With two law firms competing for the right to represent plaintiffs in an excessive fee case, a federal judge has made a choice based on resources.
Vying for consideration as counsel for the class action plaintiffs were two law firms active in the ERISA litigation space: Schlichter Bogard & Denton LLP and Capozzi Adler PC,[1] following a November 2020 motion by the defendants in the case—fiduciaries of the Pentegra Defined Contribution Plan for Financial Institutions, a multiple employer plan, or MEP—to consolidate the cases.
The allegations here are similar to those in other excessive fee suits: that rather than “using the Plan’s bargaining power to benefit participants and beneficiaries, Defendants acted to enrich themselves, including Pentegra, by allowing exorbitantly unreasonable expenses to be charged to participants for administration of the Plan.” The suit also alleges that the defendants “profit from collecting additional fees directly from employers who participate in the Plan—putatively to pay for ‘outsourced’ fiduciary responsibility—but act directly contrary to that assumed fiduciary responsibility by draining the retirement assets of Plan participants to enrich themselves.” There are also some attributes cited unique to the MEP program (27,000 participants, $2.1 billion in assets) that involved statements related to the marketed advantages of the MEP structure.
In deciding the issue, Judge Philip M. Halpern of the U.S. District Court for the Southern District of New York acknowledged (Khan v. Bd. of Dirs. of Pentegra Defined Contribution Plan, 2021 BL 58167, S.D.N.Y., No. 7:20-cv-07561, order docketed 2/19/21) that “both the Schlichter Firm and Defendants objected to any co-counsel relationship,” and concluded that “…due to the ‘fundamental historical and philosophical differences’ between the two firms, and as evidenced by the competing motions herein, a co-counsel relationship would be inefficient; thus, appointing a single firm best serves the interests of judicial economy while protecting the interests of the putative class.”
On that point, Judge Halpern commented that in selecting interim class counsel, courts have looked to the criteria for determining the adequacy of class counsel set forth in Rule 23(g)(1)(A) , which include:
1. the work counsel has done in identifying or investigating potential claims in the action;
2. counsel’s experience in handling class actions, other complex litigation, and the types of claims asserted in the action;
3. counsel’s knowledge of the applicable law; and
4. the resources counsel will commit to representing the class.
Evaluation
As for how each firm stacked up against that criteria, Judge Halpern determined that “both firms have devoted substantial time and effort to identifying and investigating the claims raised herein,” and that “both firms have significant experience with complex class action litigation, and each possess knowledge of the applicable law.”
Ultimately, it came down to resources. Judge Halpern noted that the Capozzi firm[2] said it “has the ability and willingness to expend the financial and manpower resources necessary to prosecute this litigation,” that their “Fiduciary Practice Group is comprised of three partners, ... two associates, and five support staff,” and beyond that it said it would “avail itself also of the services of other attorneys in their Pennsylvania offices.” However, he explained that the Schlichter firm “has a fully dedicated team of [thirteen] attorneys ... in the [Schlichter Firm’s] retirement litigation practice group.”
And for those reasons, concluded that, “the Schlichter firm has greater attorney resources in the particular practice area to represent the class in this consolidated action.” Moreover, Judge Halpern noted that “only the Schlichter Firm responded to Defendants’ pre-motion letters, signifying that they have already begun to prepare to defend against Defendants’ forthcoming motion to dismiss.”
And thus, “considering the totality of the circumstances, the Court concludes that the Schlichter Firm is the more appropriate choice to serve as interim lead class counsel, in light of the number of attorneys dedicated to 401k excessive fee litigation who are committed to work on this matter, and the fact that the Schlichter Firm handled the precatory work in connection with the anticipated motion to dismiss by Defendants.”
Footnotes
[1] Both firms have not only been active in this space, but have been cited in at least one P&C insurer’s policy renewal questionnaire, along with Nichols Kaster PLLP.
[2] While perhaps less well-known in this space, Capozzi Adler PC had a busy year in 2020, having filed suits against Universal Health Services, Inc., and before that Aegis Media Americas Inc., about a year ago the BTG International Inc. Profit Sharing 401(k) Plan, earlier that year the $2 billion health technology firm Cerner Corp., and Pharmaceutical Product Development, LLC Retirement Savings Plan and Gerken v. ManTech Int’l Corp.
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