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Tussey v. Abb, Inc.

United States Court of Appeals, Eighth Circuit

March 9, 2017

Ronald C. Tussey; Charles E. Fisher; Timothy Pinnell Plaintiffs-Appellants
v.
ABB, Inc.; John W. Cutler, Jr.; Pension Review Committee of ABB, Inc.; Pension & Thrift Management Group of ABB, Inc.; Employee Benefits Committee of ABB, Inc. Defendants-Appellees Fidelity Management Trust Company; Fidelity Management & Research Company Defendants American Association of Retired Persons Amicus on Behalf of Appellants Securities Industry and Financial Markets Association Amicus on Behalf of Appellees Ronald C. Tussey; Charles E. Fisher; Timothy Pinnell Plaintiffs-Appellees
v.
ABB, Inc.; John W. Cutler, Jr.; Pension Review Committee of ABB, Inc.; Pension & Thrift Management Group of ABB, Inc.; Employee Benefits Committee of ABB, Inc. Defendants-Appellants Fidelity Management Trust Company; Fidelity Management & Research Company Defendants

          Submitted: September 21, 2016

         Appeals from United States District Court for the Western District of Missouri - Jefferson City.

          Before RILEY, Chief Judge, MURPHY and SMITH, Circuit Judges.

          RILEY, Chief Judge.

         A class of employees who participated in ABB, Inc.'s retirement plans-"401(k) defined contribution savings plans, " to be precise, see generally 26 U.S.C. § 401(k)-accuse ABB and its agents (collectively, the ABB fiduciaries) of managing the plans for their own benefit, rather than the participants'. In an earlier appeal, we directed the district court to "reevaluate" how the participants might have been injured if the ABB fiduciaries breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001, et seq., when they changed the investment options for the plans. See Tussey v. ABB, Inc., 746 F.3d 327, 338 (8th Cir. 2014). Because the district court apparently mistook that direction for a definitive ruling on how to measure plan losses, and as a result entered judgment in favor of the ABB fiduciaries despite finding they did breach their duties, we vacate the judgment on that claim and remand for further consideration regarding whether the participants can prove losses to the plans. Because we thus reopen one of the participants' substantive claims, we also vacate and remand the district court's award of attorney fees.

         I. BACKGROUND[1]

         The plans offered participants a menu of options for investing the money in their accounts.[2] In 2000, ABB's Pension Review Committee adopted a written policy statement describing "the underlying philosophy and process for the selection, monitoring and evaluation and, if necessary, removal of investment options." The policy statement said the plans would offer investments in three "tiers, " organized by how much active involvement they demanded from investors. The first tier, meant "[f]or participants unwilling or unable to make a personal asset allocation decision, " was to "offer several 'managed allocation' funds designed to offer the participant a professionally managed, well diversified fund or funds appropriate for the participants' [sic] investment goals."

         John Cutler, Jr., the director of the committee's staff, thought those "'managed allocation'" funds should be "target-date" or "life-cycle" funds, which dynamically change their mix of investments to become more conservative as a specified date (such as an employee's expected retirement) approaches. Cutler favored the Fidelity Freedom Funds, a family of funds with target dates at ten-year intervals from 2000 to 2040. Cutler also suggested removing the Vanguard Wellington Fund, an established fund that invested in stocks and bonds in a generally static ratio. The committee agreed on both points. Removing the Wellington Fund raised the question of what to do with the money participants had invested in it-roughly $123 million, representing about 8.4% of the total assets in the plans. The ABB fiduciaries decided to move the money into the Freedom Funds, a process called "mapping" assets from one investment to another. Participants whose money was mapped to a Freedom Fund remained free to choose a different investment option (or options) at any time, but the mapping decision made the Freedom Funds the default for anyone who had been invested in the Wellington Fund and did not take affirmative steps to do something else with their money.

         In 2006, the participants sued the ABB fiduciaries and two Fidelity companies-the record keeper for the plans and the investment advisor for the Fidelity mutual funds included in the plans-under ERISA. See 29 U.S.C. §§ 1109, 1132(a)(2) (fiduciary liability and cause of action). After a bench trial, the district court found both sets of defendants "breached some fiduciary duties that they owed to the . . . Plans." See id. § 1104(a)(1) (fiduciary duties). In particular, the district court found the ABB fiduciaries breached their fiduciary duties by (1) deciding effectively to replace the Wellington Fund with the Freedom Funds based on self-interest rather than what was best for the plans, (2) failing to properly monitor and control record keeping costs, and (3) agreeing to make the plans overpay for Fidelity's services in return for Fidelity charging ABB less for corporate services it bought for itself. The Fidelity defendants were liable as well, according to the district court, because interest earned when money in the process of being added to or taken out of plan investments was invested overnight-called "float income"-should have been credited to the plans, not back to the investments. The district court awarded the participants $21.8 million against the ABB fiduciaries for swapping the Wellington and Freedom Funds, $13.4 million for the ABB fiduciaries' other breaches, and $1.7 million against the Fidelity defendants on the float claim, plus attorney fees of $12.9 million from all the defendants jointly and severally, see id. § 1132(g)(1) (attorney fees).

         The defendants appealed. We vacated the finding of breach for changing the investment options, explaining the district court should have afforded more deference to the discretion the plans explicitly granted the ABB fiduciaries. See Tussey, 746 F.3d at 338. Because the issue could be relevant again on remand-if the district court still found a breach after a properly deferential review-we added that, "[a]s calculated, " the original award for switching the funds was "speculative and exceed[ed] the 'losses to the plan[s] resulting from' any fiduciary breach." Id. at 338 n.7, 339 (quoting 29 U.S.C. § 1109(a)). The district court had calculated the plans' losses by comparing the returns on the Freedom Funds to what the participants would have earned if they had invested in the Wellington Fund instead. We suggested "it seems the participants' mapping damages, if any, would be more accurately measured by comparing the difference between the performance of the Freedom Funds and the minimum return of the subset of managed allocation funds the ABB fiduciaries could have chosen without breaching their fiduciary obligations." Id. at 339. We affirmed the ABB fiduciaries' liability on the other claims, reversed the judgment against the Fidelity defendants, and vacated the fee award-now only against the ABB fiduciaries-so the district court could account for the resolution of the remanded issue. See id. at 336-37, 340-41.

         On remand, the district court again held the ABB fiduciaries breached their fiduciary duties. Yet the district court concluded the participants had failed to prove any losses under the theory we "tacitly approved" in the first appeal-comparing the Freedom Funds' returns to the worst-performing of the funds the ABB fiduciaries could have properly chosen-so the ABB fiduciaries nonetheless prevailed on that claim.[3] In light of that result, the district court reduced the participants' attorney fee award for work through trial by almost $2.2 million, to $10, 768, 474. The district court also awarded the participants $900, 000 for work on the appeal-just over two-thirds of what they requested-for a total of $11, 668, 474. The participants appeal the district court's ruling on measuring losses and liability for the breach. In a consolidated cross-appeal, the ABB fiduciaries argue both parts of the fee award are still too high. See 28 U.S.C. § 1291 (appellate jurisdiction).

         II. DISCUSSION

         A. Liability

         We start with the ABB fiduciaries' assertion, presented as an alternative ground for affirming the district court's judgment on the merits, that they did not actually breach their fiduciary duties, so there is no need to reach the issue of how much the plans lost. Whether the ABB fiduciaries' actions constituted a breach is a legal question we must answer de novo. See, e.g., Tussey, 746 F.3d at 333. But what they did, and why, are factual matters on which we accept the district court's findings unless ...


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