Less than a week before their scheduled trial date, the plaintiffs in an excessive fee suit have cut a deal with the plan’s advisor.
It’s yet another case where the plaintiffs are represented by Schlichter Bogard & Denton LLP. In April 2019, Judge William J. Martinez in the U.S. District Court for the District of Colorado ruled on a motion for summary judgment (basically a judgment without an actual trial) in a suit brought by plaintiff Lorraine Ramos and six others against “Banner Health and certain current and former employees,” as well as advisor Jeffrey Slocum & Associates, Inc., alleging that defendants breached their fiduciary duties under ERISA.
Previously the plaintiffs had moved for class certification, which was granted as to the Banner plan fiduciaries but denied with regard to the plan’s investment advisor, Slocum & Associates – which, among other things, had been alleged to have breached its fiduciary duty with regard to the selection of target-date funds for the 33,000-participant Banner 401(k) plan.
But as the clock ticked down in 2019, the parties filed papers (Ramos v. Banner Health, D. Colo., No. 1:15-cv-0256, motion for partial settlement approval 12/31/19) seeking court approval of a tentative settlement reached between the plaintiffs and Slocum.
Why Settle?
In presenting the settlement, the plaintiffs explain that it comes after “extensive litigation, lengthy discovery, and protracted arm’s-length negotiations with the assistance of a national mediator” (Hunter Hughes), and claims that the agreement “provides meaningful relief to a class of all current Plan participants and beneficiaries.” Relief, they maintain, that is “rendered all the more meaningful given the chance that most members of the Settlement Class would have to continue protracted litigation, including certain appellate work, in order to obtain any recovery at all from Slocum.”
Indeed, the earlier determination by the court certifying the class action against Banner but denying that status for their claims against the advisor reduced Slocum’s potential liability from an alleged $40 million to only $22,000 – the damages allegedly associated with the seven individual plaintiffs.
That said, two claims remained against Slocum – that the firm breached its duty of prudence under 29 U.S.C. §1104(a) by allowing the plan: (1) to pay unreasonable fees to its recordkeeper, Fidelity (Count I); and (2) to maintain underperforming investment options, namely, the Fidelity Freedom Funds, and the plan’s Level 3 designated investment options referred to internally by the defendants as the “Mutual Fund Window” (Count II).
The Process Thus Far
The filing explains that Slocum alone produced over 25,000 pages of documents, in addition to the almost 100,000 pages the Banner Defendants produced, and that the parties also took more than 20 depositions. It notes that “Slocum – which ceased operations effective October 24, 2016 – secured the cooperation of two former employees, plus Mr. Jeffrey Slocum, to sit for depositions,” and that the parties also engaged in “extensive expert discovery.”
As for the terms – well, “given that Plaintiffs and Slocum only reached agreement on settlement yesterday, they have not yet executed a settlement agreement,” the filing explains, going on to state, however, that “…in light of upcoming trial and to preserve resources, they have agreed on all material terms” (and they note that they plan to submit an executed settlement agreement within 30 days following completion of the trial set for Jan. 6, 2020).
The Settlement
In exchange for a release of all ERISA claims against Slocum, its former owners, employers, directors and other associated parties, Slocum will deposit $500,000 in an interest-bearing settlement account that will “be used to defray only the Plan’s recordkeeping expenses that are deemed to be reasonable.” It will also be used to pay Class Counsel’s attorneys’ fees and expenses, Administrative Expenses of the Settlement, and the Class Representatives’ Compensation.
As for the breakdown of those items:
- $5,000 (estimated) for the settlement administrator
- $10,000 (estimated) for an Independent Fiduciary to oversee the fund/process
- $2,500 for each named plaintiff (while smaller than the awards requested in other cases, the settlement not only acknowledges that, but goes on to note that “these small awards do not affect their continued adequacy to represent the class for the claims against Banner Defendants”)
Oh, and as for the plaintiffs’ counsel, they will request “an amount not more than one-third of the Settlement Fund, or $166,666.67, as well as reimbursement for costs incurred of no more than $56,562.40.” They state that they will “not seek attorneys’ fees (1) from the interest earned on the Gross Settlement Amount; (2) for time associated with administering the settlement; and (3) for work required to enforce the proposed Settlement, if necessary,” and that they will submit a formal application for attorneys’ fees and costs and for the Class Representatives’ incentive awards at least 30 days prior to the deadline for Class Members to file objections to the proposed Settlement.
Uphill Battle
In justifying the settlement as opposed to going to trial, the filing explains that “plaintiffs face an uphill battle and the risk of no recovery for the Plan at all against Slocum, as illustrated by the judgement recently entered in favor of defendants in another 401(k) class action,” that being Wildman v. Am. Cent. Servs., LLC, 2017 WL 6045487 (W.D. Mo. Dec. 6, 2017).
“This action has already been pending for over four years,” they conclude, “…for the Settlement Class to recover anything at all from Slocum, Plaintiffs would need to appeal the Court’s class certification ruling, prevail on appeal, and then relitigate the matter as to Slocum—all of which would take a number of years. “
In contrast, they explain that “the Settlement also provides a guaranteed source of payment from Slocum, while such guarantee still exists: Slocum ceased to exist in 2016, and Slocum’s attorneys’ have alerted Plaintiffs’ attorneys that Slocum is operating on a limited insurance policy. Further litigation is almost sure to deplete these funds. Thus, this factor also weighs in favor of granting approval.”
Will the court agree? We shall see. Don’t forget that the case against the plan involved here is slated to go to trial on Jan. 6.
