A “close call” on a jury trial in an excessive fee suit brought by its 401(k) plan participants has gone Fidelity’s way.
The suit was filed by plaintiffs Kevin Moitoso, Tim Lewis, and Mary Lee Torline exactly a year ago (Moitoso v. FMR LLC, D. Mass., No. 1:18-cv-12122, complaint filed 10/10/18) on behalf of participants in the Fidelity Retirement Savings Plan which, according to the suit, at the end of 2016, had nearly $15 billion in assets and covered 58,000 participants. The plaintiffs alleged a number of breaches common to the recent wave of proprietary fund/fiduciary breach litigation: that the Fiduciary Defendants “have not managed the Plan with the care, skill, or diligence one would expect of a plan this size,” but rather that they “…used the Plan as an opportunity to promote Fidelity’s mutual fund business at the expense of the Plan and its participants.”
The suit further alleged that the Fidelity defendants “…loaded the Plan exclusively with Fidelity-affiliated investments, without investigating whether Plan participants would have been better served by investments managed by unaffiliated companies.” The suit claimed that, at least compared with 20 other plans with more than $5 billion in assets in a report by Cerulli Associations, these violations added up to “over $100 million per year in losses compared to the average plan.”
Damage ‘Says’
After some discussion of the nature of the suit, the damages sought, and the history of the right to a jury trial, U.S. District Judge William G. Young ultimately concluded that the plaintiffs’ case was equitable in nature since any money they recovered would be an equitable remedy, rather than legal damages. That distinction – while obscure to non-lawyers – was significant to the ruling, since legal remedies typically involve (only) monetary damages, equitable relief typically extends to changes in actions as well – injunctions, or specific performance. The latter generally goes farther than the former in terms of providing a remedy – but it also led Young to determine that a jury trial wasn’t required. Indeed, Young explained that fiduciary-breach claims have traditionally been heard by equity courts, rejecting the assertion that the plaintiffs’ case qualified as an exception for those seeking an “immediate and unconditional payment.”
More bluntly, Young commented that, “The plaintiffs’ statutory arguments miss the forest for the trees and elide the nature of the surcharge remedy.”
Interestingly enough, part of Young’s reasoning was that any monetary award for the workers would have to first be deposited into their retirement plan. “This pit-stop in the plan’s coffers buttresses the conclusion that there would still be some accounting to do, and thus the plaintiffs cannot claim a definite sum of money.”
“After close study of historical practice and ERISA’s text, this Court concludes that a money award, if any, that the plaintiffs might win would be an equitable surcharge, not legal damages. As a result, the Court rules that the Seventh Amendment does not require a jury trial in this case,” he wrote.
Young did, however, indicate that he intends to “empanel an advisory jury here,” concluding that “…because citizen juries play a vital role in our democracy and so as to preserve the Plaintiffs’ rights, this Court shall empanel an advisory jury.”
