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Princeton Prevails in Stay of 403(b) Suit

By Nevin Adams • December 28, 2017 • 0 Comments
Defendants successfully made their case in staving off a decision in a case involving Princeton University’s 403(b) plans, and in so doing placed their bets on the outcome of another case in the 3rd Circuit.

The Suit

The original suit, Nicolas v. Trs. of Princeton Univ. (D.N.J., No. 2:17-cv-03695, complaint filed 5/23/17), brought by plaintiff Elysee Nicolas individually and as representative of a class of participants and beneficiaries of the Princeton University Retirement Plan and the Princeton University Retirement Savings Plan, charged that the plan fiduciaries “…selected and retained as the Plans’ investment options investment funds and insurance company annuities that caused the Plans to incur far higher administrative fees and expenses relative to the size and complexity of the Plans.”

The suit also alleged that the defendant “failed to engage in a prudent process for the evaluation and monitoring of amounts being charged for administrative expense, allowing the Plans to be charged an asset-based fee for recordkeeping calculated in a manner that was completely inconsistent with a reasonable fee for the service and was grossly excessive for the service being provided.” As other of the series of 403(b) plan university suits have alleged, they also challenged the defendant’s failure to use its bargaining power to negotiate lower fees or conduct competitive bidding for recordkeepers, and in contracting with two recordkeepers instead of one. They also alleged that defendant failed to remove two historically underperforming plan investment options: the CREF Stock Account and TIAA Real Estate Account, each of which they claimed carried high investment management fees and low returns as compared to appropriate benchmarks and comparable investment funds.

The Counts

All of which broke down into three counts: breaches of the fiduciary duties of loyalty and prudence for:

1. unreasonable administrative fees;
2. unreasonable investment management fees and performance losses with respect to the two particular annuities identified above; and
3. failure to monitor fiduciaries and service providers.

Since the initial filing, a number of filings had taken place, both by the defendants and the plaintiffs — then on Halloween, defendant timely filed its Motion for Reconsideration according to the court-approved schedule, and simultaneously filed a Motion to Stay, in view of the docketed appeal to the 3rd Circuit in what the court described as “the similar but unrelated matter of Sweda v. University of Pennsylvania,” a case decided in favor of the fiduciary defendants at trial, but now under appeal.

Reconsider Actions

The defendants in the case (Nicolas v. Trs. of Princeton Univ. (2017 BL 455755, D.N.J., No. 3:17-cv-03695-AET-DEA, unpublished 12/19/17) made two motions: for Judge Anne E. Thompson of the U.S. District Court for the District of New Jersey to reconsider her earlier decision not to dismiss the suit, and to hold off making a decision pending the outcome of a separate, but related case. The plaintiff opposed both motions, and the court now considers those motions.

In considering the motions, Judge Thompson noted that “reconsideration is an extraordinary remedy that should be granted very sparingly,” and cited prior case law in explaining that it can be based on one of three grounds: (1) an intervening change in controlling law; (2) new evidence not previously available; or (3) to correct a clear error of law or to prevent manifest injustice. It is not “an opportunity to raise new matters or arguments that could have been raised before the original decision was made,” nor is it “an opportunity to ask the Court to rethink what it has already thought through,” she wrote. Rather, it is only to be granted “if there is a dispositive factual or legal matter that was presented but not considered that would have reasonably resulted in a different conclusion by the court.”

Sweda ‘Motions’

Here the defendants also sought a stay until the Sweda appeal had been decided, “asserting that the ERISA claims against each university defendant are strikingly similar and disposition of the appeal will clarify the controlling law, conserve judicial resources, and be highly instructive in this action going forward.” For their part, the plaintiff argued that “such an indefinite stay is exceedingly rarely granted, prejudicial to Plaintiff, and needlessly delays necessary discovery.” Moreover, while the Eastern District of Pennsylvania dismissed the complaint in its entirety in Sweda, many other courts — including this court — have allowed similar claims to proceed beyond the motion to dismiss stage. In sum, the plaintiff asserted that the defendants were “engaging in litigation gamesmanship and delaying tactics.”

That said, Judge Thompson noted that, “of all the cases brought to the Court’s attention, however, the only other case decided in the Third Circuit and governed by the law of this circuit is Sweda, and the appeal of that case alone directly bears on the prior and future rulings of this Court.”

‘Stay’ Ways

Acknowledging that a stay would “simplify issues and promote judicial economy to some extent,” she went on to note that “it is undoubtedly true that a Third Circuit ruling on the viability of claims raised in both lawsuits will create a more definite roadmap for this Court in applying controlling law.” Indeed, she wrote that if the 3rd Circuit affirms the decision in Sweda, “this Court would need to revisit its earlier opinion allowing certain of Plaintiff’s claims to proceed under the same standard.”

As for the length of the stay, Judge Thompson said that while no one can predict the exact length of the stay, “the Court is encouraged that a briefing schedule has already been set in the Third Circuit and is scheduled to be completed by January 19, 2018.” Ultimately, she determined that “any anticipated delay is not “excessive considering the likelihood that the Third Circuit’s decision will resolve the dispositive … issues presently in dispute,” granting the stay.

However, the Sweda case worked against defendants in their motion for reconsideration. The defendants having argued that the court committed “clear errors of law in its prior opinion,” Judge Thompson noted that “in view of the impending 3rd Circuit consideration of Sweda, further changes in controlling law are currently anticipated.” She went on to explain that consequently, “it would be unwise for the Court to disturb its previous ruling, given that the Third Circuit will soon resolve many of the precise issues that Defendant requests this Court to reconsider,” as she denied that motion.

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