Major Cases
Tussey v. ABB Finally Resolved
The parties in the long-running case of Tussey v. ABB, Inc., have reached a settlement of $55 million—the final result of more than a decade of litigation, court-ordered nonmonetary remedies and multiple appellate court rulings.
In the original 2006 lawsuit, filed in the U.S. District Court for the Western District of Missouri, plaintiffs alleged multiple breaches of fiduciary duty under the Employee Retirement Income Security Act (ERISA), arguing in sum that ABB subsidized its corporate expenses with fees paid out of its employees’ retirement assets.
Among other claims, the plaintiffs alleged that ABB engaged in self-dealing by using Fidelity Investments for recordkeeping both the employer’s 401(k) and multiple corporate benefit plans—viz., a pension plan and a health and welfare plan—and for payroll processing. Plaintiffs suggested that Fidelity provided ABB’s corporate plans at a loss, while turning a strong profit on the 401(k) plan—saying this arrangement amounted to a form of disloyalty and self-dealing that ERISA prohibits and that harmed participants.
The plaintiffs’ counsel says the monetary settlement, short the attorney fees, will be rebated to ABB retirement plan participants’ accounts.
For its part, ABB denied the many allegations leveled by participants and fought the case up and down the federal court system. Fidelity also pushed back and received a favorable appellate court ruling in 2014. In that ruling, the 8th U.S. Circuit Court of Appeals agreed with Fidelity and ABB that the District Court had relied on hindsight in an earlier ruling that determined that a switch from certain Vanguard funds to Fidelity funds violated ERISA. Fidelity was also found not liable for alleged breaches concerning its use of “float” income.
The recently revealed settlement agreement comes after many twists and turns in the case. In 2012, the plaintiffs obtained a $36.9 million judgment, which was eventually appealed once, unsuccessfully, to the U.S. Supreme Court and twice to the 8th Circuit, which itself twice remanded the matter to the Missouri District Court for further proceedings.
As a result of the earlier judgments, ABB was ordered by the courts to use a competitive bidding process, including a request for proposals (RFP), to select a new recordkeeper. ABB was also ordered to choose the share class of investments with the lowest expense ratio, rather than more expensive retail share classes. In the settlement, the plaintiffs’ losses will be addressed with monetary damages.
ERISA litigation analysts agree that Tussey, as one of the original 401(k) plan excessive fee and disloyalty lawsuits, also proved to be among the most convoluted. Prior to the parties’ agreement to settle the matter, in the most recent appellate ruling, the 8th Circuit Court found that the District Court—when making its own second ruling—mistook a general directive to reconsider key elements in the case in an open-minded manner as, instead, definitive instructions on how to measure plan losses. As a result, the Appeals Court ruled, the District Court had inappropriately entered its second judgment in favor of the ABB fiduciaries, despite finding that they did breach their duties.
That is, in the rejected decision, the District Court had found that fiduciaries to the ABB 401(k) plan indeed abused their discretion when making an investment lineup change, but because the plaintiffs had failed to calculate damages using the type of specific approach the District Court mistakenly thought the Appeals Court expected, it entered a judgment that benefitted the fiduciaries.
At the core of this complicated appeals and remand process was the original 2012 decision, where the District Court awarded the first monetary settlement to the ABB plan participants. That decision was quickly appealed to the 8th Circuit by the plaintiffs, who, despite their partial success, felt that some of their claims had been wrongly dismissed. The eventual petition to the Supreme Court came after the 8th Circuit vacated parts of the original decision—thereby somewhat tempering the damages assessed against ABB and Fidelity.
Vanderbilt Settlement Reached
Vanderbilt University also recently settled an Employee Retirement Income Security Act (ERISA) fiduciary breach lawsuit, this one targeting the firm’s 403(b) plan. The settlement agreement includes some novel details pertaining to the treatment of plan data.
A year ago January, the U.S. District Court for the District of Tennessee dismissed some claims, but moved forward on others pertaining to the Vanderbilt University Retirement Plan and the Vanderbilt University New Faculty Plan.
The court dismissed all claims for breach of duty of loyalty, finding the plaintiffs did not allege sufficient facts to show that the defendants engaged in transactions involving self-dealing or material conflicts of interest. But the decision also ruled that the plaintiffs had sufficiently alleged that defendants’ failure to secure competitive bids for certain plan services under these circumstances was not consistent with what a prudent man or woman acting in a like capacity would have done—a potential ERISA violation.
The Vanderbilt settlement agreement’s focus on how plan data will be treated moving forward is new and significant relative to other 403(b) plan decisions and settlements. In short, the agreement stipulates that plan data will not be used by providers such as recordkeepers or asset managers for the purposes of cross-selling unrelated products or services to plan participants. During its next formal recordkeeping review, Vanderbilt is required to contractually prohibit such data-based cross-selling.
Advisory Firm Avoids Class Action
The advisory firm of Slocum & Associates will not face class-action claims and has prevailed on some summary judgment arguments, but a recent district court ruling allows certain individual claims to proceed.
According to the U.S. District Court for the District of Colorado, the plaintiffs “failed to undertake adequate steps to represent the interests of absent potential plaintiffs and, thus, bind them through this litigation, as required by the 2nd Circuit’s middle ground approach in Coan [v. Kaufman].” As a consequence, the court held that plaintiffs may recover their individual plan losses allegedly attributable to Slocum but not such losses for the plan as a whole.
Court Rejects Self-Dealing Defense
The 9th U.S. Circuit Court of Appeals has affirmed a lower court’s ruling that City National Corp. engaged in self-dealing in administering its own retirement plan; the Appeals Court also affirmed most of the damages City National is required to pay.
A federal judge in the U.S. District Court for the Central District of California found that City National Corp. violated employee retirement laws when it chose its own staff to administer its employee retirement plan in exchange for millions of dollars of unchecked, unreasonably high compensation. The court granted the Department of Labor (DOL)’s motion for summary judgment on damages. Specifically, in an order dated February 8, 2017, the District Court awarded $7,367,382 in damages.
City National appealed the grant of summary judgment that found it liable, under Employee Retirement Income Security Act (ERISA) Section 406(b), for self-dealing and also the amount of damages and prejudgment interest. As stated in the Appellate Court opinion, the company “[did] not contest that it engaged in what is typically prohibited self-dealing by setting and approving its own fees from plan assets for serving as its own recordkeeper. Instead [it] contend[ed] that this conduct is exempted under ERISA Section 408(c)(2) as ‘reasonable compensation’ for services provided by a fiduciary such as recordkeeping services.”
Revenue-Sharing Fees Questioned
A complaint recently filed in the U.S. District Court for the Eastern District of Pennsylvania accuses BTG International Inc. of breaching the Employee Retirement Income Security Act (ERISA) in the operation of a profit-sharing 401(k) plan.
The plaintiff, seeking class-action status on behalf of similarly situated participants in the BTG International Profit Sharing 40l(k) Plan, alleges company officials allowed the plan’s recordkeeper, John Hancock, to receive excessive and unreasonable compensation through a variety of undisclosed channels. In addition to BTG, the plan’s named fiduciaries—three top executives—were cited with allegations in the complaint.
The text of the complaint details alleged fiduciary breaches relating to “direct hard-dollar fees paid by the plan to John Hancock.”
Art by Wyatt Hersey