United States District Court, W.D. Missouri, Southwestern Division
NANETTE K. LAUGHREY, District Judge.
The Eighth Circuit remanded this case for application of the Firestone abuse of discretion standard to the Defendants' decision to remove the Vanguard Wellington Fund from the PRISM Plan and transfer its assets to the Fidelity Freedom Funds. Tussey v. ABB, 746 F.3d 327, 335, 338-39 (8th Cir. 2014); Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). Having reviewed the trial record and applied the abuse of discretion standard, the Court finds that the Defendants did abuse their discretion. Nonetheless, Plaintiffs have failed to prove damages consistent with the method of damage calculation suggested by the Eighth Circuit. Therefore, judgment is entered in favor of the ABB Defendants on this remaining claim.
I. Record on Remand
Both parties have asked to expand the record on remand. The ABB Defendants have opposed Plaintiffs' request and Plaintiffs have opposed ABB's request. The Court has rejected each party's request for expansion because this matter was not remanded by the Eighth Circuit for a new trial; it was remanded for further consideration. The Eighth Circuit directed the Court to apply the abuse of discretion standard to the Wellington/Freedom Funds dispute and to reconsider the proper method for determining damages, if any. There is nothing in the Eighth Circuit directive that suggests the Court should expand the record. See Molasky v. C.I.R., 997 F.2d 1241, 1242-43 (8th Cir. 1993); Poletti v. C.I.R., 351 F.2d 345, 348 (8th Cir. 1965).
In addition, the procedural history and conduct of the parties does not support expanding the record at this late date. Both parties conducted extensive discovery and filed voluminous substantive motions with the Court leading up to trial in January 2010. Both parties had the opportunity to fully develop the record during a four week long trial. For eighteen months following trial, the parties continued to file supplemental authority with the Court. During this time, no one argued that Firestone deference was the applicable standard of review, although all parties had an opportunity to do so and to develop the record to address Firestone. Any evidence relevant to Firestone deference should have been presented during the original trial. See Schoenholtz v. Doniger, 112 F.R.D. 110, 113 (S.D.N.Y. 1986) ("[The] Court should not utilize its discretion to grant such relief unless the interests of justice require it, nor should any party be afforded such relief where it has not carried its burden of establishing that its failure to produce the evidence which it now seeks to offer was not the result of its own lack of diligence.'"). While ABB raised Firestone on appeal, it did not argue to the Eighth Circuit that it needed to develop the record on this issue or that it had been deprived of the right to develop the record. It is now too late to bring in additional expert testimony to opine about ABB's conduct.
Plaintiffs seek to expand the record to include new methods for calculating damages, all of which could have been presented at trial. Plaintiffs strategically chose different methods for calculating damages at trial, all of which have been found to be speculative. It does not promote the principle of finality to permit a party to develop a new strategy on remand or to conduct additional discovery to address concerns raised by prior rulings of the courts.
Fairness, of course, is always a powerful consideration. In the interest of fairness, the Court did permit the parties to "conduct limited discovery exclusively related to the damages calculation suggested by the 8th Circuit." [Doc. 755]. However, neither party has presented evidence consistent with such a calculation, nor asked for additional discovery to do so.
Under these circumstances, the Court cannot say that any issue of fairness outweighs respect for finality. Therefore, the Court will review the record developed during trial and reviewed by the Eighth Circuit, to determine whether the ABB Defendants abused their discretion, and if so, the proper measure of damages.
II. Findings of Fact
The named Plaintiffs and class members are present or former participants in the PRISM Plan,  which is a defined contribution pension plan regulated by the Employee Retirement Income Security Act of 1974 ("ERISA"). Defendant ABB Inc. is the sponsor of the PRISM Plan. Defendant Employee Benefits Committee of ABB Inc. ("EBC") is a three-member committee appointed by ABB's board of directors to oversee ABB's employee benefits programs. It is the named Plan Administrator. Defendant Pension Review Committee of ABB Inc. ("PRC") has authority to control and manage the investment of the assets of the PRISM Plan. Defendant Pension & Thrift Management Group of ABB Inc. ("PTM") acts as the staff of the PRC. Defendant John W. Cutler, Jr. ("Cutler") was Director of the PTM.
At all times relevant to this lawsuit, Fidelity Trust was the PRISM Plan's trustee and record keeper. Fidelity Trust was paid for these services through a combination of revenue sharing and hard dollar fees. Prior to April 2001, participants in the Main PRISM Plan paid a $10 hard dollar fee and participants in the Union PRISM Plan were charged a $33 fee, of which ABB was required to pay the difference. The rest of Fidelity Trust's fees came from revenue sharing paid by investment companies who were chosen to be on the PRISM platform.
When revenue sharing was used to pay Fidelity Trust, its fee grew as the assets of the Plan grew, even if Fidelity Trust provided no additional services to the Plan. Likewise, if the Plan's assets declined, the amount paid to Fidelity Trust could decline. However, when Fidelity was concerned that revenue sharing would decline, it asked for hard-dollars to make up the difference. To avoid paying hard-dollar fees, ABB defendants worked to increase revenue sharing for Fidelity Trust.
Fidelity's relationship with ABB was not limited to the PRISM Plan. Shortly after becoming the record keeper for the PRISM Plan, Fidelity began providing total benefit outsourcing services to ABB. These corporate services included doing the payroll for all ABB employees, the recordkeeping for ABB's health insurance and welfare plans, and management of ABB's defined benefit retirement plan and other retirement vehicles for highly compensated employees ("ABB corporate services"). Fidelity lost money on the corporate services that it provided to ABB, but it made a substantial profit on the work it did for the PRISM Plan because the PRISM Plan was paying above market rate for its record keeping services. Therefore, it was in ABB's interest to maintain the status quo of its mutually beneficial relationship with the Fidelity Trust for its corporate services and the PRISM Plan record keeping.
At a PRC meeting on May 23, 2000, Cutler and John Sackie, head of employee benefits for ABB, proposed an "investment policy statement" ("IPS") for the PRISM Plan. Cutler obtained a written opinion letter from the Plan's outside counsel confirming that ABB had to comply with the IPS "and that a failure to follow the [IPS] would be a breach of fiduciary duty." [Ex. P328 at p. 4 (ABB-KEN 42749); Tr. 957-58]. The IPS was eventually approved unanimously by the PRC.
The IPS had a three tiered investment strategy. Tier 1 was designed for participants unwilling or unable to make personal asset allocation decisions. [Ex. P20 at p. 2 (ABB-KEN 2735)]. To accommodate these participants, the IPS provided that "the Plans will offer several managed allocation' funds designed to offer the participant a professionally managed, well diversified fund or funds appropriate for the participants' investment goals." Id. Tiers 2 and 3 offered participants various passively and actively managed fund options. Id. at 2-3.
Because only a few investments were offered to PRISM Plan participants, the IPS had a roadmap for the PRC to follow in selecting, deselecting, and monitoring PRISM Plan investments. The PRC provided that before removing a fund, the PRC would examine the fund's performance for a three to five-year period, determine if there were five years of under-performance, and if so, place the fund onto a "watch list, " and then remove the fund within six months, if necessary. The IPS also stated that if there was a change at one of the funds on the PRISM platform "that might cause PTM to loose [ sic ] confidence in a fund manager's ability to continue to add value for the plan participants, " the PTM could report this change to the PRC which could subsequently remove the fund from the Plan. [Ex. P20 at p. 4 (ABB-KEN 2737)]. The IPS also required that new funds be selected through a winnowing process. [Ex. P20 at p. 3 (ABB-KEN 2736); see also Tr. 1068-80].
As of 2000, the PRISM Plan included one income fund and eight mutual funds including the Vanguard Wellington Fund. The Wellington Fund is an actively managed balanced mutual fund, which invests in both stocks and bonds. It is a well-known fund that has a seventy-year track record. [Tr. 1815-16]. Except for one "weak" year, between 1996 and 2000 the performance of the Fund remained "stellar" and "consistent." Id. Even including the one year of poor ...