An excessive fee lawsuit that harkens back to the first wave of litigation more than a decade ago has finally been settled.
The settlement (Waldbuesser v. Northrop Grumman Corp., C.D. Cal., No. 2:06-cv-06213-AB-JC, motion for settlement approval filed 6/12/17), agreed to by the parties, but still requiring approval by the court, calls for Northrop Grumman to pay a sum of $16,750,000 into a Gross Settlement Fund. The case, filed in the U.S. District Court for the Central District of California, is one of two filed by the law firm of Schlichter Bogard & Denton against Northrop Grumman (the second case is not affected by this settlement).
The suit, filed in September 2006, had alleged that during the five-year period preceding spring 2006, the Northrop Grumman Stock Fund paid an average of $454,588.88 per year in investment management expenses, “even though that Fund’s singular investment directive is to invest in Northrop Grumman Corporation common stock. The only stock held by the Stock Fund is Northrop Grumman Corporation common stock. Little or no investment management decisions were necessary or occurring.” The suit also alleged the investment management fees paid by the plan were “…excessive and unreasonable when compared to the market rate for institutional investment management and in light of the actual asset management services required and provided when compared to known and readily available alternatives.”
Moreover, they charged that the administrative expenses of the plans that were paid by the plans and collected via asset-based charges to each of the plans’ investment options were for services provided to the Plans by Northrop employees and agents – and were allegedly excessive. “Defendants failed to bring the administrative costs in line with market rates, and, in fact, administrative costs rose,” according to the original suit, which noted that administrative fees charged to the FSS Plan ranged from 12 bps to 14 bps in 2004, but increased to as high as 113 bps in 2005 and remained excessive. They noted that “defendants created an incentive to charge the Plans excessive administrative fees by telling Northrop staff that they would be fired if they stopped billing the Plans or if they outsourced administrative functions, even though Defendants knew that outsourcing would reduce Plan administrative expenses and in the best interests of the Plans’ participants and beneficiaries.”
As part of the settlement agreement, the Northrop Grumman defendants denied all liability for the claims made in the Class Action and maintained that they are without any fault or liability. They contend “that the fees incurred by the Plans for administrative services performed by Northrop Grumman employees were, at all relevant times, prudent, reasonable, and commensurate with the services required given the Plans’ size and complexity, and consistent with the prohibited transaction provisions set forth under ERISA and applicable regulations.”
