Transamerica Can’t Use Settlement To Slip New 401(k) Suit

Posted August 21st, 2019.

As It Appeared On
Law360

By Kevin Stawicki

Law360 (August 21, 2019, 6:19 PM EDT) — An Iowa federal judge has denied Transamerica Corp.’s attempt to shed a proposed class action surrounding allegations that it stuffed underperforming proprietary funds in its 401(k) plan, saying a previous settlement in an excessive fee suit doesn’t bar the new claims.

U.S. District Judge C. J. Williams on Tuesday denied an attempt by Transamerica and the trustees of the Aegon USA, LLC Profit Sharing Plan to dismiss a proposed class of roughly 17,000 participants in Transamerica’s 401(k) plan. Because a $3.8 million settlement reached in 2016 involved claims over different conduct, the employees can proceed with the new Employee Retirement Income Security Act claims, the judge said.

Jeremy Karg’s claims that the company let its funds underperform their benchmarks by as much as 30% over a 10-year period aren’t barred by after Lequita Dennard settled her claims that the company violated ERISA by offering investment options that benefited the company and racking up excessive fees, Judge Williams said Tuesday.

“The conduct alleged in Dennard concerned the method of procuring the portfolio management service through an intermediary and the resulting fees, not the inclusion or performance of the underlying investments themselves,” Judge WIlliams wrote. “Here, the conduct alleged in Count I is defendants’ retention of the challenged funds in the plan despite their sustained poor performance, without regard to whether defendants incurred unreasonable or unnecessary fees in managing the challenged funds.”

Transamerica had argued in its motion to dismiss in March that Karg’s suit was barred because it involved claims within the scope of the settlement’s released claims. Both suits involved claims over the same funds, and Dennard’s excessive fees claims were the same as Karg’s claims the company included underperforming funds because both resulted in lower overall returns, Transamerica said.

Karg argued that the settlement resolved “self-dealing that breached the duty of loyalty” while his complaint involves “imprudent failure to remove investment options from the plan after years of material underperformance.” The difference between the method of obtaining the portfolio management services at high costs and retaining the underperforming funds made the difference, Karg said.

Judge Williams agreed Tuesday, declining to side with Transamerica’s broad reading of Iowa law regarding claims “arising out of the conduct alleged.”

“Giving the phrase its ordinary meaning, the ‘conduct alleged’ in this case does not arise out of, and is not related to, the conduct alleged by the plaintiffs in Dennard,” Judge Williams wrote.

Charles Field of Sanford Heisler Sharp, who represents the proposed class, said in an email that he’s pleased the judge allowed the case to proceed.

“The court concluded the plaintiffs have alleged sufficient information about the funds’ underperformance to raise a reasonable expectation that Transamerica did not prudently monitor the plan’s investment options for poor performance,” Field said. “​​​​​Now that the court is allowing the case to move forward, we look forward to learning more about Transamerica’s investment process and the people with oversight responsibility.”

Karg filed the suit in December, accusing Transamerica of sitting by and watching as its funds underperformed their benchmarks. The Dec. 28 complaint lobbed two claims at Transamerica, accusing it of breaching its ERISA-imposed fiduciary duty of prudence by failing to remove the six funds and of failing to monitor the 401(k) plan’s investment committee and 20 unnamed individuals expected to oversee the fund.

Transamerica denied the allegations through a spokesperson.

“Our business complies with all applicable state and federal statutes and regulations, and participates in periodic regulatory reviews. The allegations of wrongdoing against Transamerica in the recently filed lawsuit — which focuses on six ‘proprietary investment portfolios’ in the Plan — are false and we will vigorously oppose the case,” the company said in a statement in January.

The proposed class is represented by Charles Field, David Sanford, Alexandra Harwin and David Tracey of Sanford Heisler Sharp LLP, and J. Barton Goplerud of Shindler Anderson Goplerud & Weese PC.

Transamerica is represented by Wilford H. Stone of Lynch Dallas PC and Brian D. Boyle, Randall W. Edwards and Catalina J. Vergara of O’Melveny & Myers LLP.

The case is Karg et al. v. Transamerica Corp. et al., case number 1:18-cv-00134, in the U.S. District Court for the Northern District of Iowa.

–Additional reporting by Emily Brill and Adam Lidgett. Editing by Gemma Horowitz.

Sanford Heisler Sharp, LLP is a nationwide litigation law firm with offices in New York, Washington, DC, San Francisco, San Diego, Nashville, and Baltimore. We represent individuals against powerful interests. We act as a private attorney general in support of the private and public good.

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