In technical terms, the law firm of Schlichter, Bogard & Denton has petitioned the U.S. Supreme Court for a “writ of certiorari” in Tussey v. ABB, Inc. As the firm’s founder and managing partner, Jerry Schlichter, tells PLANADVISER, a writ of certiorari is an appeals request submitted to a superior court, asking the superior court to use its discretion to review all or part of a decision handed down by a lower court.
In this case, the firm is asking the U.S. Supreme court to review a recent decision from the 8th U.S. Circuit Court of Appeals, which vacated a portion of a previous district court judgment that found for the plaintiffs against defendants ABB and Fidelity (see “Fidelity Wins Some in Appeal of Tussey Case”). The case has a complicated procedural background, but the primary matters at hand involve accusations that ABB fiduciaries breached their duties to the company’s 401(k) plan by failing to diligently investigate the plan’s recordkeeper (i.e., Fidelity) or the plan’s investment fees and recordkeeping costs.
Schlichter says ABB Inc., a power and automation technology company, did not reasonably negotiate for rebates from the investment companies whose funds were offered in the plan. Schlichter claims (in this case and others) that when plans pay too much for investment services and plan administration, participants often end up subsidizing other corporate services received from the recordkeeping provider, such as payroll processing or health plan administration. It’s an argument applied widely across 401(k) fee litigation cases, and one that causes significant stress among mega plan sponsors and providers alike due to the potential class action status of plaintiffs and the large dollar figures at stake (see “Fee Suit Litigator Discusses Best Practices”).
Indeed, the lower court in Tussey v. ABB originally awarded $13.4 million to the ABB plan participants, but the decision was quickly appealed to the 8th Circuit. This current petition to the Supreme Court comes after the 8th Circuit vacated key parts of the original pro-ABB decision—essentially tempering the damages assessed against ABB and Fidelity.
While the appeals court agreed that ABB and its plan fiduciaries failed to adequately monitor recordkeeping fees, it decided other parts of the decision were in error. Namely, the appeals court decided ABB did not further breach its fiduciary duties when it decided to drop the Vanguard Wellington Fund as an investment option to be replaced with Fidelity's Freedom Funds—using the assumption that plan fiduciaries must be given discretion when choosing investment options.
To punish the plan fiduciaries for picking the Fidelity funds over the Vanguard fund would amount to punishing the fiduciaries for not predicting which fund would perform better in the future, the court ruled. Schlichter contends it is inappropriate to give such discretion to plan fiduciaries that have already been proven by the same appeals court (and as part of the same case, no less) to have breached their fiduciary duty. The plan fiduciaries have already been shown to have made decisions that were not in the participants' best interest, he says, so why should their motives for switching to the Fidelity funds be interpreted charitably by the court?
Schlichter argues that the ABB fiduciaries, were they acting prudently, would have picked the Vanguard fund if they were truly considering the fees and return potential of the fund—rather than, as he puts it, “trying to drive revenue to Fidelity to subsidize other corporate recordkeeping services on the backs of plan participants.”
“The simple fact is ABB breached its fiduciary duties under ERISA to benefit itself,” Schlichter states. “What's at stake here is the safeguarding of the retirement assets of millions of Americans. We feel that in the current environment there is a lot of attention being paid to individual participants and the challenges they face in getting fair services, so we're optimistic about this petition.”
In a related announcement, Schlichter’s firm recently said it has received confirmation that another widely followed case it is litigating involving the retirement plan of the Lockheed Martin aerospace company will go to trial on December 1. The case has been bouncing around on preliminary appeals for more than eight years, Schlichter says, but has recently been certified as a class action and will proceed as a full trial following the rejection of Lockheed's failed petition for summary judgement.