Ferguson v. Ruane Cuniff & Goldfarb Inc.

Background

The Arbitration Claimants appealed the court’s November 18, 2021 preliminary injunction to the Second Circuit. They then moved to stay—that is, temporarily suspend—the injunction while the appeal was pending. The court had previously certified a class under Federal Rule of Civil Procedure 23(b)(1). The injunction barred all members of that class, including the Arbitration Claimants, from instituting new actions or litigating in arbitration or other proceedings against the DST Defendants concerning allegations about investments in the DST Systems, Inc. 401(k) Profit Sharing Plan.

The covered allegations included claims that Ruane Cuniff & Goldfarb Inc. invested plan assets recklessly, failed to diversify investments, pursued inappropriate investment strategies, and breached fiduciary duties under section 404 of the Employee Retirement Income Security Act. The injunction also covered claims involving prohibited transactions, co-fiduciary liability, restoration of losses, damages, equitable relief, and attorneys’ fees.

Reasons for Denying the Stay

The court applied four factors governing a request to stay a preliminary injunction pending appeal: possible irreparable harm to the person seeking the stay; substantial injury to others if the stay issued; the likelihood—described here as a substantial possibility—of success on appeal; and the public interest.

First, the court found that the Arbitration Claimants had not shown irreparable harm. Their potential harm was delayed recovery of losses, but the court concluded that money damages, including pre-judgment or post-judgment interest, could adequately compensate for that delay.

Second, the court found that DST and the plaintiff class would suffer substantial injury if the injunction were stayed. Continuing multiple actions could prejudice individual class members and create incompatible standards of conduct for the defendants. The court also had previously found that DST could be irreparably harmed by having to spend resources defending claims in arbitrations and other proceedings that were not arbitrable.

Third, the court found that the Arbitration Claimants had not shown a substantial possibility of success on appeal. It stated that the preliminary injunction would be reviewed for abuse of discretion and that the claimants had not shown a clearly erroneous factual finding or legal error. The court reaffirmed its earlier conclusions that pursuing individual arbitrations and other litigation frustrated the class-certification order and that the injunction was needed to protect the court’s jurisdiction.

The Arbitration Claimants also argued that the injunction was too vague and exceeded the court’s authority because it affected parallel proceedings, including federal proceedings. The court rejected those arguments, stating that the injunction was sufficiently specific under Rule 65(d) and that the explanation provided in this order clarified, rather than modified, the injunction. The court further stated that the injunction covered pending and future arbitrations and actions, including arbitrations involving class members’ individual claims, actions to confirm arbitration awards, and the claims in the Canfield and Mendon cases.

Fourth, the court found that the public interest weighed against a stay. It rejected the argument that general federal support for arbitration applied because the Second Circuit had held that the Arbitration Claimants’ claims were not arbitrable. The court concluded that judicial economy favored preventing duplicative proceedings and inconsistent judgments.

Disposition

The court DENIED the Arbitration Claimants’ motion to stay the preliminary injunction. It stated that the status of arbitration awards already entered against DST would be determined at final judgment, either after trial or settlement. The court also granted DST’s motion to file under seal an exhibit concerning those awards, canceled the February 4, 2022 hearing, and directed the Clerk of Court to terminate the letter motion at ECF No. 341.