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Case of the Month October 2009

Milwaukee County Settles Pension Suit Against Actuarial Consultant for $45M

Milwaukee County v. Mercer Human Res. Consulting

Professional Malpractice - Other
Contracts - Breach
Contracts - Professional Services
Fraud & Misrepresentation - Negligent Misrepresentation
Labor & Employment - Pension & Benefits

Specific Liability:
Failure of actuarial consultants to complete accurate estimates for county employee pension and benefit programs breached agreement

General Injury:
Monetary damages

Jurisdiction:
State: Wisconsin
Court: United States District Court, E.D. Wisconsin.

Related Court Documents:
Plaintiffs' complaint: 2006 WL 5063675
Defendant's answer: 2006 WL 1356024
Joint pretrial memorandum:2008 WL 5210229
Stipulation for dismissal: 2009 WL 1507046

Case Name:
Milwaukee County, Employee's Retirement System of the County of Milwaukee and Pension Board Employee's Retirement System of the County of Milwaukee v. Mercer Human Resource Consulting Inc. f/k/a William M. Mercer, Inc.

Docket/File Number:
2:06-cv-00372

Settlement:
Plaintiffs, $45,000,000.00

Settlement Date:
May 19, 2009

Judge:
Charles N. Clevert Jr.

Attorneys:
Plaintiffs: Kenneth E. McNeil, James T. Southwick, Lexie G. White and Alexander L. Kaplan, Susman Godfrey LLP, Houston, Texas; John A. Busch, Michael Best & Friedrich, Milwaukee, Wis.; Chris J. Trebatoski, Weiss Berzowski Brady LLP, Milwaukee, Wis.

Defendant: Eric J. Van Vugt and Paul B. Bauer, Quarles & Brady, Milwaukee, Wis.

Trial Type:
Settlement

Experts:
Plaintiffs: Gene Kalwarski, consulting actuary, Cheiron Inc., McLean, Va.; Kim Nicholl, actuary, PricewaterhouseCoopers, Chicago, Ill.

Defendant: Donald F. Behan, actuary, Roswell, Ga.; Lauren M. Bloom, actuary, Springfield, Va.; Henry S. Farber, PhD, professor of economics, Princeton University, Princeton, N.J.; John W. Peavy III, financing, RPF Equity Advisors LLC, Grapevine, Texas; Dennis A. Skelly, actuary, Mercer Human Resource Consulting Inc., Wilmington, Del.

Breakdown of Award:
$45,000,000.00 to plaintiffs

Summary of Facts:
In 2000 Milwaukee County hired actuarial firm Mercer Human Resource Consulting Inc. to provide services to the county and the Pension Board Employee's Retirement System of the County of Milwaukee regarding the county employee pension program.

The county said it employs thousands of people and provides pensions to eligible retirees. After learning its pension fund was overfunded, the county decided to use the overfunding to enhance pension benefits. The county reportedly wanted to use the changes as a negotiating strategy in upcoming collecting bargaining sessions with labor unions.

Mercer gave the county assessment costs for potential pension benefit changes. Using those estimates, the county negotiated new labor agreements with both union and nonunionized workers in 2000 and early 2001. Those new agreements included enhanced pension benefits.

The county, Pension Board and Employee's Retirement System of the County of Milwaukee later sued Mercer in the U.S. District Court for the Eastern District of Wisconsin, arguing the actuarial firm underestimated the costs associated with adopting the enhanced pension benefits.

The plaintiffs alleged Mercer did not study the actuarial effect or the cost to the county. The defendant failed to warn the plaintiffs that the plan Mercer recommended would induce county employees to retire early, in direct opposition to the county's desire to retain workers, the plaintiffs said.

Had the defendant properly analyzed the costs, the plaintiffs contended, they would not have adopted the changes. Despite Mercer's inadequate service, the defendant repeatedly billed the plaintiffs for hundreds of dollars per hour over several months, the plaintiffs alleged.

They claimed more than $110 million in damages, and sought both compensatory and punitive damages.

Mercer denied any wrongdoing, arguing it never told the county the plan would be “cost-neutral.”

The defendant blamed county director of human resources Gary Dobbert for the plaintiffs' damages. Dobbert gave county decision makers false information about the cost of the pension plan, Mercer said, adding the director failed to give county supervisors a cost analysis conducted by the firm in January 2001.

Mercer added its contract precluded the defendant from providing broader consulting advice on actuarial matters to other county agencies.

Without admitting liability, Mercer agreed to settle the matter for $45 million in May 2009, according to plaintiffs' counsel. The settlement came two weeks into trial before U.S. District Judge Charles Clevert Jr. The judge dismissed the case the same day.

Court: United States District Court, E.D. Wisconsin.

Westlaw Citation:
2009 WL 1974280

West's Jury Verdicts - Wisconsin Reports Citation:
West’s J.V. Wis. Rep., Vol. 5, Iss. 2, p. 24 (2009)