Update: Class Counsel is pleased to announce that on January 9, 2014, the Court entered (i) an Order Granting Motion for Final Approval of Settlement, Certification of Settlement Class, Approval of the Plan of Allocation, and (ii) an Order Granting Approval of Attorneys’ Fees, Reimbursement of Expenses and Case Contribution Awards for the Named Plaintiffs. The Orders are available on the Court Documents page of this website.
The mandatory, thirty-day appeal period has expired with no appeals being filed. As such, the Settlement has become Effective. The Court-appointed Settlement Administrator has begun the time- and labor-intensive process of calculating each Settlement Class Member’s pro rata loss. After the calculations are complete, the Settlement distribution process will begin, which will likely take several months to complete. An additional update will be posted to this website when the settlement distribution is complete, but please continue to visit this website for additional updates.
Welcome to the Settlement website for the In Re Advanta Corp. ERISA Litig., Case No. 2:09-cv-04974-CMR (the “Action”). This website has been established to provide general information related to the Action and the resulting Settlement. The capitalized terms used on this website and not defined herein shall have the same meanings ascribed to them in the Settlement Agreement (“Agreement”).
Background of the Litigation
On October 29, 2009, Plaintiff Ragan filed his complaint in which he alleged that the fiduciaries of the Plans violated ERISA by allowing the Plans to continue to invest in Advanta Stock at a time when it was an imprudent investment for a retirement plan. Subsequently, Hiatt v. Advanta Corp. and Yates v. Rosoff, et al. were filed in November and December of 2009, respectively, each of which contained allegations similar to Ragan. On December 15, 2009, the Court issued an Order for Plaintiffs to Show Cause why the case should not be stayed as to Advanta Corp. given its November 8, 2009 bankruptcy filing. Plaintiffs responded to the Court’s Order to Show Cause on December 29, 2009. On June 3, 2010, the Court stayed the matter as to Advanta Corp. and its corporate entities only. The following day, on June 4, 2010, the three cases were consolidated and KTMC was appointed Interim Class Counsel.
Plaintiffs filed the Consolidated Class Action Complaint (the “Complaint”) on August 11, 2010, alleging in Count I that Defendants breached their fiduciary duties to the Plans, Plaintiffs, and the proposed Class by failing to prudently and loyally manage the Plans’ investment in Company securities by continuing to offer Advanta Stock as an investment option in the Plans when it was imprudent to do so. Specifically, Plaintiffs alleged that Advanta Stock was an imprudent investment because, inter alia,: (a) the Company’s assets contained large amounts of impaired credit card receivables for which Advanta had not accrued losses; (b) Advanta’s customer default rate would be substantially higher than the industry average by 2009 due to the Company’s failure to verify its customers’ ability to pay; (c) Advanta’s credit receivables were excessively risky because of Advanta’s practice of issuing credit cards to small business owners without verifying income; (d) customers were leaving and would continue to leave the Company due to Advanta’s drastic increase of interest rates and its manipulation of its cash rewards program; and (e) Advanta failed to correctly account for delinquent customers and credit trends, leading to large charges to its portfolio.
In Count II, Plaintiffs alleged that all Defendants failed to avoid or ameliorate inherent conflicts of interests. Lastly, in Count III, Plaintiffs alleged that certain Defendants breached their fiduciary duties by failing to adequately monitor other persons to whom management/ administration of the Plans’ assets was delegated.
Defendants moved to dismiss Plaintiffs’ Complaint on October 27, 2010. After full briefing by the Parties, on September 30, 2011, the Court granted in part and denied in part Defendants’ Motion to Dismiss. Most importantly, the Court upheld the prudence claims of Count I, finding Plaintiffs sufficiently alleged that Defendants violated their fiduciary duties by continuing to invest the Plans’ assets in Advanta Stock when it was no longer a prudent investment option for the Plans. Thereafter, each Defendant answered the Complaint on December 21, 2011, followed by the filing of amended answers on March 16, 2012 to conform their responses to the Parties’ agreement surrounding specific affirmative defenses. On April 23, 2012, Plaintiffs filed a Motion to Strike Affirmative Defenses, however, that motion was never fully briefed because on May 22, 2012, at the request of the Parties, the Court stayed the proceedings so the Parties could engage in mediation discussions which ultimately resulted in the proposed Settlement.
The proposed Settlement is the product of hard-fought, lengthy negotiations between Class Counsel and the Defendants’ counsel. Indeed, the agreement in principle to settle the Action was only reached after three, separate mediation sessions with a highly respected and experienced mediator. Throughout the negotiations, Class Counsel and Defendants’ counsel were advised by experts of the potential losses or damages in cases involving ERISA fiduciary liability.
The Settlement provides that Defendants’ Insurer will pay $4,500,000.00 to the Reinstated Plan to be allocated to participants pursuant to a Court-approved Plan of Allocation. In exchange, Named Plaintiffs and the Plans will dismiss the Consolidated Complaint and all related claims, as set forth more fully in the Settlement Agreement. The Settlement Agreement also provides for the payment of attorneys’ fees and expenses incurred in connection with the litigation of the Action and Named Plaintiffs’ Case Contribution Awards, both of which are subject to Court approval. Because the Plans have been terminated, the Settlement Agreement, proposed Preliminary Approval Order, and proposed Final Approval Order and Judgment seek appointment of Nicholas L. Saakvitne, Esq., principal of Nicholas L. Saakvitne, a Law Corporation, as Plan Administrator to reinstate the Plans for purposes of distributing the Net Settlement Fund. Immediately following the complete distribution of the Net Settlement Fund, the Plan Administrator will terminate the Reinstated Plan.
The Court will hold the Final Approval Hearing at 10:30 a.m. on January 8, 2014 at the United States District Court for the Eastern District of Pennsylvania, James A. Byrne U.S. Courthouse, 601 Market Street, Philadelphia, Pennsylvania 19106-1797 in Courtroom 12614, or the Courtroom then occupied by United States District Judge Cynthia M. Rufe. At that hearing, the Court will consider whether the Settlement is fair, reasonable, and adequate. If there are objections, the Court will consider them. The Court will also rule on Class Counsel’s application for attorneys’ fees and expenses incurred in connection with the litigation of the Action, and for the Named Plaintiffs’ Case Contribution Awards. We do not know how long these decisions will take or whether appeals will be taken.
If you have questions about the Settlement, please send an email to AdvantaERISAsettlement@ktmc.com. This e-mail will go to Class Counsel and will be directed to the individuals handling the Settlement. Class Counsel has also set up a toll free number, 866-905-8103, if you prefer to call with your questions.