Another Fee 'Cut' for Schlichter?

The biggest 403(b) university settlement to date has been approved – but with a cut to the proposed fees for the plaintiffs’ attorneys.

The suit – brought by five employees of Massachusetts Institute of Technology (MIT) and participants in the MIT Supplemental 401(k) Plan – was filed back in August 2016 as one of the first to hit the university 403(b) sector. The suit followed grounds common to this litigation – alleging that the plan fiduciaries made decisions that cost participants more than was prudent. Oh, and there was the alleged quid pro quo between the university and its recordkeeper (Fidelity) where the plaintiffs alleged that Fidelity received inflated fees at the expense of the plan’s participants in exchange for: (1) making donations to the MIT endowment, and (2) Fidelity CEO Abigail Johnson’s seat on MIT’s board of trustees (the allegations regarding Johnson’s ties to MIT and the potential influence were rejected by the court in 2017).

That said, the cash component of the settlement– $18,100,000 – was (and still is) the largest to date of the university 403(b) excessive fee suits. Additionally, it called for $6,032,730 in fees to the plaintiffs’ counsel (Schlichter, Bogard & Denton), as well as reimbursement for costs incurred of no more than $525,000 for plaintiffs’ counsel. Now, that base fee isn’t out of line with the range of contingency fees customary with such cases – which have tended to run between 28% and 33% of the settlement amounts.

But here (Tracey v. Mass. Inst. of Tech., D. Mass., No. 1:16-cv-11620, 1/8/20), Judge Nathaniel M. Gorton of the U.S. District Court for the District of Massachusetts said he would approve an award of attorneys’ fees “not to exceed $4,525,000” and “would base its final award on a comparison of that amount and fees calculated using the lodestar method.” 

The ‘Lode’ Down

Basically, the lodestar method involves multiplying the number of hours reasonably devoted to the case by a reasonable hourly rate – the latter may, of course, vary based on the geographical area, the nature of the services provided, and the experience of the attorneys. And, of course what’s deemed “reasonable.” It’s not the first time that has been raised in these cases; it arose in a challenge to a suit involving SEI, and by the judge in a proprietary fund suit involving Franklin Templeton, who reduced the plaintiffs’ counsel fee to 25% of the settlement from 28%, and in a stable value suit (where it was applied to justify the settlement apportionment).  

Interestingly enough, in a completely different situation and case, Schlichter, Bogard & Denton recently had a proposed modification to a settlement – basically redirecting some of it to cover the expense of expert witnesses in the Tibble v. Edison case. 

So, now we’ll have to see what conclusion the judge here draws once he’s been presented with the time records.