Noting that "the settling parties agreed to the proposed settlement only after vigorous arm's-length negotiations between counsel experienced in ERISA class actions and under the auspices of … a third-party private mediator with extensive experience mediating ERISA actions”—the parties in yet another excessive fee suit have come to terms. 
There’s been some mileage in this case, which was originally brought in June 2020. As noted in the settlement proposal, “the history of this case spans over three years, including three dismissal attempts by Defendants, and the Parties have spent significant costs and time on discovery.”
The Case
The arguments presented were hardly unique; the plaintiffs here (four current and former Estee Lauder employees, though at the point of settlement just Emanuele Caroleo and Kathy Gandy remained as named plaintiffs) alleged that the Estee Lauder 401(k) plan offered investment options that were more expensive and underperformed relative to other, comparable choices. They also (represented by Capozzi Adler PC) argued that the plan fiduciaries failed to leverage the plan’s clout as a large plan to obtain those better alternatives, and thus violated their fiduciary obligations. They also criticized the recordkeeping fees charged to participants, claiming that comparably sized plans paid fees in the $35/participant range.
More specifically, the suit alleged that the plan fiduciaries of the $1.6 billion plan breached their duties by (1) failing to investigate and select lower cost alternative funds; (2) failing to investigate and select lower cost alternative funds; (3) a failing to include a stable value fund among the Plan’s investment options; and (4) failing to monitor or control the Plan’s recordkeeping expenses.
That said, the motion for preliminary settlement approval (Law et al. v. Estee Lauder Inc. et al., case number 1:20-cv-04770, in the U.S. District Court for the Southern District of New York) acknowledged that “if this case were to go to trial both sides would face burdensome litigation involving intricate fact presentation and the costs to retain experts in areas such as ERISA duties, damages, and defined contribution investing. The likely appeal from a trial would exacerbate the expense, duration, and complexity of the litigation to the determinant of the Plaintiffs.” The proposed settlement goes on to comment that “…ERISA breach of fiduciary duty cases such as this have been recognized as being especially complex,” and that “there is no doubt continuing to summary judgment and possibly a trial would exacerbate an already complex, expensive, and lengthy litigation. This factor weighs in favor of approving the settlement.”
The Proposed Terms
While the settlement must still be approved by the court, “plaintiffs believe the Settlement is an excellent result, providing a substantial, immediate payment to Settlement Class members and eliminating the risks and cost of trial. A trial could result in a reduced recovery or no recovery at all.”
The Settlement provides for $975,000 (nine hundred seventy-five thousand dollars) in cash “plus other non-monetary relief” (more on that in a minute) “which Plaintiffs believe is a fair and adequate settlement.”
The proposal notes that the plaintiffs “evaluated numerous damages scenarios involving the amounts paid for recordkeeping and the potentially excessive fees of the Plan’s investment options and the Settlement amount likely represents anywhere from 10% to 34% of the best case outcome for Plaintiffs” (up to $9.9 million in damages, assuming the court found Estee Lauder caused the plan to be overcharged by 100%).
As for that non-monetary relief, it calls for “Within three years after the Settlement Effective Date, if the Plan’s fiduciaries have not already done so, the Plan’s fiduciaries will conduct or cause to be conducted a request for proposal relating to the Plan’s recordkeeping services,” and “To the extent not already in place, the Plan’s fiduciaries shall institute two (2) hours of mandatory fiduciary training for all members of the Estee Lauder Inc. Fiduciary Investment Committee to take place on an annual basis.” It concludes that “these provisions address the allegations at the heart of this litigation and, as such, add significant value to the settlement.”
Now, that settlement amount is also expected to cover certain expenses. The proposal notes that “traditionally, courts in this Circuit and elsewhere have awarded fees in the 20%–50% range in class actions,” that “Plaintiffs’ Counsel had to contend with the traditional risks inherent in any contingent litigation” and “the unsettled nature of the law applicable to Plaintiffs’ claims […] increases the risks for Plaintiffs’ Counsel.”
Moreover, it notes that, “because Class Counsel took this case on a contingency fee basis, ‘Class Counsel assumed a real risk in taking the case, investing time, effort, and money over a period of years with no guarantee of recovery’”—commenting that they are “seeking attorney’s fees in line with typical ERISA class action settlements, thirty-three and one third percent (33 1/3%) of the common fund.” The proposal also requests reimbursement of expenses not to exceed not to exceed $100,000.
As for the two remaining named plaintiffs in the case, the settlement agreement calls for them to receive $10,000 apiece for their role in the case.
Let’s see what the court has to say…
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