In the long-running case of Tussey v. ABB, the 8th U.S. Circuit Court of Appeals has found that a district court mistook the appellate court’s direction for a definitive ruling on how to measure plan losses, and as a result entered judgment in favor of the ABB fiduciaries despite finding they did breach their duties.
In the back and forth on the case, on previous remand, the U.S. District Court for the Western District of Missouri found fiduciaries to a 401(k) plan abused their discretion when making an investment lineup change, but since plaintiffs in the case failed to prove damages using the appropriate calculation, judgement was entered in favor of the fiduciaries.
The district court previously calculated the plans’ losses by comparing the returns on the Fidelity Freedom Funds to what the participants would have earned if they had invested in the Wellington Fund instead. The 8th Circuit suggested “it seems the participants’ mapping damages, if any, would be more accurately measured by comparing the difference between the performance of the Freedom Funds and the minimum return of the subset of managed allocation funds the ABB fiduciaries could have chosen without breaching their fiduciary obligations.”
On remand, the district court again held the ABB fiduciaries breached their fiduciary duties. Yet the district court concluded the participants had failed to prove any losses under the theory the appellate court “tacitly approved” in the first appeal—comparing the Freedom Funds’ returns to the worst-performing of the funds the ABB fiduciaries could have properly chosen—so the ABB fiduciaries prevailed on that claim. In light of that result, the district court reduced the participants’ attorney fee award for work through trial by almost $2.2 million, to $10,768,474. The district court also awarded the participants $900,000 for work on the appeal—just over two-thirds of what they requested—for a total of $11,668,474.
The participants appealed the district court’s ruling on measuring losses and liability for the breach. In a consolidated cross-appeal, the ABB fiduciaries argue both parts of the fee award are still too high.NEXT: Flaws in awards calculation
In its previous decision, the 8th Circuit said, “In light of the [policy statement’s] requirement to add a managed allocation fund, it seems the participants’ mapping damages, if any, would be more accurately measured by comparing the difference between the performance of the Freedom Funds and the minimum return of the subset of managed allocation funds the ABB fiduciaries could have chosen without breaching their fiduciary obligations.” According to the ABB fiduciaries, this language was a “binding alternative holding,” and thus became the “law of the case,” because it was necessary to give the district court a standard to apply on remand. In its recent opinion, the appellate court says that gives the language too much weight.
Also, the 8th Circuit explained, the district court determined “it [was] a reasonable inference that participants who invested in the Freedom Funds would have invested in the Wellington Fund had it not been removed from the plan’s investment platform.” But, the appellate court said such an inference appears to ignore the investment provisions of the [policy statement], participant choice under the plan, and the popularity of managed allocation funds. And the participants fail to cite any evidentiary support for inferring the participants’ voluntary, post-mapping investments in the Freedom Funds would have instead been made in the Wellington Fund, even if that fund remained as a plan option for all of the years at issue. “A reasonable inference is one which may be drawn from the evidence without resort to speculation,” the appellate court wrote.
Properly read, the 8th Circuit’s previous decision proposed an alternative it thought warranted consideration (if measuring the plans’ losses became necessary again on remand); it did not require that the district court adopt the proffered approach. “That is why our overarching instruction to the district court was to ‘reevaluate its method of calculating the damage award.’ With that phrasing, we meant to make clear both that there was work—reevaluation—left for the district court to do and the work involved resolving the ‘method of calculating’ losses, not just their ultimate amount,” the opinion says.
“The district court therefore should have considered other ways of measuring the plans’ losses from the ABB fiduciaries’ breach, as well as the participants’ contentions about why, in their view, our proposal was misguided and contradicted persuasive authority and the trust-law principles that generally inform ERISA decisions,” the appellate court continued.
In conclusion, the 8th Circuit said the district court should have decided for itself how to measure what the plans lost as a result, rather than considering itself bound by the appellate court’s prior comments about the issue. “That question is still for the district court to answer in the first instance, so the judgment in favor of the ABB fiduciaries is at best premature. We therefore vacate the judgment, vacate the award of attorney fees and costs, and remand the case for further proceedings,” the court said.