DST CLASS ACTION SETTLEMENT
After more than five years of arduous and protracted litigation, we are pleased to announce that DST Systems, Inc. (“DST”) and Ruane, Cunniff & Goldfarb, Inc. (“RCG”) have finally offered a settlement that, under the circumstances, we regard as reasonable and fair.
Background
On August 17, 2021, the District Court in New York certified a mandatory class action and ordered that Plan participants in the DST Systems, Inc. Profit Sharing Plan, including those who wished to pursue arbitration in Missouri, may not opt out of the class. Thereafter, on November 18, 2021, the court in New York entered an order (an injunction) prohibiting the filing of new arbitrations, the completion of existing arbitrations, and the confirmation of completed arbitrations. In effect, the court in New York abolished the arbitrations and threatened to annul the existing arbitration awards. The court in New York declared that, despite the arbitrations in Missouri, the claims against DST must be handled and resolved in the mandatory class.
Although we appealed the Southern District of New York’s (SDNY) injunction against our proceeding with your arbitrations, the Second Circuit Court of Appeals in New York did not appear responsive to our plight. Instead, during oral arguments, the Second Circuit Court of Appeals seemed inclined to agree with SDNY’s position that the case against DST and RCG must be handled and resolved in a mandatory class and that the injunction against proceeding with the arbitrations should stay in place.
However, while awaiting a decision from the Second Circuit, we continued our efforts at protecting the arbitral awards that were pending in the Western District of Missouri prior to the SDNY’s injunction. In that regard, we achieved significant success. Last month, the Western District of Missouri ordered that the court in New York “may not permit DST and class counsel to effectively take away [the] property right” inherent in the arbitration awards rendered before the certification of a mandatory class in August, 2021. DST thereupon attempted to do an end-run around that Order by agreeing to a compromise of those awards through the class action in New York. In response, we successfully obtained an injunction from the court in Missouri prohibiting DST from entering a class action settlement without the express written consent of those with confirmed awards. That brought the attempted end-run to a screeching halt. But it also created opposing injunctions which had the combined effect of offsetting one another in a stalemate. It thus became obvious that the best interests of everyone were served if we could reach a settlement. Indeed, the court in Missouri insisted that “the best outcome for all involved here would be a global settlement of all disputes that originated from DST’s breach of its fiduciary obligations.” The SDNY also ordered a hiatus in that action so that the parties could negotiate a global settlement. In other words, the courts and all of the lawyers for the various parties agreed to work in good faith to get this case finally resolved after five years of battle.
Accordingly, with both injunction appeals remaining pending, and at the urging of both the Missouri and New York courts, we agreed to participate in global settlement negotiations with all the parties involved, including the U.S. Department of Labor, which also was amenable to reaching a settlement of its own lawsuit.
Proposed Settlement
The parties have reached an agreement that serves three goals from our point of view:
(1) For those arbitration claimants who received awards reimbursing their account losses, the loss reimbursement portion of those awards are payable 100% and the attorneys’ fees and costs portion of those awards payable to us are paid at a compromised level (reduced by approximately one-half).
(2) For those arbitration claimants whose arbitrations have been enjoined by the SDNY before awards could be obtained, they will recover damages as determined by Class Counsel and approved by the SDNY for the entire Class. Although we have attorneys’ fees agreements with those arbitration claimants, we are waiving those agreements and will not apply for payment of our fees and/or costs for those arbitration claims that did not reach award status before the SDNY injunction halted the process. This is a very substantial concession on our part to make this deal work.
(3) All arbitration claimants preserve their individual right to object to the Settlement. We recommend against objecting to the Settlement as we believe this is the best possible achievable result. We also believe that the SDNY is very unlikely to sustain objections to this Settlement.
The proposed Settlement, which must be approved by the Class Action court (SDNY), will be contingent upon each of these conditions being met. If one or the other of these conditions is not met, the Settlement will become null and void and everyone will return to their battle stations.
The proposed settlement will provide $124,625,000 to the Plan, subject to certain deductions for Court-approved fees and expenses, including attorney’s fees; administrative costs; and civil penalties paid to the United States Department of Labor.
You may recall that near the start of the arbitrations, Class Counsel in New York agreed to settle the claims of the entire Plan for $79 million, inclusive of attorneys’ fees and costs. The original $79 million proposal came shortly after three years of our litigation resulted in a Summary Judgment against DST in the arbitrations. That proposed settlement was not approved by the SDNY and we continued to win 80% of the arbitration trials for the next year or more. Because of our efforts, the total amount of the proposed settlement has gone up from a total of $79 million to a total of more than $124 million, more than $90 million of which will be distributed to the Plan participants. We believe that represents a net increase payable to the Plan participants of approximately $50 million more dollars. We are extremely proud to have achieved this result. We have worked diligently and expended tremendous amounts of time and resources to benefit the participants of the DST retirement plan.
Additionally, as a part of the settlement, we have agreed to accept half of the more $32 million that was awarded as attorneys’ fees and costs in the arbitrations that we were able to complete before the SDNY intervened. We made this concession for the benefit of you all, for the benefit of the Class, and for the benefit of Plan. We have also agreed not to seek any additional fees or costs from anyone else and we will not seek attorneys’ fees and costs for any arbitration claim not making it far enough on the time line to result in an award. This means that you all will receive a pro rata distribution of the settlement fund and will not have to reimburse from that amount any attorneys’ fees or expenses to us.
For those of you with an existing arbitration award, DST has also agreed to honor the “damages” portion of your award and to “top it off” to the extent your pro-rata share of the settlement fund exceeds the damages portion of your award.
We Believe that The Settlement is Fair and Reasonable
While the terms of the settlement must still be approved by the court in New York, we believe that the terms of the agreement are fair and reasonable. This is especially true since there remain weighty legal issues that have yet to be resolve by the various courts of appeals. Until now, the defendants have relied on this uncertainty and delay to avoid reimbursing your retirement accounts. As a result of this settlement, if it is approved by the court in New York, the waiting game will come to an end and reimbursements will finally be made. We also are of the opinion that the court in New York will approve of a mandatory class-wide settlement over any objections that might be filed, leaving all of you no choice but to participate in the result. We feel that by our participation, the settlement has been made tremendously better, even if “perfect” in this case might very well be the enemy of the good. We think that we have come as close as possible to the kind of result that we had hoped to achieve when we first undertook these cases.
This Settlement is a Result of Our Mighty Efforts
Having worked for years on this case, we wish to share a little of what we have done to obtain this result.
It is hard to emphasize enough the colossal amount of time and labor we expended navigating the “time-intensive (indeed multi-year) procedural judicial labyrinth” that has resulted from the defendants’ various procedural machinations. Beginning in February 2016, we extensively litigated the legality of DST’s Arbitration Agreement in the matter of Ducharme v. DST Sys., Inc., No. 4:17-CV-00022-BCW (W.D. Mo.). Then, in 2018, after we had initiated hundreds of arbitration actions, we fended off a complaint for declaratory and injunction relief which sought to impose a settlement not of our liking as an end-run around the order in Ducharme. See Ruane, Cunniff & Goldfarb, Inc. v. Ducharme, et al., No. 4:18-cv-00650 (W.D. Mo.) which initiated the hundreds of arbitrations process. Then, a year later, in 2019, after we had litigated in arbitration for more than a year, we fended off a second complaint for declaratory and injunction relief which again sought to make an end-run around the order in Ducharme. See Ruane, Cunniff & Goldfarb, Inc. v. Payne, et al., No. 1:19-cv-11297 (W.D. Mo.). Thus, we were able to fight on for another two years gaining an 80% win record in arbitration trials handled virtually every week until August 2021.
Meanwhile, in the Southern District New York, we have litigated to the bitter end, through lengthy and complicated motion practice regarding the lawfulness of the arbitration actions, the legality of the arbitration awards, and the propriety of the mandatory class that first sought to extinguish the arbitration awards. We have also expended a great deal of time and labor litigating these same issues in the Second Circuit Court of Appeals and in the Eighth Circuit Court of Appeals.
On top of all that, we also spent hundreds of hours in post-arbitration litigation before the Honorable Nanette K. Laughrey and the Eighth Circuit Court of Appeals to confirm our victories in scores of arbitration trials. See Hursh v. DST Sys., Inc., No. 21-cv-9017 (W.D. Mo.).
Finally, in the arbitrations themselves, we conducted an extensive investigation into the facts, circumstances and legal issues, including, among other things: (1) a detailed review and outline of more than 125,000 pages of documents; (2) extensive written and deposition discovery directed at the Ferguson DST Defendants; (3) extensive consultation and work with experts to analyze and present the claims at issue in the Arbitrations; and (4) a full, week-long merits hearing in 356 arbitration trials. We also litigated more than 300 motions for summary judgment, participated in more than 100 pre-trial hearings, drafted and submitted more than 600 pre-hearing and post-hearing briefs, and fully litigated more than 30 Arbitration appeals.
“Without question,” one arbitrator stated, “there was extensive research, document production and review, depositions, affidavits, 13 expert witness reports, and extensive briefing.” Indeed, as another arbitrator stated, “[t]he sheer number of hearing exhibits,” totaling more than 400, “is a testament to the extent and amount of pre-hearing discovery.” In short, an arbitrator stated for the record that “[t]here is no question that Claimant’s counsel’s undertaking in this case was tremendous.”
What Happens Next?
All Class Members will receive a “Summary Notice” and a “Long Form Notice” from the Court in New York. Those notices will provide detailed information regarding the terms of the Settlement, the procedures and time limit for lodging an objection, if any, and the identity of those whom you may contact for additional information. There will also be a website established for purposes of providing additional information and answering any questions. The website is located at DST 401k Settlement - Strategic Claims Services. After the “notice period” ends, the Court will then hold a hearing to determine whether to grant “final approval” of the Settlement. Assuming there is no appeal, payments will then be made to your Plan accounts (or to a roll-over account).
While we are certainly available to answer your questions, we ask that you first read the notices prepared by the Court. Additionally, since we do not serve as Class Counsel, you may have to direct specific questions regarding the mechanics of the Settlement and the amount you might receive to the New York attorneys who have been appointed Class Counsel by the SDNY or to the Settlement Administrator (whose contact information will be provided in the aforesaid official Notices).
In summary, it has been a privilege to fight what we believe was a good and just fight for these past six years. We believe that we have fought hard and steadfastly to bring this case to favorable conclusion and the best conclusion possible under the circumstances. We hope you are pleased with our efforts, and we thank you for your patience during these past six years. We trust that the Court-appointed Class Counsel will pick official Class-wide Settlement matters up from here and we wish you all the very best.