Supremes Leave ABB ‘Be’

The long-running excessive fee case of Tussey v. ABB won’t get its day before the U.S. Supreme Court – but the case has yet to reach a final conclusion.

The nation’s high court has announced without comment (ABB, Inc. v. Tussey, U.S., No. 17-265, cert. denied 10/2/17) that it declined to hear arguments in the case filed on behalf of plaintiffs more than a decade ago by the law firm of Schlichter, Bogard & Denton.

Background

In March of this year, the 8th Circuit Court of Appeals in St. Louis noted that the plans in question offered participants a menu of options for investing the money in their accounts, and that the plan’s investment policy statement said the plans would offer investments in three “tiers,” organized by how much active involvement they demanded from investors, including one that offered several “managed allocation” funds. John Cutler, Jr., the director of the committee’s staff, thought those “managed allocation” funds should be “target-date” or “life-cycle” funds, and he opted for the Fidelity Freedom Funds. According to the court, he also suggested removing the Vanguard Wellington Fund, although that raised the question of what to do with the money participants had invested in it – roughly $123 million (8.4% of the total assets in the plans).

The ABB fiduciaries decided to map this money into the Freedom Funds, though participants whose money was mapped to a Freedom Fund remained free to choose a different investment option (or options) at any time.

The Fidelity defendants were liable as well, according to the district court, because interest earned when money in the process of being added to or taken out of plan investments and invested overnight – called “float income” – should have been credited to the plans, not back to the investments. The district court awarded the participants $21.8 million against the ABB fiduciaries for swapping the Wellington and Freedom Funds, $13.4 million for the ABB fiduciaries’ other breaches, and $1.7 million against the Fidelity defendants on the float claim, plus attorney fees of $12.9 million from all the defendants jointly and severally. (Fidelity would eventually be cleared of liability by the appellate court.)

The defendants appealed, and the appellate court vacated the finding of breach for changing the investment options, explaining that the district court should have afforded more deference to the discretion the plans explicitly granted the ABB fiduciaries, and going so far as to caution that “the original award for switching the funds was ‘speculative’ and exceed[ed] the ‘losses to the plan[s] resulting from’ any fiduciary breach.”

Ultimately, the appellate court held in March that the district court “did not err in deciding that the ABB fiduciaries abused their discretion and breached their fiduciary duties by acting on improper motives when they replaced the Wellington Fund with the Freedom Funds as investment options for the plans.” However, it went on to note that the district court should have decided for itself how to measure what the plans lost as a result, “rather than considering itself bound by our prior comments on the issue,” leaving that for the lower court to decide upon, and that therefore “the judgment in favor of the ABB fiduciaries is at best premature,” going on to vacate the judgment, the award of attorney fees and costs, and remanding it for further proceedings.

‘Still’ Standing

That remand still sits with federal district court judge Nanette Laughrey, who recently ordered attorneys for ABB and the participants to submit methodologies for calculating damages to the participants, according to a Pensions & Investments report citing Jerome Schlichter, lead attorney for the participants and founding and managing partner of the law firm Schlichter, Bogard & Denton. The district court case had continued even though ABB had filed a petition with the Supreme Court in August.

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