Alert September 30, 2010

First Trial Judgment in an ERISA Fee Case

After years of litigation, the handful of ERISA fee cases that have survived dismissal at the pretrial stages are starting to wend their way to trial. Judgment was entered on August 9, 2010 in the first trial decision of this wave of cases, in Tibble v. Edison, No. 07-5359 (C.D. Cal.).  The court awarded judgment, in part, for the plaintiffs – participants in the Edison 401(k) Savings Plan (“Plan”) – and in part for the defendants – the plan sponsor, various of its subsidiaries, and numerous officers and employees who served on various plan committees.  In terms of monetary recovery, while the plaintiffs claimed losses in excess of $335 million, judgment of only $370,732 was awarded in their favor (though their lawyers have sought over $2.4 million in fees and costs). Each party took an immediate appeal. 

The Edison suit was brought by Plan participants on behalf of a class of all current or former Plan participants. Claims were similar to those brought in other ERISA fee cases that have been described in this newsletter and Goodwin Procter’s Financial Services Alert, including, most recently, the June 22, 2010 Alert. In short, the plaintiffs alleged that the defendants violated ERISA’s fiduciary duties of prudence, loyalty and compliance with plan documents, and committed prohibited transactions, by allowing payments of revenue sharing between the Plan’s investment options and the Plan’s recordkeeper, selecting allegedly imprudent investments, and allowing the Plan’s trustee to retain “float.” A class of Plan participants and beneficiaries was certified on June 30, 2009.  

In rulings dated July 16 and 31, 2009, the trial court denied the plaintiffs’ motion for summary judgment and granted in large part the defendants’ motion for summary judgment. The court dismissed core claims challenging revenue sharing, the general selection of retail mutual funds and an employer stock fund, and the trustee’s retention of float. After trial on the remaining issues, the court ruled in the defendants’ favor on all claims, except one. The only issue it found in the plaintiffs’ favor was that, under the facts adduced at trial, the defendants breached ERISA’s duty of prudence (but not loyalty) by selecting three retail mutual funds (out of approximately 40 offered through the Plan) where institutional share classes of the identical funds were available. The court’s decision hinged on two facts found at trial: (i) there was “no evidence that Defendants even considered or evaluated the different share classes” (emphasis in original) and (ii) the defendants offered no “credible explanation for why the retail share classes were selected instead of the institutional share classes.”  The court was clear in holding, though, that “ERISA does not require the [] plan fiduciary [to] select the cheapest fund available,” only one that is within the “reasonable range of fees charged by other comparable funds” (citing, among others, Hecker v. Deere & Co., 556 F.3d 575, 586 (7th Cir. 2009)) (reported in Goodwin Procter’s June 25, 2009 ERISA Litigation Update).