Despite some major recoveries in class actions over excessive 401(k) fees, the group of lawyers litigating these cases remains small, as few are willing to put the whole firm at risk.
“This is too big to do it in an incremental way. It does change the firm. It does mean that you put a massive amount of investment in up front,” said Jerome Schlichter, a founding partner at 21-attorney Schlichter Bogard & Denton.
Schlichter, who filed the first 401(k) lawsuits in 2006, said he knew from the start that these cases had the potential to put his firm out of business.
When Schlichter took on his first 401(k) class action, about 10 years ago, he found that no other firm was filing similar actions for excessive plan fees. By the time he filed a complaint, he had already put nearly two years into researching industry practices, he said.
“It’s similar to the cost-benefit analysis you make in an ordinary case, on steroids,” he said. “We made a decision to go all-in, and from a business standpoint that meant staggering risk, a staggering amount of resources, hiring people to do this work and knowing the guns would be pointed at us.”
At first it seemed the defendants, with their double-digit teams of lawyers, would succeed in killing the effort, he said. In Tussey v. ABB, for example, defense counsel for ABB and Fidelity received $42 million in fees, according to a court filing in that case. Instead of backing away, Schlichter Bogard took the necessary steps to fight back. And now, suits are on the rise and so are the settlement figures and attorney fee recoveries.
“We had to grow. We had to take on numerous lawyers and other staff … we had to make vast investments in technology as a part of document review,” Schlichter said. “From a firm perspective, it was a very great need for resources for the staff to handle these cases.”
Schlichter has taken two of his early cases to trial, and they’re still pending, he said. Others have settled.
For instance, last year, Lockheed Martin Corp. agreed to the largest retirement plan settlement, $62 million, over claims the company invested more than 180,000 employees’ 401(k) savings in overly costly funds. Schlichter Bogard was awarded more than $20 million in fees, not including more than $1.8 million in expenses.
And earlier this year, a court approved a $57 million settlement from Boeing Co. in a 401(k) suit Schlichter filed, which included $19 million in attorney fees and $1.8 million in expenses.
In the past two to three years, as those settlements started to come in, Schlichter said, “other lawyers started noticing that these weren’t just going down the tubes,” leading to more case filings in the area.
A few other firms have taken an interest in similar claims. Nichols Kaster and Bailey & Glasser have filed complaints, for example.
“Up until recently we were really the only ones pursuing these types of cases,” said Michael Wolff, counsel at Schlichter Bogard. “We’re seeing now more firms getting involved in this litigation and going after other plans, certainly.”
However, he said, some firms may not realize the investment required. “These are very difficult cases, very consuming, and it takes a lot of effort,” Wolff said. “You’re going up against some of the largest law firms in the country.”
Mark Boyko, who joined Bailey & Glasser earlier this year from Schlichter Bogard, said firms filing retirement plan class actions should be prepared to spend 10 years or more on the case, and tens of thousands of hours. “It’s an area of litigation where every case is different and new so there’s a large amount of uncertainty in the result you’re going to get and how long it’s going to take to get there,” Boyko said. “This is not one where you file the case with the expectation that the case is going to settle quickly.”
Boyko’s firm, along with plaintiffs firm Izard, Kindall & Raabe, filed a class action last week against Edward D. Jones & Co. alleging mismanagement of funds and excessive fees.
The work cannot be done with just a handful of people, Boyko said. It requires a relatively large plaintiffs firm.
Boyko said it takes an attorney three to five years to be fluent in retirement plan litigation. In addition to lawyers with an understanding of the financial issues at play, firms have to find expert witnesses who are both knowledgeable and willing to challenge industry practices, Boyko said. Paralegals also take time to develop their knowledge, he said.
One recent addition to the retirement plan plaintiffs bar is Sanford Heisler, which filed a suit last week against Columbia University for allegedly using expensive and underperforming retirement plan services. David Sanford, firm chairman and lead counsel on the suit, said Sanford Heisler has evaluated a number of Employee Retirement Income Security Act cases in the past, but did not find them strong enough to file a complaint.
“Because we evaluate them very carefully and we say no most of the time … we have a high confidence level” in the Columbia case, Sanford said.
The Columbia litigation comes on the heels of eight other lawsuits against major universities, all filed by Schlichter Bogard.