Plaintiffs Score Win in Excessive Fee Case Vs. Northwestern

The U.S. Supreme Court vacated the lower court ruling in Hughes v. Northwestern University, an excessive fee case that claimed a breach of fiduciary duty
Image credit: © Ken Wolter | Dreamstime.com

Northwestern University just got a case of the Mondays, thanks to the highest court in the land.

In a unanimous decision, the U.S. Supreme Court ruled in favor of the plaintiffs in Hughes v. Northwestern University, a fiduciary breach case that had been appealed after the lower courts had granted the elite university’s motion to dismiss, which the Seventh Circuit then affirmed. The high court began hearing oral arguments from the defendants and plaintiffs in early December 2021. The heaviest hitter of all excessive fee litigators, Jerry Schlichter of St. Louis-based Schlichter Bogard & Denton, once again argued the case in front of the in-person and virtual justices and walked away with, once again, a rare 8-0 ruling (Justice Amy Coney Barrett recused herself as she was serving on the Seventh Circuit at the time of the initial decision). 

The case, brought by plan participants, centered around Northwestern’s breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA), that claimed the university “violated their duty of prudence by, among other things, offering needlessly expensive investment options and paying excessive recordkeeping fees.” Despite an onslaught of similar litigation, this is only the second excessive fee case heard by SCOTUS. The first one was also a Schlichter affair: Tibble v. Edison.

Justice Sonia Sotomayor issued a succinct opinion, which will now vacate the appellate court’s decision. She noted that “The Seventh Circuit erred in relying on the participants’ ultimate choice over their investments to excuse allegedly imprudent decisions by respondents,” citing previous decisions made in Tibble v. Edison. Calling the Seventh Circuit’s reasoning “flawed,” Sotomayor wrote that by holding that the petitioners’ allegations failed as a matter of law, in part based on the court’s determination that petitioners’ preferred type of low-cost investments were available as plan options, it eliminated any concerns that other plan options were imprudent.  

By vacating the judgment, the case heads back to the Seventh Circuit, so that the “court may reevaluate the allegations as a whole” and “consider whether petitioners have plausibly alleged a violation of the duty of prudence as articulated in Tibble, among other factors.   

Lynn Brackpool Giles
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Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.

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