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

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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.

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



Professionals



John S. Marten

Shareholder



Nathaniel Segal

Counsel



Jacob C. Tiedt

Shareholder



Tyrique J. Wilson

Associate