Law Firm that Settled Pension Suit on Its Own May be Fiduciary

November 6, 2009 ( - The U.S. District Court for the Eastern District of Michigan has determined that a pension fund's law firm that agreed to a settlement of a lawsuit by the fund against a service provider without approval of the fund's trustees may have breached fiduciary duties under the Employee Retirement Income Security Act (ERISA).

In his opinion, U.S. District Judge Stephen J. Murphy, III said certain allegations in the complaint against law firm Sullivan, Ward, Asher and Patton, P.C. “appear sufficient, if proved, to support a finding that Sullivan Ward was a ‘fiduciary’ under ERISA and thus state a claim upon which relief can be granted.” According to the opinion, the allegations include that Sullivan Ward was provided “a virtual open checkbook” for expenses in the Iron Workers Local 25 Pension Fund’s litigation against Watson Wyatt, and more importantly that Sullivan Ward rejected, without first conferring with the fund, a $110 million offer of settlement, later accepting a similar offer, and filing a motion to enforce the settlement, all without advising or obtaining approval of the fund.

“An attorney with carte blanche authority to settle a case is more akin to a fiduciary with discretion over the client’s assets, than an attorney performing the usual professional functions,” Murphy said. He added that the question of whether Sullivan Ward was a fiduciary and whether it breached its fiduciary duties under ERISA should be decided by a jury.

The court dismissed plan participants’ claims that Sullivan Ward breached its legal contract and that the law firm committed malpractice or legal negligence, saying the participants did not have legal standing to make the claims since they did not have a direct attorney-client relationship with the firm.

After a contract with Watson Wyatt as a service provider to perform actuarial services for the fund was terminated, Sullivan Ward began investigating Watson Wyatt for possible actuarial negligence, without prior approval from the fund trustees, according to the court opinion. In its research, the law firm found actuarial negligence, decided to sue Watson Wyatt and determined the fund would claim damages exceeding $100 million.

Three years after the suit was filed, Sullivan Ward rejected, without first communicating to the trustees, an offer to settle the Watson Wyatt litigation in the amount of $110 million, allegedly because according to the proposed settlement, Watson Wyatt would be granted subrogation rights to bring suit against Sullivan Ward. However, weeks later, Sullivan Ward settled the case for $110 million, without the trustees’ authorization, and filed a motion to enforce the settlement before telling the trustees or fund participants that the case was settled.

When Sullivan Ward advised the trustees that the case had been settled, over two months after settlement, it did so in a way that prevented the trustees from reviewing the settlement agreement in a meaningful way, the plaintiffs claim. Yet, at the meeting, five of the six trustees approved the settlement by signing a resolution.

In addition, the suit claimed Sullivan Ward threatened one of the trustees because he had hired his own attorney to advise him concerning his own fiduciary responsibilities, and potentially jeopardized the settlement. Months later that trustee and two other participants and/or beneficiaries of the plan filed a motion to intervene in the Watson Wyatt case and the $36 million Sullivan Ward was seeking in attorneys’ fees was ordered to be placed in an interest-bearing account for later disbursement by the court.

The case is Iron Workers Local 25 Pension Fund v. Watson Wyatt and Co.,E.D. Mich., No. 04-cv-40243, 11/4/09.