Trial Magazine

“I have yet to see any problem however complicated, which, when you looked at it in the right way, did not become still more complicated.”¹ Attempts to require arbitration of ERISA claims have become common only in the last few years. All of the circuit courts to address the issue now agree that ERISA claims can be arbitrated, but disagreement remains over when, how, and what claims can be compelled to arbitration. When faced with a motion to compel arbitration, arguments that are generally applicable in arbitration provisions also apply to ERISA claims, but there are specific issues unique to arbitration of ERISA claims brought on behalf of the plan.

Two of ERISA’s enforcement provisions—§502(a)(2) and §502(a)(3)—allow a participant or beneficiary to bring various statutory claims in a representative capacity on behalf of the ERISA-covered plan, even without a class action.² The relief for claims brought on behalf of the plan, including any monetary remedies, must be provided to the plan and only then allocated to any individual accounts.³ Each participant and beneficiary can file the exact same claim—not merely similar claims—seeking a remedy on behalf of the plan.⁴ This derivative-style provision makes these ERISA claims ideally suited for class certification under Federal Rule of Civil Procedure 23(b)(1).⁵ And ERISA’s statutory provisions for plan—not individual—remedies and relief complicate defense efforts to compel arbitration.

Throughout the 1980s, a number of circuits concluded that participants could not be compelled to arbitrate ERISA claims as a matter of contract—at least for claims involving the enforcement of statutory rights.⁶ After U.S. Supreme Court decisions allowing arbitration of other statutory claims, the circuit courts began expressing doubt about the continued validity of these earlier cases or, in some instances, overruling prior decisions.⁷ Today, at least seven circuit courts have expressly held that ERISA claims are generally arbitrable.⁸

Despite agreement by the courts that ERISA claims are generally arbitrable, there are a number of complicated and open issues about the circumstances under which ERISA claims brought on behalf of the plan can be compelled to arbitration. While those issues seem to become even more complicated by each new decision, this article provides an overview of the existing state of the law.

ERISA Claims Are Probably Non-Arbitrable Unless Written Into the Plan

ERISA plans are required to have a “written instrument” that essentially acts as the terms for a unilateral contract.⁹ Employees accept that contract by fulfilling the conditions (typically working for the specified period of time) set forth in the plan and as required by ERISA.¹⁰ That written instrument is different from the summary plan description (SPD), which merely summarizes the terms of the plan.¹¹ Four circuit court decisions (as well as a number of district courts) have addressed the issue of arbitration of ERISA claims brought on behalf of the plan, and the issues have become more complicated rather than less so.

Ninth Circuit. In 2018, in Munro v. University of Southern California, the Ninth Circuit considered whether employees who signed arbitration agreements as part of their employment contracts could be compelled to arbitrate ERISA claims alleging retirement plan fiduciaries breached their fiduciary duties.¹² After explaining that the employees’ claims were brought “not just to benefit their own accounts” but to seek “remedies to benefit the Plans and all affected participants and beneficiaries,” the Ninth Circuit affirmed the district court’s denial of the motion to compel arbitration.¹³

Even if an arbitration provision appears in the plan’s written instrument, the provision may be unenforceable for other reasons.

A year later in Dorman v. Charles Schwab Corp., the Ninth Circuit again considered whether ERISA fiduciary breach claims could be compelled to arbitration—this time, however, the arbitration provision was written in the instrument of the plan before the plaintiff left employment.¹⁴ The provision required that the arbitration would be conducted “on an individual basis only, and not on a class, collective or representative basis” and that plan participants waived the right to be part of any class action.¹⁵

The Ninth Circuit reversed the district court’s denial of arbitration, issuing two different decisions—one published, one unpublished. In the published decision, the Ninth Circuit merely held that ERISA fiduciary breach claims can be arbitrated (reversing its 35-year-old precedent in light of intervening Supreme Court decisions).¹⁶ In the unpublished decision, however, the Ninth Circuit held that arbitration of those claims, even on an individual account basis, was acceptable because “the Plan and [the plaintiff] both agreed to arbitration on an individualized basis”—the arbitration provision was contained in the written instrument of the plan.¹⁷

Second Circuit. In 2021, in Cooper v. Ruane Cunniff & Goldfarb Inc., the Second Circuit considered whether a former employee alleging ERISA claims for breach of fiduciary duty in the mismanagement of a retirement plan could be compelled to arbitrate those claims based on an individual employment agreement containing an arbitration provision.¹⁸ The court observed two important points about these ERISA claims: First, “none of the facts [that the plaintiff] would have to prove . . . pertain to his own employment,” and second, “other individuals and entities that were never employed by [the company] . . . could have brought identical claims.”¹⁹

Using a rationale similar to the Ninth Circuit, the Second Circuit found these ERISA claims sought recovery on behalf of the plan.²⁰ In addition, the court found that the language in the agreement that expressly excluded claims for “ERISA-related benefits provided under a Company sponsored benefit plan” also included statutory claims under ERISA, such as fiduciary breach claims.²¹

More important for cases when “explicit language” in the arbitration agreement might otherwise create a different contractual interpretation, the Second Circuit found that allowing arbitration of ERISA claims brought on behalf of the plan would create “tension” with prior precedent.²²

The Second Circuit previously had held that “the representative nature of [this type of ERISA claim] implies that plan participants must employ procedures to protect effectively the interests they purport to represent,” such as a class action, joinder, or procedural safeguards to ensure that the plaintiff benefits the plan as a whole.²³

But the arbitration provision at issue in Cooper precluded “joinder of multiple parties and class or collective actions.”²⁴ As the arbitration provision was inconsistent with prior Second Circuit precedent, a plaintiff would be forced to bring claims in a representative capacity (which would result in the claim being dismissed for violating the arbitration agreement) or courts in the circuit would decline to enforce the arbitration award because it failed to comply with the procedural safeguards.

The Second Circuit’s rationale in Cooper suggests that arbitration of ERISA fiduciary breach claims—even if the arbitration provision was not in the written instrument of the plan—might be allowed so long as the arbitration provision allowed those claims to be brought on behalf of the plan and the arbitration provision did not limit relief to just an individual employee. The Cooper court did not, however, address either of the Ninth Circuit decisions discussed earlier, which had been issued at least two years before.

Sixth Circuit. Earlier this year in Hawkins v. Cintas Corp., the Sixth Circuit addressed whether former employees alleging ERISA claims for breach of fiduciary duty in the mismanagement of a retirement plan could be compelled to arbitrate those claims based on an individual employment agreement containing an arbitration provision.²⁵ The court found the reasoning of the Ninth Circuit’s decision in Munro “persuasive” and held that because the claims “belong” to the plan, an arbitration agreement that binds only individual participants cannot bring such claims into arbitration.²⁶

The court rejected the defendant’s attempt to distinguish Munro by arguing that the Hawkins plaintiffs were asserting claims on their own behalf, rather than the plan.²⁷ It also rejected the argument that the plan had consented because that would “dissolve[ ] the distinction between the Plan sponsor and the Plan as a legal entity” by allowing the employer “to unilaterally decide it wants to arbitrate claims against itself.”²⁸ The Sixth Circuit did not resolve what would be a sufficient manifestation of the plan’s consent and expressly left open whether amendment of the plan document to add an arbitration provision would suffice.²⁹

Arbitration Provisions Prohibiting ERISA Remedies May Be Invalid

The Second Circuit’s decision in Cooper foreshadowed what the Seventh Circuit would directly address months later in Smith v. Board of Directors of Triad Manufacturing.³⁰ The issue before the Seventh Circuit was whether an arbitration provision in the written instrument of the plan can preclude plan-wide remedies that the text of ERISA expressly provides.³¹ The Seventh Circuit agreed with the other circuits that ERISA claims generally are arbitrable but then asked “whether this ERISA arbitration provision is enforceable.”³²

The court concluded that the Smith arbitration provision was unenforceable, relying on the “effective vindication” doctrine, which “invalidate[s], on ‘public policy’ grounds, arbitration agreements that ‘operat[e] . . . as a prospective waiver of a party’s right to pursue statutory remedies.’”³³ The Seventh Circuit distinguished this from a class action waiver in an arbitration provision, which the Supreme Court held was enforceable, because that waiver “merely limit[ed] arbitration to the two contracting parties” and did not eliminate the right to pursue their statutory remedy.³⁴

The problem in Smith was not that the arbitration provision “funnels [plan] participants away from class actions,” which was permissible, but rather that the provision precludes any arbitration remedies that have “a plan-wide effect.”³⁵ The Seventh Circuit explained that there was no conflict between the Federal Arbitration Act (FAA) and ERISA, but rather “between ERISA and the plan’s arbitration provision”—and distinguished this provision from the arbitration provision at issue in the Ninth Circuit’s Dorman decisions.³⁶

District court rulings. In the short time since the Seventh Circuit issued Smith, only three district courts outside the circuit have considered its holding (as of the writing of this article). In Cedeno v. Argent Trust Co., the Southern District of New York denied arbitration of such ERISA claims because it found Smith “more persuasive than [the unpublished decision in] Dorman and consistent with the ‘alternate holding’ in Cooper.”³⁷

Cedeno succinctly summarized why arbitration provisions cannot preclude plan-wide relief: “The defect in the parties’ arbitration agreement in this case is not that it does not provide for a collective or class action—an issue of the manner of arbitration protected by the FAA—but that it precludes a statutory remedy provided for by ERISA.”³⁸ A district court in Colorado relied on both the Seventh Circuit and Cedeno to deny a motion to compel arbitration of an ERISA fiduciary breach action brought on behalf of the plan.³⁹

In contrast, a decision from the Southern District of Florida rejected the Seventh Circuit’s Smith rationale by reasoning that because “the Eleventh Circuit has already held that a waiver of the right to bring a class action in arbitration is permissible, the concomitant waiver of remedies associated with class actions is also permissible.”⁴⁰

The Florida court also distinguished the arbitration clause as “only prohibit[ing] relief that provides ‘additional benefits or monetary relief to any person’ other than the claimant, but did not preclude all forms of plan-wide relief” (such as non-monetary equitable relief).⁴¹ But this attempt to distinguish Smith avoids the essence of the Seventh Circuit’s central holding: “The problem with the plan’s arbitration provision is its prohibition on certain plan-wide remedies, not plan-wide representation. It is not that the plan funnels its participants away from class actions.”⁴²

Other Issues

Even if the arbitration provision appears in the written instrument of the plan and does not preclude plan-wide relief, the provision may be unenforceable for other reasons. As ERISA plans are unilateral contracts, this requires examining relevant contract law principles.

First, failing to provide proper notice to the participant may make the arbitration provision unenforceable as a matter of state contract law.⁴³ Second, an arbitration provision added to the plan after the participant terminates employment or ceases participation in the plan may not be enforceable against that participant when bringing claims on behalf of the entire plan.⁴⁴ Third, an arbitration provision might not bind certain parties who are non-signatories.⁴⁵ Finally, other arguments that may be generally made about the unenforceability of arbitration provisions are available.

Preparing to Navigate Around an Arbitration Provision

When representing employees bringing claims on behalf of ERISA plans, you can take several steps to prepare to confront or even prevent a motion to compel arbitration.

• Ensure that your clients provide you with any plan-related documents in their possession. The most likely document in the plaintiff’s possession is, of course, the SPD, but the employer may provide other plan documents on an intranet portal.
• Have your clients make a prefiling request for documents under ERISA §104(b)(4).⁴⁶ If the participant is a former employee, expressly request documents and SPDs in effect at the time employment terminated. This should allow you to determine whether the plan has an arbitration provision, whether the provision was disclosed in the SPD, and when it was added or disclosed.
• If possible, have your clients request their personnel files before filing so you can see, among other information, whether there is an arbitration provision in an employment agreement or elsewhere suggesting that your clients signed an arbitration provision.
• As ERISA provides for multiple permissive venues, evaluate potential permissible venues under ERISA §502(e)(2),⁴⁷ and determine which may be most conducive to arguments about the arbitration clause at issue in your case.
• If you have more than one client, consider filing with a participant who left the plan before the arbitration provision was added to the plan, a participant who left employment after the breach of fiduciary duty occurred (but remained a participant in the plan after employment), or a beneficiary of the participant (beneficiaries have an equal right to file suit but are less likely to have received notice or otherwise be deemed to have assented to arbitration).⁴⁸
• In the prayer for relief in the complaint, incorporate a number of plan-wide remedies, including removal of the breaching fiduciaries.
• When opposing a motion to compel arbitration, look to state law contract principles—particularly the law of the state set forth in the plan document. Review ERISA cases in other helpful contexts, such as an enforcement of plan-imposed statutes of limitation or plan-imposed forum selection clauses.

When handling an ERISA claim for plan-wide relief, keep up with this fast-developing case law. It’s key to navigating how to keep the claim out of arbitration.

R. Joseph Barton is a partner at Block & Leviton in Washington, D.C., and can be reached at jbarton@blockleviton.com.

Notes

1. Poul Anderson, Call Me Joe (1957).
2. 29 U.S.C. §§1132(a)(2) & (3) (2014). A fiduciary or the Secretary of Labor also may bring ERISA claims on behalf of the plan. See also 29 U.S.C. §1132(a)(5). Unlike ERISA §502(a)(2), ERISA §502(a)(3) also allows claims to be brought on behalf of individuals alone. See Varity Corp. v. Howe, 516 U.S. 489, 508–15 (1996). However, this article only focuses on claims brought on behalf of the plan, whether under ERISA §502(a)(2) or §502(a)(3).
3. Hawkins v. Cintas Corp., 32 F.4th 625, 632–33 (6th Cir. 2022) (explaining that ERISA “§502(a)(2) claims are brought by individual plaintiffs, [but] it is the plan that takes legal claim to the recovery, suggesting that the claim really ‘belongs’ to the Plan”); In re Mut. Funds Inv. Litig., 529 F.3d 207, 218 (4th Cir. 2009) (explaining the same).
4. In re Schering Plough Corp. ERISA Litig., 589 F.3d 585, 599, 604 (3d Cir. 2009); DiFelice v. U.S. Airways, Inc., 235 F.R.D. 70, 76 (E.D. Va. 2006); In re Enron Corp., 2006 WL 1662596, at *11 (S.D. Tex. June 7, 2006).
5. Boley v. Univ. Health Servs., Inc., 2022 WL 1768984, at *8 (3d Cir. June 1, 2022) (“ERISA breach of fiduciary duty claims brought under §502(a)(2) are paradigmatic examples of claims appropriate for certification as a Rule 23(b)(1) class.”).
6. Bird v. Shearson Lehman/Am. Exp., Inc., 871 F.2d 292, 297 (2d Cir. 1989), Barrowclough v. Kidder, Peabody & Co., 752 F.2d 923, 941 (3d Cir.1985); Amaro v. Continental Can Co., 724 F.2d 747, 752 (9th Cir. 1984).
7. Comer v. Micor, Inc., 436 F.3d 1098, 1100 (9th Cir. 2006) (expressing doubt regarding the U.S. Supreme Court’s opinions in Shearson/Am. Exp. Inc. v. McMahon, 482 U.S. 220, 226 (1987) and Rodriguez de Quijas v. Shearson/Am. Exp., Inc., 490 U.S. 477, 481 (1989)).
8. Smith v. Bd. of Directors of Triad Mfg., Inc., 13 F.4th 613, 620 (7th Cir. 2021); Dorman v. Charles Schwab Corp., 934 F.3d 1107, 1112 (9th Cir. 2019); Williams v. Imhoff, 203 F.3d 758, 767 (10th Cir. 2000); Kramer v. Smith Barney, 80 F.3d 1080, 1084 (5th Cir. 1996); Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1122 (3d Cir. 1993); Bird v. Shearson Lehman/Am. Exp., Inc., 926 F.2d 116, 122 (2d Cir. 1991); Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, Inc., 847 F.2d 475, 478–79 (8th Cir. 1988).
9. 29 U.S.C. §1102(a)(1) (1974).
10. Id.
11. CIGNA Corp. v. Amara, 563 U.S. 421, 438 (2011).
12. 896 F.3d 1088, 1092 (9th Cir. 2018).
13. Id. at 1093–94.
14. 934 F.3d 1107, 1109 (9th Cir. 2019).
15. Id.
16. Id. at 1111–12.
17. Dorman v. Charles Schwab Corp., 780 F. App’x 510, 514 (9th Cir. 2019) (unpublished).
18. 990 F.3d 173 (2d Cir. 2021).
19. Id. at 176.
20. Id. at 180.
21. Id. at 181.
22. Id. at 184.
23. Id. (quoting Coan v. Kaufman, 457 F.3d 250 (2d Cir. 2006)).
24. Id.
25. Hawkins, 32 F.4th at 627.
26. Id. at 632.
27. Id. at 633–34.
28. Id. at 637.
29. Id.
30. Smith, 13 F.4th 613.
31. Id. at 622.
32. Id. at 620.
33. Id. at 621 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 632–37 (1985)).
34. Id. (quoting Am. Exp. Co. v. Italian Colors Restaurant, 570 U.S. 228, 235–36 (2013)).
35. Id. at 621–22.
36. Id. at 622–23.
37. Cedeno v. Argent Tr. Co., 2021 WL 5087898, at *5, n.4–5 (S.D.N.Y. Nov. 2, 2021).
38. Id. at *6.
39. Harrison v. Envision Mgt. Holding, Inc. Bd. of Directors, 2022 WL 909394, at *5–7 (D. Colo. Mar. 24, 2022).
40. Holmes v. Baptist Health S. Fla., Inc., 2022 WL 180638, at *3 (S.D. Fla. Jan. 20, 2022).
41. Id.; Harrison, 2022 WL 909394, at *6, n.1 (distinguishing Holmes).
42. Smith, 13 F.4th at 622.
43. See, e.g., Henry v. Wilmington Tr., 2021 WL 4133622, at *6 (D. Del. Sep. 10, 2021) (under Virginia law, an arbitration provision was not enforceable against a participant who did not receive prior notice of the provision); see also Solien v. Raytheon Long Term Disability Plan #590, 2008 WL 2323915, at *7 (D. Ariz. June 2, 2008) (refusing to enforce plan statute of limitations provision that was inadequately disclosed).
44. Brown v. Wilmington Tr., 2018 WL 3546186, at *4 (S.D. Ohio July 24, 2018) (refusing to compel arbitration against participant who left employment in 2015 and left the plan in 2016 when the arbitration provision was not added to the plan until 2017); see also Mabry v. ConocoPhillips Co., 2021 WL 189144, at *4 (D. Alaska Jan. 19, 2021) (finding forum selection clause did not apply to participants who terminated employment before addition of clause to plan document).
45. Casey v. Reliance Tr. Co., 2019 WL 7403931, at *1 (E.D. Tex. Nov. 13, 2019) (refusing to compel plaintiffs to individual arbitration based on an arbitration provision contained in an ERISA plan amendment when plaintiffs and the defendant were non-signatories); Campbell v. Garcia, 2018 WL 11324349, at *8 (N.D. Ohio Nov. 8, 2018) (same).
46. 29 U.S.C. §1024(b)(4) (2019).
47. 29 U.S.C. §1132(e)(2) (2014).
48. E.g., Torres v. Starbucks Corp., 2021 WL 964219, at *6 (M.D. Fla. Mar. 15, 2021) (denying motion to compel arbitration against spouse because the spouse was seeking to enforce his own individual rights).