March 2012 Newsletter


•   Sixth Circuit Revives ERISA Lawsuit Against State Street Bank And Trust Over Alleged Mismanagement Of General Motors’ 401(k) Plans

•   Scott+Scott Wins Important Ruling On Standing In Airline Antitrust Case

•   Third Circuit Approves Class Certification And Settlement With DB Investments, Inc.

•   Scott+Scott Settles Class Action On Behalf Of Consumers Who Purchased Hazelnut Spread

•   Conferences And Educational Seminars

•   On The Record

Sixth CircuitRevives ERISA Lawsuit Against State Street Bank And Trust Over Alleged Mismanagement Of General Motors’ 401(k) Plans

            The Sixth Circuit recently issued an important opinion in a case involving allegations that State Street Bank and Trust Company had breached its fiduciary duties under the Employee Retirement Income Security Act of 1974 (“ERISA”).  The plaintiffs in the lawsuit are represented by Scott+Scott, which serves as lead counsel in the case.

            At issue in Pfeil v. State Street Bank & Trust Co., No. 10-2302, 2012 WL 555481 (6th Cir. Feb. 22, 2012), are two General Motors’ plans known as Employee Stock Ownership Plans (“ESOPs”).  General Motors (“GM”) had retained State Street to serve as the independent fiduciary for the GM stock in the ESOPs.  The plaintiffs alleged that State Street violated its fiduciary obligations under ERISA by failing to divest the plans of their holdings in GM stock in the months leading up to GM’s bankruptcy filing in early 2009.

            Writing for a unanimous panel, the Honorable S. Thomas Anderson concluded that the allegations in the plaintiffs’ complaint established a fiduciary breach.  The court explained: “[W]e conclude that the plaintiffs have plausibly alleged that a prudent fiduciary acting under similar circumstances would have made a different investment decision with respect to GM stock.”  The court noted that: “[O]n July 15, 2008, General Motors announced a restructuring plan designed to improve cash flow and save the company.  By November 10, 2008, GM disclosed that its auditors had ‘substantial doubt’ regarding the company’s ‘ability to continue as a going concern.’  Nevertheless, State Street did not begin to divest the plan of its GM common stock holdings until March 31, 2009.”

            The court further explained that State Street could not avoid liability by pointing to the other investment options offered in the plan: “Much as one bad apple spoils the bunch, the fiduciary’s designation of a single imprudent investment offered as part of an otherwise prudent menu of investment choices amounts to a breach of fiduciary duty.”

            The court also rejected State Street’s argument that the plan participants and beneficiaries caused the losses to the plans.  The court explained: “[W]e reject State Street’s argument that plan participants, who enjoyed access to all of the same publicly-available information about GM’s woes during the class period as State Street, caused the plan losses.”  The court went on: “If the rule were otherwise, a fiduciary administering any 401(k) where participants direct their own investments could always argue that the participant’s decision to hold the imprudent investment was an intervening cause and avoid any liability.”

            In the final analysis, the Sixth Circuit’s opinion in State Street is important for employees who invest their retirement savings in 401(k) plans because the Sixth Circuit has now clarified the fiduciary obligations and responsibilities that companies owe to participants and beneficiaries in these plans.

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Scott+Scott Wins Important Ruling On Standing In Airline Antitrust Case

            On August 1, 2007, the U.S. Department of Justice charged Korean Air Lines Co., Ltd. with conspiring to fix prices on passenger flights between the United States and Korea.  Asiana Airlines Inc. was later identified and charged as a co-conspirator.  Both companies pleaded guilty to the charges and will pay substantial criminal fines.  Korean Air Lines agreed to pay a $300 million fine and Asiana Airlines will pay $50 million.

            Following the government’s filing of the charging documents, passengers filed antitrust lawsuits against the airlines, seeking to recover the overcharges they paid as a result of the price fix.  These cases were consolidated in federal court in Los Angeles, California.  The court coordinated the cases based on whether the plaintiffs purchased tickets directly from the airlines or indirectly from travel agents.  Scott+Scott, along with co-counsel, represents passengers who purchased from travel agents.

            The passengers settled their claims with Asiana Airlines last year.  The litigation proceeds against Korean Air Lines. 

            In an attempt to dismiss the case, Korean Air Lines filed a motion arguing the indirect purchaser plaintiffs did not have standing to bring antitrust claims.  Korean Air Lines relied on the U.S. Supreme Court case of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), where the Court held that under most circumstances, indirect purchasers lack standing to bring antitrust claims.  But the district court denied Korean Air Lines’ motion, holding that the indirect purchaser passengers may pursue antitrust claims against the airline.

            In Illinois Brick, the state of Illinois brought antitrust claims against concrete block manufacturers for price-fixing.  The defendants did not sell the block directly to the state.  Instead, the defendants sold the blocks to masonry contractors, who submitted bids to general contractors for work on masonry portions of construction projects, which were ultimately paid for by the state.  The Court described the state’s theory as seeking “to demonstrate that masonry contractors, who incorporated [the] block into walls and other masonry structures, passed on the alleged overcharge on the block to general contractors, who incorporated the masonry structures into entire buildings, and that the general contractors in turn passed on the overcharge to [the state] in the bids submitted for those buildings.”  431 U.S. at 735.

            The Supreme Court rejected the state’s theory, giving three reasons for its holding.  First, if both direct purchasers (masonry contractors) and indirect purchasers (general contractors and the state of Illinois) were permitted to recover damages for an illegal overcharge, the antitrust defendant would be at serious risk of multiple liability.  Second, apportioning damages between direct and indirect purchasers would be exceedingly complex.  Third, the Court reasoned that the antitrust laws are most effectively enforced when standing lies with direct purchasers who the Court views as having the greatest incentive to enforce the antitrust laws. 

            The Court, however, outlined several circumstances where an indirect purchaser would have standing to bring an antitrust claim.  At issue in the Korean Air Lines case was the “ownership or control” exception.  Under this exception, indirect purchasers may bring antitrust claims when the direct purchaser is owned or controlled by the indirect purchaser or the price fixer.  The passengers alleged that they purchased airfares from travel agents who were either controlled by themselves or by Korean Air Lines.  The district court held that the allegation was a “solid, factual allegation,” and denied Korean Air Lines’ motion.

            The case is In re Korean Air Lines Co., Ltd. Antitrust Litig., MDL 07-1891 (C.D. Cal.).

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Third Circuit Approves Class Certification And Settlement With DB Investments, Inc.

The Third Circuit Court of Appeals recently affirmed a district court decision to certify classes of diamond purchasers for settlement with De Beers International.  The United States District Court for the District of New Jersey certified classes of nationwide direct and indirect diamond purchasers on March 31, 2006, in a decision that also preliminarily approved a combined settlement fund for both classes totaling $295 million.  In May 2008, the district court further considered and rejected objections that differences in plaintiffs’ state law claims predominated over issues common to the class, a requirement for class certification under Federal Rules of Civil Procedure Rule 23 (“Rule 23”).  A three-judge panel of the Third Circuit Court of Appeals overturned the district court’s decision.  The Court of Appeals granted the plaintiffs’ petition for rehearing on the panel’s decision en banc and vacated the order.  On December 20, 2011, the Third Circuit affirmed the district court’s decision to certify the classes and approve the settlement.

The direct and indirect purchaser plaintiffs—including retail diamond sellers and individual consumers—brought federal and state antitrust, consumer protection, and other claims alleging that De Beers used its market dominance to impose anticompetitive restraints on the sale and resale of diamonds, thereby artificially inflating the price of the gems.  Under the U.S. Supreme Court decision in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), indirect purchasers are restricted from recovering antitrust damages.  Certain states have introduced repealers to the Illinois Brick rule, allowing indirect purchasers to seek money damages for state antitrust violations.  The district court had certified a nationwide settlement class of indirect purchasers pursuant to Rule 23(b)(3), concluding that the predominance requirement was satisfied, despite certain states allowing—and others disallowing—the indirect purchaser claims, in addition to differences between the various state consumer protection laws.

The Third Circuit opinion iterated several principles that should guide courts in determining whether the commonality and predominance requirements of Rule 23 are met.  First, commonality is to be established by an examination of the defendant’s conduct and the “resulting injuries common to all class members.”  As long as the individual plaintiffs had suffered an injury that gave them standing pursuant to Article III of the Constitution, their class could be certified under Rule 23.  The existence of standing pursuant to antitrust law—and under the Illinois Brick rule—remained a matter to be proven at trial.  Second, “variations in state law do not necessarily defeat predominance” when “a sufficient constellation of common issues binds class members together.”  The court declined to uphold the argument that each individual class member was required to show that they have a “viable claim” based upon the applicable state statute or law at the class certification stage.  Rather, the proposed nationwide indirect purchaser settlement class was appropriately certified if the defendants’ conduct was “common as to all class members,” such common conduct predominated over individual issues, and the elements of the plaintiffs’ claims could be proven through common evidence.  Variances in state law, and the viability of individual class members’ claims given those variations, are more appropriately adjudicated at trial rather than in a Rule 23 motion.  The court also rejected the objectors’ argument that the district court’s approval of the settlement modified or abridged states’ rights, because it validated claims that were invalid under applicable state law.  The court noted that the settlement was an agreement between two private parties and merely “recognizes the parties’ voluntary compromise of their rights.”  The court’s approval of the settlement did not make it a party to the settlement, and did not invite an intrusion onto individual states’ rights to legislate and enforce their own laws.

The court’s rejection of the requirement that all individual class members demonstrate their “colorable legal claim” reflects the logistical, practical, and administrative efficiencies that Rule 23 aims to achieve.  The court noted that were such a requirement imposed, district courts deciding on class certifications would have to engage in an intensive analysis of all claims of all plaintiffs and absent class members, which in some cases “would necessitate an intensive, fifty-state cataloguing of differences in state law at any early stage of the proceedings, and without the benefit of a developed record.”  At the end of this inquiry, “no class would ever be certified because it would be impossible to demonstrate that every class member has a ‘colorable legal claim.’”  Furthermore, such a holding would defeat the purpose of Rule 23: both for plaintiffs, for whom class action is the only avenue to pursue their rights for relatively small damages recovery, and for defendants, for whom class action is an efficient way to avoid “protracted litigation and future relitigation of settled questions in federal and state courts across numerous jurisdictions.”

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Scott+Scott Settles Class Action On Behalf Of Consumers Who Purchased Hazelnut Spread

On January 10, 2011, Scott+Scott reached a settlement with Ferrero U.S.A., Inc. (“Ferrero”) regarding its advertising and marketing of its Nutella brand hazelnut spread.  The settlement provides monetary and injunctive benefits and specifically remedies Ferrero’s labeling and advertisement of Nutella as a healthy and nutritious breakfast food, which the plaintiffs allege was deceptive.  The settlement resolves the claims alleged in the complaints and includes all persons throughout the United States who purchased one or more of the defendant’s Nutella products in any state other than California, at any time from January 1, 2008, through February 3, 2012 (the “class period”), other than for resale or distribution (the “class”).  A separate class action also has been settled on behalf of California consumers (the “California settlement”).

            On February 27, 2011, an action was filed in the United States District Court for the District of New Jersey, Glover v. Ferrero USA, Inc., Civil Action No. 11-1086 (FLW)(DEA), bringing claims on behalf of a nationwide class under the New Jersey Consumer Fraud Act (“NJCFA”), N.J.S.A. §§56:8–1, et seq., breach of contract, and breach of express and implied warranty.  The complaint alleges Ferrero deceptively markets, advertises, and sells Nutella as a “healthy” and “nutritious” food, but omits that the nutritional value claimed, if any, is not derived from Nutella, but instead from the other foods or drinks (e.g., whole grain breads, fruit, and milk) that are advertised to be consumed along with Nutella.  The complaint further alleges that Ferrero made such representations in print, television, and point-of-sale advertising, as well as on the label of the product.


        The settlement establishes a $2.5 million settlement fund for the benefit of settlement class members who submit a claim form.  The California settlement also establishes a $550,000 settlement fund that will be jointly administered with the settlement fund established in the New Jersey settlement.  Class members with a valid claim form can receive $4 for each jar of Nutella purchased during the class period, up to a total of $20.  The settlement also provides injunctive relief in the form of future prohibitions on the advertising at issue.  Ferrero agrees to revise its labeling and print and media advertising to reflect the agreed changes, as well as to modify the content on its website for Nutella.  A final settlement hearing is scheduled for July 9, 2012.

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Conferences And Educational Seminars


+March 2, 2012

Investment Consultants Forum by Opal Financial Group

The Crowne Plaza Times Square

New York, NY

The annual forum will provide a unique environment for developing dialogue between plan sponsors, managers, and consultants, and will feature panel-driven discussions focused on specific investment techniques of fixed income and hedge fund managers, the evolving role of institutional consultants, the manager evaluation process, transition management, and investing in global markets. Complimentary registration for representatives of pension and Taft-Hartley funds.


+March 3-6, 2012

California Association of Public Retirement Systems (CALAPRS) General Assembly

Westin Mission Hills Resort & Spa

Rancho Mission Hills, CA

The General Assembly conference provides an educational and informational forum for the public retirement systems in California. 


+March 25-28, 2012

Texas Association of Public Employee Retirement Systems (TEXPERS) 23rd Annual Conference

Omni Corpus Christi

Corpus Christi, TX

Trustees will receive educational information about investment options, fiduciary duties, governance, ethics, investment terms and practices, and actuarial and legal matters.

+March 26-27, 2012

Information Management Network (IMN) 17th Annual Public Funds Summit

Park Hyatt Aviara Resort

Carlsbad, CA

This event brings together leading pension trustees, board chairs, executive directors, investment officers, investment consultants, and money managers from around the country for in-depth educational content and extensive networking opportunities. The conference provides a comprehensive overview of the public pension fund landscape with in-depth interactive discussions on asset allocation, investment strategies, manager selection, trustee issues, and governance issues.

Government Finance Officers Association Conferences

+March 1-2, 2012

Alabama GFOA

Embassy Suites Huntsville – Hotel and Spa

Huntsville, AL


+March 4-7, 2012

Oregon MFOA

The Riverhouse Hotel and Convention Center

Bend, OR


+March 7-9, 2012

North Carolina GFOA

Research Triangle Park

Durham, NC


+March 23, 2012

Michigan GFOA

James B Henry Center at MSU

Lansing, MI

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On The Record

“Judicial judgment must take deep account of the day before yesterday in order that yesterday may not paralyze today.”

Felix Frankfurter, New York Court of Appeals Justice

National Observer, Silver Spring, Maryland, March 1, 1965

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Scott + Scott LLP is a nationally recognized law firm headquartered inConnecticut with offices in New York City, Ohio and California. The firmrepresents individual as well as institutional investors who have suffered from corporate stock fraud. Scott+Scott has participated in recovering billions of dollars and achieved precedent-setting reforms in corporate governance on behalf of its clients. In addition to being involved in complex shareholder securities and corporate governance actions, Scott+Scott also has a significant national practice in antitrust, ERISA, consumer, civil rights and human rights litigation. Through its efforts, Scott+Scott promotes corporate social responsibility.

Scott+Scott’s PT+SM System is the firm’s proprietary investment portfolio tracking service. Carefully combining the firm’s proprietary computer-based portfolio monitoring software with Scott+Scott’s hands-on approach to client  relations is a proven method for institutional investors and their trustees to successfully

  • Monitor their investment portfolios  
  • Identify losses arising from corporate fraud    
  • Consider what level of participation any given situation requires   
  • Recover funds obtained on their behalf through investor litigation action  

To obtain more information about Scott+Scott’s PT+SM services or to schedulea presentation to fund trustees, fund advisors or asset managers, please contact:    David R. Scott + Toll Free: 800.404.7770     email: + UK Tel: 0808.234.1396