Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca2-14-04067/USCOURTS-ca2-14-04067-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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14‐4067‐cv(L)

In re American International Group, Inc. Securities Litigation

1 UNITED STATES COURT OF APPEALS

2 FOR THE SECOND CIRCUIT

3 ____________________

4

5 August Term, 2015

6

7 (Argued: February 11, 2016       Decided: September 20, 2016)

8

9 Docket Nos. 14‐4067(L), 14‐4603(con)

10

11 ____________________

12

13 SHARYN ROTHSTEIN, MARISA ROTHSTEIN, MOLLYE ROTHSTEIN,

14 Objector, ALAN ROTHSTEIN, Objector, SAN FRANCISCO EMPLOYEES’

15 RETIREMENT SYSTEM, ROBERT D. JAFFEE, as Trustee of the Robert D. Jaffee

16 Revocable Trust, ROBERT D. AND PHYLLIS A. JAFFEE FAMILY

17 FOUNDATION, ROBERT D. JAFFEE IRA ROLLOVER, ANNE E. FLYNN, on

18 behalf of herself and all others similarly situated, MICHAEL CASSIDY, on behalf

19 of himself and all others similarly situated, LISA M. CROUCH, on behalf of

20 herself and all others similarly situated, ROBERT J. CASEY, II, on behalf of

21 himself and all others similarly situated, EUGENE OLSON, JOSEPH SCUILLA,

22 STEPHAN FRANK, on behalf of himself and all others similarly situated,

23 JEROME NOLL, on behalf of himself and all others similarly situated, PUBLIC

24 EMPLOYEES’ RETIREMENT SYSTEM OF MISSISSIPPI, MICHAEL FEDER, on

25 behalf of himself and all others similarly situated,  PUBLIC EMPLOYEES

26 RETIREMENT ASSOCIATION OF NEW MEXICO,   

27

28                             Plaintiffs,

29

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2

1 OHIO POLICE AND FIRE PENSION FUND, STATE TEACHERS RETIREMENT

2 SYSTEM OF OHIO, OHIO PUBLIC EMPLOYEES RETIREMENT SYSTEM,  

3       

4    

5       Plaintiffs‐Appellees,            

6

7     v.

8

9 AMERICAN INTERNATIONAL GROUP, INC. INCENTIVE SAVINGS PLAN,

10 AMERICAN GENERAL AGENTS AND MANAGERS THRIFT PLAN,

11 AMERICAN INTERNATIONAL GROUP, INC. RETIREMENT PLAN, AIG

12 INSURANCE COMPANY‐PUERTO RICO CAPITAL GROWTH PLAN, FKA

13 CHARTIS INSURANCE CO. PUERTO RICO CAPITAL GROWTH PLAN,

14 EVERCORE TRUST COMPANY, N.A., as independent fiduciary of the Plans,

15

16         Appellants,

17

18 AMERICAN INTERNATIONAL GROUP, INC., HOWARD SMITH, JOHN A.

19 GRAF, JOHN HOULDSWORTH, WACHOVIA SECURITIES, LLC, RICHARD

20 NAPIER, AXA FINANCIAL, INC., ELI BROAD, EVAN GREENBERG, UNION

21 EXCESS REINSURANCE CO., RICHMOND INSURANCE CO., LTD.,

22 PRICEWATERHOUSECOOPERS LLP, MICHAEL L. MURPHY, MORGAN

23 STANLEY, MERRILL LYNCH & CO., INC., JPMORGAN CHASE & CO.,

24 GOLDMAN SACHS & CO., CITIGROUP GLOBAL MARKET F/K/A SALOMON

25 SMITH BARNEY, MICHAEL J. CASTELLI, C.V. STARR & CO., INC., MAURICE

26 R. HANK GREENBERG, CORINNE P. GREENBERG, STARR

27 INTERNATIONAL COMPANY, INC., GENERAL REINSURANCE

28 CORPORATION, RONALD FERGUSON, PATRICIA R. MCCANN, DONALD P.

29 KANAK, RICHARD A. GROSIAK, AXEL I. FREUDMANN, FRANK J.

30 HOENEMEYER, CHRISTIAN MILTON, MARTIN J. SULLIVAN, THOMAS

31 TIZZIO, HOWARD SMITH,  

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3

1

                             Defendants.

* 2

3 ____________________

4

Before: POOLER and SACK, Circuit Judges, and FAILLA, District Judge.1 5

6

7 Appeal from a judgment of the United States District Court for the

8 Southern District of New York (Batts, J.) denying Appellants’ Motion to Direct

9 the Settlement Claims Administrator to approve the Settlement Claims of

10 Appellants (the “Motion to Direct”), as well as a related judgment denying

11 Appellants’ Motion to Intervene on timeliness grounds.  

12 We first hold that Appellants have standing to appeal the district court’s

13 denial of the Motion to Direct. For this reason, we dismiss Appellants’ appeal as

14 to the denial of their Motion to Intervene as moot.  

15 Second, we hold that because the Employee Retirement Income Security

16 Act of 1974 (“ERISA”) imposes important statutory limits on an employer’s

17 control over the management and policies of an employer‐sponsored benefit

18 plan, those plans do not fall within the ordinary meaning of the term “affiliate.”

                                              

* The Clerk of Court is respectfully directed to amend the official caption in this

case to conform with the caption above.

1 The Hon. Katherine Polk Failla, of the United States District Court for the

Southern District of New York, sitting by designation.

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1 Therefore, we vacate the district court’s judgment denying Appellants’ Motion to

2 Direct and remand for further proceedings.

3 Vacated in part, dismissed as moot in part, and remanded.

4 ____________________

5 H. DOUGLAS HINSON, (Richard S. Siegel, Jonathan G.

6 Rose, on the brief), Alston & Bird LLP, Washington, D.C.

7 for Appellants.

8

9 LOUIS GOTTLIEB, (Thomas A. Dubbs, Nicole M. Zeiss,

10 on the brief) Labaton Sucharow LLP, New York, NY for

11 Plaintiffs‐Appellees.

12

13 Lorie E. Almon and James Randolph Napoli, Seyfarth

14 Shaw LLP, New York, NY for amicus curiae American

15 Benefits Council in support of Appellants.

16

17 POOLER, Circuit Judge:

18 This case concerns a securities class action settlement agreement with

19 American International Group, Inc. (“AIG”). Like many disputes over finite

20 settlements, this case concerns who gets a “slice” of the settlement “pie.”

21 Appellants American International Group, Inc. Incentive Savings Plan (the “AIG

22 ISP”), American General Agentsʹ and Managersʹ Thrift Plan (the “Thrift Plan”),

23 American International Group, Inc. Retirement Plan (the “Retirement Plan”), and

24 AIG Insurance Company – Puerto Rico Capital Growth plan (the “Capital

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1 Growth Plan”) (collectively, the “Plans”) are employee benefit plans sponsored

2 by AIG or its affiliates under the Employee Retirement Income Security Act of

3 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. In this case, we consider whether the

4 Plans are “affiliates” of AIG for the purposes of a class action settlement

5 agreement. The district court below held that Appellants were “affiliates” of AIG

6 and thus ineligible for their own slice of the settlement pie. We disagree. Because

7 ERISA imposes important statutory limits on an employer’s control over the

8 management and policies of an employee benefit plan, those plans do not fall

9 within the ordinary meaning of “affiliate.” Thus, Appellants are entitled to their

10 own slice of the settlement pie and Appellees will have to live with a somewhat

11 smaller portion.                                                                                                                 

12 Accordingly, we vacate the district court’s denial of the Plans’ motion to

13 direct.

14 BACKGROUND

15

16 I. Factual Background

17

18 A. The Settlement Agreements

19

20 Lead Plaintiffs reached several agreements with both AIG and

21 PricewaterhouseCoopers (“PwC”) to settle certain class action lawsuits alleging

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1 violations of federal securities laws. Appellees resolved the class actions by way

2 of four separate settlements: (1) the AIG Settlement; (2) the PwC Settlement; (3)

3 the Gen Re Settlement; and (4) the Starr Settlement (the “Settlement

4 Agreements”). The four settlements are substantially similar and all define the

5 “Settlement Class” as follows:

6 [The Settlement Class includes] all persons and entities who purchased or

7 otherwise acquired AIG Securities during the period of time from October

8 28, 1999, through April 1, 2005, inclusive (the “Class Period”), as well as all

9 persons and entities who held the common stock of HSB Group, Inc.

10 (“HSB”) at the time HSB was acquired by AIG in a stock for stock

11 transaction, and all persons and entities who held the common stock of

12 American General Corporation (“AGC”) at the time AGC was acquired by

13 AIG in a stock for stock transaction, and were damaged thereby (the

14 “Settlement Class”) . Excluded from the Settlement Class are (i) the

15 Defendants, as named in the Consolidated Third Amended Class Action

16 Complaint, dated December 15, 2006 (the “Complaint”) in this Action; (ii)

17 the immediate families of the Individual Defendants, as named in the

18 Complaint; (iii) any parent, subsidiary, affiliate, officer, or director of AIG; (iv)

19 persons who made requests for exclusion from the Settlement Class in the

20 manner and within the time period provided by Section IV of the

21 Agreement and/or by order of the Court and did not thereafter rescind

22 such requests, such excluded persons being listed on Exhibit A hereto; (v)

23 any entity in which any excluded person has a controlling interest; and (vi)

24 the legal representatives, heirs, successors and assigns of any excluded

25 person.  

26

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1 Special App’x at 6 (emphasis added); see also, e.g., App’x at 1034‐35. Both

2 Appellants and Appellees agree that the term “affiliate” is not defined in the

3 Settlement Agreements. See Special App’x at 7. “AIG Securities” is defined in the

4 agreement as  

5 any and all publicly‐traded securities issued by American International

6 Group, Inc., whether debt or equity securities, including, without

7 limitation, AIG common stock, the Zero Coupon Convertible Senior

8 Debentures referenced in paragraph 189 of the Complaint, the 0.5% Cash

9 Exchangeable Equity‐Linked Senior Notes referenced in paragraph 193 of

10 the Complaint, the 2.85% Medium‐Term Notes, Series F referenced in

11 paragraph 203 of the Complaint, the 2.875% Notes 144A securities

12 referenced in paragraph 212 of the Complaint that were exchanged into

13 registered like coupon bonds and the 4.25% Notes 144A securities

14 referenced in paragraph 217 of the Complaint that were exchanged into

15 registered like coupon bonds.

16

17 App’x at 2546 (emphasis added). Accordingly, to be a member of the Settlement

18 Class, an investor, among other things, must have purchased publicly‐traded AIG

19 Securities and must not be an “affiliate” of AIG.  

20 Claims were to be administered by Rust Consulting, Inc. (“Rust”). Rustʹs

21 principal responsibility was to calculate the recognized loss for each claim based

22 on the claimantʹs acquisition of AIG securities during the class period (the

23 ʺRecognized Lossʺ) and to distribute corresponding settlement funds, all

24 according to formulas provided in the agreements.

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1 After holding separate final approval hearings, the district court approved

2 each of the settlements. On February 3, 2012, the District Court entered the Order

3 and Final Judgment granting final approval to the AIG Settlement, which

4 provided for the payment of $725 million.  

5 B. The Plans

6

7 The Plans are of two different types. The Retirement Plan is a defined

8 benefit plan, under which AIG guarantees each participating employee a set

9 annual benefit upon retirement. AIG sets aside a pool of assets, including its own

10 stock, to fund those benefits, and it assumes responsibility for providing

11 additional funding if the pool proves inadequate for any reason — including

12 market losses. The remainder of the Plans are defined contribution plans (the

13 “Defined Contribution Plans”), under which AIG guarantees a set payment into

14 participating employeesʹ accounts each year before retirement. Participants may

15 choose to invest those payments in the market through several funds that hold

16 securities on the employeesʹ behalf, including one fund that holds AIG common

17 stock. If employees make such investments, however, they — and not AIG —

18 take the risk of market losses.

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1 The parties have identified two distinct methods of tabulating how much

2 AIG common stock the Defined Contribution Plans acquired during the class

3 period:  the “plan level” and the “participant level.” Claims submitted at the plan

4 level list the total number of AIG shares that the Defined Contribution Plans

5 purchased on behalf of all participating individuals. Claims submitted at the

6 participant level, in contrast, list the total number of AIG shares that

7 participating employees elected to acquire by investing money in their accounts.

8 Claims made at the plan and participant levels can diverge significantly.

9 When an employee elects to acquire a share of AIG stock through one of the

10 Defined Contribution Plans, the plan will not necessarily purchase a share on the

11 open market; it may instead transfer a share previously held on behalf of a

12 different employee who has since elected to sell it, thereby avoiding certain

13 transaction costs. In this way, the number of AIG shares that the Defined

14 Contribution Plans purchased on the open market during the class period (the

15 plan level calculation) could be lower than the number of shares participating

16 employees elected to acquire (the participant level calculation).

17 By contrast, there is only one way to tabulate how much AIG common

18 stock the Retirement Fund, which is a defined benefit plan, purchased during the

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1 class period: the plan level. The Retirement Fund invests in AIG stock, among

2 other securities, in the hope of earning income sufficient to pay its set obligations

3 to participating employees. The fund never purchases AIG stock on behalf of

4 particular employees, which renders a participant‐level claim inapposite.

5 C. Claims Administration

6

7 1. PWC Settlement Submissions

8

9 As institutional investors in AIG common stock during the class period,

10 the Plans submitted claims for a share of the PwC settlement. On January 23,

11 2009, Vanguard Fiduciary Trust Company (“Vanguard”) submitted claims on

12 behalf of the AIG Stock Fund – Master Trust, Fund #1837 (the “Master Trust”)

13 for, among other plans, the AIG ISP, the Capital Growth Plan, and the Thrift

14 Plan. The claim was submitted at the plan‐level. Rust estimated the Recognized

15 Loss for these plans as approximately $25.6 million with respect to the PwC

16 Settlement and $25.7 million with respect to the AIG settlement. On March 18,

17 2009, State Street Bank and Trust Company submitted an omnibus claim in the

18 PwC Settlement that included the Retirement Plan, also at the plan‐level. Rust

19 estimated the Recognized Loss for the Retirement Plan as approximately $12.8

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1 million with respect to the PwC Settlement and approximately $17.4 million with

2 respect to the AIG Settlement.

3 On January 20, 2012, Mercer Trust Company (“Mercer”), which succeeded

4 Vanguard as the Plans’ trustee, submitted a claim form with a cover letter on

5 behalf of AIG ISP and the Thrift Plan, along with several other employee benefit

6 plans that merged into the AIG ISP during the class period, stating that “[t]he

7 account transactional detail associated with this claim will be provided under

8 separate cover and should be considered as an addenda to one or more previous

9 submissions submitted by [Vanguard]” and that Mercer could not itself certify

10 the accuracy or completeness of the data provided in the prior submissions by

11 Vanguard. App’x at 2956.

12 Three days later, on January 23, 2012, Banco Popular of Puerto Rico

13 (“Banco Popular”), submitted a claim on behalf of the Capital Growth Plan, also

14 with a cover letter stating the transactional information was not available and

15 would be provided under separate cover. According to Appellees, this additional

16 information was not submitted to Rust until the end of 2012.

17 Appellants emphasize that at no point during “the next four‐plus years,

18 did Rust ever suggest to the Plans’ fiduciaries that the Plans were ineligible to

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1 participate in the Settlement Classes because they were ‘affiliates’ of AIG.”

2 Appellants’ Br. at 14; see also App’x at 2541.  

3 2. AIG Settlement Submissions

4

5 The Plans retained Appellant Evercore Trust Company, N.A. (“Evercore”)

6 as their independent fiduciary to assess whether they should participate in the

7 AIG Settlement. On December 14, 2012, Evercore submitted a letter to Rust with

8 transactional data provided by AIG in support of the prior claims filed by Mercer

9 and Banco Popular. But unlike the transaction data originally provided by

10 Vanguard in 2009 in the PwC Settlement, the transaction data provided in 2012

11 by AIG “was not plan‐level data but was participant‐level data.” Appellees’ Br.

12 at 11; see also App’x at 2957. Appellants claim that the proof of claim form

13 approved by the Court for the AIG Settlement invited submissions that provided

14 supplemental data not submitted in connection with the PwC Settlement. For

15 this reason, Appellants claim that more detailed participant‐level data was

16 appropriate, i.e. data accounting for the estimated losses by all of the participants

17 of the Defined Contribution Plans, based upon their transactions involving AIG

18 Stock rather than plan‐level data which merely accounted for the purchases and

19 sales of AIG Stock by the Plans on the open market. Evercore requested that Rust

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1 “issue the appropriate ‘Distribution Amounts’ in a lump sum to Mercer and

2 Banco Popular respectively” and that “Mercer and Banco Popular w[ould] then

3 allocate payments to the appropriate participant amounts.” App’x at 2957.

4 Appellees claim this “conversion” from plan‐level claims to participant‐level

5 claims, “would have resulted in a substantially higher Recognized Loss.”

6 Appellees’ Br. at 12.

7 But on January 11, 2013, Rust proposed accepting the participant‐level data

8 on behalf of the Defined Contribution Plans and using that data for the PwC

9 Settlement as well. Appellants explain that the Plans did not object to Rust’s

10 decision to apply participant‐level data “because the use of participant‐level data

11 shows the actual, individualized losses allegedly incurred by the Defined

12 Contribution Plans’ participants – just like all other AIG shareholders.”

13 Appellants’ Br. at 16; see also App’x at 2996.

14 On February 22, 2013, approximately four years after the AIG ISP, the

15 Capital Growth Plan, and the Thrift Plan submitted their claims for the PwC

16 Settlement, Rust issued “Notices of Ineligibility,” all virtually identical, stating

17 that the Plans’ claims were ineligible under both the PwC Settlement and the

18 AIG Settlement. Rust based its decisions on its review of the participant‐level

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1 and plan‐level data, the securities involved, and a consideration of the opinions

2 in In re Motorola Securities Litigation, 644 F.3d 511 (7th Cir. 2011) (“Motorola”) and

3 In re Marsh & McClennan Companies, Inc. Securities Litigation, No. 04‐CV‐8144

4 (S.D.N.Y. June 1, 2011) (“Marsh”).  

5 Rust identified two independent grounds for ineligibility. First, it stated

6 that each of the claims “submitted appear[ed] to be on behalf of an ‘affiliate’ of

7 defendant AIG,” which was impermissible under the Settlement Agreements.  

8 App’x at 2618, 2620, 2622, 2624, 2626, 2628. Although the Notices of Ineligibility

9 did not elaborate on this assertion, it seems clear that Rust classified the Plans as

10 affiliates because they were sponsored, under ERISA, by AIG or its affiliates.  

11 Both Motorola and Marsh had previously reached similar conclusions in

12 analogous cases. See Motorola, 644 F.3d at 521 (holding that a defendant

13 corporationʹs 401(k) plan was excluded from the class definition as an “affiliate”);

14 Marsh at 2‐3, Appʹx at 2633‐34 (same).

15 Second, Rust stated that claims submitted at the participant level on behalf

16 of the Defined Contribution Plans would be ineligible because they failed to

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identify any purchases of publicly traded AIG Securities.2 1 In Rustʹs view,

2 although participating employees initially elected to acquire AIG stock under

3 these plans, it was the plans themselves that actually purchased the stock in

4 publicly traded form.  

5 On March 19, 2013, Appellants’ counsel sent a letter to Rust explaining

6 why Motorola and Marsh “did not and should not control the Plans’ status as

7 members of the respective settlement classes,” and argued the Plans are not

8 “affiliates” of AIG, and thus requested that Rust reverse its decision as to the

9 Plans’ eligibility. Appellants’ Br. at 17. Appellants state that to this day, Rust has

10 not responded to this letter. Appellants claim that in lieu of responding to their

11 request, Rust asked Appellants to provide: “(1) information regarding whether

12 ‘trust level’ transactions were made on the ‘open market’ or were direct

13 purchases from AIG; (2) the amount of each type of transaction; and (3) broker

14 confirmations for all purchases and sales during the class period.” Appellants’

15 Br. at 18; see also App’x at 2659.

                                              

2 Rust also stated that the Retirement Planʹs claim had improperly been

submitted at the participant level.  As we have noted, however, the claim was in

fact submitted (out of necessity) at the plan level.

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1 II. Procedural History

2 On May 29, 2013, the Lead Plaintiffs filed their Motion for Approval of an

3 Initial Distribution of Settlement Proceeds in Connection with the Settlements

4 with PwC and AIG in the District Court for the Southern District of New York

5 (Batts, J.). See App’x at 1889‐1937. Appellants timely filed a Motion to Direct in

6 the same court requesting that the district court direct Rust to approve the Plans’

7 claims and distribute proceeds from the Settlements to the Plans. Appellees

8 opposed the motion.

9 The district court issued a Memorandum and Order, denying the

10 Appellants’ Motion to Direct and approving the initial distribution of the PwC

11 and AIG Settlements. See Special App’x at 1‐19.  

12 The Plans and Evercore then filed a motion to Intervene for Limited

13 Purpose of Possible Appeal (“Motion to Intervene”), which Lead Plaintiffs

14 opposed. The District Court entered an order denying the Motion to Intervene,

15 finding it untimely. In the courtʹs view, the Plans should have moved to

16 intervene “at least as early as the filing of the Third Amended Complaint.”

17 App’x at 3146; Special App’x at 23.

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1 Appellants timely filed notices of appeal from both the order on the

2 Motion to Direct and the order on the Motion to Intervene. Appellants did not

3 appeal the district court’s orders authorizing the initial distribution of the

4 settlements. Rust issued the initial distribution payments on November 18, 2014.

5

6 DISCUSSION

7

8 I

9

10 We “must address any jurisdictional standing question first, before

11 deciding a case on the merits.” Friends of Gateway v. Slater, 257 F.3d 74, 77‐78 (2d

Cir. 2001). Appellees contest Appellants’ “standing”3 12 to bring this appeal on two

13 grounds: (1) the non‐appealability provision of the Settlement Agreements

14 expressly bars appeals beyond the level of the district court; and (2) because the

15 district court held Appellants are not members of the Settlement Class, they are

                                              

3 We note, as the Supreme Court did in Devlin v. Scardeletti, 536 U.S. 1, 6 (2002)

that although both parties frame this issue “as one of standing[,] . . . this issue

does not implicate the jurisdiction of the court under Article III of the

Constitution.” As the Plans are similarly situated to other class members, we

would have little trouble finding that the Plans safely clear the constitutional and

prudential hurdles of standing. Rather, what is truly at issue, is “whether [the

Plans] should be considered ‘[parties]’ for the purposes of appealing” the denial

of the motion to direct. Devlin, 536 U.S. at  7.

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1 non‐parties that cannot bring an appeal. Appellants argue they are not bound by

2 the non‐appealability provision and that they are entitled to appeal despite their

3 status as non‐parties. In the alternative, Appellants urge us to reverse the district

4 court’s denial of their motion to intervene.  

5 For the reasons that follow, we conclude that the non‐appealability

6 provision does not bar Appellants’ appeal and that they may appeal the denial of

7 the motion to direct as non‐parties. Because we determine that Appellants may

8 maintain this appeal without successfully intervening below, we dismiss as moot

9 their appeal of the district court’s denial of the motion to intervene.

10 A

11

12 The Settlement Agreements included a non‐appealability provision

13 barring appeals from the district court of “dispute[s] concerning a claim.” App’x

14 at 847. The provision, in relevant part, reads as follows:

15 The validity of each Proof of Claim filed shall initially be determined by

16 the Administrator in accordance with the Plan of Allocation approved by

17 the Court. The Administrator shall promptly advise the claimant in

18 writing if the Administrator determines to reject the claim. . . . If a dispute

19 concerning a claim cannot be otherwise resolved, Lead Counsel shall thereafter

20 present the request for review to the [District] Court for summary resolution,

21 without any right of appeal or review.

22

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1 App’x at 847 (AIG Settlement Agreement) (emphasis added); see also App’x at.

2 2556‐57 (PwC Settlement Agreement). It is not uncommon for parties to include

3 in a settlement agreement an “explicit agreement that the district court decision

4 shall be final and that all rights of appeal are waived.” 15A Charles Alan Wright

5 et al., Federal Practice and Procedure § 3901 (2d ed. 2014). But we conclude that this

6 provision does not bar Appellants’ appeal.

7 As an initial matter, Appellees urge us to endorse a kind of Catch‐22

8 theory of appellate jurisdiction. Appellees argue that the Plans are not members

9 of the Settlement Class because they are “affiliates” of AIG. You would think,

10 then, that Appellees would agree that the Plans are not bound by the Settlement

11 Agreements, which were entered into between the Lead Plaintiffs, “on behalf of

12 the Settlement Class,” and AIG. App’x at 829 (emphasis added). Not so. Instead,

13 even as they maintain that the Plans are not members of the Settlement Class,

14 Appellees argue that the Plans are nonetheless bound by the Settlement

15 Agreements’ non‐appealability provision. We decline Appellees’ request to

16 permit them to have their pie and eat it too.

17 At oral argument, Appellees suggested that the Plans are bound by the

18 non‐appealability provision because they are “claimants.” But nothing in the

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1 Settlement Agreements suggests that mere “claimants” are bound by the

2 agreements.  It is a “principle of general application in Anglo‐American

3 jurisprudence that one is not bound by a judgment . . . in litigation in which he is

4 not designated as a party or to which he has not been made a party by service of

5 process.” Hansberry v. Lee, 311 U.S. 32, 40 (1940). Because the Plans have not yet

6 been held to be “members of the Settlement Class” they cannot be “bound by any

7 orders or judgments entered in respect to the settlement.” Casey v. Citibank, N.A.,

8 No. 5:12‐CV‐820, at *5 (N.D.N.Y. Aug. 21, 2014).

9 B

10

11 As a general rule, only parties to a lawsuit, whether from the outset or

12 through intervention, may appeal an adverse judgment. Marino v. Ortiz, 484 U.S.

13 301, 304 (1988). But we have recognized two exceptions to this rule: (1) “a

14 nonparty may appeal a judgment by which it is bound,” and (2) “a nonparty may

15 appeal if it has an interest affected by the judgment.” Official Comm. of Unsecured

16 Creditors of WorldCom, Inc. v. SEC, 467 F.3d 73, 78 (2d Cir. 2006) (internal

17 quotation marks omitted). Appellants invoke this second exception.

18 We have long allowed appeals by a nonparty “when the nonparty has an

19 interest that is affected by the trial courtʹs judgment.” Karaha Bodas Co. v.

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1 Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (ʺPertaminaʺ), 313 F.3d 70,

2 82 (2d Cir. 2002) (internal quotation marks omitted); see also United States v. Intʹl

3 Bhd. of Teamsters, 931 F.2d 177, 183‐84 (2d Cir. 1991);  Hispanic Socʹy v. N.Y.C.

4 Police Depʹt, 806 F.2d 1147, 1152 (2d Cir. 1986). And we “have not required that a

5 nonparty prove that it has an interest affected by the judgment;” rather, “stating a

6 plausible affected interest has been sufficient.” WorldCom, 467 F.3d at 78 (2d Cir.

7 2006) (emphasis added).

8 “The question therefore is whether [Appellants] can identify an ‘affected

9 interest.’” Kaplan v. Rand, 192 F.3d 60, 67 (2d Cir. 1999). Appellees argue that

10 permitting Appellants’ appeal would grant “standing” to “virtually any third‐

11 party that filed a notice of appeal.” Appellees Br. at 20. We disagree. We believe

12 there are several reasons Appellants should be “considered a ‘party’ for the

13 purpos[e] of appealing” the district court’s denial of the motion to direct. Devlin,

14 536 U.S. at 7. First, the Plans had bona fide reasons to believe they were members

15 of the Settlement Class. Second, the Plans reasonably relied on claims submitted

16 to Rust and were given no indication that they may have been ineligible. Third,

17 and most important, the Plans have a concrete and particularized interest clearly

18 affected by the judgment of the district court: the exclusion of the Plans from the

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22

1 Settlement Class deprives the Plans, their participants, and their beneficiaries of

2 their recognized loss of either $81.5 million or $200.6 million, depending on

3 whether it is calculated at the plan‐ or participant‐level.  

4 At this time, we need not decide whether any nonparty putative class

5 member would be able to appeal a denial of a motion to direct without first

6 successfully intervening. We “emphasize that our [holding] is heavily based on

7 the unique . . . posture of this case,” In re Lawrence, 293 F.3d 615, 625 (2d Cir.

8 2002), which demonstrates that the Plans clearly have a sufficient “interest that is

9 affected by the trial court’s judgment.” Pertamina, 313 F.3d at 82.

10 C

11

12 Because we find that Appellants may appeal the denial of the motion to

13 direct regardless of whether they successfully intervened, we dismiss as moot

14 their appeal of the district court’s denial of the motion to intervene. Nonetheless,

15 although “[t]he timeliness requirement” of intervention “is flexible and the

16 decision is one entrusted to the district judge’s sound discretion, United States v.

17 Yonkers Bd. of Educ., 801 F.2d 593, 594‐95 (2d Cir. 1986), we think it important to

18 address the possible troubling consequences of the district court’s holding that

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23

1 the Plans should have moved to intervene “at least as early as the filing of the

2 Third Amended Complaint.” App’x at 3146; Special App’x at 23.

3 At the complaint stage, it is unlikely the Plans would have known of their

4 interest in the district court litigation. See Catanzano by Catanzano v. Wing, 103

5 F.3d 223, 232 (2d Cir. 1996) (“Among the most important factors in a timeliness

6 decision is the length of time the applicant knew or should have known of its

7 interest before making the motion.”). The district court’s suggestion that the

8 Plans should have intervened at such an early stage could unduly encourage

9 other putative nonnamed class members in future class actions to needlessly

10 intervene, frustrating the purposes and goals of class action litigation. Fearful

11 that the district court would find their motions to intervene untimely, virtually

12 “all class members would be forced to intervene to preserve their claims, and one

13 of the major goals of class action litigation—to simplify litigation involving a

14 large number of class members with similar claims—would be defeated.” Devlin,

15 536 U.S at 10. Unnecessary intervention by any putative class member with the

16 slightest doubt that they might be excluded from the settlement class would only

17 increase the “extraordinary amount of judicial and private resources . . . [of]

18 massive class action litigation.” Austin v. Pa. Dep’t of Corr., 876 F. Supp. 1437,

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24

1 1455 (E.D. Pa. 1995). Thus, we caution the district courts to be mindful when

2 dismissing similar motions to intervene on timeliness grounds lest the courts

3 invite needless litigation into their courtrooms.

4 II

5

6 As a question of law, we review the district court’s interpretation of the

7 Settlement Agreements de novo. Cirino v. City of N.Y. (In re World Trade Ctr.

8 Disaster Site Litig.), 754 F.3d 114, 121 (2d Cir. 2014). The district court denied the

9 motion to direct on the ground that the Plans are excluded from the Settlement

10 Class as “affiliates” of AIG. In reaching this conclusion, however, the district

11 court did not consider the statutory limitations imposed on a sponsor’s control

12 over an employee benefit plan under ERISA. Because those limitations are

13 substantial, the Plans cannot be considered “affiliates” under any ordinary or

14 specialized understanding of that term, and certainly not when viewed in the

15 context of the Settlement Agreements.  

16 A

17

18 Like consent decrees, settlement agreements are “hybrid[s] in the sense

19 that they are at once both contracts and orders; they are construed largely as

20 contracts, but are enforced as orders.” Berger v. Heckler, 771 F.2d 1556, 1567‐68 (2d

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25

1 Cir. 1985) (citation omitted). As contracts, we interpret them in accordance with

2 general principles of contract law. See Collins v. Harrison‐Bode, 303 F.3d 429, 433

3 (2d Cir. 2002). “When interpreting a contract, the intention of the parties should

4 control, and the best evidence of intent is the contract itself.” Contʹl Ins. Co. v. Atl.

5 Cas. Ins. Co., 603 F.3d 169, 180 (2d Cir. 2010) (alterations and internal quotation

6 marks omitted). Thus, if their terms are unambiguous, we must interpret the

7 Settlement Agreements “within [their] four corners, and not by reference to what

8 might satisfy the purposes of one of the parties to [them].” Berger, 771 F.2d. at

9 1568 (quoting United States v. Armour & Co., 402 U.S. 673, 682 (1971) (discussing

10 consent decrees)); see also Seabury Constr. Corp. v. Jeffrey Chain Corp., 289 F.3d 63,

11 68 (2d Cir. 2002) (“Where the contract is unambiguous, courts must effectuate its

12 plain language.”).

13 The Settlement Agreements exclude from the settlement class “any parent,

14 subsidiary, affiliate, officer, or director of AIG.” App’x at 1035 (emphasis added).  

15 The parties agree that the term “affiliate” is not defined in the Settlement

16 Agreements. Like the district court, we begin by consulting Black’s Law

17 Dictionary, which defines an affiliate, in the context of securities, as “[o]ne who

18 controls, is controlled by, or is under common control with an issuer of a

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26

security.” 1 4 Affiliate, Black’s Law Dictionary (10th ed. 2014).    Thus, whether the

2 Plans are “affiliates” of AIG turns on whether they are controlled by, or are

3 under common control with, AIG.

4 We note that we would reach the same conclusion if we looked to the

5 definition of “affiliate” in the rules promulgated by the Securities and Exchange

6 Commission under the Securities Act of 1933 and the Securities Exchange Act of

7 1934. SEC Rule 144 defines an “affiliate” of an issuer of securities as “a person

8 that directly, or indirectly through one or more intermediaries, controls, or is

9 controlled by, or is under common control with, such issuer.” 17 C.F.R.

10 § 230.144(a)(1). And Rule 12b–2 of SEC Regulation 12B defines an “affiliate” as a

11 “person that directly, or indirectly through one or more intermediaries, controls,

12 or is controlled by, or is under common control with, the person specified.” Id. §

13 240.12b–2.

14 “Control,” in turn, is defined by Black’s Law Dictionary as the “direct or

15 indirect power to govern the management and policies of a person or entity,

16 whether through ownership of voting securities, by contract, or otherwise; the

                                              

4 We believe this definition of affiliate is instructive here because the dispute and

Settlement Agreements relate to an underlying securities class action. Moreover,

we disagree with Appellants’ views concerning the ambiguity of the term

“affiliate” and the appropriateness of looking to securities law to define the term.   

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27

1 power or authority to manage, direct, or oversee.” Control, Blackʹs Law Dictionary

2 (10th ed. 2014). This definition of “control” is virtually identical to the definition

3 of control “provided in regulations promulgated under the 1933 and 1934 Acts.”

4 Waldman v. Riedinger, 423 F.3d 145, 151 (2d Cir. 2005). SEC Rule 405 of Regulation

5 C defines “control” as “the possession, direct or indirect, of the power to direct or

6 cause the direction of the management and policies of a person whether through

7 the ownership of voting securities, by contract, or otherwise.” SEC v. Kern, 425

8 F.3d 143, 149 (2d Cir. 2009) (quoting 17 C.F.R. § 230.405); see also 17 C.F.R.

9 § 240.12b–2 (same).  

10 Accordingly, whether the Plans are “affiliates” of AIG turns on whether

11 AIG possesses the “direct or indirect . . . power to direct or cause the direction of

12 the management and policies” of the Plans.  

13 B

14

15 The district court concluded that AIG possessed the power to “direct or

16 cause the direction of the management and policies” of the Plans, relying on

17 several indicia of “control:” (1) “[t]he plans are each sponsored by either AIG

18 itself or a company subsidiary[;]” (2) “the AIG Retirement Board, the Plans’

19 administrator, was not only appointed by AIG, but its members were all AIG

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28

1 employees, including officers and directors of the company[;]” and (3) “the

2 company could disband the plans without reason.” Special App’x at 10.  

3 In reaching this conclusion, the district court relied, in part, on the Seventh

4 Circuit’s decision addressing an almost identical fact pattern concerning a

5 securities settlement with Motorola. See In re Motorola Sec. Litig., 644 F.3d 511 (7th

6 Cir. 2011) (“Motorola”). The Seventh Circuit applied a similar definition of

7 “affiliate:” “one who controls, is controlled by, or is under common control with

8 an issuer of a security.” Id. at 513. The Motorola panel noted that Motorola

9 “appoint[ed] the Plan’s administrator—the Motorola 401(k) Profit–Sharing

10 Committee—and the members of this Committee serve[d] at the pleasure of

11 Motorolaʹs Board of Directors” and concluded that this kind of “‘structural

12 organizational control’ [was] sufficient to make the Plan an affiliate of Motorola.”

13 Id. The panel reasoned that “[a]s the Plan Administrator, the Committee had

14 general operational and administrative authority over the management of the

15 Plan[,] [a]nd since ‘control’ includes the power to direct the management of an

16 entity, we conclude that the Profit–Sharing Committee controlled the Plan.” Id. at

17 520 (citations omitted).

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29

1 We are, of course, not bound by a decision by a sister circuit, but we do not

2 disagree with one lightly. Nonetheless, the Motorola panel, and the district court

3 here, did not consider the role of ERISA in shaping the contours and limits on an

4 employer’s “control” over a sponsored plan. This inattention was

5 understandable, inasmuch as the parties in that case failed to raise ERISA as an

6 issue. See generally In re Motorola Secs., Inc., No. 09‐1750, 2009 WL 1557636 (7th

7 Cir. May 14, 2009) (Brief of Intervenor‐Appellant Motorola, Inc. 401(k) Profit‐

8 Sharing Plan). But even if Motorola can be read to go so far as to say all ERISA

9 plans are all “affiliates” of their sponsors, we decline to follow it. Doing so would

10 require us to ignore Congress’s specific statutory limitations on an employer’s

11 control over a sponsored plan.

12 ERISA is structured to “insulate the trust from the employer’s interest.”

13 NLRB v. Amax Coal Co., 453 U.S. 322, 333 (1981). The Department of Labor, the

14 “agency charged with administering and enforcing Title I of ERISA,” Faber v.

15 Metro Life Ins. Col, 648 F.3d 98, 105 (2d Cir. 2011), has made clear that “[m]any of

16 the provisions of ERISA are grounded on the concept that an employee benefit

17 plan must be independent of the employer that sponsors the plan.” Grindstaff v. Green,

18 No. 96‐5628, 1996 WL 34386660 (6th Cir. Oct. 29, 1996) (Brief of Amicus Curiae,

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30

1 Robert B. Reich, Secretary of the United States Department of Labor) (emphasis

2 added)). For example, the plan’s assets must be maintained in a trust, 29 U.S.C. §

3 1103(a), and “shall never inure to the benefit of any employer and shall be held

4 for the exclusive purposes of providing benefits to participants in the plan and

5 their beneficiaries and defraying reasonable expenses of administering the plan.”

6 29 U.S.C. § 1103(c)(1).  

7 Thus, although the plans “are each sponsored by either AIG itself or a

8 company subsidiary,” Special App’x at 10, this is too slender a reed upon which

9 to predicate a finding of control. ERISA is a “comprehensive and reticulated

10 statute [for which] Congress made detailed findings which recited, in part, ‘that

11 the continued well‐being and security of millions of employees and their

12 dependents are directly affected by these plans.’” Nachman Corp. v. Pension Benefit

13 Guar. Corp., 446 U.S. 359, 361‐62 (1980) (footnote omitted) (quoting ERISA § 2(a),

14 29 U.S.C. § 1001(a)). Accordingly, ERISA is designed to delicately balance

15 Congress’s clear “attempt to promote employee ownership of employer stock,”

16 Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459, 2468 (2014); see also Gray v.

17 Citigroup, Inc. (In re Citigroup ERISA Litig)., 662 F.3d 128, 137 (2d Cir. 2011)

18 (noting Congress’s “goal of encouraging employee ownership of the company’s

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31

1 stock”), abrogated on other grounds by Fifth Third Bancorp, 134 S. Ct. at 2465, with a

2 recognition that the interests of the employer and the interests of the plans may

3 not be aligned. Pegram v. Iterdich, 530 U.S. 211, 255 (2000). In fact, ERISA presumes

4 that the interests of the employer and the employer‐sponsored plans are adverse.

5 See id.; see also Liss v. Smith, 991 F. Supp. 278, 291 (S.D.N.Y. 1998) (“Employers are

6 parties‐in‐interest [whose] interests are adverse to those of the plan.” (citation

7 omitted)); Gruby v. Brady, 838 F. Supp. 820, 833 (S.D.N.Y. 1993) (“Clearly, Fund

8 employers are parties with interests adverse to those of plan Members. Indeed,

9 the employers’ interests lie in minimizing their obligations to the Fund, whereas

10 the Fund’s interest is in collecting all contributions owed.”). To the extent

11 sponsorship of an ERISA plan says anything about an employer’s control over

12 that plan, it is that any such control is specifically circumscribed to ensure the

13 plan is managed “solely in the interest of the [plan’s] participants and

14 beneficiaries.” 29 U.S.C. § 1104(a)(1). This is unlike your garden variety parent‐

15 affiliate relationship. For example, ordinarily, an affiliate’s directors and officers

16 can be removed “with or without cause, by the holders of a majority of the

17 shares,” including when the individual acts contrary to the interests of the

18 parent. See, e.g., Del. Code Ann. tit. 8, § 141(k). This kind of control is simply

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32

1 impermissible under ERISA. See, e.g., Bennett v. Mfrs. & Traders, No. 599‐CV‐827

2 HGM/GHL, 2005 WL 2896962, at *8 (N.D.N.Y. Nov. 2, 2005) (“By selecting and

3 appointing the Plans’ trustees in her own interest . . . Bennett failed to act solely

4 in the interest of the Plans’ participants and beneficiaries in violation of ERISA . .

5 . .”).

6 In light of ERISA’s requirements, AIG’s ability to appoint and remove

7 members of the Plans’ Retirement Board does not yield control over the

8 “management and policies” of the Plans. If Board members had discretion to

9 favor AIG to varying degrees in their management of the Plans, then AIG might

10 be able to exert control both by appointing people particularly aligned with its

11 interests and by using the threat of removal to ensure that such alignment

12 persisted. But Board members have no such discretion. Appointees to the

13 Retirement Board serve as fiduciaries to the Plans, their participants, and their

14 beneficiaries, and ERISA subjects its fiduciaries to what have been called the

15 “highest duties known to law.” Jayne Zanglein, et al., ERISA Litigation 1261 (5th ed.

16 2014) (emphasis added). Plan fiduciaries must act “solely in the interest of the

17 [plan’s] participants and beneficiaries.” 29 U.S.C. § 1104(a)(1). “This statutory

18 duty of loyalty has been described by this Court as requiring that a fiduciary act,

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33

1 in Judge Friendlyʹs felicitous phrase, with an ‘eye single to the interests of the

2 participants and beneficiaries.’” State St. Bank & Trust Co. v. Salovaara, 326 F.3d

3 130, 136 (2d Cir. 2003) (quoting Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir.

4 1982)). Although AIG may select who serves as a member of the Retirement

Board, it may not use that power to shape the Plansʹ management and policies.5 5

6 This conclusion holds even where AIG appoints its own officers and

7 directors as members of the Retirement Board. ERISA “imposes a duty on the

8 [fiduciaries] to avoid placing themselves in a position where their acts as officers

9 or directors of the corporation will prevent their functioning with the complete

10 loyalty to participants demanded of them as” fiduciaries of a plan. Donovan, 680

11 F.2d at 271 (emphasis added). ERISA expressly contemplates scenarios where a

12 sponsor might appoint its own officers and directors to a plan’s board. But these

13 officers and directors, who are permitted to “wear different hats,” must

14 nonetheless “wear only one at a time, and wear the fiduciary hat when making

15 fiduciary decisions.” Pegram, 530 U.S. at 225 (emphasis added). “[T]o prevent any

                                              

5 The Motorola decision concluded, to the contrary, that “Motorola had structural

organizational control over the Plan” that it sponsored because it controlled the

“appointment and removal of [the plan’s board’s] members.”  Motorola, 644 F.3d

at 521.  In reaching that conclusion, the panel did not consider the critical

significance of the fiduciary obligations imposed by ERISA.

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34

1 possible injury to the beneficiary, the rule against a trustee dividing his loyalties

2 must be enforced with ‘uncompromising rigidity.’” NLRB v. Amax Coal Co., 453

3 U.S. 322, 329‐30 (1981) (quoting Meinhard v. Salmon, 249 N.Y. 458, 464 (1928)

4 (Cardozo, J.)). “A fiduciary cannot contend ‘that, although he had conflicting

5 interests, he served his masters equally well or that his primary loyalty was not

6 weakened by the pull of his secondary one.’” Id. (quoting Woods v. City Nat’l Bank

7 & Tr. Co., 312 U.S. 262, 269 (1941)). Thus, although Appellees note that AIG

8 Retirement Board members Axel Freudmann and Kathleen Shannon, defendants

9 in the ERISA Action, “were also executive officers of AIG during the Class period

10 in the Action,” Appellees’ Br. at 34 (citing App’x at 2887‐88), that says nothing

11 about whether AIG possesses the “direct or indirect . . . power to direct or cause

12 the direction of the management and policies” of the Plans.  

13 For similar reasons, AIGʹs authority to “disband the Plans without reason,”

14 Special App’x at 10, does not imply authority to direct management or policy

15 decisions. Again, if the Board had discretion to favor AIG in its management of

16 the Plans, AIG might be able to compel favorable treatment by threatening to

17 disband the Plans if the Board did not cooperate. But ERISAʹs imposition of strict

18 fiduciary duties blocks such corporate influence.

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35

1 In adopting the rationale of the Motorola decision, which had also been

2 adopted by at least one district court in this Circuit, the district court failed to

3 consider Congress’s clear directive to encourage participation in plans providing

4 employee ownership of employer stock while ensuring that such plans are not

5 managed in the interests of the sponsor, and in so doing erred. When examined

6 through the intricate prism of ERISA’s statutory goals and requirements, AIG’s

7 sponsorship of the plans, its appointment and removal power, and its

8 discretionary disbanding power are all insufficient to demonstrate it possesses

9 the power to direct the management and policies of the Plans. Thus, we conclude

the district court erred in determining that the Plans are “affiliates” of AIG.6 10

11

                                              

6 We do not decide today whether the courts owe deference (and if so, the

appropriate degree of deference) to the findings of the Department of Labor

(“DOL”) that accompany the Prohibited Transaction Exemption 2003‐39 and

amendments thereto. We merely note that courts could consider the DOL’s views

as to ERISA’s impact on the degree of control exerted by a plan sponsor on an

employee benefit plan. In this instance, our ruling that the district court erred in

determining that the Plans are “affiliates” of AIG is consistent with the DOL’s

belief that ERISA plan participants should not be disadvantaged when compared

to other shareholders when settling securities litigations.

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36

1 C

2

3 Although we are confident our conclusion is dictated by the text of the

4 Settlement Agreement, we observe that a contrary result could not reflect the

5 purpose of the exclusion of “affiliates” from the settlement class. We have

6 recognized elsewhere that ordinarily the purpose of a settlement agreement’s

7 exclusion of “affiliates” is to “ensure that those who perpetrated, or otherwise

8 profited from, the alleged [wrong] would not benefit from the settlement.”

9 Waldman v. Riedinger, 423 F.3d 145, 153 (2d Cir. 2005). In Waldman, we considered

10 whether a trustee was an “affiliate” of a corporation and determined he was not

11 “because he neither controlled nor was controlled by any of the defendants.” Id.

12 at 151. We also noted that “[r]ather than profiting from the alleged fraud, as an

13 affiliate might have done, [the trustee] was victimized by it.” Id. at 153(emphasis

14 added). “For this reason, . . . we c[ould not] conclude that he was an affiliate.” Id.

15 The same is the case here; there is no dispute that the participants and

16 beneficiaries of the Plans are not those that perpetrated the alleged securities

17 violations that gave rise to this class action.

18 Nor would a distribution of settlement proceeds to the Plans inure to the

19 benefit of AIG. The most that can be said is that a settlement recovery by the

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37

1 Retirement Plan, which is a defined benefit pension plan rather than a defined

2 contribution plan, could reduce AIG’s contribution obligation. But AIG would

3 still lack any direct or indirect control over any assets recovered by the

4 Retirement Plan under the settlement. See, e.g., 29 U.S.C. §§  1106, 1002(14)(C)

5 (prohibiting financial transactions between a plan and “an employer any of

6 whose employees are covered by such plan”). And AIG would also lack control

7 over any investment decisions concerning any recovered assets for the defined

8 contribution plans, as those decisions must be made solely by the participants

9 themselves. See 29 U.S.C. § 1104(c)(1)(A). In short, AIG would enjoy no added

10 benefit if the Plans are included in the Settlement Class.  

11 Our conclusion also makes sense by viewing the word “affiliate” in the full

12 context of the exclusion provision. The term “affiliate” directly follows the terms

13 “parent” and “subsidiary,” and directly precedes the terms “officer” and

14 “director.” These specific terms have precise and commonly understood

15 definitions in corporate law. See, e.g., Del Code Ann., tit. 8, §§ 141‐46 (discussing

16 the roles of officers and directors); Del. Code Ann., tit. 8, § 220 (defining

17 subsidiary as “any entity directly or indirectly owned, in whole or in part, by the

18 corporation of which the stockholder is a stockholder and over the affairs of which the

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38

1 corporation directly or indirectly exercises control, and includes, without limitation,

2 corporations, partnerships, limited partnerships, limited liability partnerships,

3 limited liability companies, statutory trusts and/or joint ventures” (emphasis

4 added)). The exclusion of “parents,” “subsidiaries,” “officers,” and “directors” of

5 AIG from the settlement class evinces an intent to exclude individuals who may

6 have perpetrated or benefited from the alleged underlying securities violations.

7 And because we often interpret a word “by the company it keeps (the doctrine of

8 noscitur a sociis ),” the district court’s interpretation of the term “affiliate” to

9 include the Plans “ascribe[s] [to it] . . . a meaning so broad that it is inconsistent

10 with its accompanying words.” Gustafson v. Alloyd Co., 513 U.S. 561, 575 (1995);

11 see also WPP Luxembourg Gamma Three Sarl v. Spot Runner Inc., 655 F.3d 1039, 1051

12 & n.3 (9th Cir. 2011) (applying the noscitur a sociis canon to the interpretation of

13 a contract).

14 Consider, for example, two different employees who both work in the

15 mailroom at AIG. One employee participated in one of the Plans; the other, chose

16 not to do so, but purchased AIG common stock on the open market during the

17 class period. Neither employee had any role in the alleged securities violations

18 underlying this class action. Following the district court’s logic, despite being

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39

1 nearly identical plaintiffs suffering the same injury, the first employee would be

2 excluded from the settlement class whereas the latter would be included. And

3 although the employee participating in the Plans has a secondary recourse by

4 bringing an action under ERISA, that separate statutory right does not deprive

5 him or her of the protections of the securities laws.  

6 Finally, the district court’s interpretation of the term “affiliate” would also

7 strain drafters of settlement agreements in future securities class actions. Were

8 the district court’s interpretation to stand, we would expect plan fiduciaries to

9 make an effort to ensure their plan is not excluded from a securities class action.

10 Drafters could be forced into the uncomfortable position of writing language that

11 would exclude “affiliates,” but include employer‐sponsored plans. No doubt many

12 dollars would be spent, and many hours would pass, as courts needlessly faced

13 even more complicated interpretive thickets than the one we have before us

14 today. It is better to avoid this altogether and interpret the term “affiliate” in the

15 context of the exclusion provision: to exclude entities that could conceivably

16 profit despite their own possible participation in the alleged securities violations.

17 But if drafters do want to exclude employer‐sponsored plans, they can simply say

18 so.  

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40

1 III

2

3 Appellants urge us to also find that Rust erred by denying the Plans’

4 claims on the basis that “the claim was submitted on a ‘participant‐level’ and [ ]

5 because it appears the participants did not directly purchase and sell ‘AIG

6 Securities[.]’” Appellant’s Br. at 49. As noted above, the number of AIG shares

7 that the Defined Contribution Plans purchased on the open market during the

8 class period (the plan level calculation) could, in theory, be lower than the

9 number of shares participating employees elected to acquire (the participant

10 level calculation), perhaps yielding a lower Recognized Loss under the

11 Settlement Agreements. That appears in fact to be the case: According to Rust,

12 the Plansʹ combined Recognized Loss would be $200.6 million if calculated at the

13 participant‐level (where possible) but only $81.5 million if calculated at the plan‐

14 level. Declaration of Eric Shacter, September 30, 2013, at ¶ 24, App’x at 2958.

15 Appellants assert that “[b]y refusing to accept participant‐level claims from the

16 Defined Contribution Plans, Rust has acted to reduce the Defined Contribution

17 Plans’ potential recovery by treating them differently from all other AIG

18 shareholders, thereby artificially inflating the potential recovery for the other

19 class members, including the Appellees, who are the lead plaintiffs.” Id.

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41

1 Because the district court did not reach this question, we remand so that

2 the court may consider it in the first instance. See Pinnacle Nursing Home v.

3 Axelrod, 928 F.2d 1306, 1317 (2d Cir. 1991) (“It is a general rule that a federal

4 appellate court does not consider an issue not passed upon below.” (internal

5 quotation marks omitted)).

6 CONCLUSION

7

8 For the foregoing reasons, we DISMISS the appeal of the district court’s

9 denial of the motion to intervene as moot, and the district court’s order denying

10 the Plans’ motion to direct is VACATED and the case is REMANDED for further

11 proceedings in accordance with this opinion.  

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