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Feb. 3 — Coventry Health Care Inc. agreed to pay $3.6 million to settle class action claims of fiduciary breach by participants in its defined contribution plan who challenged plan fiduciaries' decision to hold company stock despite their alleged knowledge of the company's misrepresented financial health (Boyd v. Coventry Health Care Inc.,2014 BL 25933, D. Md., No. 8:09-cv-02661-AW, 1/31/14).
In addition to granting final approval of the settlement, the Jan. 31 opinion by Judge Deborah K. Chasanow of the U.S. District Court for the District of Maryland also granted class certification to a class of more than 20,000 individuals.
Chasanow also awarded class counsel attorneys' fees of $1 million, which represented about 28 percent of the recovery. Class counsel requested fees of $1.2 million—or one-third of the recovery—but Chasanow reduced that amount after considering fee awards in similar cases throughout the Fourth Circuit and the nation.
Last year, the U.S. District Court for the Eastern District of Michigan awarded class counsel fees of $900,000, representing 30 percent of the $3 million recovery they obtained in a similar stock-drop lawsuit (Griffin v. Flagstar Bancorp, Inc., 2013 BL 343406, E.D. Mich., 12/12/13).
The lawsuit was filed by participants in Coventry Health Care's Section 401(k) plan. They alleged that Coventry and its top officials breached their Employee Retirement Income Security Act-imposed fiduciary duties by offering Coventry stock as a plan investment option at a time when the company was allegedly making misrepresentations about its business condition.
Specifically, the participants contended that the fiduciaries knew of or recklessly disregarded certain adverse business conditions that caused Coventry's stock price to decline from $40 per share to $14 per share, including lengthy delays in processing claims for a new Coventry Medicare Advantage business initiative called Private Fee-For-Service.
In 2011, the court found that the participants stated a facially plausible misrepresentation claim with respect to Coventry and two of its chief officers and allowed them to proceed with those claims.
The settlement agreement requires Coventry to pay $3.6 million to a 20,000-person class consisting of plan participants and beneficiaries who held Coventry stock between February 2007 and October 2008. According to the court, class members will receive proportionate distributions based on their losses.
In addition to approving the settlement amount, the court also found that class certification was appropriate, because the proposed class satisfied the requirements of Rule 23 of the Federal Rules of Civil Procedure, including Rule 23(b)(1).
The court said that the members of the class shared common questions of law and fact, including whether the Coventry defendants breached their fiduciary duties by continuing to offer company stock as a plan investment option.
On the issue of attorneys' fees, the court found that class counsel was entitled to a fee award of $1 million, or $200,000 less than the $1.2 million sought.
Although the court found that counsel's obtainment of a $3.6 million recovery was “commendable” given the challenges posed by stock-drop litigation, it nevertheless found that a 33 percent fee award wasn't warranted.
On that point, the court said that attorneys' fee awards in complex litigation generally vary between 25 percent and 30 percent of the total recovery. Looking specifically at four similar cases decided within the Fourth Circuit since 2001, the court said that attorneys' fees ranged from 25 percent to 28 percent of the total recovery. Further, the court said, fee awards in comparable ERISA cases throughout the country ranged between 19 percent and 45 percent, but typically fell between 30 percent and 33 percent of the total recovery.
“Striking the balance between the percentage awarded in cases in this circuit for an award of this magnitude and those given in cases of this type across the nation, $1 million—approximately twenty-eight (28) percent—would appear to be an appropriate number,” the court concluded.
Further, the court said that the $1 million award took into account both the complexity and duration of the case, because while the litigation was “protracted and complex,” discovery in the case was “relatively straightforward.”
Finally, the court awarded class counsel full reimbursement of $137,316 in litigation costs.
The participants were represented by John B. Isbister and Toyja E. Kelley of Tydings & Rosenberg LLP, Baltimore; Robert I. Harwood of Harwood Feffer LLP, New York; and Thomas J. McKenna of Gainey McKenna & Egleston, New York. Coventry was represented by Christopher A. Weals, Christopher E. Hopkins-Gillispie, Gregory C. Braden, John R. Richards and Sean K. McMahan of Morgan Lewis & Bockius LLP, Washington.
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