In its 2011 edition of Workplace Class Action Litigation Report, law firm Seyfarth Shaw predicts a "make-or-break year" with a flurry of labor-related class action lawsuits being filed and regulators flexing their enforcement muscles. Not out of the recessionary woods yet, lots of retirement plan participants have lost plenty of money and are not prepared to sit back and rest easy. This 664-page tome, authored by Seyfarth Shaw partner Gerald L. Maatman, Jr. and in its seventh annual publication, provides some scary numbers.
- "The top ten settlements of wage & hour, ERISA, and governmental enforcement class actions increased to $1.16 billion, the highest amount ever."
- Employment-related class action settlements rose four-fold in 2010 versus dollar outlays paid in 2009.
- The U.S. Supreme Court has three cases under review (Dukes v. Wal-Mart, AT&T Mobility v. Concepcion and Smith v. Bayer) that are destined to change class and collective action litigation, regardless of the outcome.
While interested parties can register for a February 8, 2011 webinar that details the results of this new study, Seyfarth Shaw attorney and co-chair of the ERISA litigation practice was kind enough to provide insights for readers of www.goodriskgovernancepays.com about ERISA litigation trends.
Q: Please comment on the general theme of the just published 2011 - Annual Workplace Class Action Litigation Report, an evaluation of nearly 900 employment law class action decisions, including dozens of ERISA cases.
A: We don't see the end of the tunnel with respect to mammoth work place class action lawsuits. Despite defense-friendly precedents, the plaintiff's bar is filing more and more cases. Many of them relate to alleged discrimination or benefit claims. Others are examining procedural prudence on the investment side. More than a few large 401(k) sponsors have found themselves on the receiving end of stock drop litigation. Some cases focus on risk-taking as relates to securities lending programs by pension funds. Transparency may also prove to be a hot button if the SEC's risk disclosure case against CalPERS changes things for state and municipal bond issuers.
Q: How did the credit crisis of 2008 and 2009 impact the current state of the ERISA litigation landscape?
A: The last few years have been tough. The global economy continues to endure an extreme stress test. The credit crisis has exposed potential weaknesses in previously unchallenged investments and poor investment returns have triggered a host of other pension woes. Then there is the spate of cases relating to the sub-prime meltdown and others that focus on benefits cutbacks, illiquid assets, service provider due diligence and much more.
Q: The new study documents much larger settlements in 2010 than 2009. Is that true for all types of ERISA cases?
A: No. Settlements in 2010 for stock drop cases were down substantially. In 2009, we saw settlements in the $30 million and higher range, but in 2010, most settlements were less than half that amount. Defense friendly rulings have made fiduciaries and plan sponsors more willing to take the stock drop cases further than before and not to settle early.
Q: What other factors influence settlements?
A: The likelihood of a settlement, let alone the amount, depends on other factors as well. Some judges are reluctant to deny motions to dismiss. The plaintiff's bar is becoming increasingly sophisticated and well financed. Keep in mind too that the political climate encourages regulatory enforcement, the outcome of which could impact civil litigation outcomes. Another interesting phenomenon are the counterclaims being filed in securities lending cases. Some banks that were sued by plan fiduciaries for supposedly taking on too much investment risk have countersued, likely to drive settlements.
Q: Are large organizations more vulnerable to litigation than small to mid-size organizations?
A: Yes and no. On one hand, large plan sponsors and their asset managers, custodian banks and consultants are perceived as having deep pockets. In addition, in some cases, plan assets can drive exposure. Even a few basis points tied to multi-billion dollar portfolios add up to real money. On the other hand, large plan sponsors tend to devote more resources to oversight and plan management, which can reduce the risk of liability.
Q: Given the expanded definition of fidiuciary, as proposed by the U.S. Department of Labor ("DOL") and being reviewed by the U.S. Securities and Exchange Commission ("SEC"), do you agree with those who predict more lawsuits that involve advisors and consultants to plan sponsors?
A: I'm not convinced that heightened regulatory enforcement will necessarily lead to more and/or bigger ERISA lawsuits.
Q: What is the relationship between 10b5 lawsuits and ERISA claims?
A: Sometimes securities litigation cases occur first. In other situations, an ERISA lawsuit may be filed first, as a precursor to a 10b5 allegation. In 10b5 cases, the governing statutes impose a very high standard for pleadings and pleading standards in ERISA cases were previously seen as more lenient. However, the U.S. Supreme Court decision in Ashcroft v. Iqbal ("Iqbal") in 2009 raised the bar for pleading all claims, including ERISA claims and this may be a deterrent to some of the "piggy-back" ERISA filings we have seen.
Q: What are your thoughts on the role of directors as retirement plan fiduciaries?
A: Post Enron, many companies tried to move directors and officers out of retirement plan fiduciary roles as a way to avoid perceived conflicts of interest and worries about material, non-public information being used to influence the menu of 401(k) plan choices for participants. At least at the motion to dismiss stage, however, many courts still allow claims against directors and officers to stand, even if they had little or nothing to do with plan administration.
Q: What are some areas on which fiduciaries should focus on in 2011?
A: Investment fiduciaries need to pay attention to whether they have adequate ERISA and Directors and Officers ("D&O") liability insurance coverage. Additionally, they need to recognize the importance of process, if they don't already. So much litigation centers on incomplete and/or missing process. Also, not keeping participants properly apprised of investment risks and benefit plan changes is another trouble spot.
Attorney Morrison's comments certainly provide food for thought. Interested readers can click "Seyfarth Shaw Publishes 2011 Workplace Class Action Litigation Report, 01/05/11. For those interested in the Iqbal case, click to read the 435 page memo from Andrea Kuperman to the Civil Rules Committee, Standing Rules Committee entitled "Review of Case Law Applying Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal" and dated December 15, 2010.
