Adviser Off the Hook in NYU 403(b) Plans Case

A federal court judge has denied a motion for summary judgment in a case alleging New York University (NYU) allowed excessive fees in two 403(b) plans by retaining high-cost and poor performing investment options and by using multiple recordkeepers instead of a single provider.

In a one-page, hand-written order, U.S. District Judge Katherine B. Forrest of the U.S. District Court for the Southern District of New York, said, “No reply is necessary on this matter. It is clear that the remaining issues in this case implicate questions of fact. The questions of whether NYU’s actual processes and controls were prudent cannot be resolved on motion given the state of the factual record (including contradictory experts’ views on the topic).”

Forrest had previously pared down the complaint, only moving forward certain claims of breaches of fiduciary duty of prudence under the Employee Retirement Income Security Act (ERISA).

Forrest also dismissed a new complaint brought by plaintiffs and the same attorneys, in which the plans’ adviser Cammack Retirement Group was added as a defendant. While procedurally positioned as a new case, the amended complaint “is a blatant attempt to replead an existing action,” Forrest wrote in the order dismissing that complaint.

Plaintiffs argue further that NYU and the new complaint’s defendants have divergent interests because NYU cannot be held liable for the “entities or persons” that caused the plan’s losses.  But, Forrest found that the argument that NYU “may argue at trial that it has no responsibility or liability for the imprudent acts of the committee or its members,” does not mean that it does not in fact have responsibility or liability; in fact, she said, plaintiffs are likely to strongly counter that argument at trial. “Speculation that, at trial, NYU would blame the committee but the committee would blame NYU does not warrant two duplicative actions. Ruling otherwise would suggest that the suits in which entities, their subdivisions, and employees are co-defendants—of which there are many—should be split,” Forrest wrote.

She also found that while two new claims are against defendant Cammack only, that is not enough to make the entire case a new and separate action. “Those claims should have been brought by joining Cammack earlier in the Sacerdote I litigation. In addition, the Court has granted class certification to plaintiffs in Sacerdote I; as plaintiffs noted, there is a “unity of parties-in-interest” between the two cases,” Forrest wrote.

She noted that the plaintiffs in Sacerdote I who may recover encompass the same set of employees that could recover in the new case. Also, resolution of the claims in the new case relies on the same set of facts as resolution of Sacerdote I.

“The allegations in both cases rely on the management of the Plans—accordingly, the set of facts underlying each case is the same. Any new claims … are, to a large extent, repackaged versions of claims dismissed by the Court in Sacerdote I. While several claims are new in theory, they merely rephrase previously brought claims and, more importantly, are based on the same set of facts at issue in Sacerdote I,” Forrest wrote.