Sanctions against law firm, call to cut panel members being sought
In the realm of hotly contested ERISA lawsuits against large-university 403(b) plans, the New York University litigation could be the hottest.
Participants suing the university's two 403(b) plans have petitioned a U.S. District Court judge to remove two members of the NYU retirement plan committee. One defendant has asked the judge to impose financial sanctions against several plaintiffs as well as their lead counsel, the St. Louis law firm of Schlichter, Bogard & Denton LLP, which represents other plaintiffs suing NYU and other big-name universities over their 403(b) plans.
The complaints are linked to a pair of lawsuits by participants — so far unsuccessful — against NYU and multiple university defendants. Participants allege fiduciaries violated several Employee Retirement Income Security Act requirements in managing the New York University Retirement Plan and the New York University School of Medicine Retirement Plan, both managed by the same committee.
Plaintiffs claim, among other things, that plan managers imprudently managed the selection and monitoring of record keepers, causing participants to pay excessive fees. They also assert that fiduciaries failed to remove two poor-performing investment options.
The first lawsuit, Sacerdote et al. vs. New York University, was filed in August 2016 with only the university as the defendant. Twelve months later, U.S. District Judge Katherine B. Forrest in New York dismissed most of the charges. The remaining charges were subject to a trial in April 2018. Ms. Forrest ruled for NYU in July, saying plaintiffs failed to prove the retirement plan committee acted imprudently or that the plans lost money as a result of the committee's actions. Plaintiffs recently filed a notice of appeal with the 2nd U.S. Circuit Court of Appeals in New York.
In the second suit, filed in November 2017, the same plaintiffs sued the New York University School of Medicine, individual retirement plan committee members and consulting firm Cammack La- Rhette Advisors.
Ms. Forrest, in February, dismissed the complaint — Sacerdote et al. vs. New York University School of Medicine, Cammack La- Rhette Advisors LLC, et al. — saying it was similar to the first lawsuit. In August, the plaintiffs asked the 2nd Circuit to vacate the judgment and reverse the lower court's dismissal of the complaint against Cammack LaRhette Advisors.
The remove-the-fiduciaries complaint and the penalize-the-plaintiffs complaint were triggered by the sharply worded opinions issued by Ms. Forrest in her rulings on the two ERISA lawsuits.
Based on the judge's dismissal of the second case, the NYU medical school filed a motion with the judge in mid-September to award "appropriate monetary and non-monetary sanctions," including attorneys' fees related to this lawsuit. They cited the judge's comments in her dismissal of the case, which she called an end-run around her rulings in the first complaint.
"Plaintiffs are not entitled to another bite at the apple simply because they have repackaged various claims and named more specific defendants," she wrote in her Feb. 23 opinion.
This second lawsuit was "a blatant attempt to replead an existing action," she wrote. "Plaintiffs cannot file the same case twice in an attempt to avoid the court's previous rulings."
John Beckman, an NYU spokesman, said the sanctions request "speaks for itself." The university was "troubled by certain tactics employed by the Schlichter law firm," he added.
Jerome Schlichter, founder and managing partner of the law firm representing the participants, disputed the request for sanctions.
"To protect our clients, we had to file a case against individual fiduciaries of NYU, because NYU initially claimed they had no responsibility for the acts of fiduciaries to whom they contended they had delegated all authority," he wrote in a response to questions.
The fiduciaries cited by Mr. Schlichter are Margaret Meagher and Nancy Sanchez, who were sharply criticized by the judge in her July ruling on the first case.
Although the judge said the university didn't violate ERISA in managing the two 403(b) plans, she chided the performance of Ms. Meagher and Ms. Sanchez.
Referring to testimony by Ms. Meagher, the judge wrote in her July opinion: "The court found her testimony concerning — she did not demonstrate the depth of knowledge one would expect from a fiduciary." Ms. Meagher is co-chairwoman of the NYU retirement plan committee.
"She made it clear that she viewed her role as primarily concerned with scheduling, paper movement and logistics," the judge wrote. "She displayed a surprising lack of in-depth knowledge concerning the financial aspects of managing a multibillion-dollar pension portfolio and a lack of true appreciation for the significance of her role as a fiduciary."
As for Ms. Sanchez, a member of the retirement committee, the judge wrote: "Her testimony was also troubling. Not only did she fail to demonstrate a satisfactory understanding of key documents and her role as a fiduciary, but she also relied on Meagher to review certain key documents ... and noted that she did not consider herself a fiduciary."
Ms. Sanchez was "unfamiliar with basic concepts relating to the plans," wrote the judge, adding that her testimony "suggested that Sanchez does not view herself as having adequate time to serve effectively on the committee."
Using the judge's comments, Mr. Schlichter petitioned the judge in August to order the two women removed as fiduciaries. This petition — as well as the sanctions request — remain pending.
"We believe they have not met the standard that a fiduciary must meet in guarding the retirement assets of employees and retirees," Mr. Schlichter wrote to P&I
"This motion is as lacking in merit as their case proved to be," Mr. Beckman, the NYU spokesman, wrote in an email.