Fiduciary Breach Lawsuit: Northrop Grumman Settles

by Norman B. Blumenthal on December 13, 2017

blumenthal nordrehaug & bhowmik, southern california employment law, southern california employment law attorney, fiduciary breach lawsuit, california lawsuit, Northrop Grumman lawsuit, Northrop Grumman fiduciary breach lawsuitOn September 9, 2016, a number of plan participants filed a putative class action against Northrop Grumman Corporation alleging that Committees holding fiduciary responsibility violated their fiduciary duties to operate the plan solely in the interest of the plan participants. Plaintiffs allege that heads of departments to be paid from Plan assets were placed in positions of authority allowing them to authorize payments from Plan assets to their own departments. These payments allegedly included payments to departments not authorized by the ASAs and payments for services that were not authorized by the ASAs or authorized under ERISA. The departments involved maximized the expenses charged to the Plan without consideration to whether the charges were reasonable, necessary or competitive. Plaintiffs allege the bloated payments were not in the exclusive interest of Plan participants as is required.

Plaintiffs also allege that the Plan paid unreasonable recordkeeping fees to the record keeper, Hewitt Associates LLC. Hewitt served as Plan record keeper from 2010 through 2016 at a fixed rate of $500,000 per month in addition to payments noted as transaction specific, and a per-participant annual rate. Additionally, a “kickback” payment was discovered in the course of the case indicating that Defendants paid Financial Engines an excessive fee for their services (provided to Plan participants). Plaintiffs also noted that while the number of Plan participants decreased throughout the years pertaining to the case, the annual per-participant fee did not – resulting in a drastic increase in the rate being charged by Hewitt for their services.

Plaintiffs also alleged that the Defendants mismanaged the Emerging Markets Equity Fund since at least 2010. This was one of the plan investment options available to participants, but consistently underperformed its benchmark since 2010. Plaintiffs claim that the Defendants’ failure to more appropriately manage the fund cost Plan participants $30 million in performance losses and $12 million in unreasonable investment management fees.

Plaintiffs: Clifton W. Marshall, Thomas W. Hall, Manuel A. Gonzalez, Ricky L. Hendrickson, Phillip B. Brooks and Harold Hylton

Defendants: Northrop Grumman Corporation, the Northrop Grumman Corporation Savings Plan Administrative Committee, the Northrop Grumman Corporation Savings Plan Investment Committee, Denise Peppard (Northrop’s corporate vice president and chief human resources and administrative officer), Ian Ziskin (chair of the Administrative Committee, corporate vice president, and chief human resources and administrative officer until April 2010), Michael Hardesty (Northrop’s corporate vice president and controller), Kenneth L. Bedingfield (corporate vice president and controller from 2011–2013), Kenneth N. Heintz (corporate vice president and controller from 2009–2011), Talha A. Zobair (Northrop’s vice president taxation since 2014), Prabu Natarajan (vice president taxation from 2011–2014), Daniel Hickey (vice president compensation benefits from 2013–2016), Maria T. Norman (Northrop’s corporate director benefits administration and services), Stephen C. Movius (Northrop’s corporate vice president and treasurer), Mark A. Caylor (corporate vice president and treasurer from 2011–2012), Mark Rabinowitz (corporate vice president and treasurer from 2009–2011), and Silva Thomas (Northrop’s corporate director investments and compliance)

On November 2, 2017, the court granted the Plaintiffs’ Motion for Class Certification including “all persons, excluding defendants and/or other individuals who are liable for the conduct described in the complaint, who are or were participants or beneficiaries of the Northrop Grumman Savings Plan at any time between September 9, 2010 and the date of the judgment, and were affected by the conduct set forth in the complaint.”

If you have questions about class certification or ERISA violations, please get in touch with one of the experienced California employment law attorneys at Blumenthal, Nordrehaug & Bhowmik.

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