AllianceBernstein Defeats Capital Litigation

A lawsuit alleging breach of fiduciary duty in selecting a proprietary fund that allegedly underperformed was dismissed for failure to state a claim.

The plan at issue is the $1.5 billion, 5,500-participant Alliance Bernstein 401(k) Plan, which includes participant plaintiffs Donald S. Bloom, David C. Greenfield, Damian L. Smickle, and Justin.・A. Sternhell and others allege that the trustee defendants “selected them for.” repeatedly failed to comply with the Plan and remove or replace imprudent proprietary investments (“Alliance Bernstein Options”) managed and offered by Defendants AllianceBernstein LP and/or its subsidiaries or affiliates; ”

They further argued (Bloom v. Alliance Bernstein LPSDNY, No. 1:22-cv-10576, Complaint 12/14/22) The lawsuit, filed in late 2022, states that “these funds were not selected and retained as a result of a fair or prudent process, but because the defendants benefited financially from their inclusion in the plan.” , and by selecting and retaining these proprietary investment funds to the exclusion of alternative investments available in the 401(k) plan market, Defendants. enriched its own pockets at the expense of its employees.” Or, more succinctly, “In effect, the participants (and their hard-earned retirement investments) were exposed to Alliance Burn, which was against the participants’ interests.” It was used as a captive base to implement Stein’s selfish business strategy.”

Before entering argument, U.S. District Judge Louis J. Lehman acknowledged that (Bloom et al. v. AllianceBernstein LP et al.Case No. 1:22-CV-10576, U.S. District Court for the Southern District of New York) Legal Standards for Surviving a Motion to Dismiss for Failure to Claim – The action “must contain sufficient facts” of the truth The problem is that one must use more than “…’labels and conclusions,’ ‘stylized repetition of the elements of a cause of action,’ or ‘…’ to state a seemingly plausible claim for relief.” ‘Must provide’ naked claims[s]”There is a lack of ‘further factual reinforcement'” — but the ultimate problem is “[a] At first glance, the claim seems plausible. [i.e.,] The plaintiff alleges factual content that would enable the court to draw a reasonable inference that the defendant is responsible for the alleged misconduct. He also said, as courts have always done, that the plausibility requirement “requires sufficient facts to raise a reasonable expectation that discovery will reveal the evidence.” ” [supporting the claim]”

“Under” standing

Judge Lehman spent considerable space in his 36-page opinion outlining the parties’ arguments. That said, regarding some of the more significant allegations, he commented: “Plaintiffs present certain facts that directly demonstrate that the first defendant acted for purposes other than to provide benefits to the participants and their beneficiaries and to defray the reasonable costs of administering the plan. I haven’t claimed it.” The plaintiffs also do not allege that because their own funds charged fees to plan participants, it can be inferred that the first defendant selected and monitored investments in the plan for his own benefit or that of others. . ”

Indeed, the plaintiffs here took pains to argue that their problem was not the fees but the poor performance of the own funds in question.[i] “Here, however, the plaintiffs clearly acknowledge that they are “seeking relief solely for poor investments and not for alleged excessive fees,” Judge Lehman wrote. The plaintiffs go on to argue that the decision to keep these poorly performing funds in the plan was due to AllianceBernstein wanting to keep its own funds in the plan even as other holders withdrew their funds. He argued that it was linked to the intention of However, Judge Lehman argued that “to accept the plaintiff’s theory, a court would have to create an inference of bad faith every time an employee retirement plan offers unique investment options; have also been rejected,” he wrote.

Regarding these underperformance claims, Judge Lehman found that as of the end of 2019, approximately the midpoint of the period relevant to this case, four of the seven LIS component portfolios had underperformed the benchmarks specified by AllianceBernstein. He pointed out that there was. However, these components were not removed from the plan. As of March 2022, three of his seven LIS components have fallen below established benchmarks since inception.

That said, Judge Lehman said that “virtually any investment vehicle can underperform its benchmark depending on the time frame chosen.” ERISA protects participants from imprudence. However, it does not provide participants with insurance against market losses. ” He then said: patterson2019 WL 4934834 (“ERISA does not require clairvoyance on the part of plan fiduciaries, nor does it require clairvoyance on the part of plan fiduciaries and opportunistic Monday-morning lawyers on the part of plan-focused attorneys and plan participants with the benefit of hindsight.” Nor does it condone quarterly support for “poor performance of certain investment options.”); cf. Dura Pharms., Inc. vs. Broudo, 544 US 336, 345 (2005). Therefore, for underperformance to give rise to a claim of impropriety, “the underperformance must be substantial.”

Has the process been analyzed?

Unlike other judgments handed down in similar cases, this judgment apparently did not require an allegation of careful process. “Plaintiffs do not provide any direct evidence in their amended complaint regarding the investment evaluation process employed by Defendants,” Judge Lehman wrote. Rather, the plaintiffs argue, the court selects and monitors the plan’s menu of available investment options based on the poor performance of a particular plan’s investment options compared to alternative, better-performing investments. If it could be plausibly inferred that the process was flawed, or if a proper investigation had been conducted, a reasonable trustee would have shown that the investment decision was imprudent. ” Judge Lehman was not ready for that.

He further stated that “the alleged performance shortfalls are not of sufficient duration or magnitude to create an inference of wrongdoing.” A similar degree of underperformance has repeatedly been deemed insufficient to trigger a claim of imprudence by courts in this circuit. ”

Having found that the plaintiffs could not plausibly allege breach of fiduciary duty, Judge Lehman granted the plaintiffs 30 conditions, but other claims (such as failure to monitor, co-fiduciary Liability claims, prohibited transactions) must also be dismissed. It will take several days to fix the suit.

What this means

Generally speaking, courts are reluctant to second-guess the wisdom of continuing to invest on a 20/20 basis, and this court/judgment is no exception. Unfortunately, the judgment does not outline whether there was any such procedure, as there is no specific allegation of impropriety during the procedure, only speculation. Again, applying the “plausible” standard required more than a mere insinuation/allegation of a potential conflict of interest in a financial services company relying on its own funds for its own plans.

On the other hand, if a company that manages money for someone else is reluctant to include your services in their plans…that might send a bad signal.