Euclid Fiduciary’s Managing Principal Daniel Aronowitz recently released his Summary of 2023 Excess Fee and Performance Litigation via The Fid Guru Blog, where he reviews the current litigation trends facing employee benefits plan sponsors and fiduciaries across the country.
Here are some key insights from the comprehensive report:
1. ERISA class action litigation remains at ‘fever pitch’
The report counted 48 new excess fee and performance lawsuits filed in 2023. “This is down from a near-record 89 complaints in 2022, but still reflects the higher filing frequency of the last eight years in which 463 excess fee cases have been filed,” the report states. “The most obvious explanation for the lower number of filings in 2023 is that frenzied court activity in the over 200 pending cases is keeping legacy law firms like Capozzi Adler and Walcheske & Luzi too busy to file many new cases.”
The total number is consistent with the approximate 55-per year average of the modern era of excess fees cases that started with the university cases in 2016. “We would note that the frequency of filings was slightly higher in the second half of the year,” the report states. “Case filings averaged three to four cases per month in the first half of the year, but that increased to five cases per month in the second half of the year as the leading legacy firms returned with more filings.”
2. 2023 was a year of significant activity in pending cases
The report notes a record 42 settlements, a record number of motions to dismiss, summary judgment, and appellate rulings, and at least five cases being tried, including one before a jury. “With new plaintiff firms entering the fray, all signs point to a continued high volume of excess fee cases and heightened risk exposure for sponsors of America’s large retirement plans, especially jumbo-sized plans,” the report states.
3. Most prolific firms of 2022 reduced filings in 2023
The most prolific ERISA class action law firms in 2022 were Capozzi Adler (21 cases), Miller Shah (15 cases), and Walcheske & Luzi (13). The overall lower volume of cases in 2023 is attributable to the reduced filings of these three law firms, the report notes.
“In 2023, the Capozzi law firm filed only six cases; the Walcheske law firm filed eight cases; and Miller Shah filed none, likely because they are consumed in their quixotic claims against 12 plan sponsors that offer low-cost BlackRock LifePath target-date funds,” the report said. “These numbers are well below the historical averages of these law firms. Notably, the Schlichter Bogard firm filed no cases in 2023, but they were involved in three separate trials, before a jury in the Yale case, and two separate trials in the Central District of California involving NFP FlexPATH funds against the Wood Group and Molina Healthcare respectively.”
The report also notes that the increase in frequency in the second half was influenced by the return of legacy law firms, with Capozzi Adler filing four cases and Walcheske filing five additional lawsuits in the second half of the year.
4. Wenzel Fenton Cabassa files most cases in 2023
The law firm filing the most cases in 2023 was the Wenzel Fenton Cabassa law firm, which has evolved from filing COBRA notice cases to focus on excess recordkeeping claims against retirement plans, the report notes.
Cases filed by Wenzel Fenton Cabassa [including when filed jointly with another law firm] totaled 10 in 2023, while the next most was Walcheske & Luzi with eight. Morgan & Morgan [in conjunction with Wenzel Fenton Cabassa] filed seven while Capozzi Adler filed six.
Florida-based Wenzel Fenton Cabassa has seven offices throughout the state and 10 employee rights attorneys. It handles all its cases on a contingency fee basis, meaning they are paid only if they obtain compensation.
5. Jumbo plans targeted in 2023
2023 was the year of plaintiff law firms targeting jumbo plans with assets over one billion dollars, the report notes.
“If you read internet blogs, you will see commentary that plaintiff law firms are moving downstream to sue smaller plans, but that was not true in 2023. The vast majority of cases were filed against large plans over $500m in assets, and two-thirds of the cases were against jumbo plans with $1b or more in assets.”
The report said outliers were the proprietary case against the small $102 million GWA Weiss plan, and the excess fee case against the $140 million Amy’s Kitchen plan. “The overwhelming trend was to sue jumbo plans with a higher potential for damages or to leverage a settlement.”
Another perspective cited in the report is that approximately 440 out of 1,350, or 33%, of large plans in America have been sued for alleged excessive fees in the last eight years. If you just focus on plans with assets over $1b or more, more than 50% of these plans have now been sued for purported excess fees.
6. Rise in Investment Imprudence claims
2023 saw more claims of investment imprudence, with the newer firms asserting novel theories and dubious comparators for excess recordkeeping claims, Aronowitz said.
“An analysis of the 2023 lawsuits reveals that plaintiff law firms continue to pursue bread and butter excess recordkeeping fee claims, but the number of investment underperformance lawsuits continues to rise,” the report said.
While there were 28 claims of excess recordkeeping fees, there were 23 claims of deficient investment performance/investment imprudence, and 17 claims of excessive investment fees.
“While many cases assert excess recordkeeping fee, we continue to see an evolution towards more cases alleging investment imprudence,” the report said.
The report notes the lawsuits demonstrate another troubling trend in investment imprudence cases in which plaintiff firms allege fiduciary imprudence even when the purported underperformance is less than one or two percent compared to the highest returning fund they can find.
It goes on to dissect what it calls the most noteworthy performance case of the year—the alleged investment imprudence claim against American Airlines.
7. Record number of settlements in 2023
2023 was a year of record settlements in excess fee cases with an all-time high of 42 settlements, the report notes. Since 2020, 111 settlements have been reported, with the number of settlements increasing progressively each year. During this four-year period, the 111 settlements amounted to $911 million in total amount, with a record $353 million in total settlement values in 2023.
The 2023 average settlement was $8.4 million, with a settlement range from $200,000 to $124.6 million. The overall value was heavily influenced by the three record settlements [Verizon–30m; GE–$61m; and Ruane Cuniff & Goldfarb–$124.6m]. If you take out the outlier $124.6m settlement, the average settlement value in 2023 was still a robust $5.6 million.
Read the complete “Summary of 2023 Excess Fee and Performance Litigation” in The Fid Guru Blog by Daniel Aronowitz.
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