Fake litigation, does it exist?
Is it fake litigation?
In January, 2016, the 8th Circuit Court of Appeals upheld a lower court ruling dismissing an excessive-fee claim against The Principal Financial Group, which served as a recordkeeper to the 401(k) plan sponsored by McCaffree Financial Corp located in Overland Park, Kansas. Participants in McCaffree’s 401(k) plan alleged The Principal charged excessive fees by putting participants in separate accounts that included Principal’s proprietary mutual funds.
McCaffree and Principal Life Insurance Company entered into a Group Annuity contract on September 1, 2009, where Principal agreed to offer investment options and associated services to McCaffree employees participating in the McCaffree retirement plan. Five years later, in 2014, the plan sponsor, McCaffree, sued its service provider, Principal, claiming excessive and unnecessary fees were charged against certain investment options. Early in 2015, those claims were dismissed in U.S. District Court for the Southern District of Iowa, on the grounds that The Principal was not acting as a fiduciary in acting as the plan’s recordkeeper.
“These cases suggest that a service provider will not be deemed a fiduciary absent some showing that the service provider exercised discretion in a way that caused the harm complained of, e.g., providing separate accounts from a menu agreed to in the contract with the plan is insufficient to make the provider a fiduciary,” Robert Rachal, senior counsel at Proskauer Rose in New Orleans, told Bloomberg BNA. “Rather, the plaintiff will need to show something like that the service provider actually exercised its discretion post-contract to skew the selection to funds with more expensive fees.”
In its decision, the appellate court noted that because Principal was never a named a fiduciary, McCaffree participants needed to prove the actions The Principal took administering the plan were fiduciary in nature. (source in part: Benefits Pro)
Fake litigation and the courts…
If you ask the “experts,” the recent outburst of plaintiff bar litigation against insurance companies alleging excessive fees and fiduciary breach is an attempt to take advantage of large class action settlements or awards. But for the most part, these cases are being thrown out by the district court judges and appeal courts, or result in less than reasonable settlements. At the same time, these lawsuits are clogging our court system, forcing shorter hearing schedules and less than thoroughly reviewed decisions by the judges. Even with the new administration well entrenched, we continue to hear about “fake news,” which in many cases are true allegations leveled at the media by the Trump administration. But these fake news items accomplish a cynical goal… fake news detracts from Trump’s ability to govern this nation.
One would ask then, why fake litigation? If it exists, this approach may enable the financial institutions to regulate risk… if they can develop case law that contradicts the DOL’s position that financial institutions are fiduciaries, then the regulator’s hands are tied when they try to enforce the conflict of interest ruling in court. These decisions will effectively remove the fiduciary safeguards intended for the retirement investor.
How can these cases be identified? There are factors to consider:
- Does the case technically have a standing in court? For example, are there real damages for the plaintiff if he/she wins the case? It makes no sense to spend tens of thousands of dollars to file a lengthy and expensive legal action against a major insurance carrier with deep pockets if the personal settlement award is only a few hundred dollars.
- Another point to consider is the litigator. Is the same law firm often filing these suspect lawsuits? If the answer is yes, the evidence that the firm is filing fake lawsuits becomes more defined.
- Is the defendant repeatedly the target of litigation. Again, if the answer is yes, there is a possibility that the defendant has colluded with the plaintiff.
- Does the plaintiff always seen to lose the case? This can also support an argument that these lawsuits are fake, and may involve collusion between the alleged defendant and the plaintiff (or the plaintiff’s lawyer).
- If the case is thrown out due to no standing, is the case refiled in a different court district? If there is no standing in a legal matter, the magistrate judge typically will rule the case to be invalid. This decision will be adverse for the parties involved, so the matter will simply be retried in a more favorable setting.
- Does the same judge always handle the suspect case? Civil cases are assigned randomly when first filed. If deemed necessary, the Magistrate or Chief Justice can reassign the case to whomever they wish. Financial institutions wield a huge amount of power in the states where they are located. The CEO and other top executives often associate with officials holding State and Federal government positions, and that includes judges. While a judge is given the option to recuse themselves, they are not required to do so in these cases; if there is collusion at the district court system level, this collusion will assure a victory for the fake litigation perpetrators. If these cases are typically filed in the same Federal district, with the same judge, there could be collusion at the court level.
These court judgments, if ruled in favor of the plaintiff, often pay little or no award to the litigant. Not surprisingly, most of these actions are found to favor the defendant, with the appellant court often supporting the district court ruling. These cases will often have flaws built into the pleadings that forces the judge to rule one way or another, depending on the desired result by the perpetrators. Unfortunately, these decisions often have a disastrous impact on the retirement savings industry, especially whether the issues relate to excessive fees or the service provider’s fiduciary status.