Pension & Benefits News Length and complexity of novel fiduciary liability case warrants $20 million award of attorneys’ fees and costs
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Tuesday, December 10, 2019

Length and complexity of novel fiduciary liability case warrants $20 million award of attorneys’ fees and costs

By Pension and Benefits Editorial Staff

Acknowledging the length and complexity of a case that developed novel theories in fiduciary liability, a federal trial court in Missouri awarded over $20 million in fees and expenses to class counsel and $25,000 to designated class representatives.

Change in funds results in breach of duty of loyalty. In December 2006, participants in defined contribution plans sponsored by ABB filed suit alleging ERISA violations following losses related to the decision by plan fiduciaries to replace an actively managed mutual fund (Vanguard) with a lifestyle fund offered by Fidelity that assessed higher fees, but returned higher revenue sharing to Fidelity. A federal trial court found that the fiduciaries breached their duties under ERISA by failing to monitor the reasonableness of the plan’s recordkeeping fees ($13.4 million in losses) and replacing the Vanguard fund with the Fidelity funds ($21.8 million in losses). Noting that the case involved significant legal questions regarding the fiduciary duties of plan administrators and clarified the duty of loyalty and prudence owed by recordkeepers and employers, the trial court also entered an attorney’s fees award of $12,947,747 (nearly 1/3 of the monetary award.).

After a series of appeals, in which the liability judgment was affirmed and the means of assessing damages was determined, the parties reached a settlement, to which the court gave preliminary approval in April 2019. The issue currently before the court was class counsel’s motion for approval of $18,331,500 in attorney’s fees, $2,256,805 in expenses, and compensation to individual class representatives of $25,000 from the common fund created from the settlement.

Percentage recovery from common fund settlement. Initially, the trial court noted that, under the common fund doctrine, class counsel is generally entitled to an award of reasonable attorney’s fees from settlement proceeds. The amount of the fee is typically based on a percentage of the monetary and non-monetary value of the settlement (i.e., the benefit).

In determining the reasonable percentage of the common fund to be awarded as fees, courts look to: (1) the benefit conferred on the class; (2) the risk to which plaintiffs’ counsel was exposed; (3) the difficulty and novelty of the legal and factual issues in the case; (4) the skill of the plaintiffs’ and defendants’ attorneys; (5) the time and labor involved in the litigation; (6) the reaction of the class; and (7) a comparison between the requested fee percentage and percentages awarded in smaller cases. The court concluded that all of the relevant factors supported the fee request.

First, the court noted that a $55 million monetary recovery in a novel area of litigation conferred a significant benefit to the settlement class. The settlement provided value in addition to the monetary settlement, the court further explained by providing for current participants to receive distributions directly into their accounts on a tax-deferred basis and allowing former participants to direct their distributions to IRAs and other tax-deferred vehicles. Beyond the benefits of the monetary damages and tax-deferred savings, the court suggested that the future benefit of having a fiduciary monitor fee costs would exceed the value of the actual damages. As the actual benefit to the class was in excess of the monetary benefit received, the court concluded that authorizing payment of 1/3 of the benefit to class counsel would be appropriate.

In next acknowledging the risk assumed by the class counsel, the court noted that the participants’ novel claim was litigated over ten years, while being contested by highly qualified attorneys. The court especially stressed that the factual and legal issues were “novel and difficult” and that protracted proceedings required counsel to risk unusual resources in time and money, while exhibiting legal skills in developing and clarifying the law governing fiduciary responsibility.

Reimbursement of class counsel’s costs. The court also agreed that class counsel was entitled to $2,256,805 in reimbursement for the costs and expenses incurred in advancing the litigation for nearly ten years. The total costs being requested were less than 3 percent of the total recovery, the court stressed, and the length and complexity of the cases allowed for the reimbursement of costs and expenses.

Incentive award for class representatives. Finally, the court agreed to the request to provide an incentive award to certain actively involved class participants of $25,000 each from the common fund. After acknowledging the contribution of the class representatives to the success of the litigation, the court noted that the total award for the named participants would represent just 0.14 percent of the total settlement fund.

Source: Tussey v. ABB, Inc. (DC MO).

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