In a feature article in the latest issue of NAPA Net the Magazine, Nevin E. Adams, JD takes a deep dive into a unanimous U.S. Supreme Court ruling that gives excessive fee suit plaintiffs another shot.
In a ruling likely to make it harder—perhaps much harder—to dismiss excessive fee lawsuits, in January the Supreme Court remanded for further consideration a lower court decision that had favored fiduciary defendants.
In a unanimous decision (Hughes v. Northwestern University et al., case number 19-1401, in the Supreme Court of the United States) written by Justice Sotomayor, the nation’s highest court minced no words in stating that, “the Seventh Circuit erred in relying on the participants’ ultimate choice over their investments to excuse allegedly imprudent decisions by respondents.”
The case at hand was one of the first suits filed by the law firm of Schlichter Bogard & Denton that—much as was the case a decade earlier for 401(k) plans—would expand across a series of large university 403(b) plans. It involved the typical array of allegations in such cases—fund choices that were more expensive than warranted by the plan’s size and bargaining power, and—something that wasn’t fundamental in 401(k) suits—an allegation that there were so many funds that it not only contributed to the cost, but served to undermine the ability of participants to make a good choice.
That said, the issue presented to the nation’s highest court was more specific than that—to resolve an apparent “split” in the district courts in the standard to be applied in these cases. The petition for consideration notes that, “the Seventh Circuit dismissed petitioners’ ERISA claims for imprudent retirement plan management, even though the Third and Eighth Circuits have allowed lawsuits with virtually identical allegations to advance, and the Ninth Circuit has also upheld similar claims.” This, they claim, is “…not a factual disagreement about whether the specific allegations at issue clear the pleading hurdle,” but rather, they claim it is “a legal disagreement about where that hurdle should be set.” Essentially, the plaintiffs argued that “most courts have properly held” that at the pleading stage, “ERISA plaintiffs are entitled to the plausible inference that excessive fees result from imprudent management.”
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