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Former Participant Challenges Excessive Fee Settlement – On His Own

ERISA

An ERISA excessive fee class action settlement has been challenged by a self-described “pure public-interest non-attorney litigant.”

The settlement in question isn’t particularly large by excessive fee suit standards; $3.175 million[1] and some releases contained in the settlement agreement (a non-binding consultant review of plan practices), and provision for up to a third of the settlement to be paid as attorney fees, with the rest to be spread among some 35,000 current and former participants. 

And that, for appellant Shiyang Huang, is at least part of the problem. Huang, who claims he is “prepared to defend every point listed in this self-prepared brief,” is “well versed in understanding excess fees of mutual funds,” and “was formerly a credentialed investment professional,” has issues with what he sees as the flawed representation of his interests as a former participant in the plan since, with no balances still in the plan, they had no way to benefit from the injunctive relief provided by the settlement. Huang argues in his appeal to the Eighth Circuit (Huang v. Schultz, 8th Cir., No. 19-2158, opening brief 7/8/19) they should have had their own subclass.

Standing Stand 

In essence, Huang seems to believe that the plaintiffs in the case had no standing to represent his interests – but also that they collaborated with the Edward Jones defendants “before the Class comes as litigable adversary.” He goes on to claim that “Plaintiffs’ lawyers are purporting to sign a deal on behalf of all class members, by invoking absentee rights to certify a class onto named plaintiffs’ deal. Class members had no voice, no opt-out, grossly hidden and late fee motions, but are traded-in to maximize fees terms liked by Plaintiffs’ lawyers themselves.”

Ultimately, Huang characterizes the case thus far as “a few Plaintiffs said, you owe me ‘excess 401(k) fees.’ Defendants settled. Here are two aligned parties in District Court, seeking the same outcome.”

His 56-page filing is something of a kitchen-sink approach to the issues, all of which are designed to undermine the legitimacy of the class action settlement as a final adjudication of the issues raised in the case. While his primary argument is a lack of standing, his brief raises issues on a number of fronts, including:

  • Whether Plaintiffs violated absentee due process to deprive opt-out rights under non-opt class to seek predominantly money damages for current employees; wholly to former employees, without “limited fund.” 
  • Whether the “named plaintiffs subclass” and incentive awards for named Plaintiffs constitutes “fundamental divergence against absentee representation” and the “well-established common fund doctrine.”
  • Whether the Plaintiffs disarmed the “rigorous analysis” requirement before a class may be certified. 
  • Whether the Plaintiffs “lack vigorous interests” to serve as class representatives. 
  • Whether the Plaintiffs’ damage model is inadmissible evidence under Fed. R. Evid. 702.
  • Whether the Plaintiffs violated Rule 23(h) (which bars opt-outs from anyone in the class) and delayed fee motions to burden objectors. 

And, to his credit, each of those points are accompanied by a specific case precedent citation. 

Other Objections

Huang wasn’t the only party to object; the appeal claims there were two others (with one-page comments, in contrast to the 73-page submission by Huang) who opposed the settlement, but who couldn’t opt out after filing objections. Having filed his objection, Huang chose not to attend the fairness hearing, but notes here that the plaintiffs in the case referred to his objection as “an objection with various asserted defects to the settlement,” and – “Disarmed by Counsel’s optimism for class counsel fees, District Court approved the settlement after calling Huang’s objection ‘detailed.’”

His filing notes that Huang was “disappointed by District Court’s approval of the Pre-Certification Settlement with the mandatory class treatment,” and argues that the District Court, “misdirected by then-interim Class Counsel, overruled Huang’s objection without any reasons or analysis.”

Huang then says he filed a notice of appeal; “left with only option to mail a Notice of Appeal to the District Court, as the District Court forbids electronic filing of pro se non-attorney litigants,” and sent that by expedited shipping, on May 20, 2019. He goes on to note that “although the mailed notice of appeal was late, Honorable District Judge Ross granted Huang’s motion to extend time to file notice of appeal for good cause.” He apparently “also mailed in docketing fees of $505 for the appeal to properly docket the appeal.”

As for the part of the settlement targeted as reimbursement to the named plaintiffs, Huang has an issue with these as well, explaining that, “Plaintiffs never showed real costs not paid in their incentive award motion. Their lawyers-in-control, can only ‘feel’ paying $10,000 each is OK to take a swipe at its fiduciary client absentees.” He concludes: “If settlement extinguishes the claims, and is separate from these awards, Plaintiffs have no imminent injury except no more than emotional involvement in what remains of the case.” Citing another precedent, Huang explains “There is no allowance for ‘incentive awards’ as all recovery (less attorney fees only) go to the Plan. Period.”

Huang also had issues with the plaintiffs’ expert testimony, noting that those with “substantial lack of reliability shall be excluded,” and that the expert “simply calculated which funds generated a loss relative to a benchmark.” 

Huang has requested “twenty minutes of oral argument for each side, so as to help the panel distinguish issues among application of ERISA, ‘Excess Fees,” Class Action, Common-Fund, and Pre-Certification Settlement.”

“One way or another, this is not a Rule 23 class. It’s a shame to Plaintiff’s bar,” Huang writes. “Absentees, while grossly unrepresented, are not plaintiff lawyers’ trade-in for fees.”

Will Judge John A. Ross be persuaded? We shall see.

Footnote

1. 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.”

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