Compliance

Court Certifies Class in BB&T Self-Dealing Lawsuit

The case is a consolidation of two lawsuits alleging BB&T breached ERISA by favoring its own proprietary investment options and recordkeeping services in its retirement plans at the expense of performance.

By Rebecca Moore editors@strategic-i.com | August 30, 2017

A federal district judge has granted class certification in a consolidated complaint in which participants in BB&T Corporation retirement plans accuse the company of breaching the Employee Retirement Income Security Act (ERISA) by favoring its own proprietary investment options and recordkeeping services at the expense of performance.

The case, now dubbed Sims v. BB&T Corporation, is a consolidation of two lawsuits filed—Bowers v. BB&T Corporation in 2015 and Smith v. BB&T Corporation in 2016. According to the text of the Smith complaint, favoring its own proprietary investments options and recordkeeping services allowed BB&T and its subsidiaries to collect millions of dollars in revenues, “in an amount that greatly exceeded the value of the services to the plan, thereby enriching BB&T at the expense of plan participants.”

U.S. District Judge Catherine C. Eagles of the U.S. District Court for the Middle District of North Carolina certified a class of all current and former participants and beneficiaries of the [plans] from January 1, 2007, through the date of judgment, who were injured by the conduct alleged in the compliant, excluding the defendants. She did so after first rejecting arguments that the class did not meet commonality and typicality requirements.

The BB&T defendants argue that commonality is defeated because of intra-class conflicts, specifically that the actions alleged in Counts I and IV of the complaint would have harmed or benefited the plan participants depending on an the participant’s investment strategy. But, Eagles said this does not create a conflict. “The class as proposed requires that the actions alleged in the complaint injure a plan participant. At most, the defendants claim that certain of the proposed class members were not injured, but benefited from, investment in the alleged imprudent funds. The class would include these plan participants only if they were injured by the other breaches alleged in the complaint,” Eagles wrote in her opinion.

In addition, BB&T defendants claim that the participants who benefited by investing in the alleged imprudent funds will be “harmed” if the plaintiffs prevail on these allegations, and that this creates a conflict. Eagles found they have not provided any explanation of how a class member could possibly be harmed if damages were recovered on behalf of the plan. “There is no requirement that plan participants forfeit investment gains acquired as a result of a breach of fiduciary duty, and the defendants have cited no case for the proposition that a class member who profited from investing in a particular fund would be forced to pay money back to the plan if the plan’s inclusion of that fund violated the plan’s fiduciary duties,” she wrote.

BB&T defendants also argue that the lack of an established methodology for determining individual class members’ injuries defeats commonality. Eagles said this argument misunderstands the nature of the suit. The plaintiffs filed suit on the plan’s behalf alleging that the defendants’ conduct harmed the plan as a whole and seeking recovery on the plan’s behalf; they assert no claims based on individual losses.

As for the typicality requirement, the defendants contend that the named plaintiffs’ claims are not typical of the class because they have not invested in all of the funds alleged to be imprudent in the complaint. But, Eagles noted the plaintiffs’ theories of liability in the case rest on the defendants’ flawed process for selecting, administering, and monitoring all of the plan investments, not just a few specific funds. “When the theories of liability are the same, a plaintiff may represent the class even if he or she did not hold all of the contested funds or investments or did not enter into all of the contested agreements,” she wrote.