Plaintiffs and a defendant have filed dueling requests to appeal a recent court ruling in the complex ERISA fiduciary-breach case Tussey vs. ABB.
Both the defendant, ABB Inc., Cary, N.C., and the plaintiffs, current and former participants in two ABB 401(k) plans, found something they didn't like in a March 19 ruling by a three-judge panel of the 8th U.S. Circuit Court of Appeals in St. Louis.
In documents filed Wednesday, each group asked that all of the judges on the appeals court reconsider parts of the Tussey v. ABB - or for the three-judge panel to re-hear elements of the case.
In the March 19 ruling, the three-judge panel:
- Upheld a decision by a federal district court by a 3-0 vote that ABB had violated its fiduciary duties by, among other things, failing to control record-keeping costs. On Wednesday, ABB said that decision and the $13.4 million judgment against the company should be overturned.
- Reversed the district court judge's ruling by a vote of 2-1 that Fidelity Investments breached its fiduciary duty by improperly managing float income — money earned from interest-bearing accounts used temporarily by 401(k) plans before plan assets are disbursed when participants move assets among investment options. The reversal eliminated the $1.7 million lower court judgment against Fidelity. On Wednesday, the plaintiffs asked that this reversal be overturned.
- Vacated the lower court ruling, and its $21.8 million judgment against ABB, by a vote of 3-0 that criticized ABB for mapping one investment in the 401(k) plans' menu — Vanguard's Wellington Fund — to the Fidelity Freedom Funds target-date series. The appeals court panel sent this matter back to the lower court “for further consideration.” On Wednesday, both ABB and the plaintiffs asked the full appeals court to reconsider the judges' decision for different reasons.
Although Fidelity has been the record keeper for ABB — it will be replaced by Bank of America Merrill Lynch next month — Fidelity was named as a defendant in only the float-income matter.
In its appeal of the $13.4 million judgment vs. ABB, the company said the appeals court took a “myopic focus on a single component of the (total) fee,” arguing that it should have taken into account the aggregate fee for its plans.
“In other words, the net return is what matters to the investor,” said the appeal filed by several attorneys from the law firms Morgan Lewis & Bockius and Bryan Cave. “The panel failed to address the ABB contention that the total fee, which was indisputably reasonable here, is all that matters and that there is no evidence that an allegedly excessive record keeping component affected the total fee.”
In appealing the reversal of the Fidelity float income decision, the plaintiffs said the appeals court panel majority “disregarded … settled law” in its ruling that float income wasn't a plan asset. They focused on the dissenting judge's remarks that float income was a plan asset and thus subject to ERISA.
“The majority overlooked that Fidelity unilaterally transferred those funds into its own accounts, without the knowledge or approval of the plan fiduciaries,” said the appeal filed by Jerome Schlichter, founding and managing partner of the law firm Schlichter, Bogard & Denton.
As for the mapping ruling, the three-judge panel had “improperly substituted its own judgment for the facts … and overlooked that the mapping was part of the same transaction that caused the excessive record-keeping fees,” Mr. Schlichter wrote. He asked that the full appeals court rehear and reverse the three-judge panel ruling.
The ABB attorneys' objection to the mapping ruling centered on its claim that plaintiffs' waited too long to file a complaint — a six-year limit for the “statute of repose” provision of ERISA. They wrote that the full appeals court should rehear and reject any mapping judgment because ERISA says there is “an absolute barrier to actions brought more than six years after the alleged fiduciary breach.”