While it may not be insurmountable, a federal court judge has refused to sign off on an excessive fee settlement.
The ink was barely dry on the deal struck between Mercy Health Corp. and a set of participant-plaintiffs earlier this month—a deal that called for a remedy of allegations made[i] $3.9 million in cash, and an agreement that, for three years following the Settlement Effective Date, the plan fiduciaries “…shall retain one or more independent consultants pursuant to ERISA § 3(21), who is not an existing investment or service provider or affiliated with the Plans, to provide ongoing assistance in reviewing the investment options in the Plans, the fees for those investment options, and any brokerage fees incurred by the Plans.”
However, it wasn’t those settlement terms per se that gave Judge Iain D. Johnston of the U.S. District Court for the Northern District of Illinois pause. Rather, he questioned the inclusion of a preliminary injunction barring class members (and their agents) from asserting any claims related to the settlement agreement against the defendants in any other litigation. Judge Johnston had raised the issue of the court’s legal authority to do so—which was addressed, albeit apparently unsuccessfully, by the parties in a joint position paper according to the order (Hill v. Mercy Health Sys. Corp., N.D. Ill., No. 3:20-cv-50286, 11/24/21).
After discounting and/or discarding the legal support provided by the parties, Judge Johnston noted “The Court has a fiduciary duty to the class members. The Court is not going to enjoin class members from filing other litigation that may upset this settlement simply to help ensure that this case is removed from its docket. The parties have provided no legal bases for that request nor any facts upon which a proper injunction could be entered.”
He then noted that the parties were directed to “submit a revised proposed preliminary approval order for the Court’s review” by Dec. 10.
Stay tuned.
[i] The suit—filed in August 2020—had alleged that defendants here—Mercy Health Corporation Employees’ Retirement Plan, the Rockford Health System Retirement Plan, and the Rockford Health Physicians Retirement Plan[i]—“failed to employ a prudent process for managing the Plans and failed to prudently monitor and control the Plans’ fees. Instead, Defendants allowed the Plans to pay excessive sales commissions on investment products and services. These sales commissions have increased the investment fund fees that the Plans’ participants must pay by as much as 135%. Likewise, an add-on investment service in the Plans that utilizes an outside firm to choose participants’ investments (known as a ‘managed account service’) charges a hefty fee mark-up to generate commissions.”
