Arbitration Clause Clips Excessive Fee Suit

An excessive fee suit has been dismissed on relatively unique grounds.

This suit (Stanley v. George Washington Univ., 2019 BL 259889, D.D.C., No. 1:18-cv-00878-JDB, 7/15/19) – another of the suits filed against university 403(b) plans – claims that the fiduciaries of George Washington University’s 403(b) plan breached their fiduciary duty in four ways, alleging that GW:

• caused participants to pay unreasonable recordkeeping and administrative fees;
• imprudently offered unreasonably expensive and underperforming investment options;
• imprudently obtained services from investment funds that required the University to offer participants the funds’ proprietary investment products; and
• improperly retained multiple recordkeepers to administer the plans when a prudent fiduciary would have used only one recordkeeper. 

Those charges are hardly unique – indeed, they have been repeated time and again by a variety of plaintiffs represented by a variety of counsel since the first of these suits were filed in 2016 by the law firm of Schlichter, Bogard & Denton (which is not representing the plaintiff here).

Since then, nearly two dozen institutions of higher learning have been hit with class suits alleging breach of fiduciary duty/excessive fees since August 2016. St. Louis-based Washington University, New York University, the University of Pennsylvania and Northwestern University have prevailed in making their cases in court. This case is the second to be voluntarily dismissed by the plaintiff. In addition to The University of Chicago, Duke University also settled their suit rather than go to trial, while New York University took their case to court and won.

Arbitration ‘Cause’

It’s somewhat ironic then, that in in 2016, for reasons unrelated to the present suit, plaintiff Melissa Stanley entered a confidential settlement agreement with the University in return for, as the court saw it, for “valuable consideration.” An agreement that contained a “General Release” clause that provides, in relevant part, as follows:

“Excluded from this General Release is an action by Ms. Stanley to enforce the terms of this Agreement, claims for vested benefits under employee benefit plans, claims that arise after Ms. Stanley signs this Agreement, any right Ms. Stanley has to file a charge with a government agency (although she releases and waives, and agrees not to seek or accept, any monetary payment or other individual relief in connection with any such charge) and any other claim which cannot be released by private agreement as a matter of law.”

Motions ‘Sensitive’

GW moved to dismiss, arguing that plaintiff Stanley lacked standing because she had released her claims under the terms of the settlement agreement. In response, the plaintiff pointed to other language in the release; argued that her claims were not about, but were in fact an effort to preserve her “claims for vested benefits under employee benefit plans.” The court ordered both parties to submit supplemental briefing on this and other standing questions, and having received those, declared the issue to be “now fully briefed and ripe for consideration.”

That said, Judge John D. Bates of the U.S. District Court for the District of Columbia quickly determined that the plaintiff here had released her claims under the Agreement and therefore lacked standing to sue. In reaching that conclusion he pointed to language in the agreement that declared its purpose was to “release claims to the fullest extent permitted by law,” and that a “broad and unambiguous release” such as the one here needn’t list every conceivable cause of action, and ultimately that the phrase “'claims . . . under employee benefit plans' refers to claims brought pursuant to, or by the authority of, the participant’s employee benefit plan.”

“Hence,” Judge Bates concludes, “the Court finds that Stanley’s claims fall within the general provisions in the release, are not saved by the exclusion for benefits claims brought under employee benefit plans, and are therefore waived.”

What This Means

George Washington wasn’t the first university to invoke the terms of an arbitration agreement as a defense to a suit alleging a breach of fiduciary duties, though they enjoyed a different result. Not quite a year ago, the U.S. Court of Appeals for the 9th Circuit concurred with the judgment of the U.S. District Court for the Central District of California, which had determined that the plaintiffs’ ERISA claims did not have to be submitted via arbitration.

You don’t need an ERISA litigation suit to remind you of the importance of artfully crafting (or carefully reviewing) these agreements – but it surely doesn’t hurt in that regard.