U.S. Chamber Weighs in (Again) on Excessive Fee Suit Surge

Noting that “converting subpar allegations into settlements has proven a lucrative endeavor—mostly for the lawyers bringing these lawsuits,” the U.S. Chamber of Commerce has weighed in on the surge in retirement plan fee litigation.

That was just one of the ways the Chamber (and its legal counsel in the matter, Goodwin Proctor LLP) characterized the plethora of lawsuits involving retirement plans in an amicus brief (In re Am. Nat’l Red Cross ERISA Litig., D.D.C., No. 1:21-cv-00541, amicus brief 8/23/21), weighing in on a suit filed in March of this year challenging the practices of the fiduciaries of the $1.2 billion retirement plan of the American Red Cross in the U.S. District Court for the District of Columbia.

“What began as a steady increase has exploded in the past 18 months, culminating in over 100 excessive-fee suits in 2020—a five-fold increase over the prior year—and many more lawsuits filed this year,” the Chamber wrote, going on to explain that “Just five firms were responsible for the vast majority of 401(k) litigation in 2020, and almost half of recent lawsuits were filed by Plaintiffs’ counsel in this suit, Capozzi Adler.”

Indeed, Capozzi Adler PC has been one of the more active litigants of late. It had a busy 2020, having filed suit against LinkedIn, Universal Health Services, Inc., and before that Aegis Media Americas Inc., as well as the $2 billion health technology firm Cerner Corp., Pharmaceutical Product Development, LLC Retirement Savings Plan, Gerken v. ManTech Int’l Corp—and the appeal of losses at the district court in a case involving Salesforce. In May 2021, they also filed suit against the $5.3 billion Humana Retirement Savings Plan, and in June against the $2.3 billion Wake Forest University Baptist Medical Center. 

‘Cookie-Cutter Complaints’

In describing the trend, the Chamber’s brief notes that the suits “follow a familiar playbook, often with cookie-cutter complaints that cut and paste pages and pages of identical assertions about the nature of fiduciary obligations, recycling them verbatim from prior pleadings” and then—with the benefit of hindsight—“…second-guess the decisions of plan fiduciaries across the country.” They then state that the plaintiffs in these suits don’t allege a flawed process, “but instead ask courts to infer that plan sponsors must have breached their fiduciary duties because they did not choose these alternative investments for their plan line-up,” then “exploit the perceived complexity of ERISA’s statutory scheme to barrel past the motion-to-dismiss stage, resisting dismissal by claiming a dispute of fact even where their conclusory allegations are belied by publicly available data regarding performance and fees, or even by their own allegations in other lawsuits.” All of which then leaves plan sponsor/fiduciaries forced to choose between “expensive and intrusive discovery or settling a case with large damage requests but minimal merit.” 

But, while the perspective was definitely from that of plan sponsors, the brief goes on to note that “this surge of litigation has significant negative consequences for plan participants,” and that the suits “… pressure fiduciaries to limit investments to a narrow range of options at the expense of providing a diversity of choices with a range of fees, fee structures, risk levels, and potential performance upsides, as ERISA expressly encourages.” And if that weren’t enough, the filing continues that “…given the plaintiffs’ single-minded emphasis on cost, fiduciaries may forgo recordkeeping packages that include popular and much-needed financial education, and instead elect only barebones recordkeeping services.” 

Moreover, the brief notes that “the increase in litigation has led to a cascade of changes in the insurance marketplace, requiring plan sponsors to, at a minimum, shell out much more for liability insurance, which has also become more difficult to procure”—increased costs that, “compounded by a significantly increased litigation risk—works to the detriment of employees seeking to save for retirement,” it concludes. 

This extra cost has to come from somewhere, the brief states—for large employers, “often in place of more generous employer contributions; for smaller employees, the increased cost and risk could make sponsoring a retirement plan cost prohibitive.” All in all, the Chamber’s brief concludes that the suits will, if successful “…simply inflate the costs of establishing and administering a plan—something that is entirely voluntary”—and that, the brief states “…is precisely what Congress sought to avoid in crafting ERISA.”

Circumstantial Allegations?

The brief then explains that in view of those concerns, it is critical that “when a plaintiff does not present any direct allegations of wrongdoing but instead relies entirely on circumstantial allegations that are ‘just as much in line with’ plan fiduciaries’ having acted through a prudent fiduciary process, dismissal is appropriate.”

The Chamber goes on to note that this wave of litigation was “precipitated by attorneys’ success in surviving dismissal and extracting large settlements regardless of the merits of the underlying claims,” going on to describe the scenario where “plaintiffs’ attorneys typically create a chart purporting to compare some of the investment options in the plan under attack to various other investment options available on the market that allegedly out-performed or had lower fees than the plan’s options during a cherry-picked time period. They then use the chart to barrel past dismissal, asking the Court to infer that plan fiduciaries must have been asleep at the wheel and requesting discovery to prove it.”

The brief also said that “…plaintiffs’ lawyers also frequently compare apples and oranges: comparing the performance of Fund A with one investment style and performance benchmark with that of Fund B, which has a demonstrably different investment style and performance benchmark.” However, the Chamber’s brief asserted that “there is no one prudent fund, service provider, fee level, or fee structure that renders everything else imprudent. Instead, there is a wide range of reasonable options, and Congress vested fiduciaries with flexibility and discretion to choose from among those options based on their informed assessment of the needs of their particular plan.”

Casting a Broad Net

The brief also points out that “Increasingly, plaintiffs’ lawyers have chosen to sue dozens of individual defendants (from every member of a defendant’s board of directors to lower-level human-resources personnel)—even if they have a demonstrably tangential relationship to the plan,” and that “regardless of the merits of the underlying claims, proceeding to trial is often risky as defendants are frequently staring down astronomical damages figures that outstrip their annual plan contributions.” 

That said, the Chamber’s brief points out that “of the hundreds of cases filed over the last several years, only 10-15% made it to summary judgment, and only a handful made it to trial”—and yet, “…these suits provide plaintiffs’ attorneys an avenue to convert an endless supply of lackluster allegations into substantial paydays—hence the explosion in litigation in this area.” 

The collective impact of these lawsuits is to “pressure plan fiduciaries to chase investment performance or the lowest-fund fees or services, whether or not doing so is actually in the interests of participants,” the Chamber’s brief concludes. “For the foregoing reasons, adopting anything less than the ‘careful ... scrutiny’ of ERISA complaints prescribed by the Supreme Court in Fifth Third would create precisely the types of negative consequences that Congress intended to avoid in crafting ERISA. Amicus urges the Court to adopt and apply that level of scrutiny to this case.” 

What This Means

An amicus curiae—literally “friend of the court” in Latin—is a person or entity that is not a party to a lawsuit. An amicus brief is basically a legal analysis, generally in support of one side or the other—its point being to not only help the court ruling on the matter better understand the issue(s), but so that it better appreciates that the impact of the decision goes beyond the parties directly involved in the suit. 

This marks the second time this month the U.S. Chamber has weighed in with an amicus brief on the topic of retirement fee litigation—having done so earlier (along with the American Benefit Council) with regard to litigation involving Cornell University. Will the perspective of the Chamber be persuasive in the matter? 

It couldn’t hurt.