$35.72 Million in ERISA Arbitration Awards for 177 DST Systems Employees Whose 401(k) Was Wrecked by a Single Stock

DST Systems, a Kansas City-based information processing company, sponsored a 401(k) profit-sharing plan for its workforce. Investment manager Ruane, Cunniff & Goldfarb Inc., which controlled 100 percent of the profit-sharing portion, poured plan assets into Valeant Pharmaceuticals International. At its peak, Valeant stock represented more than 45 percent of the plan's holdings. When Valeant's share price collapsed from $258 to roughly $15 between 2015 and 2016, an accounting-fraud investigation and an SEC enforcement action pulled the stock down nearly 94 percent. The plan hemorrhaged close to $400 million in total value. More than 550 DST employees were left with retirement accounts worth a fraction of what they had earned.

Humphrey, Farrington & McClain took on the individual claims for hundreds of those workers, filing ERISA arbitration proceedings against DST and Ruane Cunniff beginning in 2018. Kenneth McClain led the effort, coordinating with attorneys Jonathan Soper, Chelsea Pierce, and J'Nan Kimak across four trial teams. Weekly arbitration hearings, conducted by videoconference through the pandemic, ran from September 2020 through late 2021 as the firm worked through a backlog of cases one claimant at a time.

Between October and December 2021, the U.S. District Court for the Western District of Missouri issued seven confirmation orders covering 177 claimants, locking in $35.72 million in arbitration awards plus substantial attorneys' fees and costs. Individual recoveries ranged from roughly $3,500 to $420,000 depending on how much each participant had in the plan when Valeant collapsed.

The confirmed awards did not survive the appellate process intact. In November 2022, the Eighth Circuit vacated all 177 confirmation orders under the Supreme Court's Badgerow v. Walter decision, which held that federal courts cannot use 'look-through' jurisdiction to confirm FAA arbitration awards. The appeals court found the district court had lacked an independent basis for federal subject-matter jurisdiction and remanded for case-by-case analysis of whether diversity jurisdiction existed under 28 U.S.C. Section 1332(a).

The broader litigation continued toward resolution. In July 2023, DST's fiduciaries, including Ruane, Cunniff & Goldfarb, agreed to a $124.625 million settlement covering more than 9,000 plan participants. Arbitration counsel, which included the Humphrey Farrington McClain team, sought up to $15.5 million in fees from that fund, reflecting the years of individual proceedings that drove the overall recovery.