The International Paper Settlement and the Continued Vitality of Excessive Fee Claims

Posted By Stephen D. Rosenberg In 401(k) Plans , Class Actions , Fiduciaries , Settlements
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One of the first long articles I wrote on ERISA (I had already penned some opuses on patent infringement litigation and insurance coverage disputes) was on excessive fee litigation, and was based, at heart, on the Seventh Circuit’s then recent decision in Hecker v. Deere. Titled “Retreat from the High Water Mark: Breach of Fiduciary Duty Claims Involving Excessive Fees After Tibble v. Edison International,” the article set forth my view that, in Civil War parlance, the decision in Hecker, which was being highly trumpeted by the defense bar at the time as a major victory, was, in fact, little more than the high water mark for plan sponsors and vendors in defending against excessive fee class actions. My thesis was that, when the decision was broken down and analyzed in its constituent parts (and particularly with a focus on the Court’s reasoning), it was unlikely that the decision would be replicated, and more likely that other courts would come to different conclusions in the future that would validate excessive fee claims and invigorate the theory as a basis for class action litigation.

From where I sit, four years of court decisions, settlements and courtroom results appear to have borne out my prognosis. Humble scribe that I am, I don’t believe I have ever pointed out before that I was right in this regard, but, as Thomas Clark pointed out earlier this week in an excellent post on the FRA PlanTools Blog, the recent $30 million settlement entered into by International Paper is solid evidence that I was right.

My real purpose for writing today, though, was to pass along his post on the settlement, which does an excellent job of breaking down the issues, the claims, the alleged breaches, and the settlement of the International Paper case. It comprehensively covers everything any outsider to the litigation would want to or need to know about the case.
 

Grand Irony, or Just a Need for Better Litigation Tactics: Protecting the Severely Injured Plan Participant Against Reimbursement Claims under ERISA

Posted By Stephen D. Rosenberg In ERISA Statutory Provisions , Equitable Relief , Settlements
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Roy Harmon and the Workplace Prof have the story of a severely injured worker whose settlement with the tortfeasor was effectively taken, in its entirety, by the plan administrator - Wal-Mart - on a reimbursement claim in accordance with the administrator’s rights under Sereboff. Roy Harmon has a nice factual discussion of the problem demonstrated by the case, and the Prof raises the ante, pointing out the injustice this is working for the particular individuals involved in the case. No disagreement there. But what concerns me is a point that the Prof makes, in which he effectively characterizes this as a problem driven by ERISA; sayeth the Prof:

In short, a truly horrible situation under ERISA, and not that far-fetched when one comes to understand the manner in which the scope of equitable relief under ERISA and ERISA preemption work together to create what I call the "Grand Irony of ERISA": that employers now use ERISA as a shield against employees; the same employees whose benefits ERISA was supposed to protect.
A Kafka-esque scheme [if] there was one and yet another publicity black eye for Wal-Mart.

But, although I am speaking almost third hand with little knowledge of the actual facts of this exact case, it seems to me this is not an ERISA problem, but a litigation tactics problem. It seems to me that the first obligation of a plaintiff’s lawyer in this type of a situation is either to obtain a waiver or compromise from the plan of its right of reimbursement that will keep the bulk of the recovery in the hands of the severely injured plan participant, or if that is not possible (perhaps because the plan administrator refuses to do so), to include in valuing settlement the amount that will have to be paid back to the plan on a reimbursement claim. If that makes the settlement value so high that the case can’t settle, then so be it, and it becomes a case which simply has to be tried and the amount of medical bills that must be reimbursed to the plan becomes just one part of the damages that go up on the blackboard in front of the jury in calculating the damages that the plaintiff claims should be awarded to him; in this way, if the jury returns a verdict, the amount that must be paid back to the plan is only one portion of the money recovered by the plan participant, with the participant free to retain the remaining amounts, which ought to encompass awards for future care, future loss of earnings, and the like.

One can fairly ask whether this places the participant at risk of losing at trial and taking nothing, and the answer to that question is, of course, that this risk exists and is significant; avoiding that exact risk is, after all, why a plaintiff settles a case for less than full value. But the fact is that a settlement, such as the one involved in the case Roy and the Prof discuss, that does not significantly exceed the reimbursement owed to the plan- after or without compromise by the administrator -can leave the participant in the exact same spot as a loss at trial would, holding no money at all after the plan is reimbursed.

Litigation is a dynamic and ever changing organism, and, much like Newton's third law of physics, for every action during the course of a lawsuit there is a corresponding, if not necessarily equal and opposite, reaction. The situation presented by the admittedly horrible circumstances detailed by Roy and the Prof is one that needs to be resolved as part of playing out the end game of a lawsuit, not after the fact as a dispute over ERISA rights and remedies.

Given the tragic nature of the events in question, I don’t delve into this point lightly, or just because it looks like good blogging fodder. But in the discussions I have seen so far of this issue, and on the impact of ERISA on it, I haven’t seen this particular aspect discussed in detail, and I think it’s a point that simply cannot be overlooked by any plan participant or lawyer stuck in the same situation in the future.

Settle the claim, don't revise the plan

Posted By Stephen D. Rosenberg In Settlements
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My colleague, Carl Pilger, cpilger@millermartin.com, who counsels companies and others on the design, implementation and operation of employee benefit plans at Miller & Martin PLLC, http://www.millermartin.com/, in Atlanta, notes that in settling lawsuits brought by plan participants, one should avoid establishing a pattern of revising a particular plan term or requirement in a particular manner. Doing so may allow for the argument that the plan itself has, in effect, been revised in that manner on that particular point. Instead, as I make sure to do in my own practice when litigating cases on behalf of plans and administrators, the settlement papers should make clear that the particular claim is a unique situation, and no agreement has been reached as to the particular meaning that should be given to the plan term that was the subject of the dispute. Make the settlement a one off, but not a regular event.