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Between 30,000 and 67,000 participants in BB&T Corp.'s 401(k) plan who sued the financial institution over alleged fiduciary breaches related to fees and investment options in their plan can proceed as a class ( Sims v. BB&T Corp. , 2017 BL 301853, M.D.N.C., No. 1:15-cv-00732, 8/28/17 ).
The participants meet the standards for class certification, Judge Catherine C. Eagles of the U.S. District Court for the Middle District of North Carolina held Aug. 28. Varying investment strategies among participants don’t create an intraclass conflict, especially a fundamental one that would defeat commonality—one of the standards required to proceed as a class, Eagles said. In addition, the fact that participants didn’t invest in all of the funds alleged to be imprudent in the lawsuit doesn’t defeat the typicality standard, because the theories of liability are the same, Eagles held.
The decision is another significant victory for current and former participants in BB&T’s retirement plan. In 2016, Eagles declined to dismiss the participants’ lawsuit, which accused BB&T of reaping millions of dollars in revenue by putting its proprietary funds in its $3 billion retirement plan.
Earlier this year, Eagles dismissed the participants’ fiduciary breach claims against financial firm Cardinal Investment Advisors LLC, holding that the participants failed to allege that the firm was a fiduciary under the Employee Retirement Income Security Act.
In the past three years, more than two dozen financial companies—including JPMorgan Chase Bank, Charles Schwab Corp., and Morgan Stanley—have been targeted by proposed class actions challenging the in-house investment products in their workers’ 401(k) plans. Many judges have ruled against the financial companies, refusing to dismiss cases against Allianz, Deutsche Bank, Franklin Resources, American Century, and Edward Jones. So far, only two companies have emerged from these cases victorious: Putnam Investments LLC and Wells Fargo.
Some companies targeted for in-house 401(k) investments have negotiated settlements, including Principal Life ($3 million), New York Life ($3 million), TIAA ($5 million), and American Airlines ($22 million).
In her latest ruling, Eagles also rejected BB&T’s argument that there was a conflict because the participants who benefited by investing in the alleged imprudent funds would be harmed if class members prevailed on their allegations. She pointed that BB&T didn’t provide any explanation of how participants could possibly be harmed if damages were recovered on behalf of the plan.
There is no requirement that participants forfeit investment gains acquired as a result of a breach of fiduciary duty, she said. Moreover, BB&T didn’t cite any case in support of their argument that a participant 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.
Finally, despite BB&T’s opposition, Eagles also allowed two law firms—Schlichter Bogard & Denton and Nichols Kaster—be appointed class counsel.
Womble Carlyle Sandridge & Rice PLLC and Groom Law Group Chartered represent BB&T.
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