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Cornell Crafts Cash Settlement with Schlichter

After “hard-fought litigation and months of arm’s length negotiations,” the settlement terms of an excessive fee suit that had resolved most issues in favor of the fiduciary defendants have come to light. 

The Cornell University defendants had successfully fended off most of the claims a year ago in the U.S. District Court for the Southern District of New York, when Judge P. Kevin Castel ruled that while the plaintiffs had plausibly argued that it was imprudent to pay annual recordkeeping fees of more than $115 per participant—but presented no evidence that this caused the plan to suffer losses. Judge Castel also found in favor of the Cornell defendants on charges that specific plan investments underperformed or were too expensive, noting that Cornell’s retirement plan committee reviewed these investments and weighed the pros and cons of retaining them in the plan. Indeed, as recently as May, Judge Castel encouraged the parties to either settle the case or consider waiving the jury trial, citing the impact COVID-19 has had on civil jury trials—a trial that was slated to start next week.

The suit—one of the first of the genre[1] filed four years ago—was filed on behalf of some 28,000 current and former plan participants in Cornell’s 403(b) plan, a plan that, as of December 2014 had $1.9 billion in assets. The one remaining claim—and the one item that was addressed in the settlement—was the issue of the plan’s utilization of retail class mutual funds (TIAA-CREF Lifecycle target-date funds) when less expensive, institutional class shares were available. 

Terms Papers

The settlement (Cunningham v. Cornell Univ., S.D.N.Y., No. 1:16-cv-06525, motion for settlement approval 9/21/20)—$225,000[2] (that’s it, no missing zeroes)—will be used not only to pay the participants’ recoveries, but administrative expenses (to facilitate the Settlement), Plaintiffs’ counsel’s attorneys’ fees and costs, and the Class Representative’s Compensation if awarded by the Court. With regard to the latter, the settlement only calls for $1,000 for Plaintiff Casey Cunningham, “the only named plaintiff who invested in the TIAA-CREF Lifecycle Funds during the period at issue.” The plaintiffs’ counsel—Schlichter Bogard & Denton—will request attorneys’ fees paid out of the Gross Settlement Fund “in an amount not more than one-third of the Gross Settlement Amount, or $75,000, as well as reimbursement for costs incurred of no more than $18,000.”

That said, the agreement notes that plaintiffs’ counsel “will not seek attorneys’ fees: (1) from the interest earned on the Gross Settlement Amount; (2) for time associated with communicating with class members or Defendants during the Settlement Period; and (3) for work required in future years to enforce the settlement, if necessary.”

‘Class’ Actions

As for communicating with the affected class, the settlement states that notice will be sent by electronic email to all class members who have an email address known to Cornell University and/or the Plan’s recordkeeper(s) and by first-class mail to the current or last known address of all class members for whom emails bounced back to the Settlement Administrator shortly after entry of the order preliminarily approving the Settlement. Additionally, plaintiffs’ counsel will develop a dedicated website solely for the settlement, and a link to that website will appear on Plaintiffs’ counsel’s website. “In Plaintiffs’ counsel experience a more extensive notice program by first class mail can cost $33,000 to over $100,000 and would be unreasonable given the size of the settlement.”

Oh—and on a final, cautionary note, “This settlement represents nearly full recovery on the TIAA-CREF Lifecycle Funds claim and does not settle the dismissed claims, which may be appealed.”

Footnotes

[1] Of the roughly 20 universities that have been sued over the fees and investment options in their retirement plans since 2016, there have now been nine announced settlements; the largest to date with MIT, for $18.1 million, and prior to that Vanderbilt University, which in April 2019 announced a $14,500,000 cash settlement, as well as a long list of process/procedural changes that were, as with the MIT settlement (and now the Emory University plan, which settled for $16.75 million, and Johns Hopkins, which settled for $14,000,000, also alongside a number of plan design/procedural changes. In March, Brown University settled for $3.5 million, as well as “other, structural relief.” In May 2018, the University of Chicago entered into a class action settlement for a $6.5 million cash payment and changes to the university’s $3 billion plan, while earlier that year Duke University announced a $10.65 million settlement. Princeton University has recently announced, those the terms are not yet known. On the other hand, St. Louis-based Washington University, New York University and Northwestern University have thus far prevailed in making their cases in court (though the Washington University defendants have just lost an appeal). The University of Pennsylvania, which in 2017 won at the district court level, in 2019 had that decision partially overturned by an appellate court, though the plan fiduciaries’ motion for an en banc review of that decision was rebuffed. Oh, and they continue to be filed, the most recent against the University of Miami in early May.

[2] The settlement agreement explains that “…the settlement fund of $225,000 provides nearly complete recovery on the remaining claim. In the last calculation by Plaintiffs’ expert, based on market conditions at the times of calculation, maximum class-wide damages were $283,803. See Doc. 367-2 at 3. In other words, the settlement recovers nearly eighty percent of possible damages.”