It seems those hoping for some clarity on a threshold issue involving an ERISA fee dispute will have to wait another day.

I refer, of course, to the Supreme Court’s decision last week in the case of Hughes v. Northwestern University et al.– a case which, according to the law firm Schlichter Bogard & Denton – which seems to have “invented” this category of excessive fee litigation – had a “chilling effect” on this type of lawsuit, more precisely on their ability to carry out a lawsuit (or settlement). Therefore, the ERISA trustees eagerly awaited a decision on the case, which involved allegations that Northwestern University failed to meet its fiduciary responsibilities regarding the options available to plan participants.

Indeed, the allegations in this case were not all that different from the litany of transgressions depicted in a number of such cases over the years, but getting their case heard by the highest court in the land , plaintiffs’ attorneys (the aforementioned law firm) – had noted (complained?) that lawsuits “with virtually identical claims” were dismissed out of hand, while other courts allowed them to go to trial . According to them, it was not “a factual disagreement about whether the specific claims at issue clear the hurdle of pleading,” but rather “a legal disagreement about where that hurdle should be placed”.

Now, I’ve read a lot of these lawsuits – and let’s just say, real facts aside,[1] some are more “detailed” (and well argued) than others. As the success (measured by settlements more than actual court victories) of these cases grew, the issue attracted more than a few “copycats”, some who literally copied and pasted the arguments of other law firms (including their typos). Moreover, these impersonators sometimes seem to do little more than screen the 5500 for fund holdings, search social media for potential complainants, and then “rinse and repeat” everything but individual party names and funds on their menu.

It’s entirely possible, of course, that each of these plan fiduciaries could fail to uphold their prudent responsibilities — what one court has called (and every filing now repeats) the highest duty known to law. That said, at some point it’s hard to escape the feeling that some – and a growing number – of them are little more than the legal equivalent of a chain letter, and at that point They’re hoping for a quick monetary settlement, of which plaintiffs’ attorney can expect to capture between 25% and 33% (in addition to recovering their costs, which regularly run into the six figures).

what we have

As a result. some clarity as to how, and how much, must be established by those filing suits before they can take the issue(s) to court is welcome, to say the least. Or, put another way, how much is “enough”.

It turns out we got a different kind of clarity — and while the Supreme Court’s decision was unanimous, it didn’t strike me as particularly controversial. They unfortunately did not provide the “clear line” of what needed to be established in these cases. Instead, they clarified a premise that I would have thought was a core tenet of ERISA, even though, in defense of the Supreme Court, some courts, and specifically the Seventh Circuit here, hadn’t didn’t see it that way.

The district court in the Northwestern case never addressed this issue, the Supreme Court says, because they simply looked at the plan’s menu and concluded they didn’t need to consider everyone’s caution. menu backgrounds.

Rather, the court had simply determined that there were conservative alternatives to the menu, and that attendees could choose those if they had a problem with ones that (allegedly) weren’t as expensive and that, for this court district, that was enough.

This logic has always been a bit of a headache for me (see ‘Second’ Opinion), and it’s been around since those very first excessive charges cases were filed in 2006 (more precisely, when they were decided a few years later). Indeed, a column I wrote in 2009 expressing disbelief that this logic was actually cited by the Department of Labor in a brief it filed challenging this result as an example of the dangers inherent in adopting this logic.

In rendering its opinion in the Northwestern case, the Supreme Court did what it often does: not decide the case itself, but simply sent it back to the lower court, noting only that it believed that the basis for this decision was incorrect, but urging them to rethink with what amounts to “new” information. In fact, and despite the headlines, the lower court may well determine that even with the new guidelines, the plaintiffs failed to make their case.

That said, the Supreme Court arguably did little to clarify the question of “how much is ‘enough’?” when it comes to pushing a lawsuit past the inevitable motion to dismiss the case.

But it seems fair to say that there will now be (much?) greater fiduciary sensitivity to the issue of tracking funds on the plan’s menu. As, arguably, there should not only be, but always should have been…


[1] Our articles on these lawsuits generally indicate that, in litigation, there are always (at least) two sides to every story. As factual as it may turn out to be, the initial trial in any action is only one side, and usually designed for a particular outcome. In our coverage, you’ll see descriptions of events qualified by statements such as “the lawsuit says” or “the plaintiffs allege” – and the qualifiers should serve as a reminder of that reality.

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