Settlements to resolve two lawsuits alleging mismanagement of investments in the DST Systems Inc. profit sharing and 401(k) plans were recently presented to a federal court.

The plans included investments in the Sequoia Fund, distributed and advised by Ruane, Cunniff & Goldfarb & Co. The lawsuit alleged that the defendants in the suit failed to diversify the Sequoia Fund and, rather than minimize the risk of large losses, allowed the fund to hold large amounts of Valeant Pharmaceuticals stock.

But Judge Andrew L. Carter Jr. of the U.S. District Court for the Southern District of New York is also presiding over a lawsuit filed by Secretary of Labor Eugene Scalia against Ruane, Cunniff & Goldfarb, and Scalia takes issue with a condition in two of the settlement agreements.

According to a letter to Carter from attorneys in the Scalia case, the proposed preliminary approval orders from the parties in the DST cases include the following provision: “The court preliminarily enjoins and bars … the secretary … from bringing or prosecuting in any forum any claim that arises from, relates to or is connected with … the conduct alleged in a complaint or demand filed in any related proceeding and any subsequent pleading or legal memorandum filed in any related proceeding; [and] … the plan (including, without limitation, the selection, retention and monitoring PSP [profit sharing portion of the plan] investments, the performance, fees, and any other characteristic of the PSP).”

Citing case law, the attorneys say, “The ERISA [Employee Retirement Income Security Act] enforcement scheme, carefully constructed by Congress, is undermined if private litigants can sue ERISA violators first, reach a settlement, and bar the secretary’s action.” The letter says Scalia “writes to strongly object to any attempt to bind the secretary through the injunctive provisions in the proposed settlement agreements and related proposed orders filed in the above-captioned cases.”

The attorneys point out that Scalia is not a party in the two cases or to the proposed settlement agreements, and he has not communicated any endorsement of the proposed settlements. “Nevertheless, the parties have improperly conditioned their proposed class action settlement agreements on enjoining the secretary from litigating his claims in his related case.”

The letter reminds the judge that the secretary of labor has “primary enforcement and regulatory authority for the fiduciary responsibility provisions in Title I of ERISA.” The attorneys are asking that Carter reject the injunctive provisions in the settlement agreements.