Download - ERISA Litigation: Best Practice Tips from Speakers

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Best Practice Tips

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#ERISALitigation www.AmericanConference.com/ERISA 1

Miriam (Dusty) M. Burke

Partner

Vinson & Elkins LLP

Dusty Burke is a partner in the Employee Benefits and Executive

Compensation group at Vinson & Elkins. She devotes a significant

portion of her practice to ERISA litigation, defending clients in class

actions involving stock drop claims, cash balance plan claims, breach

of fiduciary duty claims, claims for pension plan benefits, cutback

claims, and executive compensation litigation. Dusty also frequently

counsels clients on best practices for avoiding or mitigating exposure

to ERISA litigation. She is a frequent speaker at ERISA litigation

conferences and employee benefits and executive compensation

seminars and has authored several articles on various aspects of ERISA

litigation. Dusty has been professionally recognized in The Best

Lawyers in America® in ERISA litigation, 2012, 2013, 2014; The Best

Lawyers in America® in employee benefits and executive

compensation, 2002 to 2014; The Legal 500 U.S. in employee

benefits/executive compensation, 2011, 2012, 2013; and "Texas Super

Lawyer," Texas Monthly, 2002 to 2010.



3 #ERISALitigation www.AmericanConference.com/ERISA

“The best way for a fiduciary to win—or even completely avoid—an ERISA lawsuit is to make sure he has checked all the “best practices

boxes” before the lawsuit is filed.”

You are a fiduciary of an ERISA 401(k) plan reading a complaint recently

filed against you alleging that you breached your fiduciary duties under

ERISA. What do you and the plan sponsor of your plan wish had been

done before the lawsuit was filed?

Pre-Litigation Best Practices Check List:

• Provide fiduciary training for the plan’s administrative committee. Few

fiduciaries actually know before they get sued what duties ERISA

requires of plan fiduciaries. Two hours of fiduciary training goes a long

way.

• Be aware of the “fiduciary exception” to the attorney client privilege.

Communications relating to the administration of an ERISA plan are

generally not protected from discovery in a lawsuit—even if made to or

from inside/outside counsel. Keep protected communications (e.g.,

minutes relating to amendments to the plan) separate from

unprotected communications (e.g., minutes relating to plan

administration).




• Protect the Board of Directors, the Company, and the officers from

being named as deep-pocket defendants in a breach of fiduciary

duty action by structuring the administration of the plan to (i) give

the administrative and investment authority to a defined group of

individuals (e.g., an administrative committee, an investment

committee) and (ii) limit the individuals who are authorized to

appoint members of those fiduciary committees.

• Don’t use your corporate/securities documents as substitutes for

ERISA plan documents.

• Don’t take legal advice from your record keeper or third party

administrator.

• Draft plan documents to prevent plaintiffs from forum shopping by

including (i) a stated limitations period for bringing benefit claims,

(ii) a stated event that will trigger the accrual of that limitations

period, and (iii) a governing jurisdiction.

• Regularly update the plan fiduciaries of recent developments in

the case law. An excellent way to determine how not to act is to

know what conduct the courts have recently determined constitutes

a breach of fiduciary duty.

•




James P. Mc Elligott Jr.

Partner

McGuire Woods LLP

Mr. McElligott has a national ERISA litigation and arbitration practice,

is a Fellow of the College of Labor and Employment Attorneys, and is

listed in Best Lawyers in America (under ERISA, ERISA Litigation, Labor

Law, and Employment Law), AV-Preeminent-Rated, Labor &

Employment Law, Martindale-Hubbell, a “Leading Lawyer for

Business,” Labor & Employment: Employee Benefits & Compensation

in Chambers USA, 2008-2013, and "Virginia Super Lawyers,"

Employee Benefits/ERISA, Employment & Labor, 2007-2013.

Mr. McElligott’s practice includes defense of class action claims of

ERISA fiduciary breach; multi-employer plan withdrawals and mass

withdrawals; ERISA “stock-drop” litigation; retiree medical claims;

severance claims; “top hat” litigation; ERISA 510; PBGC lien and ERISA

4062(e) claims; and HIPAA privacy and security litigation. He has

litigated in federal district and appellate courts, in Tax Court, in

bankruptcy courts, and has handled matters before and in litigation

with the PBGC, the NLRB, the EEOC, and the Department of Labor.




Mr. McElligott is a member of the Employee Benefits Committee of

the US Chamber of Commerce, the Employee Benefits Committees of

the ABA Sections of Labor and Employment Law and Taxation, former

president of the Federal Bar Association, Richmond Chapter, and

former President of the Central Virginia Employee Benefits Council.

He received his law degree from Harvard Law School, cum laude,

served as Note Editor for the Harvard Journal on Legislation, and is a

Phi Beta Kappa graduate of the University of Illinois.

Best Practices for Dealing with Multiemployer Plans

• Large, otherwise sophisticated companies often misunderstand

liabilities of multiemployer plans.

• Investors, including private equity funds, need to know controlled

group rules to avoid liability.

• Plans audit pension and welfare contributions and frequently claim

additional contributions beyond what employers anticipated.

• The right to resist additional contribution claims may be limited and

subject to substantial penalties.

• Avoid any participation by any controlled group member in a

multiemployer plan if possible. This is difficult in certain industries

and areas, such as construction/hotels in major metropolitan areas.




• If any controlled group member participates in multiemployer

plans, due diligence should be done on estimated withdrawal

liability potential for mass withdrawal, and contribution obligation

required by the collective bargaining agreement and plan

documents.

• Understand how to repudiate NLRA 8(f) construction pre-hire

agreements.

• Study the collective bargaining agreements, trust agreements,

bylaws and rules, and on funding status and participation by

other employers, available on the plans’ Form 5500s, DOL

website, and other sources.

• Monitor potential likelihood of mass withdrawal, understand mass

withdrawal rules, and withdraw if possible before mass

withdrawal becomes likely.

• Unions are increasingly willing to agree to early withdrawal by

employers.

• Lump sum and periodic payment withdrawal liability figures are

not actuarially equivalent. Employers generally must pay

withdrawal liability while they contest it.

• Know and strictly follow the special rules and deadlines for

reviewing and arbitrating withdrawal liability.

• Courts can determine whether an entity is an “employer” subject

to withdrawal liability.

• Know how the plan can accelerate employer’s lump sum liability.




Mark Casciari

Partner

Seyfarth Shaw LLP

Mark Casciari is a partner with Seyfarth Shaw LLP. He has represented

employers, plan sponsors, plans, fiduciaries and plan administrators

in ERISA class actions and in other employee benefits cases, in federal

courts throughout the United States, in state courts and before

arbitrators and mediators. Mark has served as amicus curiae counsel

of record in two United States Supreme Court ERISA cases. He was

counsel of record in these 2013 published ERISA decisions of the

Court of Appeals for the Seventh Circuit: Hakim v. Accenture United

States Pension Plan, 718 F.3d 675 (7th Cir. 2013) and Laskin v. Siegel,

728 F.3d 731 (7th Cir. 2013). Mark is a frequent author of articles on

employee benefits litigation topics, and is a frequent contributor to

Seyfarth's ERISA & Employee Benefits Blog, which can be found at

www.erisa-employeebenefitslitigationblog.com. Mark is a Fellow in

the American College of Employee Benefits Counsel, a Fellow in the

College of Labor and Employment Lawyers and a long-standing

Adjunct Professor of Trial Advocacy at Northwestern University

School of Law.




My former partner, Congressman John Ehrlenborn, was one of the key

architects of ERISA. He was quite fond of saying that private sector

retirement security is like a three-legged stool. One leg is provided by

employers, in the form of ERISA plans. Another is provided by

individual savings. The third leg is provided by government benefits,

such as Social Security and Medicare. The three-legged stool

metaphor is an important backdrop to any discussion of ERISA

litigation developments. It forces one to appreciate that ERISA does

not stand alone in the quest for retirement security. And the legs of

the stool are not built of the same material. Social Security and

Medicare are mandates, while ERISA plans (outside the context of

medical benefits, such as those mandated by the Affordable Care Act)

and personal savings are not. The material of which ERISA is built is

flexible. It encourages employers to offer plans in the first instance by

dramatically limiting remedies and equally dramatically preempting

state law. So, when lamenting the very limited remedies in the statute

for private sector benefit plan plaintiffs, understand that without the

ERISA paradigm, there would be fewer benefit plans in the first place,

and the three-legged stool would wobble. We may get to the point of

ditching the stool altogether, but we are not there yet. Until then, the

role of the ERISA defense litigator is to keep the statute true to its

structure, by focusing on the bigger picture and the unique

composition of the ERISA leg of the stool.

Best Practice Tip from Mr. Casciari




Joseph M. Callow, Jr. is a Partner and Co-Chair of the Litigation Group

at Keating Muething & Klekamp PLL. With 20+ years of experience

solving commercial disputes, Joe helps clients manage and reduce the

risk and costs associated with litigation for his clients. When business

disputes arise, he handles and coordinates cases on a national,

regional, and local basis. Joe primarily works on class action and

complex commercial litigation including ERISA litigation. He also has

experience in securities, antitrust, False Claims Act, and general

corporate and business litigation. Joe helps manage the KMK Law E-

Discovery/Litigation Support Group and is responsible for the

development of proactive, defensible, and cost-effective, end-to-end

E-Discovery solutions for clients, both before and after litigation arises.

Joe blogs at kmklaw.com and speaks frequently at legal and business

seminars and conferences.

Joseph M. Callow, Jr.

Partner

Keating Muething & Klekamp PLL




The Search for the Goldilocks firm

Searching for the right team to help in a litigation matter often means

looking for the Goldilocks firm. As companies and in- house counsel

are under increasing pressure to find quality representation at lower

costs, there are lots of paper proposals and tough decisions to make.

Big Law has high overhead that comes with multiple offices and

mergers/expansion, which translates to higher billing rates (with

multiple firms now having partners billing at over $1,000/hr) and more

bodies on matters. Smaller law firms may offer better rates, but often

lack the depth of experience or the resources to manage significant

litigation or represent clients in multiple cities. I believe that the

recent prosperity of mid-sized law firms reflects more companies and

in-house counsel looking for Goldilocks firms and practice groups to

represent them in most matters -- not too big, and not too small, but

just right somewhere in the middle.

Goldilocks firms:

- Have invested in technology rather than bricks and mortar.

- Use litigation/project budgets and alternative fee arrangements.

- Develop a litigation plan, and adjust the plan as litigation proceeds.

- Staff matters appropriately with people you meet and know.

- Treat clients like business partners.




Finding the Goldilocks firm is more difficult than walking into a

house in the woods and tasting porridge, but you will sleep better

after investing the time and resources to get the decision right. And

in the legal climate today, it is definitely worth the time and effort to

get it right.




Doug Hinson is the leader of the firm's ERISA Litigation Group. He has

led the defense of numerous Fortune 500, government, private and

non-profit clients in all types of ERISA class actions, including 401(k)

fee and employer stock matters, welfare benefit terminations,

defined benefit calculation and anti-cutback actions, and severance

matters. In addition, Mr. Hinson has substantial experience and

expertise in securities, complex commercial and insurance class

action litigation. Mr. Hinson's practice is national in scope. He has

been recognized as a “national leader” in ERISA litigation by

Chambers USA: America's Leading Lawyers for Business, Best Lawyers

in America and The Legal 500 publications, and is listed in Who's Who

in American Law and Super Lawyers magazine. Mr. Hinson is the chair

of the Employee Benefits Committee of the Tort, Trial and Insurance

Practice Section—and a member of the Joint Committee on Employee

Benefits—of the American Bar Association.

H. Douglas Hinson

Partner

Alston & Bird LLP



Being on the front lines of ERISA Litigation provides important insight

to what all of my clients want – how to avoid spending time with me

(aka “how not to get sued”). Based on my experience, the key is having

a plan governance/fiduciary/administrative process that is designed

with potential litigation in mind, and then making sure the

organizations and individuals who have roles in that process are well-

advised and trained to do their part. ERISA Litigators bring knowledge

and a perspective to both of these key tasks (design and training) that

most compliance lawyers do not have. A modest investment of time

and money today can help you avoid being a defendant tomorrow, in

virtually all of the types of ERISA Litigation matters we are discussing at

this conference. Three quick examples from the front lines of employer

stock class actions, which is one of my panel’s topics, come to mind.

First, consider who appoints your plan fiduciaries. If your board of

directors is involved, they are potential defendants, and they don’t

have to be. Second, if your SPD still acts as part of the prospectus for

the employer stock in your plan, and it incorporates the public

securities filings by reference, you need to make a change. Third, if the

fiduciaries responsible for employer stock have not been trained on

their role, and do not have legal advisors to guide them in tough times,

they may not do all they can and should do – both to protect

participants and themselves.

Best Practice Tip from Mr. Douglass




Susan Mangiero

Managing Director

Fiduciary Leadership‚ LLC

Dr. Susan Mangiero is a CFA charterholder, certified Financial Risk

Manager and Accredited Investment Fiduciary Analyst™. She offers

independent risk management, fiduciary breach and valuation

analysis, litigation support and training for institutional investors,

asset managers, and banks and their attorneys and regulators. She

has testified before the ERISA Advisory Council, the OECD and the

International Organization of Pension Supervisors. She served as an

expert witness on regulatory and private litigation matters and

offered behind-the-scenes forensic analysis, calculation of damages

and rebuttal report commentary. She has over twenty years of

experience in capital markets, global treasury, financial statement

analysis, performance reporting, fee assessment, executive

compensation, company security risk assessment, asset-liability

management, portfolio management, economic and investment

analysis, derivatives, financial risk control and valuation. Her

experience includes work on trading desks for several global banks,

in the areas of fixed income, foreign exchange, interest rate and

currency swaps, futures and options.




Dr. Mangiero is the author of Risk Management for Pensions,

Endowments and Foundations (John Wiley & Sons), a primer on risk

and valuation issues for fiduciaries and their advisors. Her articles have

appeared in Expert Alert (American Bar Association, Section of

Litigation), Hedge Fund Review, Investment Lawyer, Valuation

Strategies, RISK Magazine, Financial Services Review, Journal of

Indexes, Family Foundation Advisor, Hedgeco.net, Expert Evidence

Report, Bankers Magazine and the Journal of Compensation and

Benefits. Dr. Mangiero has written chapters for several books, including

the Litigation Services Handbook and The Handbook of Interest Rate

Risk Management. She is the lead contributor to

www.pensionriskmatters.com and www.goodriskgovernancepays.com.




Working Effectively with a Financial Expert Witness

Commercial legal actions are often complex with potentially large

dollar payoffs. Recent headlines suggest that the trend will

continue. Some prospective litigants see investment risk woes as a

business development bonanza, with billions of dollars at stake. Law

firms and litigation support firms are creating special teams to

address the areas of subprime write-downs, option backdating, risk

controls, pricing and adequacy of disclosures. As a result, many

litigators are ramping up their knowledge of arcane topics such as

derivatives, valuation models, trading leverage and risk metrics.

Close quarters, binding deadlines, massive amounts of documents,

and the undue pressure of high visibility cases can consume even

the most experienced practitioner. Add a financial expert to the mix

and things can unravel quickly in the absence of ground rules and

managed expectations. The role of a financial expert witness is to

render analytical clarity, and that goal is best achieved when the

expert and attorney work together effectively.

Billable Time and Data Costs

If men are from Mars and women are from Venus, attorneys are

from Mercury and experts are from Neptune. Known for quick

thinking and speed, “Mercurians” seek to keep clocked time to a

necessary minimum.



While an expert should always be mindful of not overcharging,

differences of opinion about what must be done are common. At the

beginning, an attorney typically provides a verbal case overview and

a copy of the complaint. Once hired, an expert unearths relevant and

often material facts as she is given new documents. This results in

more billable time. Like Neptune, god of the sea, good experts create

tempests if asked to do a second-rate job by scaling back on work

they deem essential. Three things can occur, none of which are good.

An expert may withdraw from an assignment if she believes that her

adherence to best work practices are being compromised. An expert

may complete work but feel resentful about not being paid for a job

well done. Some may take shortcuts.

To avoid problems, attorneys and experts should share project

budget information at the outset. Scarce resources do not necessarily

preclude the use of a qualified expert. To the contrary, a professional

may be able to render a limited analysis as long as he identifies the

report accordingly and makes the appropriate disclaimers with the

opinion.1 For example, in lieu of providing a fullblown opinion of

value, an analysis of risk factors that drive worth may suffice.

Alternatively, it may not always be necessary to examine hedges for a

large portfolio if it can be shown that risk controls failed on even a

few occasions. Data is another budgetary consideration when hiring

an expert to assist with business litigations. Most commercial

disputes require accounting or financial numbers, sometimes going

back many years.




To avoid problems, attorneys and experts should share project

budget information at the outset. Scarce resources do not necessarily

preclude the use of a qualified expert. To the contrary, a professional

may be able to render a limited analysis as long as he identifies the

report accordingly and makes the appropriate disclaimers with the

opinion.1 For example, in lieu of providing a fullblown opinion of

value, an analysis of risk factors that drive worth may suffice.

Alternatively, it may not always be necessary to examine hedges for a

large portfolio if it can be shown that risk controls failed on even a

few occasions. Data is another budgetary consideration when hiring

an expert to assist with business litigations. Most commercial

disputes require accounting or financial numbers, sometimes going

back many years. The expert should inform the attorney about likely

costs and availability. When historical price or fee information is rare

or hard to obtain in a user-friendly format, the expert needs extra

time to properly assemble a dataset. An expert’s request to be paid

up front to acquire numbers is not unusual, with some datasets

costing thousands of dollars. If confidentiality and easy access to

technical support are important factors, direct subscription in the

name of the expert is the way to go. Business data varies by vendor,

packaging and quality. To illustrate, consider financial futures price

data. A 90-day constant maturity contract is not the same instrument

as the traded spot contract that gets closer to expiration with each

passing day.




Beta, a measure of a stock’s volatility vis-à-vis a general index like the

S&P 500, can be reported on a levered or unlevered basis. Unless one

is familiar with how a particular supplier does its calculations, trouble

is sure to follow, especially with multiple step analyses.2

A good financial expert will be able to identify relevant information

sources, know how to handle data "idiosyncrasies” and understand

how bad inputs can distort computational outputs. In a similar

fashion, a financial expert should be relatively familiar with canned

software choices and know when and how a particular analytics

program or model is likely to influence a result. Even when Daubert

factors do not directly apply, a financial expert should be able to

guide a thorough discussion about ease of use, ability to replicate

numbers and acceptance by academic and industry peers.

Clear Communication

Some attorneys favor experts who carefully listen. Others want

fearless analysts who ask the right questions. A majority enjoy

individuals who can explain difficult concepts without the use of

jargon or overly technical language. Clear communication goes a long

way to making everyone’s life easier. Anything can be restated in

common terms or illustrated in a manner that puts laymen at ease.

Writing well and speaking persuasively are “must have” skills for any

expert, but arguably more crucial for complex financial litigation.



Imagine trying to explain funding status to a jury of part-time or

unemployed workers who do not have a pension plan. Discuss

regression or Monte Carlo simulation as a rocket scientist and wait

for the inevitable request to speak plainly. Clever use of visuals is

another preferred tool for clear communication. With complex

financial cases, a timeline is an invaluable tool. Even when oft-used

methods are relied upon (such as an event study to determine “but

for” impact on stock price), a simple graph, tied to date of

occurrence, speaks volumes. That said, graphs and statistical

tabulations vary by quality and purpose. A savvy analyst should be

familiar with how information can be effectively or deceptively

presented. For example, volatility may appear dire when asset prices

are reported for a particularly turbulent calendar interval that is far

from representative of “average” performance.

Meaningful conversation is a two-way responsibility. Attorney and

expert must each understand what the other is saying acknowledging

that attorneys are seldom comfortable with the intricacies of

investing, valuation or risk mitigation techniques. The use of a few

buzz words by the attorney might convey a false impression of

financial literacy that tempts an expert to launch into an overly

technical discussion of the issues in the case. The converse is true as

well. Experts frequently benefit when an attorney takes the time to

provide an overview of basic legal concepts.




For example, concepts such as investment suitability or prudence

vary by venue or type of organization. A primer on legal viability can

assist an expert in identifying what economic characteristics or

elements of the process to emphasize. Egos checked at the door

make for a smooth communication channel in both directions.

Feigning comprehension does no party any good. “Give me the 101

version” is an apt mantra if doing otherwise adds to billable hours, or

corrupts the process by introducing more confusion and prevents

resolution of the dispute.

When citing academic studies or explaining statistical techniques,

experts should refrain from automatically assuming that the work is

known, understood or legitimate. If research is considered leading

edge or dominates a field, the expert should say so and explain why.

If some dispute the underlying assumptions, methodology or

conclusions, elaborate rather than inviting a successful rebuttal.

Conclusion

The use of a financial expert or team of experts is more a necessity

than a luxury in cases involving complex securities or transactions.

Managing expectations and understanding budgetary and time

constraints contribute to a smooth process. When litigations stretch

into months or even years, attorneys must keep experts apprised as

their schedules fill with other projects during interim lulls.




Many financial experts enjoy the intellectual stimulation of working

on multi-faceted cases. At a time of unprecedented and large-scale

courtroom encounters, attorneys and financial experts must learn to

work together effectively as they will likely be spending a lot of time

together.

1 Some certification standards expressly prohibit limited analyses.

2 Bad beta numbers beget imprecise cost of capital numbers which in turn result

in economic damages that are either too low or too high.



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