“Four of twelve Class Representatives opposing the settlement is a Red flag for this Court,” says a memorandum of opposition filed with the U.S. District Court for the Southern District of New York for a lawsuit challenging underlying investments in J.P. Morgan stable value funds.
The consolidated litigation alleges that the defendants managed the plaintiffs’ investments imprudently in violation of its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by causing its stable value funds to invest heavily in the Intermediate Bond Fund (IBF) and the Intermediate Public Bond Fund (IPBF). The defendants managed the IBF and IPBF in the same way and invested them both in risky, highly leveraged assets, including, among other things, mortgage-related assets.
Last month, J.P. Morgan agreed to pay $75 million to settle the litigation.
Arguing that the motion for preliminary approval of the settlement should be denied, the opposing representatives note that total class damages are either $532 million or $619 million, and that the class will not receive $75 million. “The $75 million settlement will be reduced by up to $25 million in attorney’s fees, and over $1.75 million in case expenses, unspecified notice and administrative costs, and $240,000 in incentive payments, netting the Class less than $48 million. A $48 million settlement on strong claims and damages up to $619 million is not within a range of potential final approval,” the memo says.
The objecting representatives note that damages are measured by comparing what the ERISA plan assets earned on the imprudent investments versus what the plan would have earned had the investments been prudently managed. In addition, the court already accepted the damages methodology in granting class certification, and J.P. Morgan’s experts agree damages are readily calculable in this way at the participant level.
They also say that while it is possible the court could find J.P. Morgan managed the stable value fund prudently, it is more likely not. “The evidence in the summary judgment record and outlined herein presents a strong factual basis establishing imprudence,” the memo states. “Objecting Plaintiffs therefore believe there is no less than a 30%-50% chance the Class will prevail on the merits and recover 100% of their damages, either $532 and $619 million.”
They say the “range of reasonableness,” prior to a ruling on summary judgment, is between $159 million and $309 million. And, they argue that nominal comparisons are meaningless and approved settlements in other ERISA cases are not relevant.The objecting representatives request that the court deny the motion for preliminary approval, order the parties to refile their respective summary judgment motions, and set this case for a trial in no less than six months. Alternatively, they say, the court should require the Notice and Distribution Plan changes requested in their memo.