Duane Morris Class Action Review - 2023 - Report - Page 84
The district court denied the motion, concluding that the lawsuit was brought on behalf
of the Plan, so it was therefore irrelevant that the plaintiffs had consented to arbitration
agreements. Because the Plan did not consent to arbitration, the case was not subject
to arbitration. On appeal, the Sixth Circuit agreed with the district court, concluding that
the claims belong to the Plan, not any individual participant in the Plan. Looking to
analogous decisions by the Ninth and Third Circuits, the Sixth Circuit in this case
concluded that lawsuits involving losses arising from fiduciary misconduct are similar to
qui tam lawsuits or other derivative suits on behalf of trusts. In all three instances, the
remedy upon judgment in a plaintiff’s favor does not go to the individual plaintiff but to
the government or the trust, or in this instance, the retirement Plan itself. In this sense,
the plaintiffs’ claims “belong” to the Plan, not to the named plaintiffs. Accordingly, the
fact that they agreed to arbitrate any individual claims that belong to them against their
employer is not relevant to this claim that belongs to the Plan.
Likewise, in Harrison, et al. v. Envision Management Holding, Inc., 2022 U.S. Dist.
LEXIS 60823 (D. Colo. Mar. 24, 2022), the plaintiff filed a class action lawsuit under the
ERISA based on allegations that an Employee Stock Ownership Plan offered by his
employer improperly inflated the price of the stock they purchased. The ESOP plan
documents contained an arbitration provision with a class action waiver. The plaintiff’s
class action lawsuit sought plan-wide relief as specifically allowed under section
1132(a)(2) of the ERISA. The defendants moved to compel arbitration, and the plaintiff
objected on the ground that the arbitration agreement was invalid as a prospective
waiver of the plaintiff’s statutory rights. The defendants countered that the arbitration
provision was not a prospective waiver of the plaintiff’s statutory rights. They asserted
that arbitration provisions are invalid as prospective waivers of statutory rights if they
prohibit any federal claim whatsoever, as opposed to merely curtailing certain claims.
The court agreed with the plaintiff and denied the motion to compel arbitration because
the Plan's arbitration provision prohibited remedies that are explicitly provided for by the
ERISA, making the plaintiff unable to effectively vindicate his statutory cause of action in
the arbitral forum.
In a similar case, Lloyd, et al. v. Argent Trust Co., 2022 U.S. Dist. LEXIS 219964
(S.D.N.Y. Dec. 6, 2022), the plaintiffs allege that the defendant that also offered an
ESOP to employees used a stock valuation process that was flawed. These plaintiffs
also filed suit under the ERISA for plan-wide relief, as provided for in the statute. The
plaintiffs alleged that the defendant offering the ESOP inappropriately relied on financial
projections from co-defendants who sold shares, who they alleged had a personal stake
in inflating them, and that the defendant failed to anticipate foreseeable financial
headwinds in the form of rising labor and property costs. The plaintiffs also allege that
the shares were overvalued because the co-defendants had warrants allowing them to
generate more shares, thereby diluting the value of existing ones. The defendants
moved to compel arbitration. The plaintiffs opposed the motion on the ground that the
arbitration clause in the Plan was not enforceable because it prohibits participants from
asserting certain statutory rights and remedies. For example, the Plan purported to limit
equitable relief such that the plaintiffs could not sue seeking removal of a fiduciary,
which is allowed in section 1109(a) of the ERISA. They also argued they were
prohibited from bringing representative relief on behalf of the plan under section
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Duane Morris Class Action Review – 2023
