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On Trial Date, Schlichter Strikes Another Settlement

Litigation

The parties in another excessive fee suit have apparently come to terms – on the day the case was scheduled to go to trial. 

At least that’s what a report filed by mediator Margaret Levy suggests. The report, filed on Oct. 16, lists the case as fully settled as of Oct. 15, the date the parties were scheduled to begin trial.

The plaintiffs in this case (Marshall v. Northrop Grumman Corp., C.D. Cal., No. 2:16-cv-06794, complaint filed 9/9/16), are seven former employees of Northrop Grumman Corp. represented by Schlichter Bogard & Denton. They allege that the $19 billion, 110,000-participant Northrup Grumman plan paid nearly $10 million (between $1.7 million and $2.1 million/year) in administrative fees associated with the company’s retirement plan – even though the plan was already paying millions of dollars in fees to a third-party recordkeeper, Hewitt Associates. (Effective April 1, 2016, Fidelity Investments replaced Hewitt as the plan’s recordkeeper.) The suit claims that Northrop executives had “unfettered control” over the amounts taken from the retirement plan, allowing the company to receive plan assets “in the guise of compensation” that wasn’t reasonable or necessary for the plan’s administration. 

The suit also challenges the decision by the plan to retain as an active equity investment option the Emerging Markets Equity Fund, while during 2010 the plan fiduciaries “determined that an active investment strategy for the Plan’s equity and fixed income investment options was no longer prudent or in the Plan participants’ best interest” – a fund that was alleged to have “consistently and dramatically underperformed its benchmark index,” while also being the most expensive fund on the plan menu.

The long-standing case included an (ultimately unsuccessful) motion in May 2019 by the Schlichter law firm to disqualify Marcia Wagner as an expert witness because Tom Clark, now a partner in Wagner’s firm, had been part of Schichter’s firm when they wrested a $16.75 million settlement from a similar case involving Northrup Grumman in 2017. 

In mid-August,Judge André Birotte Jr. of the U.S. District Court for the Central District of California supported most of the Northrup Grumman defendants’ motions for summary judgment (including a refutation of the notion (widely touted in this kind of litigation) that an RFP is required at all, much less every 3 to 5 years – though he had left for trial determination regarding the prudence of the selection and retention of the EM fund.

As for the details of the settlement in this case – those haven’t yet been made public.

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