Month: December 2003

Unlikely. The Wall Street Journal is reporting: “US House Departs, Leaving Airline Pension Break For ’04.” Also, Forbes is reporting: “U.S. House snubs Senate-proposed pension relief.” The latter article notes:

Senate aides were not optimistic that either of the House-passed pension relief bills could move through their chamber when it returns to work on Tuesday, possibly its last day of work this year. Both chambers must pass the same version of legislation before it can become law.

Baby Tyler has arrived–congratulations to Denise! Also, welcome back David Giacalone of the former, but now renamed, Ethical Esq! (David has posted some wonderful Haiku poetry.)

In addition, Howard last week posted 20 Questions for Circuit Judge Richard A. Posner of the U.S. Court of Appeals for the Seventh Circuit. (For those who do not know, Judge Posner will likely be the author of an opinion in the appeal of the IBM cash balance plan decision.) Howard notes that a 1998 study of federal appellate judicial opinions issued between 1982 and 1995 found that Judge Posner’s opinions were, “by an ‘unusual’ statistical margin, cited by judges in other circuits more often than opinions written by any other judge.” I particularly enjoyed Judge Posner’s remarks about his most favorite opinions:

I can’t pick out my five favorite opinions; that would require me to have all 2000-odd in my head, or to reread them all, which would be impossible. It’s almost as if you were asking me to choose among my children. But I’ll name a few that I think of fondly, most of which involve art (in however debased a sense) and intellectual property: Mucha, Piarowski, Gracen, Douglass, Nelson, and my absurdly frequent beanie-baby opinions. I would also count among my favorites several of my tort and contract opinions, my dissent in the partial birth abortion case (Hope Clinic), some of my class-action opinions, like Rhone-Poulenc, my recent IP opinions in Apotex (a district court opinion) and Aimster, my privacy opinion in Haynes, and my recent antitrust opinion in the High Fructose case–but I could extend the list quite a bit, to include a number of tax, ERISA, religion, and Indian cases, without going back and reading all 2000+.

The following article from the Poughkeepsie Journal highlights what, I think, is becoming an area of litigation which more and more companies will have to deal with as baby boomers continue to age and as companies try to deal with the rising costs of health care and pension liabilities for older workers: “Ex-IBMers: Data show age bias.” The article notes how an IBM employee allegedly compiled data showing that older workers at IBM were being terminated at rates that exceeded those of their younger worker counterparts. Apparently, the employee started going through the data, making charts, and “was struck by what he saw happening.” (According to the article, the employee states that, in his group, 16 were let go and all were over 50, some having 33 years with the company.) The article notes that a complaint was filed October 7, 2003 against IBM alleging violations of the ADEA, the OWBPA, and ERISA. With respect to the ERISA claims, the complaint alleges employees were terminated in order to avoid increasing pension cost obligation for employees with greater years of service.

A more famous case involving a section 510 ERISA claim that received a great deal of publicity this year was the case of Millsap v. McDonnell Douglas Corp., No. 94-CV-633-H, from the Northern District of Oklahoma, which is in the process of being appealed. You can access some articles here and here discussing the Millsap case. The case was particularly significant because some of the evidence used to prove the ERISA 510 claims were certain memos from the actuaries showing that the defendants had analyzed the reduction in benefits which would occur if the plant were closed and such information had been memorialized in memos. One such memo prepared by the actuaries considered “various “what if” scenarios, analyzing the effect on costs and savings if the company decided to reduce heads.” The kinds of costs analyzed included “pension cost, savings cost, savings plan cost, health care cost, and just direct overhead cost.”

With more and more benefits work being done by consultants (as in the Millsap case), plaintiffs lawyers could have an easier job of proving their section 510 ERISA claims since employers who obtain advice from consultants will likely have more of these “smoking gun” type of memos in their files which demonstrate that certain employees were chosen for termination due to benefits costs. Because these memos are being derived from consultants, they will not be protected by attorney-client privilege, and could be used in an ERISA section 510 case to prove that the employer terminated employees based on benefits.

The court in Millsap stated as follows:

Plaintiffs’ prima facie case establishes that Defendant valued its pension surplus in a number of ways and it provided income on the corporation’s balance sheet. [Defendant] was being instructed by its outside actuaries with respect to how it could maximize the pension surplus by selecting for layoff or plant closing its older, more senior employees. Defendant also knew that there were significant costs that would occur if the Tulsa plant stayed open after 1993, when many employees would cross over to age 55 and qualify for greater pension benefits. This $24.7 million in cost savings would be material in a transaction the company says would have otherwise saved it $19 million.”

By the way, on a different note, the Wall Street Journal today notes a development in the IBM cash balance plan case: “IBM Says Pension-Plan Members Are Using ‘Unreasonable’ Formula.” Also, from the Seattle Post-Intelligencer: “IBM tells court it doesn’t owe back pay.”

With all of the fallout from corporate, accounting and now mutual fund scandals pointing to possible lawsuits by pension and 401(k) plans seeking to recover losses, there is much discussion about whether, when and how ERISA plan fiduciaries must pursue recovery of losses for plan participants in possible lawsuits against the alleged wrongdoers. The Securities Litigation Watch (here) and the 10b-5 Daily (here) have both had discussions about the recent WorldCom decisions in which claims by public pension funds have been dismissed. An article at Law.com entitled “U.S. Judge Dismisses Several Claims in WorldCom Securities Class Action” (referred to at the Securities Law Beacon) states: “The federal judge overseeing securities litigation over accounting fraud at the former WorldCom Inc. has followed up tough criticism of the tactics of [a certain law firm] by dismissing several claims the plaintiff’s firm has brought on behalf of groups that have opted out of the class action.” In the decision–In State of Alaska Dept. of Revenue v. Ebbers, 2003 WL 22738546 (S.D.N.Y. Nov. 21, 2003)–the judge threw out claims brought by the State of Alaska Department of Revenue and the Alaska State Pension Investment Board, saying the claims were time-barred.

In a previous post entitled “Lessons for ERISA Plan Fiduciaries From a District Court Case, Part II,” I noted that there is much for ERISA plan fiduciaries to be wary of in contemplating individual and class action lawsuits on behalf of plan participants. The aforementioned decision is a case which illustrates how not getting the proper advice and how not taking action in a timely fashion can end up with institutional investors losing out entirely from any recovery. The court notes:

Plaintiffs who choose, as is their right, to pursue separate litigation may not enjoy the benefits of that separate litigation without bearing its burdens. One of the burdens plaintiffs bear is the obligation to commence their actions within the applicable statute of limitations . . .Having chosen to pursue an individual action prior to a decision on class certification, the Alaska Plaintiffs are not protected by the American Pipe tolling doctrine. Since they failed to amend their pleading with the period provided by Section 13, the Alaska Plaintiffs’ claims against the Additional Underwriter Defendants and the Individual Defendants are time-barred and dismissed with prejudice.

In another twist to the story, the Securities Litigation Watch in this post links to this letter by lead plaintiff’s counsel in the In re WorldCom, Inc. Securities Litigation in which he argues that Individual Action plaintiffs whose claims will be dismissed as being time-barred (like the Alaska claims) should instead be allowed to participate in the Class Action instead of having their claims dismissed with prejudice as to the Class Action:

[T]here is a significant risk that the Individual Action plaintiffs who filed cases . . . may not have understood the risks associated with filing that action, including that such action could be time-barred. Indeed, the Court has already determined that counsel to certain Individual Action plaintiffs engaged in an active campaign to solicit plaintiffs to file individual actions by inducing confusion and misunderstanding regarding the benefits of an individual action and by derogating the class action option. . . This is further reason for fashioning an outcome which refrains from punishing these otherwise innocent investors for a decision that may have been the product of a misguided solicitation campaign.

On a related issue, the Securities Litigation Watch also has this article: “Puncturing the Myths of Opting Out.”

Also, the Securities Law Beacon refers to this press release–“WorldCom Investors and Employees Choose Arbitration Over Class Action“–in which it is announced that a law firm is “pursuing claims in excess of $50 million against Salomon Smith Barney, on behalf of present and former WorldCom investors and employees whose portfolios were concentrated in WorldCom stock and who do not wish to participate in any class actions.” The press release points to some helpful information for those institutional investors weighing litigation options against brokerage firms. You can access some information entitled “Understanding the Securities Arbitration Process” as well as “Securities Class Action Lawsuits Against Wall Street Brokerages vs. Securities Arbitration Claims: A Study to Determine the Appropriate Path for Securities Dispute Resolution.“

Boston.com is reporting: “Funds Sued for Not Using ‘Fair Value’.” According to the article, the 20-odd complaints filed by the Illinois firm, Korein Tillery, focus on a fund’s net asset value, instead of market timing. The law suits argue that there would be no room for market timing if asset managers had used “fair value” to set the price of a fund’s share price. The lawsuits filed seek class action status and damages of more than $50,000 per plaintiff or class member, but not more than $75,000.

You can access the SEC‘s Press Release regarding action taken in a meeting to address the mutual fund scandals here. According to the press release, the SEC voted to do the following:

• The Commission voted to propose a rule requiring that fund orders be received by 4:00 p.m.
• The Commission also voted to adopt a compliance rule that will require funds and advisers to (i) have compliance policies and procedures, (ii) annually review them and (iii) designate a chief compliance officer who, for funds, must report to the board of directors.
• The Commission voted to propose enhanced disclosure requirements. These enhancements would require funds to disclose (i) market timing policies and procedures, (ii) practices regarding “fair valuation” of their portfolio securities and (iii) policies and procedures with respect to the disclosure of their portfolio holdings.

You can access the speech by SEC Chairman, William H. Donaldson, in his opening statement at the meeting here.

You can also access a speech by SEC Commissioner, Harvey J. Goldschmid, entitled “Mutual Fund Regulation: A Time for Healing and Reform” and a statement of Division of Investment Management Director Paul F. Roye here (via the American Benefits Council website.)

Finally, the American Benefits Council website has also posted the SEC Fact Sheet on the Mutual Fund Scandals.