Duane Morris ERISA Class Action Review – 2024

arbitration agreement, the district court found that doing so would prevent the plaintiffs from effectively vindicating their claims pursuant to the precedential interpretation of the Federal Arbitration Act in American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013). Italian Colors instructed courts not to compel arbitration when doing so would abrogate the plaintiffs’ statutory rights to remedies. The Tenth Circuit found that the arbitration agreement was “written in a manner intended to foreclose any such plan-wide relief” and therefore it prevented effective vindication under ERISA. Harrison , 59 F.4th at 1107. The court also denied the defendants’ motion to compel arbitration in Burnett, et al. v. Prudent Fiduciary Services LLC, 2023 U.S. Dist. LEXIS 13151 (D. Del. Jan. 25, 2023). The plaintiffs, a group of participants in the defendants’ Employee Stock Ownership Plan (ESOP), filed a class action alleging that the defendants breached their fiduciary duties with respect to the plan in violation of the ERISA. The defendants moved to compel arbitration on the basis that the plan was governed by a Plan Document that included an arbitration provision. The provision required all beneficiaries to resolve any ERISA-related claims and limited remedies available in arbitration, thereby preventing plaintiffs from seeking the plan- wide monetary relief and fiduciary removal to which they were otherwise specifically entitled under the ERISA. The court denied the defendants’ motion. The plaintiffs argued that the arbitration provision was unenforceable as it denied a right provided for by the ERISA, i.e., the right to seek plan-wide relief. The court agreed with the plaintiffs and found that the provision was unenforceable under the effective vindication exception to the Federal Arbitration Act. The defendants further argued that participants in a defined contribution plan have a limited right to recover plan-wide losses under the ERISA. The court, however, explained that a limitation on rights to recover did not restrict ESOP Participants to seek plan- wide remedies under the ERISA. The court also opined that the plaintiffs were not trying to aggregate individual claims but rather sought a plan-wide remedy explicitly provided by the statute. The court concluded that the Plan Document conflicted with the ERISA because it contained a provision barring beneficiaries from pursuing a remedy provided by the statute. Accordingly, the court denied the defendants’ motion to compel arbitration of the plaintiffs’ claims. Likewise, the court found that an ERISA class action fell into the effective vindication exception to the Federal Arbitration Act in Coleman, et al. v. Brozen , 2023 U.S. Dist. LEXIS 119528 (N.D. Tex. July 12, 2023). The defendants moved to compel arbitration and enforce the waiver of class action claims to which the plaintiffs had agreed, but the court found that to grant such a motion would disallow the plaintiffs from seeking plan-wide relief, as they have a right to do under the ERISA. The court distinguished ERISA class actions in this case, explaining that although the Supreme Court has refused to apply the effective vindication exception in other contexts ( e.g. , state law contexts), the ERISA is different because it involves the rights of the plan itself as opposed to simply the individual rights of plan participants. Avecilla, et al. v. Live Nation Entertainment, Inc. , 2023 U.S. Dist. LEXIS 139169 (C.D. Cal. Aug. 7, 2023), was an exception to the trend of denying motions to compel arbitration in ERISA class actions. The court found that the defendants’ arbitration agreement was valid and enforceable and that the plaintiffs had waived their right to pursue a class action. The plaintiffs claimed that the defendants breached their fiduciary duties of prudence. The defendants asserted that the plaintiffs had agreed to arbitration and to waive the right to pursue a class action under the defendant ’ s arbitration agreement. The court found that the effective vindication exception did not apply because the agreement permitted “the arbitrator to award any relief that the ERISA allows a plan participant to obtain on an individual basis,” and § 502(a)(2) of the ERISA allows an individual plan participant “to obtain relief that would benefit the Plan.” The court reasoned that as no statutory remedies as to the plan as a whole were foreclosed, the defendants’ motion to compel arbitration should be granted. Id. at *12.

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