An excessive fee suit that had been dismissed—and wound up triggering a sanction (and fine) against the plaintiffs’ counsel—has once again fallen short in its appeal.
The suit—which was dismissed last August—was actually two suits, brought by participants (Obeslo, Hall and Gorrell-Deyerle) in plans that had chosen Empower as recordkeeper, and investment options from Great-West and other fund complexes from which participants could choose. Plaintiffs claimed that the fees charged by Defendants Great-West Capital Management, LLC (GWCM) and Great-West Life & Annuity Insurance Co. (GWL&A) violate § 36(b) of the Investment Company Act of 1940 (ICA), which prohibits fees that are “so disproportionately large that [they] bear[] no reasonable relationship to the services rendered and could not have been the product of arm’s length bargaining.”
That said, the suit had not only been dismissed at the district court level last year, a month later determining that the decision to pursue litigation was “objectively reckless,” a federal judge sanctioned the law firm of Schlichter Bogard & Denton (which represented the plaintiffs here) with a fine of (up to) $1.5 million.[i]
The arguments were no more persuasive to the judges hearing the appeal (Obeslo v. Great-West Life & Annuity Ins. Co., 10th Cir., No. 20-01310, 7/26/21) at the U.S. Court of Appeals for the Tenth Circuit. In affirming the judgment of the lower court, Judge Carolyn B. McHugh explained that the burden here was on the plaintiffs to prove that the compensation was “so disproportionately large that it bears no reasonable relationship to the services rendered.” That said, she noted that the plaintiffs here “made no effort to do so.” Nor did they (in the court’s opinion) establish that the companies’ profits “exceeded the outer bounds of arm’s-length bargaining,” Judge McHugh wrote in the opinion, joined by Judges Timothy M. Tymkovich and Jerome A. Holmes.
Will that be the end of that? We’ll see.
[i][i] “In summary, Plaintiffs’ attorneys were undeterred by the signs that their case was fatally flawed; they recklessly proceeded to trial in violation of their duty to objectively analyze their case,” and that as a result, the court held plaintiffs’ attorneys to be “personally liable for Defendants’ excess costs, expenses, and attorney fees reasonably incurred from the period beginning on the first day of trial and ending on the date Defendants filed the instant Motion—i.e., January 13, 2020, through September 1, 2020. That amount shall not exceed $1,500,000.”
