DST workers face ‘shameless duplicity’ in legal fight over retirement plan
It was 2015, the American economy seemed more or less healthy, but Jim DuCharme’s retirement savings at DST Systems were melting away as if the markets were in crisis.
Worst of all, there was nothing he could do but watch.
“The value of my plan dropped $120,000 from when I started paying attention to it until I finally was able to get out,” DuCharme told The Star recently.
Though it took DuCharme and others a while to figure it out, DST’s retirement plan was heavily invested in a company called Valeant Pharmaceuticals, a hot stock that was now plummeting amid scandal and federal investigations.
“The huge declines I was seeing on my plan statements were a direct result of what was happening to Valeant,” DuCharme said.
The alleged mismanagement of this plan would eventually become the subject of multiple lawsuits, including one filed by DuCharme in 2017. Five years later, he and other DST employees and retirees seeking restitution find themselves mired in a Kafkaesque legal morass that has seen DST’s legal team disagreeing with its own previous arguments and federal judges issuing diametrically opposed orders.
DST, which provided data processing services, was one of Kansas City’s largest employers for decades until being acquired by a competitor, SS&C, in 2018. DST offered its workers a retirement plan with two parts. One was a traditional 401(k) whose investments people like DuCharme could control. The other part was a profit-sharing plan, over which employees and retirees had no say. That plan was managed by a New York investment advisory firm hired by DST called Ruane, Cunniff & Goldfarb Inc.
At one point, DST’s profit-sharing plan had sunk as much as 45% of its funds into Valeant. In 2015, the drug company lost 90% of its value, skidding down to $15 per share from a high of $260.
For DST employees and retirees, the losses added up to nearly $400 million. The company soon found itself in court defending several class-action lawsuits.
DuCharme’s 2017 class-action lawsuit, filed in the Western District of Missouri on behalf of the participants in the profit-sharing plan, arose from DST’s alleged failure to monitor Ruane’s overly concentrated investment in Valeant.
The suit, though, was dismissed by the federal judge after DST’s attorneys successfully argued that the plaintiffs were bound by arbitration agreements — that in signing their employment contracts with DST, they’d waived the right to collective action in court.
This meant that DuCharme and any other participant in the profit-sharing plan who wanted justice would have to hire their own lawyer and go through the arbitration process with DST: no judge, no jury, just a third-party arbitrator who hears the facts and makes a decision outside of a traditional court setting.
Class-action lawsuits, which combine many claims into one, are the primary legal tool for holding large corporations accountable. One person’s legal costs for suing, say, a cellphone provider caught adding 9 cents to their bill every month, would far outweigh whatever that person might win in court. A class-action allows one person to stand in for hundreds or thousands of people, which is why corporations like DST traditionally attempt to send such claims to arbitration, where people generally decide it’s not worth it to pursue the claims individually.
“Most corporations use forced arbitration clauses to try to eliminate any legal claims against them,” said Paul Bland, executive director of the legal advocacy group Public Justice.
But rather than bowing out, four Kansas City-area law firms — the Klamman Law Firm; Humphrey, Farrington & McClain; Kapke & Willert; and White Graham Buckley & Carr — teamed up and took on DST in arbitration. For the last three years, they’ve worked each individual claim, some as low as a couple thousand bucks.
And they won. Hundreds of cases for people like DuCharme, totaling millions of dollars.
At which point DST turned around and argued that the original claims should have been brought as a class action after all.
Legal maze
For several years, DST was consistent in its position that all Valeant-related claims must be arbitrated.
After filing its successful motion to compel arbitration in DuCharme’s case, the company also sent a notice to plan participants in 2018 emphasizing the judge’s ruling that anyone else with a claim must resort to individual arbitration as well. It then willingly participated in hundreds of arbitration hearings, losing most of them.
But the company has also been defending the alleged mismanagement of its profit-sharing plan in other jurisdictions. One is in the Southern District of New York, where last year an attorney filed a Valeant-related class-action suit against DST on behalf of another DST plan participant. To the surprise of the Kansas City attorneys who’d been working all those arbitration cases, DST did not contest the class action nature of the case.
The reasoning became clear when the Kansas City attorneys took their clients’ arbitration awards to a federal judge so that they could be converted into actual judgments, a formality that takes place at the end of the arbitration process. DST, they learned, was appealing the judgments. The company now argued that federal law prohibited arbitration claims related to the Employee Retirement Income Security Act, or ERISA, such as the Valeant ones. It argued that DuCharme and others’ arbitration awards should be nullified and that they should have to participate in the New York class action instead if they wanted money from the company.
In other words, DST was making the exact opposite argument it had made four years earlier in DuCharme’s case.
DST’s attorneys — the company is represented locally by attorneys at Shook Hardy & Bacon and in New York by the firm Paul, Weiss — did not respond to requests for comment.
DST’s legal maneuving is “a show of utter bad faith and shameless duplicity,” said Andrew Schermerhorn, an attorney with the Klamman Law Firm.
“DST first demanded that its employees bring individual suits in arbitration and then, after having lost in arbitration, reversed course and demanded that those same employees surrender their awards and submit to a class action in New York where DST will try, once more, to escape liability,” Schermerhorn told The Star.
Nanette K. Laughrey, the federal judge in the Western District of Missouri who heard DST’s appeal, agreed with Schermerhorn. She confirmed all 177 arbitration awards and wrote in the order that DST’s suggestion that they should be nullified was “anathema.”
“DST was not dragged into arbitration against its will,” Laughrey wrote. “The only thing that would be unfair would be to let DST escape the consequences of the arbitration proceedings in which it voluntarily participated because they did not turn out as DST hoped they would.”
But the federal judge in New York, Andrew L. Carter, has seen things differently. In addition to certifying the class action in the Southern District of New York, Carter has issued an injunction on the arbitrations Schermerhorn and others have been working on.
That’s the current state of play: One federal judge in Missouri saying DuCharme and others fairly won their arbitration awards, and another federal judge in New York saying their awards are invalid.
Both rulings are being appealed to higher courts. Schermerhorn and the Kansas City attorneys have appealed the New York judge’s certification of the class action in New York and his injunction order to the 2nd Circuit Court of Appeals, with oral arguments set for June. DST has appealed Laughrey’s decision to the 8th Circuit Court of Appeals; nothing has been scheduled yet for that one.
Meantime, people like DuCharme keep waiting to be made whole, nearly seven years after Valeant began its descent.
“It doesn’t sit well with me,” DuCharme said. “DST just keeps trying to change the rules of the game to benefit themselves. And unfortunately, it’s worked out pretty well for them so far.”
This story was originally published April 12, 2022 at 9:57 AM.
