It’s not unusual for litigation, even class action litigation, to get “personal.” But new filings in an excessive fee case seem to taking things to a whole new level.
This case, Tracey v. Mass. Inst. of Tech., is one of the excessive fee suits filed against fiduciaries of a university retirement plan. This one involves five employees of the Massachusetts Institute of Technology (MIT) and plan participants who allege that “purposefully favoring its business relationship and admitted ‘partnership’ with Fidelity over its fiduciary duties exclusively owed to participants, Defendants defied the advice of consultants, lawyers, and numerous MIT policies and procedures in place to prevent precisely this type of misconduct,” with a net consequence that “the Plan paid Fidelity between $8 and $11 million yearly in the early part of the class period” – some 300% more than the market rate, according to the filing – and that “in return, MIT leveraged Fidelity’s revenue stream from the Plan to secure numerous donations (over $23 million since Fidelity became the recordkeeper), partnerships, and other business relationships.”
On August 5, the law firm of Schlichter Bogard & Denton, LLP, which represents the plaintiffs, filed papers opposing a motion by fiduciary defendants of the MIT Supplemental 401(k) Plan for a summary judgment in the suit initiated in 2016 as one of the first university excessive fee cases. Not only did they file papers, they also issued a press release drawing attention not only to the filing, but also to an allegation made in the initial suit – one that distinguishes it from the nearly two dozen such cases filed and fought over the past three years – that there was a quid pro quo between MIT and Fidelity, the plan’s recordkeeper, drawing a connection between the presence of Abigail Johnson, CEO of Fidelity, on MIT’s board of trustees, the retention of Fidelity as recordkeeper for the retirement plan, and a $5 million donation to MIT by Fidelity.
The allegations regarding Johnson’s ties to MIT and the potential influence were rejected by the court in 2017 – but the press release (and subsequent press coverage) of it certainly seems to have engendered some new and energetic industry coverage.
Following that release – and remembering that Fidelity is not a party to the suit - on August 19, Johnson and Fidelity filed a motion requesting a protective order “prohibiting Ms. Johnson from being subpoenaed because (i) Ms. Johnson has no relevant testimony to offer in this case, (ii) Plaintiffs’ effort to obtain Ms. Johnson’s trial testimony is a transparent attempt to harass Ms. Johnson and to attract media attention, and (iii) a Fidelity employee who does have broad knowledge regarding the facts at issue in this case is also listed on Plaintiffs’ witness list and will testify.” Explaining in a footnote that the motion was being brought “now, in advance of Plaintiffs’ service of a trial subpoena on Ms. Johnson, in order to avoid expedited motion practice on the verge of trial, which would be inconvenient for the Court, for the parties, and for Ms. Johnson,” the motion states that “neither Ms. Johnson nor Fidelity are (or ever were) parties to this action, and the record in this case establishes that Ms. Johnson has no connection to the Massachusetts Institute of Technology (MIT) Supplemental 401(k) Plan,” and that the court had “previously rejected Plaintiffs’ attempts to allege a duty of loyalty claim based on speculative allegations of a purported connection between the Plan and Ms. Johnson, holding that those allegations were ‘untenable,’ and dismissing them in 2017.”
Rather, Johnson/Fidelity claim that, “Plaintiffs seek Ms. Johnson’s testimony only for the purpose of harassment is evident from their conduct. Just days before Plaintiffs’ counsel listed Ms. Johnson as a trial witness, and more than two months after admitting that they had no evidence of Ms. Johnson’s involvement with the Plan, Plaintiffs issued a press release titled ‘MIT Squanders Workers’ Retirement Savings in Payments to Abigail Johnson and Fidelity in Return for Donations, Says Schlichter Bogard & Denton,’ making reckless statements regarding Ms. Johnson and Fidelity that Plaintiffs had previously admitted were unsupported by any facts implicating Ms. Johnson.
“Naming Ms. Johnson on their witness list is merely Plaintiffs’ most recent attempt to garner media attention, and this Court should not allow it to stand.”
The Response Response
In response, on August 29, the plaintiffs filed a motion opposing the motion for the protective order, claiming that Johnson’s motion was “illogically and incorrectly premised on unsupported allegations that Plaintiffs’ preliminary witness list shared only with Defendants was “a transparent attempt to harass [] Johnson and to attract media attention” – because, apparently, they haven’t yet issued a trial subpoena – “…so their intent could not have been to ‘harass’ Johnson. Second, Plaintiffs never provided the preliminary witness list to anyone other than Defendants, so it could not be an attempt “to attract media attention.” Third, Johnson admits her motion is premature and is not ripe for a decision because Plaintiffs have not served a subpoena. Fourth, Johnson offers no evidence to meet her burden of demonstrating that she lacks unique knowledge, so the apex witness doctrine is inapplicable. Fifth, and in addition to above, Plaintiffs have offered to accept stipulated written testimony from Johnson in lieu of calling her as a live witness demonstrating that Johnson’s claims are without merit.”
They go on to rebut the notion that the press release was “false” to describe Michael Howard as a “Fidelity executive,” because he worked at MIT and was just expressing his “opinion” that Fidelity only cared about recordkeeping and assets in actively managed funds – going on to state that, “…Johnson conveniently ignores that, prior to working at MIT, Howard was not only a Fidelity Executive, but the Vice President for Finance in the Institutional Retirement Division of Fidelity from 2001 to 2005 and Chief Financial Officer of Fidelity subsidiary Pyramis Global Advisors from 2005 to 2009.” In fact, the motion goes on to claim that, “Howard was indisputably a Fidelity executive with intimate knowledge of its cost structure and finances related to 401(k) plans prior to joining MIT.” And then the motion goes on to make a point that Johnson did not deny that other statements in the press release (a comment attributed to a member of MIT’s senior leadership that MIT should expect something “big and good from the Johnson family” if Fidelity remained the recordkeeper), or that there was a $5 million donation made by Fidelity to MIT. “In short, she identifies nothing ‘false’ or ‘reckless’ about the statement.”
The plaintiffs make an issue of Johnson’s lack of assertion that she had unique knowledge relevant to this case. Rather, she said that the plaintiffs conceded that fact, but they contend they “did no such thing,” but rather merely argued that they were “not required to demonstrate that Johnson attempted to ‘exert influence’ on the Plan to assert a duty of loyalty claim because Defendants’ intent to favor Johnson and Fidelity was demonstrated from their own statements and conduct.”
They claim that there is “abundant documentation of Johnson’s involvement in Fidelity’s interactions with MIT regarding the Plan, Fidelity’s updates to Johnson and Fidelity’s insertion of Johnson to influence MIT’s decision-making process.”
Additionally, the plaintiffs say they have offered to remove Johnson if she will stipulate to giving testimony by declaration to nine sentences of which she has “unique knowledge,” specifically:
- “Ms. Johnson was a member of the MIT Corporation and sat on the following Committees and 'Visiting Committees' of the Corporation (noting Chair when applicable).
- “Fidelity Investments is a privately held corporation owned by the Johnson family, including Abagail Johnson.
- “Ms. Johnson served as the Head of Retail, Workplace, and Institutional Business for Fidelity Investments from 2005 to 2014. In 2014, Ms. Johnson became the CEO of Fidelity Investments.
- “The MIT Corporation constitutes the governing body of MIT, including a responsibility to govern MIT and ensure that MIT adheres to the purposes for which it was established. The MIT Corporation elects and oversees, among others, the President and the Executive Vice President and Treasurer.
- “Ms. Johnson is aware of the various policies in place by MIT including the policy to avoid conflicts of interest and to refuse all gifts from vendors or service providers.
- “The MIT Corporation, including Ms. Johnson, failed to oversee the terms of Fidelity’s contract with MIT.
- “Prior to 2014, the MIT Corporation, including Ms. Johnson, never voted to delegate or authorize a delegation in writing of MIT’s fiduciary responsibility or authority pursuant to Plan Section 10.2(h) over the Plan’s administration, including Section 10.2(e).
- “Ms. Johnson serves on the Board of the Fidelity Foundation, along with members of her family and officers of Fidelity Investments. Ms. Johnson’s immediate family, including her husband and siblings and other Fidelity Investment executives are Directors of the Fidelity Non-Profit Management Foundation. The assets of both Foundations were funded from contributions by Fidelity and the Johnson family, including Ms. Johnson.
- “Collectively the Fidelity Foundation and the Fidelity Non-Profit Management Foundation donated over $23 million to MIT since 2000.”
What happens next? Your guess is as good as anyone’s… but it doesn’t look like it will be “pretty.”
