DOL Objects to Terms of Excessive Fee Settlement

The Department of Labor has called “foul” on the terms of a proposed excessive fee litigation settlement involving DST Systems’ 401(k) plan. 

The move comes following three class action[i] settlements filed Jan. 8 in a federal district court by DST, investment manager Ruane, Cunniff & Goldfarb, and the former CEO of Ruane (Robert Goldfarb), in which the defendants agreed to pay nearly $80 million to settle claims made by participant-plaintiffs in the DST 401(k) profit sharing plan. However, those settlement terms include a stipulation that seeks to preclude the DOL from continuing to prosecute its own case[ii] against DST and Ruane, Cunniff & Goldfarb.

The DOL Response

Not surprisingly, the DOL objected to the terms of the agreement. In a Jan. 15 letter to Judge Andrew Carter Jr. of the U.S. District Court for the Southern District of New York, attorneys from the DOL’s Office of the Solicitor wrote: “The Secretary strongly requests that the Court reject the improper injunctive provisions in the parties’ proposed settlement agreements and, most urgently, the parties’ requests for preliminary injunction in their proposed Preliminary Approval Orders.”

“These improper provisions impermissibly attempt to impede the Secretary’s legal authority and ongoing litigation in Scalia, and would illegally undermine the ERISA enforcement scheme carefully constructed by Congress,” the DOL argues. 

The Solicitor’s office contends that well established case law expressly forbids private parties from attempting to use settlements as a vehicle to enjoin the Labor Secretary from exercising his right to enforce ERISA. Moreover, the letter notes that not only is the Secretary not a party in these cases, he has not communicated any endorsement of the proposed settlements. 

Suits and Arbitration 

DST has faced several suits and hundreds of individual arbitration claims in relation to the plan’s investment portfolio, which was allegedly highly concentrated in the stocks of certain companies, including the stock of Valeant Pharmaceuticals. According to the lawsuits, the DST 401(k) plan lost tens of millions of dollars when Valeant’s stock price dropped by nearly 90% during 2015 and 2016, and the fiduciaries failed to appropriately diversify the plan’s assets. 

The suits filed individually and as representatives of a class of similarly situated plan participants come from Robert Canfield, Mark Mendon, Michael Ferguson and Clive Cooper, along with the DOL suit filed in 2019. 

Meanwhile, Ruane sued the hundreds of individual DST plan participants seeking a stay of their individual arbitrations and a declaratory judgment stipulating that multiple participants cannot at the same time seek recovery under ERISA in multiple forums for the same alleged breaches of fiduciary duty, and that the plan participants’ private lawsuit or the DOL Secretary’s lawsuit represents all 10,000 plan participants or only the approximately 500 who opted out of the arbitration agreement.

Additionally, DST last year filed a suit seeking to force Ruane to cover the litigation and arbitration costs in connection with the Sequoia Fund. Although DST initially called for Ruane to take responsibility, both DST and Ruane agreed to pay out more than $20 million each to settle.

DST, Ruane and Goldfarb have moved separately to dismiss the DOL suit altogether, but those motions are still pending in the Southern District. And, despite the recent change in administrations, it’s likely that the DOL will continue to pursue its enforcement prerogative.