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High court ruling upends awards against DST

The 8th U.S. Circuit Court of Appeals has cast doubt on a Missouri federal judge’s confirmation of hundreds of arbitration awards against a Kansas City company.

In a Nov. 28 ruling, the appeals court said a recent decision of the U.S. Supreme Court undercut the basis for federal jurisdiction over the arbitration cases. As a result, the cases will have to go back to the U.S. District Court for the Western District to Missouri to determine whether the 177 cases at issue can be confirmed there, or if they should go before another federal or state court.

The claims stem from a class-action lawsuit filed in the Western District in 2017. The suit claimed that DST Systems, an information and computer software company, had allowed the profit-sharing portion of its retirement plan to be heavily concentrated in a single company’s stock, which racked up huge losses when the stock dropped.

The plaintiffs alleged that DST violated the federal Employee Retirement Income Security Act by failing to monitor and rebalance the plan. DST successfully argued that the employees’ claims were subject to non-collective arbitration. That left hundreds of claims worth relatively small amounts to be individually resolved.

The employees’ attorneys with the Kansas City-area law firms of Humphrey, Farrington & McClain, the Klamann Law Firm, Kapke & Willerth and White Graham Buckley & Carr proceeded to litigate the separate cases via videoconference over the course of a year. So far, 342 claims have been tried, with 214 claimants having received awards in their favor and 61 other claimants awaiting awards.

In late 2021, U.S. District Judge Nanette Laughrey confirmed 177 arbitration decisions in a series of orders with a combined value of $35.72 million. Missouri Lawyers Media held it to be the second largest judgment of 2021.

However, on March 31 the U.S. Supreme Court issued Badgerow v. Walters, an 8-1 opinion holding that, under the language of the Federal Arbitration Act, a federal court must have an independent jurisdictional basis for it to confirm or vacate an arbitration agreement even if the claims in the underlying case involved a dispute under federal law. Without such jurisdiction, the high court said, the confirmation process was essentially a contractual matter to be dealt with in state court.

Badgerow came down while the case was on appeal to the 8th Circuit. Applying the case, the appeals court vacated Laughrey’s confirmation of the 177 cases and sent them back to determine which of them she had jurisdiction to consider. Based on the then-existing case law, Laughrey’s jurisdiction had seemed clear and so was barely discussed in her earlier orders.

DST argued on appeal that at least 53 of the claimants and possibly many more are Missouri residents and therefore citizens of the same state as the company, and that 31 other claims lack the requisite $75,000 in controversy required to trigger federal jurisdiction.

The company also argues that the Western District of Missouri never had jurisdiction to confirm the awards because the claimants are covered by a parallel case against DST and its investment manager that is pending in the Southern District of New York. The 8th Circuit said the propriety of that court’s taking over the cases couldn’t be determined until the jurisdictional question was sorted out in Missouri.

“These issues can best be determined by the district court on remand, with input from the parties based on their views of the post-Badgerow alternatives for resolving this dispute,” Judge James B. Loken wrote. Judges Morris S. Arnold and Jane Kelly concurred.

Ken McClain of Humphrey, Farrington & McClain, the lead attorney for the plaintiffs, couldn’t be reached for comment.

The case is Hursh v. DST Systems Inc., 21-3554.