Nearly a decade after papers were first filed in a Los Angeles federal court, the end may finally be in sight for litigants in Tibble v. Edison, the landmark 401(k) excessive fee lawsuit famous for making it to the Supreme Court.
A decision last week by the full Court of Appeals for the Ninth Circuit is sending the case back to the District Court, the next stop in a meandering legal odyssey that seems to have survived the extent of procedural options available to both the plaintiffs and defendants in the case.
Some industry watchers say the case set the table for a new generation of lawsuits against defined contribution plans.
Others have said it will forever change how sponsors of 401(k) plans must interpret the Employee Retirement Income Security Act.
In May of 2015, the Supreme Court issued a unanimous opinion in favor of plan participants when it overturned two lower court rulings that broke for the defendants in the case, Edison International, the California-based utility company.
At issue were the allegedly excessive fees of retail share classes of three mutual funds. Identical funds in the form of cheaper institutional shares were available but not offered. At the time of the case’s original filing in 2007, Edison’s 401(k) plan held roughly $3.8 billion in assets for about 20,000 participants.
The case also examined ERISA’s six-year statute of limitations provision.
In 2009, the U.S. District Court for the Central District of California issued a partial summary judgment. Fiduciaries to Edison’s plan were found in breach of ERISA with respect to the retail shares of mutual funds offered in the plan after 2001, or within ERISA’s six-year statute of limitation.
But the excessive fee claims against mutual funds offered to participants before the six-year statute of limitation were dismissed.
On appeal, that decision was upheld in the 9th Circuit in March of 2013.
After agreeing to hear the plaintiffs’ appeal, the Supreme Court issued a forceful decision that was widely viewed as a victory for the plaintiffs in the 401(k) plan. The decision also created a new precedent for interpreting ERISA’s statute of limitation.
In effect, the Supreme Court said ERISA’s fiduciary obligations require plan sponsors to continually monitor the prudence of an investment, and to remove imprudent investments even if they were offered outside the six-year statute of limitation.
The ongoing duty to monitor investments in 401(k)s is “separate and apart” from plan fiduciaries’ duty to exercise prudence in selecting investment options, wrote Justice Stephen Breyer in the court’s opinion.
“So long as a plaintiff’s claim alleging breach of the continuing duty of prudence occurred within six years of suit, the claim is timely,” Justice Breyer wrote.
Breyer said that when the 9th Circuit originally ruled in favor of Edison, the appellate court failed to recognize the principals of trust law, from which ERISA is based.
A trustee must “systematically consider all the investments of the trust at regular intervals” to meet its fiduciary obligations, wrote Breyer for the high court, which remanded the case back for the 9th Circuit to re-consider.
9th Circuit to SCOTUS: we were right
In April of 2016, the 9th Circuit issued a decision on remand, upholding its original decision in favor of Edison.
The three-judge panel ruled that the plaintiffs could not make the ongoing-duty-to-monitor argument so late in the game, because they failed to make the argument at the district court level or during their original appeal.
In effect, the 9th Circuit said the plaintiffs had changed their argument along the road to the Supreme Court. “We recognize a general rule against entertaining arguments on appeal that were not presented or developed before the district court.”
En banc petition
Upon that setback, the plaintiffs petitioned the 9th Circuit for “en banc” review, requesting the 11 sitting appellate judges of the 9th Circuit to review the merits of the panel decision issued in favor of Edison last spring.
The full circuit ruled in favor of the participants, and ordered the district court to rehear the case to determine whether Edison should have switched its retail-class fund shares to institutional shares to fulfill its duty to monitor investments in the plan.
The district court has also been ordered to re-examine the attorneys’ fees owed for plaintiffs’ representation. Plaintiffs originally requested $2.5 million in attorneys’ fees.
Schlichter preparing to go back to trial
The latest turn in the saga of Tibble v. Edison begs the question as to whether the slog will continue.
Edison could reposition its defense. Or the company could finally settle the suit.
“Edison International and Southern California Edison understand the importance of their 401(k) plan to employees’ retirement goals. The companies are committed to providing a wide array of high-quality investment options in the plan. The companies’ and plan fiduciaries’ efforts to act in the best interests of plan participants are reflected in the numerous rulings in our favor in the class-action challenge to our 401(k) plan,” the company said in a statement. Rosemead, CA-based Edison International had over $11.5 billion in revenue in 2015.
Jerry Schlichter, founding partner of St. Louis-based Schlichter, Bogard & Denton, the firm that has been lead representation for the plaintiffs throughout the case, is preparing to re-try the case in the lower court.
“I can’t speak for the Defendant, but we are planning on going to trial,” said Schlichter by email.
“When we committed to bringing this case, as with every case, that commitment was to do whatever it takes, no matter how long or how costly, to obtain compensation for the employees and retirees for the loss of their retirement assets, and that is what we will continue to do until completion,” he added.
The District Court for the District of Central California will now have to determine the losses employees suffered from the excessive fees in the three mutual funds in question, the earnings those losses would have made over the past decade, as well as the amount attorneys will have to be reimbursed, said Schlichter.