AT&T Receives Industry Backing in 2017 Excessive Fee Case

Plan sponsor groups, along with employee benefit and recordkeeping industry advocates submitted an amicus brief to the U.S. 9th Circuit Court of Appeals supporting AT&T in its defense of long-running excessive fee litigation in Bugielski v. AT&T Services Inc. The brief argues that the 9th Circuit erred in overturning a summary judgment that favored AT&T and instead remanding the decision to the district court.

The ERISA Industry Committee, the American Benefits Council, the Society of Professional Asset Managers and Recordkeepers and the Committee on Investment of Employee Benefit Assets proposed the brief to the court, which has yet to accept it. They are represented by the Seyfarth Shaw LLP law firm.

The suit against AT&T started in 2017. The plaintiffs, Robert Bugielski and Chad Simecek, alleged that AT&T did not prudently monitor the fee expenses and structure in its retirement plan. In 2021, the U.S. District Court for the Central District of California ruled that AT&T had, in fact, monitored its fee structure prudently.

In August, a three-judge panel on the 9th Circuit remanded the case back to the district court. The appeals court’s ruling stated that when AT&T modified its fee agreements with service providers, it engaged in a prohibited transaction, which would only be permissible if it was necessary for the operation of the plan and if the compensation was reasonable.

Since the fees were the issue, the 9th Circuit ruled that the district court must evaluate the reasonableness of the compensation paid to those service providers, not just whether the process they used was prudent or not.

The brief is intended to strengthen AT&T’s appeal to have the case reheard or heard by the full 9th Circuit in an en banc hearing. The brief says, “The panel’s decision will lead to a flood of speculative litigation, and undo the significant progress the Supreme Court and Courts of Appeals have made in providing clarity on the pleading standard for excessive fee claims.”

The parties’ concern is that the decision effectively requires defendants in excessive fee cases, when motioning for dismissal, to offer an affirmative defense of what are routine fiduciary actions by arguing that there is an exception to a prohibited transaction or that their fees are reasonable. This legal structure would allow more cases to move past early motions for dismissal.

If plaintiffs can simply skip over this stage by alleging that the plan is engaging in a prohibited transaction for routine recordkeeping, then they will often reach the much more costly discovery stage, when fiduciaries will be under great pressure to mitigate legal expenses by settling the claim.

The parties further argue that the 9th Circuit should consider the negative effect the ruling would have on “plan formation and innovation” and Congress’ intent when passing the Employee Retirement Income Security Act.

The 9th Circuit has not yet accepted the brief or ruled if it will rehear the case.