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$55 million, 12 years, 2 appeals and a 401(k) plan

Landmark 401(k) case reaches settlement

Scott Lauck//April 8, 2019

$55 million, 12 years, 2 appeals and a 401(k) plan

Landmark 401(k) case reaches settlement

Scott Lauck//April 8, 2019

After more than 12 years of litigation, a trial marked by tragedy, a sizeable bench judgment and two trips to the federal appeals court, a $55 million settlement is bringing an end to a path-breaking class-action lawsuit involving a St. Louis company’s 401(k) plan.

The law firm of Schlichter Bogard & Denton announced the agreement March 28 against ABB Inc., a subsidiary of The ABB Group in Zurich, Switzerland. The agreement still requires preliminary approval, notice to the class and a final sign-off from a federal judge. Attorney Jerry Schlichter said he expects the case to be finalized this year.

“It’s been quite a journey,” Schlichter said in an interview.

Jeffrey Russell of Bryan Cave Leighton Paisner in St. Louis, a lead attorney for ABB, didn’t return a call seeking comment.

In the agreement, ABB did not admit to any wrongdoing. The agreement, filed with the U.S. District Court for the Western District of Missouri, says the parties desired “to avoid the expense and uncertainty of litigation.”

The lawsuit, originally filed in late 2006, alleged ABB had breached its fiduciary duty to participants of its retirement plans by allowing excessive recordkeeping fees to be charged and including costly and poorly performing investment options in the plan. The claims were made under provisions of the Employee Retirement Income Security Act that were little-used at the time.

“The law requiring that fees be reasonable under ERISA had not been enforced, either by litigation or by enforcement actions by the Department of Labor,” Schlichter said. “The path of this case parallels the path of this area of litigation that began with this case through the present.”

The case went before U.S. District Judge Nanette K. Laughrey in January 2010, the first such case to go to a full trial. Despite its historic nature, the case drew headlines for a different reason when, on the third day of trial, a man fatally shot three people and himself at ABB’s transformer-manufacturing facility in St. Louis. The shooter, Timothy G. Hendron, was a named plaintiff in the class-action lawsuit.

Schlichter said the tragic episode was “a unique event in the middle of trial, in my experience.” It prompted Laughrey to put additional security measures in place until it was confirmed that Hendron had killed himself during the shooting, Schlichter said.

More than two years after trial, Laughrey issued a judgment against ABB and co-defendant Fidelity for $36.9 million. It was the fifth-largest plaintiffs’ win of 2012, as tracked by Missouri Lawyers Media.

Jerome Schlichter of Schlichter Bogard & Denton in St. Louis was the first, and for a long time the only attorney to take on litigation tackling excessive fees in 401(k) plans. This year he achieved two record settlements for such cases.. He is one of the MLA Influential Lawyers of 2015. Photo by Karen Elshout
Jerome Schlichter of Schlichter Bogard & Denton in St. Louis was the first, and for a long time the only attorney to take on litigation tackling excessive fees in 401(k) plans. File photo by Karen Elshout

On appeal, however, the 8th U.S. Circuit Court of Appeals threw out the $1.7 million award against Fidelity and ordered the damages against ABB to be recalculated. Part of the plaintiffs’ argument involved a claim that ABB had dropped a particular fund and replaced it with another one that was allegedly less beneficial to plan participants. The damages were calculated by comparing the performance of the original fund to the one that replaced it by default.

In 2014, the 8th Circuit found that calculation to be “speculative” and sent the case back with a suggestion that damages might be better calculated by looking at the returns of the worst-performing fund that ABB could have chosen and still fulfilled its fiduciary duties. On remand, Laughrey took that suggestion as mandatory and found that the plaintiffs had suffered no damages.

After a second round of appeals, the 8th Circuit said in 2017 that Laughrey had given the suggestion “too much weight” and sent the case back for yet another damage calculation. The settlement occurred while that calculation was pending.

Schlichter noted that the settlement is for substantially more than the original judgment. The agreement allows the plaintiffs to recover up to $18.3 million in attorneys’ fees and $2.5 million in costs from the settlement. The suit’s three class representatives would be paid $25,000 each. Schlichter said the class includes an estimated 12,000 to 15,000 participants whose claims precede December 2000.

Laughrey’s original judgment had ordered ABB to undertake several reforms of its 401(k) plan to make sure it was run for participants’ benefit. Other plans around the country have benefitted as well. In an oft-cited notation in a 2013 ruling in Nolte v. Cigna Corp., an Illinois federal judge estimated that “fee reductions attributed to Schlichter, Bogard & Denton’s fee litigation and the Department of Labor’s disclosure regulations approach $2.8 billion in annual savings for American workers and retirees” nationwide.

“It’s gratifying to see that fees have come down in the 401(k) industry,” Schlichter said. “That’s a good thing for American workers and retirees.”

The case is Tussey et al. v. ABB Inc., 2:06-cv-4305.

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