Just three weeks before a trial date, a class action lawsuit with a “long litigation history” has settled for just under $10 million—along with a cut for plaintiffs’ attorneys “slightly above the presumptively reasonable fee of 25%...”
The settlement—which will wind up covering some 17,000 participants in BlackRock’s Retirement Savings Plan, 70% current participants and 30% former who no longer have an active account, according to the agreement—comes in a case filed on April 5, 2017,[i] by Charles Baird alleging, as do most of these excessive fee suits, that the defendants breached their fiduciary duties by, among other things (and with the involvement of investment consultant Mercer Investment Counseling) charging excessive hidden fees, picking investments that charged up to 871% more than required, and costing hundreds of millions of dollars in losses.
According to the proposed agreement, the $9.65 million settlement provides a recovery of about a third of the potential damages “based on Defendants’ own fund performance benchmarks,” at least according to the calculations of plaintiff’s expert witness Dr. Pomerantz of some $33.7 million. However, the plaintiffs had alleged damages in excess of $100 million earlier in the litigation. There were no conditions or changes in procedure accompanying this settlement.
The settlement states that the plaintiffs’ attorneys intend to seek an award of their attorneys’ fees in an amount not to exceed 29% of the Gross Settlement Amount, “plus all reasonable litigation costs and expenses advanced and carried by Class Counsel[ii] for the duration of this Action.” That is within the range of “normal” in these contingent fee cases, though at the upper end of that range. In fact, even the settlement agreement itself acknowledges it is “slightly above the presumptively reasonable fee of 25%,” though it maintains that it is reasonable relative to the hours expended (“lodestar”[iii]). In fact, the settlement claims that “Class Counsel have expended considerable lodestar in this litigation to date, and a 29% fee would represent less than half of the current lodestar.”
Regarding expenses, the agreement states that Class Counsel have incurred costs and expenses of over $610,000 to date—with approximately $399,700 of the expenses being fees paid to Plaintiffs’ experts.
The named plaintiffs in the case will get (or at least have requested on their behalf) an amount “not to exceed $15,000 per Class Representative”—which, along with the plaintiffs’ attorney fees will be drawn from the settlement amount.
By way of justifying the agreement, the settlement notes that “among other things, Class Counsel took fourteen fact depositions and four expert depositions, received and reviewed over 250,000 pages of documents and emails, and exchanged hundreds of pages of written discovery.” The agreement also notes that the parties “…had a substantial number of discovery disputes that required joint letter briefing before Magistrate Judge Kandis A. Westmore to resolve.” In total, the parties submitted eleven discovery disputes to Judge Westmore, “concerning matters ranging from untimely disclosure of trial witnesses to inadequately prepared Rule 30(b)(6) witnesses,” and that the plaintiffs “prevailed, in whole or in part, on all eleven disputes.”
The settlement notwithstanding, the agreement[iv] notes that “defendants deny all allegations of wrongdoing and deny all liability for the claims in this Action. Defendants maintain that the Plan has been managed, operated, and administered at all relevant times in compliance with ERISA and applicable laws and regulations,” and that this agreement—and “prior negotiations between the Parties, shall in no event constitute, be construed as, or be deemed evidence of, an admission or concession of any wrongdoing, fault or liability of any kind by Defendants.” For their part, the plaintiffs “assert that all the claims asserted in this Action are meritorious,” and that the agreement and prior negotiations “…shall in no event constitute, be construed as, or be deemed evidence of, an admission or concession of any lack of merit of any kind by Plaintiffs with respect to the claims asserted.”
We’ll see if the judge concurs with their assessment(s).
[i] One unique allegation in this case: a claim of excessive fund layering, where a single BlackRock fund invested in a “rabbit hole” of other BlackRock funds—a structure that the suit said “cannibalized” the employees’ investment returns through fees to the tune of some $60 million in retirement savings, according to the suit. The suit claimed that structure was in place for 21 of BlackRock’s in-house funds in the 401(k) plan—and that, in some cases, a single BlackRock fund was funneled into as many as an additional 27 BlackRock proprietary funds, which resulted in at least 26 additional layers of fees.
[ii] The class is represented by Feinberg Jackson Worthman & Wasow LLP and Cohen Milstein Sellers & Toll PLLC.
[iii] Basically, the lodestar method involves multiplying the number of hours reasonably devoted to the case by a reasonable hourly rate—the latter may, of course, vary based on the geographical area, the nature of the services provided, and the experience of the attorneys.
[iv]As many of these settlement agreements acknowledge—but it’s worth recalling—“Plaintiffs were fully aware of the risks of continued litigation and the complex issues involved, making this Settlement reasonable and a fair result under the circumstances. Throughout the litigation, Defendants have indicated they are also confident in their defenses. Notably, Defendants raised several non-frivolous arguments on the ultimate question of liability and on the calculation of damages. Thus, even if the Court were to find at trial that Defendants violated ERISA, Plaintiffs and the Class had to acknowledge the risk of not recovering significant monetary relief. In addition, Plaintiffs believe that an appeal would very likely follow any judgment at trial. Class Counsel, mindful of these risks, believe that a certain result for Class Members now, rather than a possibly larger—but uncertain—recovery many years in the future, weighs in favor of approval of the Settlement.”