Court Orders Parties to Scale Back Northrop Grumman ERISA Settlement

The parties’ proposed settlement agreement impermissibly releases claims that go beyond the scope of the allegations in the operative complaint.

The U.S. District Court for the Central District of California has issued an order denying without prejudice a joint motion for final settlement approval filed by the parties in an Employee Retirement Income Security Act (ERISA) lawsuit known as Marshall v. Northrop Grumman.

The order explains that the court has received written objections to the proposed settlement from a handful of class members, who argue, among other things, that the settlement language is overly broad. Grievances were also aired during a hearing on the parties’ joint motion for final approval of class settlement, which took place on June 30.

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Because the order denies final approval of the class settlement—at least temporarily—the court has also ruled without prejudice against the plaintiffs’ motion for attorneys’ fees, reimbursement of expenses and incentive awards for class representatives. Case documents show the parties have already made representations that renewed motions for final approval of an amended settlement agreement and for attorneys’ fees are forthcoming. The court has set a hearing date of August 20 for these forthcoming motions.

The underlying lawsuit harks back to 2016, when a complaint emerged suggesting fiduciaries of Northrop Grumman’s retirement plan acted imprudently and disloyally in various ways. Notably, a similar suit was previously settled by the company. According to plaintiffs in the Marshall case, failures to train and supervise members of the plan committees allowed the plan to fall into the habit of paying excessive fees and of otherwise breaching the demands of fiduciary oversight and prudence. 

Under the parties’ proposed settlement agreement, Northrop Grumman agreed to pay a sum of $12,375,000 into a qualified settlement fund to clear itself and its fiduciaries of claims of wrongdoing. From that figure, class counsel sought to recover $4,125,000 in attorneys’ fees, as well as litigation expenses in an amount not to exceed $450,000. Class counsel also sought to recover an incentive award for each of the class representatives in an amount not to exceed $25,000 per class representative, which would also be paid from the gross settlement amount.

From there, the settlement agreement spelled out a more detailed plan about how money would be distributed among participants that had paid allegedly excessive fees for recordkeeping and various investment options provided in the plan.

After weighing the class members’ objections, the order concludes that the parties’ proposed settlement agreement releases claims that go beyond the scope of the allegations in the operative complaint. As such, the court concludes that the parties’ proposed settlement agreement contains an overly broad release of liability.

“The factual allegations underlying plaintiffs’ claims concern defendants’ management and administration of the savings plan,” the order states. “In particular, plaintiffs allege in their operative complaint that defendants distributed the saving plan’s assets to defendant Northrop Grumman Corporation as payment for services it provided to the savings plan; paid unreasonable recordkeeping fees to the saving plan’s recordkeeper; and used an active management strategy for the savings plan’s emerging markets equity fund, and failed to consider whether to convert the emerging markets equity fund to passive management. … Despite the limited factual predicate upon which plaintiffs bring suit, the parties’ proposed settlement agreement purports to preclude ‘any cause of action, demand or claim on the basis of, connected with or arising out of any of the released claims.’”

The order concludes that, by thus releasing “any cause of action, demand or claim on the basis of, connected with or arising out of any of the released claims,” the parties’ proposed settlement agreement “could capture claims that go beyond the scope of the allegations in the operative complaint, which the Ninth Circuit has held is inappropriate.”

“The overly broad scope of this release is underscored by the expansive interpretations that courts give to phrases such as ‘connected with’ or ‘arising out of,’” the order notes. “Because the scope of the proposed settlement agreement’s release of liability could extend to any cause of action that has a logical or causal connection to the released claims, and is not limited to claims based on an identical factual predicate, the proposed release of liability is impermissible.”

The full text of the order is here.

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