offer
substantially higher interest rates on similar demand deposit accounts to
other customers of [FCU] than it provided to Plan participants.” Plaintiffs’
expert adduced the amount that they would have earned under those higher
rates. Once again, Plaintiffs have shown that they were injured and that the
injury is redressable. But, once more, Plaintiffs have failed to satisfy the
element of causation. As FCU asserts, “[T]here is no connection between
any alleged losses to the plan, [sic] and the statutory claim against [FCU],
10
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which is that [FCU] used plan assets for its own benefit.” Put another way,
Plaintiffs have not supplied any evidence demonstrating that investors in
FCU funds other than the FCU Option received higher interest rates
generated by investments of Plan assets.
Instead of offering new arguments in support of the district court’s
conclusion that they had standing as to their claim against FCU, Plaintiffs
simply rely on their prior assertions. But, for the reasons discussed above,
those contentions lack merit. Furthermore, Plaintiffs raise an entirely
separate theory of liability as to FCU. Hence, even if their standing
arguments were meritorious as to Plaintiffs’ claim against AA and the PAAC,
they would be inapplicable as to their claim against FCU. 10
In short, the district court erred in concluding that Plaintiffs had
standing with respect to their claim against FCU.
* * *
It is a “settled rule that, in reviewing the decision of a lower court, it
must be affirmed if the result is correct although the lower court relied upon
a wrong ground or gave a wrong reason.” NLRB v. Kentucky River Cmty.
Care, Inc., 532 U.S. 706, 722 n.3 (2001) (citation and internal quotation marks
omitted). Hence, we affirm the district court’s dismissal of both Count I and
Count II. Given we lack jurisdiction over those claims, we do not reach the
parties’ arguments as to the merits.
10
In so far as Plaintiffs attempt to shoehorn their expert’s conclusions as to the
higher amount Plaintiffs should have received from FCU onto their arguments for standing
to sue AA and the PAAC, that effort must fail for the same reason.
11
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B. Settlement
Plaintiffs additionally argue that the district court abused its discretion
in denying preliminary approval of the settlement. We disagree and affirm
the district court on this issue.
AA and the PAAC contend that the court should not even reach the
merits of Plaintiffs’ argument because the settlement agreement did not
“provid[e] for further appellate review of” the district court’s decision.
Assuming Plaintiffs have not waived their right to appeal the settlement, we
hold that Plaintiffs cannot now challenge the district court’s assessment of
the settlement itself. Plaintiffs’ briefing did not argue that the district court
somehow misapplied the governing legal standard. Instead, Plaintiffs suggest
that the lower court abused its discretion by ultimately granting summary
judgment in favor of Defendants after initially concluding during the
settlement phase that Plaintiffs’ claims would likely succeed. Consequently,
Plaintiffs have forfeited any arguments as to the propriety of the settlement.
See United Paperworkers Int’l Union AFL-CIO, CLC v. Champion Int’l Corp.,
908 F.2d 1252, 1255 (5th Cir. 1990).11
However, even assuming Plaintiffs had not forfeited the argument, the
argument is meritless. Before approving a settlement, a court “must be
assured that the settlement secures an adequate advantage for the class in
return for the surrender of litigation rights against the defendants.” In re
Katrina Canal Breaches Litig., 628 F.3d 185, 195 (5th Cir. 2010) (citation
11
To the extent Plaintiffs challenged the district court’s rejection of the
settlement’s adequacy for the first time during oral argument, that does not save them from
forfeiture. An argument raised for the first time at oral argument is forfeited. See Vargas v.
Lee, 317 F.3d 498, 503 n.6 (5th Cir. 2003); see also Ocwen Loan Servicing, L.L.C. v. Moss,
628 F. App’x 327, 328 (5th Cir. 2016) (per curiam) (citing United Paperworkers and holding
that an argument initially raised at oral argument is forfeited).
12
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omitted). Yet Plaintiffs did not provide the district court with the needed
assurance. Before entering the settlement, the parties engaged the services of
a mediator, the Honorable Faith S. Hochberg (Retired). While Judge
Hochberg proposed that the parties agree to a settlement of $8.8 million in
cash, she conditioned her recommendation on “[c]onfirmatory discovery
necessary to obtain court approval.” The district court then provided
Plaintiffs with multiple opportunities to gather and provide the court with
information required to assess the adequacy of the settlement. In response,
Plaintiffs provided two declarations from their counsel, John J. Nestico. Both
declarations outlined the efforts counsel made to bolster Plaintiffs’ claims.
But neither of the declarations cited to evidence demonstrating that $8.8
million was sufficient. Determining that it had “received nothing” that
would allay its concerns regarding the $46.2 to $79.2 million gap between the
settlement amount and the claimed losses, the district court declined
preliminary approval of the settlement. The district court did not abuse its
discretion in doing so.12
With respect to the argument Plaintiffs actually raised on appeal
regarding the district court’s rejection of the settlement, we determine that
it, too, is unavailing. As the district court had much less information about
this case when it assessed the settlement than it did on summary judgment,
12
That the settlement also secured between $30 and $48 million in structural relief
for Plaintiffs does not change this analysis. The settlement required AA “to enlist the
services of an independent investment consultant to engage in a competitive process for
the determination of a stable value option for the Plan on a going forward basis.” As
Plaintiffs concede, this would have been “non-monetary” relief. Additionally, as Plaintiffs’
counsel observed, the value of the structural relief was based on the amount Plaintiffs might
earn in the future if they were to invest in a stable value fund rather than the FCU Option,
not what they had lost in the past. For these reasons, the structural relief cannot be
compared to the actual monetary losses that Plaintiffs purportedly suffered (and for which
the $8.8 million was designed to compensate).
13
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the lower court’s divergent opinions as to the merits of Plaintiffs’ claims are
not inherently inconsistent. See Bates v. Ford Motor Co., 174 F.3d 198, 1999
WL 153017, at *3 (5th Cir. 1999) (unpublished) (rejecting the plaintiffs’
argument that “summary judgment was improper because the district court
should have approved class certification and the proposed settlement”). For
this reason, Plaintiffs’ reliance upon Pilkington v. Cardinal Health, Inc., 516
F.3d 1095 (9th Cir. 2008), is misplaced. In Pilkington, the parties agreed to
settle the case the day before the district court granted the defendants’
motions for summary judgment. Id. at 1099. The Ninth Circuit held that the
district court should have first evaluated the settlement under Rule 23(e)
before rendering summary judgment because “the parties [had] bound
themselves to a settlement agreement subject only to court approval.” Id. at
1100–02. In the case at bar, the district court assessed and declined to
approve the parties’ settlement years before it granted summary judgment to
Defendants. Pilkington therefore does not foreclose the district court’s
actions here, and Plaintiffs even concede that the holding in that case “may
not be directly applicable” to this one.13
Put briefly, Plaintiffs have not demonstrated that the district court
abused its discretion in denying approval of the settlement.
IV. CONCLUSION
For the foregoing reasons, the judgment of the district court is
AFFIRMED in part, REVERSED in part, and VACATED in part. The
13
Plaintiffs also rely upon Cotton v. Hinton in support of their argument that the
district court abused its discretion, which observed that “[p]articularly in class action suits,
there is an overriding public interest in favor of settlement.” 559 F.2d 1326, 1331 (5th Cir.
1977). That case, however, is even less apposite than Pilkington because it did not deal with
the relationship between a summary judgment ruling and a settlement agreement.
14
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case is REMANDED with instructions to DISMISS Plaintiffs’ claim
against FCU, i.e., Count II, for lack of jurisdiction.
15
Ortiz v. American Airlines
Combined Opinion