Defendant, plaintiffs both find something to appeal in ABB ruling

Plaintiffs and a defendant have filed dueling requests to appeal a recent court ruling in the complex ERISA fiduciary-breach case of Tussey vs. ABB Inc.

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 April 16, each group asked that all 11 judges on the appeals court reconsider parts of the decision. As an alternative to a full-court review, each petition asked that the three-judge panel rehear the elements of the March 19 decision.

In the March 19 ruling, the three-judge panel:

• Upheld, by a 3-0 vote, a decision by a U.S. District Court in Jefferson City, Mo. that ABB had violated its fiduciary duties by, among other things, failing to control record-keeping costs. On April 16, ABB said that decision and the $13.4 million judgment against the company should be overturned.


• Vacated a 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.” Both ABB and the plaintiffs have asked, for different reasons, that this action be reconsidered.


• 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. The plaintiffs asked that this reversal be overturned.

Although Fidelity has been the record keeper for ABB — it will be replaced by Bank of America Merrill Lynch in May — Fidelity was named as a defendant in only the float-income matter.

“We agreed with the recent decision by the Court of Appeals affirming that Fidelity's actions were in all respects consistent with our fiduciary duties to our clients and all legal requirements,” Vincent Loporchio, a spokesman for Fidelity, said in an e-mailed comment.

Tussey vs. ABB is one of the most-watched ERISA-breach cases by sponsors and record keepers because the District Court ruling, in March 2012, represented a solid victory for plaintiffs and because the recent appeals court panel decision presented such a complex split decision. The original suit was filed in late 2006, and the prospect of a prolonged appeals process suggests the case is far from being resolved.

In its appeal of the $13.4 million judgment against ABB, the company said the appeals court took a “myopic focus on a single component of the (total) fee,” arguing 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.”

By upholding the lower court decision, the appeals court panel's ruling “invites a spate of litigation on behalf of 401(k) plan participants, even where total fees are entirely reasonable,” the ABB attorneys wrote.

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. The plaintiffs' response to the appeals court ruling 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.

“Funds are plan assets from the moment they are "segregated from the employer's general assets,'” Mr. Schlichter wrote in reference to the dissent by Judge Kermit Bye. “As Judge Bye notes, there was no reason for the panel majority to resort to common law notions of property rights to decide whether Fidelity's float accounts were plan assets.”

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's ruling.

Mr. Schlichter cited the District Court judge's ruling that the Wellington Fund was replaced with the Fidelity Freedom Funds series because, the judge wrote, “it generated more in revenue sharing for Fidelity.” By vacating the district judge's ruling, “this factual finding has been effectively undone by the panel's decision without the panel taking issue with its support,” Mr. Schlichter added.

The ABB attorneys' objection to the mapping ruling centered on their assertion that the plaintiffs' waited too long to file a complaint — there is a six-year limit for the “statute of repose” provision of ERISA. The attorneys 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.”