The parties in the long-running case of Tussey vs. ABB have reached a $55 million settlement—the final result of more than a decade of litigation, court ordered non-monetary remedies and multiple appellate court rulings.
Word of the settlement first came from the plaintiffs’ lead attorney in the case, with the law firm of Schlichter Bogard & Denton.
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 for recordkeeping both the 401(k) and corporate plans, which included a corporate pension plan, the health and welfare plan, and payroll processing. Plaintiffs suggested Fidelity provided ABB’s corporate plans at a loss, while turning a strong profit on the 401(k) plan—a form of disloyalty and self-dealing prohibited by ERISA.
For its part, ABB has strongly denied the many allegations leveled by participants and has fought the case up and down the federal court system. Fidelity also pushed back and got the better end of an interim 2014 ruling in the case.
A press release sent out by the plaintiffs’ attorneys summarizes the settlement and recalls the many twists and turns the case has taken over the years. In 2012, the plaintiffs obtained a $36.9 million judgment, which was eventually appealed once (and unsuccessfully) to the U.S. Supreme Court and twice to the 8th U.S. Circuit Court of Appeals, which itself twice remanded the matter to the Missouri District Court for further proceedings.
The attorneys note that the plaintiffs previously obtained a court order “extensively reforming” the 401(k) plan to reduce fees. In particular, ABB was previously ordered by the courts to use a competitive bidding process, including a request for proposals, to select a new recordkeeper. ABB was also ordered to choose the share class of investments that has the lowest expense ratio, rather than more expensive retail share classes. As the case has played out, the broader retirement plan industry has taken concerted action to increase the use of lower-cost share classes and to make recordkeeping and asset management fees more transparent.
“In this settlement, the plaintiffs’ losses will be addressed with damages,” the attorneys write.
Appeals process showed the huge potential complexity of ERISA lawsuits
One of the original 401(k) plan fee and disloyalty lawsuits, the Tussey vs. ABB also proved to be one of the most convoluted.
In the most recent appellate ruling in the case, the 8th U.S. Circuit Court of Appeals found that the district court mistook its directions for reconsidering key elements in the case in an open manner as instead giving definitive instructions on how to measure plan losses. As a result, the appeals court ruled, the district court inappropriately entered judgment in favor of the ABB fiduciaries, despite finding they did breach their duties.
In basic terms, the district court ruling being considered—the second district court ruling overall in the case—found fiduciaries to the ABB 401(k) plan abused their discretion when making an investment lineup change, but since plaintiffs in the case failed to prove damages using the type of specific calculation (wrongly) expected by the court, judgement was entered in favor of the fiduciaries.
Following what it thought was direction from the 8th Circuit to apply a single approach to measuring plan losses, the district court concluded the participants had failed to prove any losses under the specific theory the appellate court “tacitly approved” in the first appeal. As a result, the ABB fiduciaries prevailed on some claims, and the district court reduced the participants’ attorney fee award for work through trial by almost $2.2 million. 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.
At the core of this complicated appeals and remand process was the original district court decision. The lower court in Tussey v. ABB first awarded a monetary settlement to the ABB plan participants, but the decision was quickly appealed to the 8th Circuit. The eventual petition to the Supreme Court came after the 8th Circuit vacated key parts of the original pro-ABB decision—essentially tempering the damages assessed against ABB and Fidelity.