The parties in an excessive fee suit have come to terms—on at least one aspect of the litigation, though the bulk remains to be appealed.
The suit in question involves Genentech’s $7.6 billion (33,693 participant) 401(k) plan. The plaintiff is one Matthew Wehner (represented by Shepherd, Finkelman, Miller & Shah, LLP[i]), who in the waning days of 2020 alleged that the plan fiduciaries (and those that appoint/oversee them) breached their fiduciary duties by imposing recordkeeping, administrative and investment management fees that were too high[ii] and retaining investment funds that allegedly underperformed and had high fees.
That said, only the part of the suit involving recordkeeping fees has been settled by the parties—with a $250,000 cash settlement sealing the “deal.” Those happen to be the claims that had been left in place by the last judge to hear the case—with the remaining claims regarding investment management fees and choices “specifically preserved under the Settlement and intended to be appealed.” As for those recordkeeping charges, there had been some controversy regarding the plaintiff’s expert witness and their rationale, which you can refresh your recollection here.
Case History
Back in February 2021, Judge William H. Orrick of the U.S. District Court for the Northern District of California made quick work of the arguments presented here (Wehner v. Genentech, Inc., N.D. Cal., No. 3:20-cv-06894, 2/9/21). “The facts as alleged do not raise a plausible inference that defendants breached their fiduciary duties of prudence and loyalty. Imprudence cannot be reasonably inferred from Wehner’s apples-to-oranges comparisons regarding the Plan’s fees and funds. And he does not allege any additional facts to support his duty of loyalty claim outside of those alleged to support his duty of prudence claim,” Judge Orrick wrote at the time.
“After two rounds of motions to dismiss, the only one of Plaintiff’s claims to survive were his claim for a violation of duty of prudence for excessive RK&A fees, and the derivative claim for failure to monitor,” wrote Chief United States District Judge Richard Seeborg. “The parties stipulated to class certification, which was approved on November 22, 2022,” he continued.
The Settlement
As for the settlement agreement, the parties in presenting it to the court for review and approval noted that it would represent “approximately 120% of the losses associated with Defendants’ alleged failure to renegotiate the Plan’s recordkeeping contract in advance of its expiration in 2020, the aspect of the Recordkeeping Claim about which Plaintiff believes he was most likely to prevail at trial.”
It goes on to comment that it “represents over 34% of the midpoint of realistically recoverable damages, with numbers on the higher end of the range assuming proof of complete liability, which faced challenges given certain unique features of Defendants’ process for monitoring the Plan’s recordkeeping fees, and application of the most aggressive interest rates identified by Plaintiff’s experts. Moreover, the recovery represents roughly 15% of the total maximum damages amount associated with the Recordkeeping Claim according to Plaintiff’s expert as modified by the sensitivity analysis asserted by Defendants’ expert.”
It concludes that the Parties “agreed to the Settlement after extensive motion practice, full discovery, and an earlier attempt to resolve the litigation at mediation. The Parties’ negotiations occurred at arm’s-length through experienced counsel as they simultaneously worked to prepare for trial, including factual stipulations, disclosures of witnesses and exhibits, and the preparation of a joint pretrial order, among numerous other items.” It goes on to note that a resolution of these issues at this point “allows the Parties to avoid continued and costly litigation of this claim and otherwise deplete resources available for settlement, and which could result in a recovery less than the recovery provided by the Settlement, while allowing the Parties to focus on the anticipated appeal of the Investment Claim and eventual resolution of the entire action.”
Will the court agree? Stay tuned.
[i] The settlement notes that Miller Shah LLP and Olivier & Schreiber LLP will seek an award of expenses—but not attorney fees. The motion states they have prosecuted the class action on a contingent basis and "advanced all associated costs with no expectation of recovery in the event the litigation did not result in a recovery for the settlement class."
[ii] The suit alleged that smaller plans were charged an average of $35/participant for recordkeeping fees in 2017, while in 2018 Genentech plan participants were paying about $60/participant.
