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Edward Jones Settles Excessive Fee Suit

After “more than two years of litigation, multiple motions and the review of more than 100,000 pages of documents exchanged in discovery,” the plaintiffs and defendants in an excessive fee suit have come to terms.

The settlement (Schultz v. Edward D. Jones & Co., LP, E.D. Mo., No. 4:16-cv-01346-JAR, motion for preliminary settlement approval 12/11/18) – between Edward Jones and participant-plaintiffs Windle Pompey, Valeska Schultz and Melanie Waugh – was settled for $3.175 million and some releases contained in the settlement agreement.

According to the filing with the court, the settlement represents more than 50% of the Class’s potential damages was “negotiated at arms-length by experienced counsel on both sides” and “eliminates the numerous, substantial risks, expenses and potential delays that would lay ahead if they continued prosecuting this case.”

The Suit

The suit alleged that the Edward Jones plan had invested in at least 53 different investment options, “of which three were managed by Defendants and at least 40 more were managed by Partners or Preferred Partners of Edward Jones.” The suit also charged that the plan fiduciaries caused the plan to pay, directly or indirectly, tens of millions of dollars to the plan’s recordkeeper (Mercer HR Services, Inc.) that it alleges were “excessive and unreasonable” given the services provided, and that the fiduciaries “failed to monitor and control these costs despite lower-cost recordkeeping alternatives.”

Warrant ‘Ed’

By way of persuading the court to approve the settlement, the filing notes that the settlement amounts to approximately 7.05% of the Class’s maximum potential damages of $45 million (which according to plaintiffs’ counsel as a percentage “in and of itself, is reasonable and warrants preliminary approval”), but that it “likely represents a much higher percentage of the Plaintiffs’ expected damages,” since the $45 million figure is “based on comparing the funds Plaintiffs allege were imprudent to Vanguard Index Funds within the same Morningstar Categories as the challenged funds,” but that “several of the challenged funds also invested in asset categories outside of their Morningstar Categories,” and that, after adjusting benchmarks to account for this factor, the Class’s expected damages would be reduced to $6 million” – and thus, the proposed settlement amount represents more than half the expected damages, assuming they prevailed at trial.

The filing goes on to explain that “Plaintiffs face significant hurdles to recovering their maximum damages, no matter what the figure.” Specifically, they note the uncertainty of the class being certified, the difficulty in proving a breach of fiduciary duty claim, and the challenges in proving damages, even if they were to prove the breach.

Settlement Split

According to the filing, the Settlement Fund will be used to pay the costs to administer the Settlement, to provide notice to Settlement Class members and to pay any attorneys’ fees, expenses or Case Contribution Awards that the Court may order, as well as the costs of an independent fiduciary to review the Settlement. The amount distributed to each Settlement Class member will be pro rata, based on account balances, with no payment to be less than $10. Current participants will have the settlement posted to their current account, and former participants will receive a check mailed to their last known address that expires in 90 days.

The Settlement also provides that Class Counsel may seek an award of attorneys’ fees not to exceed one-third of the Settlement Fund, plus reimbursement of expenses not to exceed $50,000.

The case is pending before Judge John A. Ross of the U.S. District Court for the Eastern District of Missouri, who declined to dismiss the lawsuit earlier this year.