Snitzer et al v. The Board of Trustees of the American Federation of Musicians and Employers' Pension Fund et al

TRANSCRIPT of Proceedings re: CORRECTED CONFERNCE held on 7/12/2019 before Judge Valerie E. Caproni. Court Reporter/Transcriber: Rose Prater, (212) 805-0300. Transcript may be viewed at the court public terminal or purchased through the Court Reporter/Transcriber before the deadline for Release of Transcript Restriction. After that date it may be obtained through PACER. Redaction Request due 8/30/2019. Redacted Transcript Deadline set for 9/9/2019. Release of Transcript Restriction set for 11/7/2019.

Southern District of New York, nysd-1:2017-cv-05361

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8 1 J7CPSNIO 1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK 2 ------------------------------x 3 ANDREW SNITZER, ET AL., 4 Plaintiffs, 5 v. 17 CV 5361 (VEC) 6 THE BOARD OF TRUSTEES OF THE AMERICAN FEDERATION OF 7 MUSICIANS AND EMPLOYERS' PENSION FUND, ET AL., 8 Defendants. 9 ------------------------------x 10 New York, N.Y. July 12, 2019 11 10:26 a.m. 12 Before: 13 HON. VALERIE E. CAPRONI, 14 District Judge 15 APPEARANCES 16 CHIMICLES & TIKELLIS, LLP Attorneys for Plaintiffs 17 BY: ROBERT J. KRINER, JR. STEVEN A. SCHWARTZ 18 VERA BELGER 19 PROSKAUER ROSE LLP Attorneys for Defendants 20 BY: MYRON D. RUMELD DEIDRE ANN GROSSMAN 21 AND COHEN, WEISS AND SIMON, LLP 22 BY: JANI KAREN RACHELSON ZACHARY NATHAN LEEDS 23 24 25 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 8 2 J7CPSNIO 1 (In open court) 2 (Case called) 3 THE COURT: I held you guys until last because I 4 thought we were going to take some time. 5 Starting here, you are? 6 MR. SCHWARTZ: Steve Schwartz. 7 THE COURT: You are? 8 MR. KRINER: Robert Kriner. 9 THE COURT: Robert Kriner. 10 MR. RUMELD: Myron Rumeld. 11 THE COURT: Mr. Rumeld. 12 MS. GROSSMAN: Deidre Grossman. 13 THE COURT: Ms. Grossman. 14 MS. RACHELSON: Jani Rachelson. 15 THE COURT: Ms. Rachelson. 16 MS. BELGER: Vera Belger. 17 THE COURT: You're for the plaintiffs, right? 18 MS. BELGER: Yes. 19 MR. LEEDS: Zachary Leeds for the defendant. 20 THE COURT: Okay. Other than the two depositions, is 21 all the discovery complete? 22 MR. SCHWARTZ: Yes. 23 THE COURT: Mr. Rumeld? 24 MR. RUMELD: I think we have some cleanup document 25 production with you, but I don't think it will interfere with SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 8 3 J7CPSNIO 1 anything. 2 THE COURT: Okay. And the two depositions are going 3 to be complete by July 31st? 4 MR. RUMELD: That's correct. 5 MR. SCHWARTZ: Yes. 6 THE COURT: Okay. You mention in your letter 7 something called an opt-out -- a non-opt-out class, what is 8 that? I confess I've never heard of it. Oh, that sounds like 9 you haven't either. 10 MR. KRINER: No, it's common. It's a (b)(1) class, 11 and we've had discussions with defendants regarding whether to 12 assert a class or not. It seems, under Second Circuit, there's 13 an issue about a representative plaintiff in an ERISA claim, 14 and although class certification is not required, it is 15 sufficient to do that. And I think we've come to an agreement 16 to ask your Honor if we can certify a class under (b)(1), 17 23(b)(1), and leave it to your Honor how your Honor wishes us 18 to present that, by motion or by stipulation. 19 THE COURT: You're in agreement? 20 MR. KRINER: We are. 21 THE COURT: What does this accomplish, to have a 22 class? 23 MR. RUMELD: Maybe I should take the lead on this. 24 THE COURT: Okay. So this sounds like this is the 25 defendant wanting it. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 8 4 J7CPSNIO 1 MR. RUMELD: I know it's not every day of the week 2 when your Honor hears the defendant asking for a class, instead 3 of the plaintiffs. So in, you know, most ERISA cases that come 4 into the court these days tend to be 401(k) plans, where there 5 are separate accounts -- 6 THE COURT: Right. 7 MR. RUMELD: -- so each participant has a stake in the 8 outcome. In defined benefit plan cases, there's just one pot 9 of money, and any participant can bring, under ERISA, a 10 representative claim seeking relief that really is for the 11 benefit of everybody else. 12 And the case law is a little bit unclear as to 13 whether, in a circumstance like that, it's appropriate or 14 inappropriate or necessary to have a class. There is a Second 15 Circuit opinion that I alerted plaintiff's lawyers to called 16 Coan v. Kaufman that actually dismisses an ERISA breach of 17 fiduciary duty claim for failure to take measures to act in a 18 representative capacity on behalf of the class. 19 So if two individuals bring a claim and purport to 20 bring it for everybody else, there is a certain issue that's 21 been left open by the Second Circuit as to whether you have to 22 do something to make it clear that you're acting in a 23 representative capacity. 24 THE COURT: Got it. 25 MR. RUMELD: And the Second Circuit indicated the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 8 5 J7CPSNIO 1 safest way to do that is for there to be a class. 2 Now, on the defendant's side, to be perfectly upfront 3 as we've been with plaintiffs' lawyers, there was a period of 4 time in this case where we weren't necessarily interested in 5 having a class because, you know, there is a lot of public 6 attention amongst the musicians to this case and, frankly, we 7 didn't want to do anything that would kind of fuel the idea 8 that this case had more merit than we felt it did, and 9 sometimes when you tell everybody there's a class, it has that 10 outcome. 11 THE COURT: Yes. 12 MR. RUMELD: But we are looking at a trial now, and 13 the one things that's clear is that if your Honor's going to 14 render a ruling, it ought to be a ruling that decides this for 15 everybody. 16 THE COURT: That makes sense. 17 MR. RUMELD: And the case law is a little bit 18 ambiguous as to whether when somebody brings a representative 19 case, whether that's going to have a res adjudicata effect on 20 everybody. 21 So when we balanced all these interests, we felt that 22 there ought to be a class, as Mr. Kriner indicated, under 23 23(b)(1). In a case like this, you can certify a class without 24 giving notice and without giving opt-out rights. There's 25 discretion that can be exercised as to whether it's in SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 8 6 J7CPSNIO 1 everybody's interest just to notify everybody involved in the 2 class. 3 And we told the plaintiffs' lawyers that we don't mind 4 taking the lead and the laboring ore on this, since they are 5 our participants, and we would try and come to agreement on 6 whatever notice was needed. And we, obviously, want to give 7 your Honor whatever paperwork she feels she needs to feel 8 comfortable about whether that class should be certified. 9 THE COURT: Okay. So that sounds reasonable. Why 10 don't you do this. If you're all in agreement, what I'd like 11 is a memorandum of law explaining why this is appropriate and 12 kind of what goes with it all. 13 MR. KRINER: Certainly, your Honor. The Second 14 Circuit Kaufman opinion says that class certification is not 15 necessarily required, but it is sufficient if you jump through 16 that hoop. 17 THE COURT: Okay. I mean, I get it. It kind of makes 18 sense, and I certainly agree, I think everything agrees, that 19 this case should resolve this issue, and the defendants should 20 not be subject to yet another lawsuit. 21 MR. KRINER: We are all in agreement on that. 22 THE COURT: Everybody agrees to that. 23 Okay. So I know that there is some desire for me to 24 reconsider my norm that a in bench trial, I'm going to let you 25 move for summary judgement. Having just read your letter, I SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 8 7 J7CPSNIO 1 did not think that makes sense. I think it's going to 2 benefit -- it's going to be a lot easier to decide this case 3 hearing from the people and the experts, than just reading 4 their reports. And I think it will be cheaper, actually. 5 MR. RUMELD: So if I could be heard, your Honor. 6 THE COURT: Sure. 7 MR. RUMELD: It was my intention in the letter to 8 indicate that, in light of your Honor's remarks the last time, 9 that we would back away from summary judgment in favor of what 10 we've referred to as this staged approach because we do think 11 it -- we think there are holes in plaintiff's case independent 12 of what the trustees will say they did and why they did it. 13 And if there really is a desire to try and save some 14 time and control the length of this case, I think if we proceed 15 in this sequential process, where we take care of some of the 16 issues that the experts can cover, if we're right, your Honor 17 is going to find certain aspects of the claim that will 18 disappear. In which case, your Honor won't have to hear 19 testimony with respect to those claims. 20 THE COURT: Give me a for instance with that, where I 21 don't really need to know the facts. 22 MR. RUMELD: So if your Honor will permit me, I 23 actually prepared a little -- 24 THE COURT: A little powerpoint? 25 MR. RUMELD: Right, very little, and in my past SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 8 8 J7CPSNIO 1 experience, it never works out when I do this, but I can sort 2 of talk you through this. 3 So if you turn to the first page, this is just a basic 4 summary of the two claims we have in this case. Right? We 5 have the first claim that has to do with two asset allocation 6 decisions, one that took place in 2011 and one that took place 7 in 2015. 8 Each of those decisions involved an increase in the 9 aggregate targeted returns, a somewhat riskier allocation 10 policy, and each had with it increases in investments of 11 certain securities that the plaintiffs have focused on, 12 specifically the emerging market equities and the private 13 equity. 14 THE COURT: Correct. 15 MR. RUMELD: The second claim has to do with the use 16 of actively managed funds or actively managed investments, and 17 there are two aspects of that claim, one is: Is it prudent to 18 retain active managers to begin with if the index funds 19 outperform them; and the second is: If you have retained 20 active managers, did we fail to remove underperforming managers 21 here? 22 THE COURT: We're all in agreement up to now, right? 23 That seems like a correct statement of what's at issue? 24 MR. SCHWARTZ: Well, I think -- 25 THE COURT: There may be some nuances, but in broad SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 8 9 J7CPSNIO 1 strokes. 2 MR. SCHWARTZ: I think there is a big nuance, which is 3 that they took domestic equities in order to fund these 4 risky -- 5 THE COURT: No, I understand -- 6 MR. SCHWARTZ: Right. 7 THE COURT: -- that in order to increase anything, 8 you've got to decrease something else because it's all got to 9 add to a hundred. 10 MR. SCHWARTZ: And they decreased domestic equities, 11 which is the gold standard. 12 MR. RUMELD: And it is true, I think there's some -- I 13 have some rebuttals to some of those nuances about what the 14 domestic equity was used for, but there's no question that 15 there is less domestic equity in this plan than there might 16 have been under other models, and domestic equities performed 17 very, very well during this period of time, which is, in our 18 view, this is somewhat an exercise of hindsight rather than 19 foresight, but those are issues we can cover later. 20 THE COURT: We've agreed to disagree at the motions to 21 dismiss level on that. 22 MR. RUMELD: Right. So I thought I would lay out for 23 you some for instances of what your Honor would learn if she 24 heard from the experts first. And just to be clear, to lay the 25 groundwork, the plaintiffs have one expert in their case in SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 8 10 J7CPSNIO 1 chief and two rebuttal experts, and we have three experts; an 2 expert actuary, an expert on fiduciary process, and an expert 3 on causation and damages. 4 THE COURT: Okay. And what's plaintiff's expert? 5 MR. RUMELD: Plaintiff has -- maybe I should let you 6 describe the plaintiff's expert in the case in chief, but it's 7 important to us that he's not an actuary. And one of the 8 points we would like to get across when you hear the expert 9 testimony, is he's really not competent to testify to the 10 issues of risk as they relate to this type of plan, the funding 11 risks, the risks associated with the Pension Protection Act, of 12 which he has no experience. 13 And I think even if you read plaintiff's letter, the 14 focus of his attention is on his belief that there's something 15 inherently wrong with having too much money in emerging market 16 equities and in private equities. And h