A federal judge has ruled on the attorneys’ fees requested by Schlichter Bogard & Denton in a 403(b) university excessive fee suit.
In what he described as a “highly complex case with numerous issues that were vigorously contested,” Judge George Levi Russell III of the U.S. District Court for the District of Maryland (Kelly v. Johns Hopkins Univ., D. Md., No. 1:16-cv-02835, 1/28/20) approved the $4.7 million in attorney fees requested as part of the $14 million settlement approved three weeks ago in the case involving the $4.3 billion Johns Hopkins University 403(b) Plan, a suit brought by the law firm of Schlichter Bogard & Denton as part of the first wave of these suits.
That legacy was not lost on Judge Russell, who acknowledged that “Class Counsel has filed the first cases in history claiming excessive fees in 403(b) plans,” and that “Schlichter Bogard & Denton pioneered this ground-breaking and novel area of litigation.” Indeed, as Judge Russell points out, “more than a decade prior, Schlichter Bogard & Denton similarly pioneered excessive fee litigation involving 401(k) plans,” and that “Schlichter Bogard & Denton’s work on behalf of participants in large 401(k) and 403(b) has significantly improved these plans, brought to light fiduciary misconduct that has dramatically impacted the retirement savings of American workers, and dramatically brought down fees in defined contribution plans.”
Indeed, a relatively large part of the 16-page order was filled with various recitations of praise for the work of the Schlichter firm. “No other excessive 403(b) lawsuit had been filed before Class Counsel did, and no other law firm had been willing to devote the necessary resources to prosecute this type of action,” Judge Russell wrote.
As a reminder, the settlement agreement presented called for:
- $4,666,667.00 in attorneys’ fees (a third of the settlement amount)
- $53,539.78 in litigation-advanced expenses
- $20,000.00 each for the eight named plaintiffs
As other courts have, this one noted that “the requested fee of one-third of the monetary recovery is reasonable and appropriate given the ‘significant risk of non-payment’ in these types of cases due to ‘the novel nature of this case and adverse precedents.’”
In further justifying its support of the fee, Judge Russell cited the work of an economist engaged by the Schlichter firm regarding the estimate of the economic benefits that would result from the reduction in recordkeeping fees (via the competitive bidding process outlined in the settlement) and determined that would provide an additional benefit (beyond the monetary settlement) of $18,162,738, with a present value of $16,605,872, and that “taking into account the benefit of tax deferral and fee savings,” Judge Russell determined that the settlement is actually worth $34,766,732 — and, on that basis, he noted that the requested attorney fee was “less than 7.45% of the total benefit to the class.” Moreover, he noted that this was a “conservative estimate because it does not take into account additional benefits that are provided through other non-monetary terms.[i]”
That determination notwithstanding, the court here also conducted a “lodestar cross-check[ii]” – noting that the Schlichter firm expended approximately 2,566.10 hours of attorney time and 249.6 hours of non-attorney time on the case to date. Judge Russell found that time allotment reasonable, and then applied applicable hourly rates,[iii] concluding that the lodestar was $1,907,379, and that the requested fee was therefore a lodestar multiplier of 2.45, which he described as “well within the range routinely approved in this Circuit.”
What This Means
It’s not been unusual for these excessive fee class action settlements to call for class counsel fees in the 25% - 33% range, more of them at the upper end than the lower, though different courts, counsel and recovery amounts have differed. There have, however, been a handful of cases recently where the judges either cut or demanded more information before approving these settlement agreements.
[ii] Basically, the lodestar method involves multiplying the number of hours reasonably devoted to the case by a reasonable hourly rate – the latter may, of course, vary based on the geographical area, the nature of the services provided, and the experience of the attorneys. And, of course what’s deemed “reasonable.” It’s not the first time that has been raised in these cases; it arose in a challenge to a suit involving SEI, and by the judge in a proprietary fund suit involving Franklin Templeton, who reduced the plaintiffs’ counsel fee to 25% of the settlement from 28%, and in a stable value suit (where it was applied to justify the settlement apportionment).
[iii]$1,060/hour for attorney with at least 25 years of experience, $900/hour for attorneys with 15-24 years, $650/hour for attorneys with 5-14 years of experience, $490/hour for attorneys with 2-4 years of experience, and $330/hour for paralegals and law clerks.