“I think 2023 was more about the activity in the pending cases and less about new cases filed,” Daniel Aronowitz said when asked about last year's excess fee and performance cases.
On Monday, the president of fiduciary liability insurance firm Euclid Fiduciary released his annual analysis of litigation in the space. He found that it was less about new cases and more about activity in ongoing cases. He added that there was “feverish activity” among the latter, with a record number of settlements, motions to dismiss, and rulings, which the settlements confirmed.
He reported that 48 cases were filed in 2023, a decrease from 2022 “as legacy firms digested their pending inventory of cases, with most lawsuits filed by newer plaintiff firms in the space.
For example, he noted that Schlichter Bogard filed no new cases but was involved in three separate trials.
“To the extent there was a visible trend, there are more investment performance cases,” Aronowitz explained. “And then when you look at the settlements, we called it the settlement barbell, where there was a higher frequency of smaller settlements, but some large, record settlements as well. So, two things are going on. The first is that some firms are using it as a business model to make a million here, a couple million there, on volume. And then you have firms going for home runs with record settlements.”
While the number of filings was less than the previous year, they’re still extraordinarily high, which he said illustrates that it’s a business model for plaintiff firms and one that’s here to stay.
“If anything, they’re looking for new ideas. You saw five forfeiture cases this year, and that’s a new theory being thrown around. There were seven cases about whether it’s a breach of fiduciary duty on the float. Firms are trying to be innovative and push the boundaries, but it’s mainly still the same old thing—your recordkeeping and investment fees are too high, and your investment performance is too low. It’s the same thing we’ve seen for years now.”
He mentioned his midyear 2023 commentary about the perception that plan sponsors are winning more cases, a percentage that he believes is still the same.
“Approximately 20% of the cases are thrown out on a motion dismissed,” Aronowitz said. “There are more cases where some of the claims are being thrown out, but most cases still withstand a motion dismiss. I don’t think that’s changed since mid-year when we put out those exact statistics. We think it’s still hard to win a motion dismiss and get a case completely thrown out, even with plaintiffs that have minimal assets in the plan or some of them don’t even hold the investments they’re complaining about.”
However, he noted that more appellate decisions provide more clarity on specific issues.
“You had the 10th Circuit in the Barrick Gold case saying you need a meaningful benchmark. In the prior year, we had the CommonSpirit case. You have more circuits that have issued appellate decisions. Many of those appellate decisions are favorable in the middle of the country, but that’s not stopping the filing of cases. I don’t think it’s significantly impacting motions to dismiss.”
