Duane Morris Class Action Review - 2023 - Report - Page 195
appeal have enforced these provisions, others have not, holding that such provisions
cannot preclude plan participants from bringing representative claims under the ERISA.
This inconsistency persisted in 2022.
In Holmes, et al. v. Baptist Health South Florida, Inc., 2022 WL 180638 (S.D. Fla. Jan.
20, 2022), the plaintiffs brought a putative class action on behalf of themselves, their
403(b) defined contribution plan, and similarly-situated plan participants alleging that the
defendants breached their fiduciary duties by failing to review and contain costs and by
choosing expensive investment options over cheaper or better performing ones. The
defendants sought to enforce an arbitration agreement that included a class action
waiver and precluded an individual from receiving remedial or equitable relief. Id. at *1.
The plaintiffs challenged enforcement of the agreement arguing that it violates the
“effective vindication” doctrine, a judicial exception to the Federal Arbitration Act that
seeks to ensure plaintiffs’ rights to pursue statutory remedies; and was added to the
plan by a unilateral amendment and therefore the plaintiffs had not knowingly consented
to it. The court rejected both arguments and granted the motion. First, the court held
that the plaintiffs “point to no authority where the Eleventh Circuit has applied the
‘effective vindication’ doctrine to void an arbitration clause.” Id. at 2. As such, and
“[g]iven the FAA’s pro-arbitration policy, as well as the rarity with which courts apply the
effective vindication clause,” the court declined to do so. Id. at 3. Second, while
expressing that allowing the unilateral institution of an arbitration clause by a defendant
accused of a fiduciary breach was akin to letting the fox guard the henhouse, the court
held that while the individual participants never agreed to arbitrate, the plan dId.
Because “Section 1109(a) claims belong to the Plan,” the plan’s agreement to arbitrate
was binding. Id. at 3-4.
By contrast, the court in Harrison, et al. v. Envision Management Holding, Inc., 593 F.
Supp. 3d 1078 (D. Colo. 2022), denied the defendants’ motion to compel arbitration by
enforcing the “effective vindication” doctrine rejected in Holmes. In Harrison, the plaintiff,
a participant in his employer’s ERISA-regulated employee stock ownership plan
(ESOP), alleged a breach of fiduciary duty in connection with the sale of his employer to
the ESOP. Specifically, the plaintiff alleged that he and other employee participants in
the ESOP, whose retirement accounts were used to purchase his employer’s stock from
the defendants, were denied any opportunity to participate in negotiation of the
purchase price, which they alleged was inflated. The defendants moved to enforce the
plan’s arbitration and class action waiver provisions. The court refused to do so. It held
that the arbitration provision was invalid because it operated as a prospective waiver of
the plaintiff’s right to pursue statutory remedies. Id. at 1081. Notwithstanding the
arbitration agreement’s clear language covering the ERISA claims and the defendants’
argument that arbitration would only curtail, not eliminate, the plaintiff’s statutory rights,
the court disagreed. Citing the arbitration agreement’s language limiting a participant’s
relief to purely individual remedies, the court held that arbitration was incompatible with
the plaintiff’s express right under the ERISA to pursue plan-wide relief under 29 U.S.C.
§ 1132(a)(2). Id. at 1082-86. For these reasons, the court denied the motion to compel
arbitration.
194
© Duane Morris LLP 2023
Duane Morris Class Action Review – 2023
