Another Excessive Fee Suit Settles for More Than Money

The terms of an excessive fee suit settlement involving the law firm of Schlichter Bogard & Denton have been revealed—and once again, it involves more than money.

The Suit

The suit, filed in January 2016 alleged that Oracle allowed the plan’s recordkeeper (Fidelity) to be paid between $68 to $140 per participant rather than what the plaintiffs said would be a reasonable per head fee of $25 for a plan the size of Oracle’s. The suit also claimed that the plan, which had Fidelity as its recordkeeper since 1993, had not been put out for bid on those services in a quarter century, and that the plan provided “at least 3 imprudent investment options,” which it says “consistently underperformed their designated benchmarks, consistently underperformed the majority of other funds of the same investment style, charged excessive fees, and paid revenue sharing to Fidelity far beyond a reasonable rate for the services provided.”

Case History

The Oracle defendants had enjoyed some success along the way, having prevailed on most of its claims in filing for summary judgment earlier this year, and in June persuading the court to rebuff the plaintiffs’ pursuit of a jury trial—but then the parties, on the very day that the suit was slated to go to court, announced a settlement.

Indeed, the settlement agreement (Troudt v. Oracle Corp., D. Colo., No. 1:16-cv-00175, motion for settlement approval 2/26/20) explains that, “in anticipation of the commencement of trial, the parties began settlement negotiations. For well over one month, the parties discussed the possibility of settlement through numerous telephone calls and written correspondence. Only on Dec. 3, 2019, the morning of the first day of trial, were the parties able to reach an agreement in principle on both monetary and non-monetary relief. [#211]. However, over the next two-plus months, the parties continued discussions without final agreement on the scope of the non-monetary relief. Ultimately, on Feb. 26, 2020, the parties reached an agreement on all terms.”

The Terms

Oracle agreed to deposit $12,000,000 in an interest-bearing settlement account, from which will be paid amounts to class members, as well as Class Counsel’s attorneys’ fees and costs, administrative expenses of the settlement, and Class representatives’ compensation (if awarded by the Court).

Speaking of which, the plaintiffs’ counsel “will request attorneys’ fees in an amount not to exceed one-third of the gross settlement amount, or $4,000,000, as well as reimbursement for costs incurred of no more than $475,000.”

They also intend to request (the court has to approve) no more than $25,000 for each named plaintiff “as a case contribution award to compensate them for their ongoing participation in this case and the risk they assumed in bringing this action.”

More than Money

In addition to the monetary component of the settlement:

For a period of three years, “Defendants agree to instruct the Plan’s recordkeeper in writing that in performing previously agreed upon recordkeeping services with respect to the Plan, it must not solicit current Plan participants for the purpose of cross-selling proprietary non-Plan products and services, including, but not limited to, Individual Retirement Accounts (IRAs), non-Plan managed account services, life or disability insurance, investment products, and wealth management services, unless in response to a request or expressed need by the Plan participant.”

If Oracle enters into a new recordkeeping agreement with the existing recordkeeper or a new recordkeeper during this three year settlement period, the Oracle defendants agree that any resulting contract shall include a provision similarly restricting the recordkeeper from soliciting current Plan participants for the purpose of cross-selling proprietary non-Plan products and services.

The settlement states that “this non-monetary provision provides substantial value to current and future participants by ensuring that the Plan’s recordkeeper does not improperly benefit from the sale of retail financial products and services to the detriment of Plan participants.”

More than that, the parties claim that “the settlement provides significant benefits to thousands of current and former participants in the Plan,” and “in light of the litigation risks further prosecution of this action would inevitably entail, the parties request that the Court: (1) preliminarily approve the proposed settlement; (2) approve the proposed form and method of notice to the class; and (3) schedule a hearing at which the Court will consider final approval of the settlement.”

What This Means

It has become relatively common for these type suits to be settled on the eve of trial. More significantly, insulating participants from the non-plan related solicitations of the plan’s recordkeeper is emerging as a regular aspect of litigation brought by the Schlichter firm, most recently in a case involving Shell Oil’s 401(k) plan, Vanderbilt University, and Johns Hopkins.