A “painstakingly negotiated global Settlement” of some $124 million involving multiple suits (and the involvement of the Labor Department) has been reached in a long-standing ERISA suit.
The original suit was filed in March 2016 by Clive Cooper, a former employee (and participant) of DST Systems, Inc. who had asserted breach of fiduciary duty claims against certain fiduciaries of the DST plan related to overconcentration of the stock of Valeant Pharmaceuticals International Inc. n/k/a Bausch Health Companies Inc. (Valeant or VRX) in the plan’s profit-sharing account, “as well as other conduct.” According to this suit—and several that followed[1]—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.
More specifically, as a Labor Department press release announcing the settlement states, “the complaint highlighted an example in which the investment manager invested the plan’s assets in the stock of a single pharmaceutical company, Valeant Pharmaceuticals International Inc. The concentration in Valeant stock grew to more than 45 percent of the plan’s assets. Soon after, Valeant’s stock fell dramatically in price. The plan’s participants experienced significant losses to their retirement savings because of the plan’s concentrated portfolio.”
The Settlement
According to the settlement motion, the proposal “would resolve all related proceedings, including all federal actions and arbitrations,[2] and provide substantial relief to the Plan and Settlement Class.” The settlement—$124,625,000—would include “recovery to the Settlement Class and Civil Penalties assessed by the Secretary of Labor under 29 U.S.C. § 1132(l).”
In reaching the agreement, the settlement motion—it still must be reviewed and approved by the court—in November 2022, the parties, as well as the secretary and arbitration counsel, participated in two days of mediation sessions. Following those sessions, they “continued to discuss potential resolutions to provide relief to the Plan and Settlement Class,” and those sessions “resulted in a resolution among Plaintiffs, Defendants, and the Secretary, but the resolution at that time did not include Arbitration Counsel.” However, the proposal notes that the mediations “enabled all parties to candidly discuss their settlement positions and collateral issues in an effort to narrow the issues,” and that “over the course of the ensuing months, while proceeding with additional motion practice and oral argument in several pending appeals, all parties continued to discuss the possibility of a global resolution.”
Attorney’s Fees
The proposal also notes that class counsel (Miller Shah LLP and Olivier & Schreiber LLP) may request up to $9,500,000 in attorneys’ fees and expenses “based upon the value of the Settlement, the time they have devoted to these actions, and the expenses they have advanced on behalf of the Settlement Class.” It’s also noted that Arbitration Counsel will ask the Court for an award of attorneys’ fees and expenses of up to $15,500,000 “based upon the work in the arbitrations and the awards of fees and expenses they received in arbitration.”
In addition, counsel in the Canfield and Mendon actions will seek up to $250,000 in attorneys’ fees and expenses.
And while that certainly seems like a lot of money, the proposal comments that “collectively, these anticipated requests total less than 22 percent of the relief provided to the Plan under the Settlement.”
Rebalancing Recovery
Moreover, and by way of assuring the reviewing court that the proposal is adequate, it notes that “according to calculations conducted by Plaintiffs’ expert, based upon realistic and highly defensible concentration limits (assuming that the PSP should have been treated as a unitary investment fund that would have applied accepted principles of modern portfolio theory to establish its concentration limits), the PSP would have been better off by $86 million to $97 million, if rebalancing had occurred.” It further explains that “although damages could be calculated at higher levels (based upon higher concentration levels), such calculations could prove difficult to defend, based upon the full record in this case.”
And that suggests that “given these calculations of realistic and highly defensible damages, the Settlement recovery of $124,625,000.00 (including the Civil Penalties assessed by the Department of Labor)—in excess of realistically recoverable damages estimated by Plaintiffs and their experts—is extraordinary.”
We’ll see if the court agrees.
Footnotes
[1] To provide some flavor of just how expansive the suit became, the settlement agreement notes that on Sept. 1, 2017, plaintiffs filed this action, advancing similar ERISA claims against additional fiduciaries on behalf of the plan, then on Aug. 31, 2020, plaintiffs filed another suit against Mr. Goldfarb, “whose involvement in the alleged breaches of fiduciary duty became known to Plaintiffs in the course of discovery” in the first case. Then on Sept. 28, 2018, and November 5, 2018, respectively, certain participants in the Plan commenced actions in this Court, and on October 8, 2019, the Department of Labor commenced the Su action against DST; Goldfarb; Ruane, Cunniff & Goldfarb Inc. (“Ruane”); and 16 individual former plan fiduciaries—“seeking to enforce the Secretary’s right to recovery on behalf of the Plan under 29 U.S.C. § 1132(a)(2).” And then, “beginning in April 2018, Arbitration Claimants initiated hundreds of individual arbitrations against DST and Ruane seeking individual recovery of the plan’s losses attributable to their accounts. Certain of the Arbitration Claimants resolved their claims against Ruane in June 2020, and conducted discovery and proceeded to arbitration trials and appeals against DST, resulting in more than 300 arbitration awards, some of which have been appealed or confirmed.” In January 2021, plaintiffs moved for preliminary approval of settlements with the DST Defendants, Ruane, and Mr. Goldfarb separately, but those settlements did not include the participation of the Secretary of Labor or Arbitration Counsel (beyond the extent to which certain Arbitration Claimants were members of the proposed settlement class), though the Court declined to grant preliminary approval of the settlements because of the “potential preclusive effect on the Su Action.”
[2] The cases involved are Ferguson et al. v. Ruane Cunniff & Goldfarb Inc. et al., case number 1:17-cv-06685, and Julie Su v. Ruane Cunniff & Goldfarb Inc. et al., case number 1:19-cv-09302, both in the U.S. District Court for the Southern District of New York.
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