Just ahead of a scheduled trial date, the parties in a fiduciary breach suit involving a $30 billion master trust have come to terms.
The suit—filed in February 2016 by Melina N. Jacobs—alleged that the fiduciary defendants of the Verizon Master Savings Trust violated their fiduciary duty of prudence under Section 404(a) of the Employee Retirement Income Security Act of 1974 by “failing to adequately monitor the performance of the Global Opportunity Fund,” and that they “failed to take any corrective action regarding the Fund despite obvious and long-term underperformance, including, failing to remove the Fund from the Plan.”
Most of the suit was dismissed the next year, with only the claims regarding the Global Opportunity Fund remaining; 160,000 participants were said to be represented in the class action.
‘Opportunity,’ Knocked
As for that Global Opportunity Fund—the settlement agreement described it as a hedge fund “fund of funds”—and the underlying funds in the Fund “used the Global Tactical Asset Allocation investment strategy, which ‘seeks to add value, relative to its benchmark, by investing in the most attractive markets on a global basis, while simultaneously underweighting, or shorting, markets that are viewed by the fund managers as overvalued.’” According to the settlement proposal, the Fund was included as part of the portfolio in many target date funds (TDFs) at issue.
The plaintiff here alleged that between 2007-2016, the Fund severely underperformed any of the hurdle rates (target returns, which was as high as 12%, but lowered twice subsequently), as its annualized net performance ranged from -10.32 % to 13.88%, with negative returns in three years. It remained negative from 2007-2009 and by the end of 2016 the Fund had earned an aggregate 1.4%, according to the proposal. The suit also alleged that the Global Opportunity Fund had one of the highest expense ratios in the plan, but was still kept as one of the core investment choices.
The Settlement
The $30 million settlement[i] was described in the proposal (Jacobs v. Verizon Communications Inc. et al., case number 1:16-cv-01082, in the U.S. District Court for the Southern District of New York) as a “substantial recovery for Plaintiff and participants of the Verizon Savings Plan for Management Employees.”[ii] The plaintiff based that expert Cynthia Jones comparing the performance of the Global Opportunity Fund to an Equity Investment Benchmark, and then estimating the damages—for the period between April 30, 2010 and January 31, 2017—to be between $102.6 and $231 million.
“Therefore, the Settlement Amount represents a range of recovery, approximately 13 to 29.2 percent, that is appropriate, given the wide range of potential damage outcomes at trial—as well as the possibility of a verdict in favor of Defendant that would result in zero recovery for the Class,” according to the settlement agreement. The proposed settlement notes that that is “well in excess of the approximate 2 to 3 percent threshold typically approved in class action settlements involving complex litigation by courts in the Second Circuit.”
The proposal also commented that Class Counsel[iii] will seek approval from the Court of their attorneys’ fees not to exceed one-third (33 1/3%) of the Settlement,[iv]—and will “seek approval from the Court for reimbursement of the litigation costs and expenses advanced and carried by Class Counsel for the duration of this litigation.” The agreement also calls for a “service award for the named plaintiff Melinda Jacobs not to exceed $30,000”—all of this, of course, to be paid from the $30 million settlement.
Now we’ll see what the court has to say in the matter.
[i] According to the proposal, the Settlement was the product of a full two days of mediation before a nationally recognized mediator Hunter Hughes. That said, the agreement also notes that “during the course of fact discovery, 18 depositions were taken, including depositions of five expert witnesses, and defendants produced more than 45,000 pages of documents.”
[ii] The Settlement Agreement sets forth a five-step process to provide each Class Member with their pro rata share recovery based on each Class Member’s actual direct investment in the Global Opportunity Fund or indirect investment through the series of Verizon Target Date Funds, and is similar to the plans of allocation used in other ERISA class action settlements.
[iii] The class was represented by Glancy Prongay & Murray LLP, Schneider Wallace Cottrell Konecky LLP, and John F. Edgar of Edgar Law Firm LLC.
[iv] Interestingly enough, in a footnote in the settlement proposal the Class Counsel submitted that, as a matter of public policy, “the requested fee of up to one-third is necessary to ensure that counsel in future meritorious cases will not hesitate to be equally persistent and press forward as Class Counsel did here to achieve maximum recovery for their clients despite the complications, difficulties, and risk.”
