Documents pertaining to a newly reached settlement agreement have been filed in the U.S. District Court for the Western District of Kentucky in the Employee Retirement Income Security Act (ERISA) lawsuit known as Disselkamp v. Norton Healthcare.
The claims in the underlying lawsuit resemble those in many other ERISA complaints filed against health care systems and other large employers across the U.S., suggesting that the fiduciaries operating these entities’ retirement plans failed to monitor the share classes of mutual fund investments offered to participants. Other claims in such cases, including this one, suggest the plan fiduciaries failed to substitute less expensive share classes of mutual funds for more expensive ones. The plaintiffs say such actions resulted in defendants wasting the assets of the plan participants, who were forced to pay higher fees than were necessary.
As noted in the settlement agreement and its accompanying exhibits, Norton Healthcare and the other named defendants—which include service provider Lockton Financial Advisors and its parent, Lockton—admit no wrongdoing and continue to deny the allegations made in the case. However, to resolve the litigation and prevent any and all further claims on related grounds, the defendants have agreed to pay $5.75 million back to the retirement plan in question.
As is often the case in ERISA lawsuits reaching such a conclusion, the path to the settlement agreement was far from straightforward.
On August 2, 2019, the court issued a memorandum opinion and order granting in part and denying in part the defendants’ motions to dismiss. Specifically, the court dismissed the plaintiffs’ duty of loyalty claim and struck the plaintiffs’ request for a trial by jury. The court also denied the defendants’ motions to dismiss with respect to all of the plaintiffs’ other claims.
On September 5, 2019, the defendants filed answers to the plaintiffs’ amended complaint, and after the parties exchanged various disclosures, they attempted to resolve the civil action in a private plenary session mediation on February 27, 2020. In advance of the first mediation, the Norton defendants and Lockton defendants provided the plaintiffs with documents they requested, including ancillary plan documents, summary plan descriptions (SPDs), investment policy statements (IPS), trust documents, annuity contracts, investment adviser reports, request for proposals (RFP) documents and more.
At that point, however, the parties were unable to reach a settlement, and so discovery continued until the parties, through their respective counsel, agreed to continue settlement discussions and conduct extensive, arms-length negotiations concerning a possible compromise and settlement of the action. Case documents show this process eventually led to a second plenary mediation session, at which the parties reached an agreement in principle to the terms of the proposed settlement.
As detailed in case documents, one of the terms of the settlement was the dismissal with prejudice of the individually named Norton defendants and Lockton Financial Advisors, which was to occur before the filing of the final settlement documentation. Subsequently, the parties filed voluntary dismissals with prejudice of the individual Norton defendants and Lockton Financial Advisors on December 21, conditioned on complete settlement approval.
In terms of monetary relief, the settlement stipulates that Norton Healthcare and Lockton will each pay half of a total settlement of $5.75 million, which will be used to compensate plan participants who invested in overly expensive share classes.