PLANSPONSOR - December/January 2021 - 14

ADMINISTRATION & GOVERNANCE | COVER STORY
To better understand the implications, PLANADVISER
Managing Editor John Manganaro recently had a discussion
with three ERISA [Employee Retirement Income Security Act]
litigators: Costin, along with DeMario Carswell, an associate
with Goodwin Procter LLP in Washington, D.C., and R. Bradford
Huss, a partner at Trucker Huss in Moraga, California, about the
state of ERISA litigation and the plaintiffs who bring the cases
to court. What follows is an edited version of the conversation.
John Manganaro: Can you give us a broad overview of how
much ERISA litigation we've seen in the past decade and what
some of the earlier fiduciary breach cases looked like?
R. Bradford Huss: There's a lot of ERISA litigation these days,
particularly on 401(k) so-called excessive fee cases. But fiduciary
breach cases go back to the early days of ERISA, in the 1980s.
Probably the first big wave of ERISA class actions was employer
stock cases. There were dozens of those. A prime example was
the Enron case.
A related area of ERISA litigation still going on
today is employee stock ownership plan [ESOP]
cases. But probably what most folks would view
as the real start of the big-time class action litigation
was back in 2007 when the Schlichter
Bogard firm of St. Louis brought about 15
lawsuits against very large publicly traded
companies alleging excessive fees being paid and
charged against participants. The key allegations
would charge that the investment management fees
for a fund in the plan were excessive compared with
some long-term funds that allegedly charged lower fees. They
would attack the investment performance of the funds-they'd
kind of cherry pick the performance of a particular fund versus
others out in the market. They attacked the recordkeeping fees
that participants were paying as being excessive, and they'd try
to compare those with some other plans'. That wave is still going
on and as strong as ever.
Manganaro: These cases are financially lucrative for plaintiffs'
attorneys, who like to file them, is that fair to say?
DeMario Carswell: That's completely accurate. ERISA does
provide for attorneys' fees, so it incentivizes plaintiffs firms to
jump in. Schlichter and the firms that started these lawsuits
laid out a blueprint. We're seeing almost a copycat kind of
complaint where they're using the same allegations. And there's
some evolution involved, new suits coming along adding new
claims. So we're seeing some additional wrinkles in there. But
it's absolutely lucrative, and I think that's why we see so many
of these cases.
Emily Costin: Regarding the evolution of these cases, many of
them were focused on the fact that the fees weren't disclosed
and the participants didn't know what they were paying. That
led to the DOL [Department of Labor] regulations in 2012,
which required plans to disclose the fees to participants in a
14 PLANSPONSOR.COM December 2020 - January 2021
clearer way. We're about eight years into those regulations.
That's given these firms many years of data to look at and to
sift through what a plan has done over that time with regards
to fees. More information out there allows them to draft a more
tailored complaint.
Manganaro: How do these cases come to be?
Carswell: This isn't a case where you see a plaintiff or a participant
or former employee of a company who was frustrated or
upset with the performance of his plan and goes out and finds
an attorney. This is where you see these plaintiffs firms doing
all sorts of advertising, trying to find plaintiffs. Before they
get to that point, they're usually searching through, as Emily
mentioned, the substantial information that's out there for
claimants to search through to find plans they think may be a
good target for these suits.
So you'll usually see them sorting through 5500s, which are
filed annually by each plan. They find their list of companies
they want to target. And then they do the work of
finding a plaintiff. It's kind of counterintuitive to
how you normally think of lawsuits being filed.
And much of that has to do with, again, how
lucrative it is for them. The onslaught of cases
over the last year or so has shown that the trend
is not dying-it's actually increasing. We've seen
three times more cases filed in 2020 than in
2019. And much of that is new firms that maybe
filed one or two cases in this space in the past that
are now filing a ton.
Manganaro: Can we talk through the process? I know the
first stage, where defense files a motion to dismiss, is critically
important. Why is that?
Carswell: For plaintiffs firms, it's what they're looking to get
past. That's the point where they build a little leverage. They
know that firms or companies they're suing will have to start
incurring costs. Once you get past motion to dismiss, you're
looking at discovery, and discovery can be a long, tedious and
expensive process. This gives plaintiffs firms at least a good position
to start bargaining from. And I think we see a lot of that.
Manganaro: Emily, could you explain some of the basic
economics here?
Costin: The price tags for these types of cases are very large
and can be eaten up by the long discovery time. It's not only the
expense of the lawyers, but it's the distraction for the company.
We've got clients whose workers are taken away from their dayto-day
jobs so they can gather documents and prepare for depositions.
So I think there's an intangible cost to the companies of
engaging in that discovery.
I would agree with DeMario that once you get past the motion
to dismiss, that's a real pressure point, for both sides. So even if
a defendant feels very strongly on the merits and as though they
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