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District Court Grants Great-West’s Motion for Sanctions Following Trial Victory in Section 36(b) Case

On August 7, 2020, the U.S. District Court for the District of Colorado issued a judgment in favor of Great-West Capital Management, LLC and Great-West Life & Annuity Insurance Co. (together, Great-West) in a Section 36(b) excessive fee case. Following that decision, Great-West filed a motion for sanctions against the plaintiffs’ counsel under 28 U.S.C. § 1927.

On August 7, 2020, the U.S. District Court for the District of Colorado issued a judgment in favor of Great-West Capital Management, LLC and Great-West Life & Annuity Insurance Co. (together, Great-West) in a Section 36(b) excessive fee case.

On September 28, 2020, the District Court issued an order granting Great-West’s motion for sanctions, holding the plaintiffs’ counsel personally liable for up to $1.5 million of Great-West’s excess costs, expenses and attorneys’ fees reasonably incurred in connection with the Section 36(b) litigation.

The District Court noted the standard set forth under 28 U.S.C. § 1927 that “[a]ny attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” The court also noted that, from the outset of the case, both parties were aware that no plaintiff to pursue a Section 36(b) claim has ever won throughout the entirety of the section’s existence.

In support of its position, the District Court cited the lack of credibility displayed by the plaintiffs’ expert witness on which the bulk of the plaintiffs’ case relied. The court recounted that Great-West identified flaws in the accuracy of the expert witness’s testimony during the summary judgment stage, yet plaintiffs’ counsel still pursued their claims and relied heavily on the expert witness at trial. At trial, the expert witness was thoroughly discredited and the court found his testimony to be non-credible.

Next, the District Court noted that even if it overlooked the inadequacy of the plaintiffs’ expert witness, Great-West’s presentation of favorable evidence would still warrant sanctions. For example, Great-West presented credible evidence that their fees were reasonable and that they did not breach any fiduciary duties. In addition, several testifying plaintiffs expressed that they were satisfied with the services Great-West performed.

Lastly, the District Court agreed with Great-West’s assertion that the prospect of financial gain may have incentivized plaintiffs’ counsel to litigate. The court underscored the fact that each individual plaintiff stood to gain a small amount relative to the millions of dollars at stake for the plaintiffs’ counsel.

In conclusion, having found that “[p]laintiffs’ attorneys were undeterred by the signs that their case was fatally flawed; they recklessly proceeded to trial in violation of their duty to objectively analyze their case,” the District Court granted Great-West’s motion for sanctions.
The order was issued under the caption Obeslo v. Great-West Capital Mgmt., LLC, No. 16-cv-00230-CMA-SKC.

On August 7, 2020, the U.S. District Court for the District of Colorado issued a judgment in favor of Great-West Capital Management, LLC and Great-West Life & Annuity Insurance Co. (together, Great-West) in a Section 36(b) excessive fee case. Following that decision, Great-West filed a motion for sanctions against the plaintiffs’ counsel under 28 U.S.C. § 1927.

Plaintiffs’ counsel filed a notice of appeal of the motion for sanctions on October 28, 2020.​

 

© 2021 Vedder PriceNational Law Review, Volume X, Number 316
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About this Author

John Marten Investment Attorney Vedder Price Law FIrm
Shareholder

John S. Marten, a Shareholder in the Chicago office of Vedder Price, has substantial experience representing clients in the investment management industry.

As a member of the firm’s Investment Services group, Mr. Marten counsels clients on a wide variety of matters involving the application of the federal securities laws to investment companies, investment advisers and broker-dealers. He has significant experience counseling investment company clients with respect to new products and was recently involved in the creation of two mutual funds...

(312) 609 7753
Nathaniel Segal Investment Attorney Vedder Price Law Firm
Counsel

Nathaniel Segal is counsel at Vedder Price and a member of the Investment Services group. He focuses his practice on investment companies and investment advisers in connection with the organization and operation of investment products and services, including traditional mutual funds, closed-end investment companies (including interval funds and listed closed-end funds), variable insurance products and registered hedge funds, as well as mutual funds utilizing complex hedging and absolute return strategies. Mr. Segal has experience in conducting transactional due diligence...

(312) 609 7747
Jacob Tiedt,Vedder Price law firm investment services attorney
Shareholder

Jacob C. Tiedt is a Shareholder at Vedder Price and a member of the Investment Services group.

Mr. Tiedt’s practice includes the representation of registered mutual funds, closed-end funds and exchange-traded funds; private funds; investment advisers; and other financial institutions on a broad range of regulatory, governance and compliance matters. Mr. Tiedt regularly counsels clients on matters relating to SEC registration, disclosure and compliance; shareholder solicitation; NYSE, Nasdaq and FINRA regulation; corporate governance; and board administration. Mr....

312-609-7697
Tyrique Wilson Investment Attorney Vedder Price Law Firm
Associate

Tyrique J. Wilson is an Associate in the Chicago office of Vedder Price and a member of the firm’s Investment Services group.

Mr. Wilson received his law degree from the Washington University School of Law in St. Louis and his undergraduate degree from The George Washington University. While in law school, Mr. Wilson was Treasurer of the Black Law Students Association, received an award for Excellence in Oral Advocacy and earned a Certificate in Business Law.

312-609-7689
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