So two stories today give me a soapbox to address one aspect of ERISA class action litigation and the push back from plan sponsors and their fiduciary liability insurers against the costs imposed on them by this line of litigation. One story, which to protect the innocent I won’t otherwise identify, involves court approval of a small dollar settlement of a class action excessive fee case that undoubtedly imposed significant defense costs on the defendant or its insurer. The other is this story, from Kantor & Kantor, on a decision out of the Second Circuit that, in the view of the author of the tale, raises the bar on class action plaintiffs – more accurately, on their lawyers – for even bringing and moving forward (presumably eventually towards settlement, which is the normal course of resolution of these types of claims) with an excessive fee class action.

For a long time now, there has been a continuing tension between the many legitimate excessive fee class actions brought against plan sponsors and fiduciaries, on the one hand, and the costs of defending those actions in circumstances where the claims have little merit on the other. My preferred recommendation for balancing out these competing interests has long been that plan sponsors and fiduciary liability insurers uniformly and consistently try these actions to verdict. While perhaps expensive in the short run in terms of the costs of litigation, experience shows that over the long run, this will separate the wheat from the chaff, leading to fewer, but more meritorious, cases being brought. The end result of that process will be continued reimbursement of plan participants who have actually been injured and the continued pressure for better performance that this line of litigation has placed on plan sponsors, without the endless parade of “strike suit” type cases that drain the pockets of insurers and plan sponsors for the benefit of no one other than the lawyers for the class plaintiffs and the lawyers for the defendants. My long standing views on this point, incidentally, have been validated by the results of trials of these types of cases, which have proven that – contrary to the fears of the defense bar – they can be won at trial by defendants, even in front of a jury.

But there is another middle ground too, that is open to plan sponsors and their fiduciary liability insurers, that is likely to be less costly in the short run then paying for an endless parade of trials and still likely to drive down the overall, macro level costs incurred by defendants and insurers as a whole from this form of litigation. This requires combining a thoughtful litigation campaign intended to both raise the barriers to suit and to reduce the costs in those cases that still go forward, with a business decision to start treating class action ERISA litigation like the commoditized type of litigation it has, in fact, become in many instances.

Lets start with the litigation campaign part of the prescription. I know that the phrase itself – “litigation campaign” – can sound nefarious, but it means nothing more than a thoughtful, coordinated approach to a broader problem that can be addressed through the courts (and it is something that has, in fact, been pursued in many contexts and for many reasons for many years). Here, it would require that fiduciary liability insurers and plan sponsors litigate their defense cases in ways intended to have courts use their power to control the cases before them in a way that will control and, where possible eliminate, much of the costs of such cases to defendants and their insurers. We all know that defendants already seek to resolve these types of cases, whenever possible, through motions to dismiss and that some courts and circuits are more open than others to testing the viability of such cases at that stage. But what about after that, if the case continues after a motion to dismiss has been denied in part or in full? There are still numerous avenues open to both defendants and the courts – even after that stage – to control the costs of such cases. For instance, if the denial of the motion to dismiss was based on certain factual issues presented by the complaint and those could be resolved early thereby leading to resolution of the case (or at least to substantially reducing its scope), then the defense should press the court to stagger the case so that targeted discovery and partial summary judgment motions can be pursued on those issues before class discovery, class certification, broad fact discovery and (cost of all costs), expert retention, disclosure and depositions, are undertaken. If this stage doesn’t then end the case outright, there are multiple ways to structure the case from that point forward that could allow for multiple potential off ramps, whether by means of a court ruling on the merits or by settlement, at different times, thus allowing for the costs of the case to be controlled and to only be incurred as, when and to the extent warranted.

That is as much on this particular point as I will say for now, but if anyone wants me to write a white paper detailing this approach in its entirety, I could and will be happy to do so – but that is beyond the scope of this blog post. This is enough, though, for any reader to get my drift. Plan sponsors and their insurers, along with their defense counsel, should consistently seek court intervention and structuring of these cases in this way, rather than continuing with the current default approach, which is to move to dismiss, and then dive right into full scale discovery, concluding only with either settlement or, at the end of the entire mind numbingly expensive process of discovery and expert disclosure, summary judgment practice.

Anyone who has done this as long as I have can visualize the proposed case schedule and discovery controls that defense counsel could propose to the court in this regard at the outset of the case, during the initial scheduling conference typically held by the court early on in a case. Defendants, fiduciary liability insurers and their defense counsel should thoroughly and assertively present such an approach to the court every time in these types of cases. Will every court agree to such an approach? Of course not. Will enough agree that it might, over time, eventually become the new, and less costly, norm for defending such cases? Maybe – and there is only one way to find out.

The second part of my prescription requires that insurers and defendants start accepting that, no matter whether courts raise or lower the bars on these types of cases, they are not going away, and begin asserting their own ability to control the costs of these cases. A good starting point on this is for insurers and defendants to start recognizing the commoditization of these types of cases, along with the opportunity it provides to reduce the costs of defense. There is simply nothing novel about these types of cases at this point and there is nothing so new under the sun in the migration of these types of claims to other potential class liability theories – such as those involving health plans and forfeitures – that there is some particularly sophisticated nuance to those either. They can be litigated just as successfully by litigation boutiques, regional firms and the like who have, either internally or by retention of co-counsel, access to ERISA expertise, as by the largest and most expensive firms in the world. Insurers have plenty of experience at managing the costs of large exposures – and if insurers are serious in their complaints about the costs to them of these types of cases, it is time for them to start doing so here as well, including with regard to the selection of counsel. I have spent enough time in my career around the best of the firms and lawyers servicing the insurance industry to know that the outcome of these cases won’t change, and might be improved, by such an approach.

And it isn’t just about selection of defense counsel in this regard. Insurers have long utilized various tools to oversee defense counsel and legal strategy in insured claims, such as using monitoring counsel with subject matter expertise to help balance strategy and tactics against costs. Insurers may need to start deploying the full panoply of those tools in this context as well, if they haven’t done so yet.