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Emerging Issues on the Enforcement of Arbitration Agreements under ERISA

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For decades, circuit courts have held that claims arising under the Employee Retirement Income Security Act of 1974 (ERISA) are generally arbitrable. In recent years, however, there has been a growing body of cases challenging this general proposition and addressing the limits of enforceability of arbitration agreements under ERISA. 

One group of cases has considered the issue in connection with claims under Section 502(a)(2) of ERISA for alleged breaches of fiduciary duty asserted by participants or beneficiaries on behalf of an ERISA plan.  The Second, Fifth, and Tenth Circuits had held that arbitration agreements are enforceable in connection with claims under ERISA Section 502(a)(2), while the Sixth and Ninth Circuits have imposed restrictions on the arbitrability of such disputes. 

In holding that arbitration agreements are enforceable with respect to claims under Section 502(a)(2), the Second, Fifth, and Tenth Circuits found no basis to depart from established precedent holding that arbitration agreements are generally enforceable under ERISA.  See Bird v. Shearson Lehman/American Express, Inc., 926 F.2d 116, 122 (2d Cir. 1991) (holding that an arbitration agreement between a trustee-participant and an investment firm was enforceable against plan participants with respect to Section 502(a)(2) claims); Kramer v. Smith Barney, 80 F.3d 1080, 1084 (5th Cir. 1996) (holding that a standard customer agreement with an arbitration clause was enforceable with respect to Section 502(a)(2) claims); Williams v. Imhoff 203 F.3d 758, 767 (10th Cir. 2000) (holding that the arbitration agreements signed by plaintiffs were enforceable regarding Section 502(a)(2) claims).

In contrast, the Ninth and Sixth Circuits have held that a participant cannot agree to arbitrate ERISA Section 502(a)(2) claims on behalf of the plan without plan consent because of their derivative nature.  The Ninth and Sixth Circuit have generally reasoned that because claims under Section 502(a)(2) are asserted on behalf of the plan and for the plan’s benefit, a plaintiff who individually may have consented to arbitration cannot thereby unilaterally bind the plan to arbitrate. See Munro v. University of Southern California, 896 F.3d 1088 (9th Cir. 2018), cert. denied, 139 S. Ct. 1239 (2019) (holding that Section 502(a)(2) claims could not be within the scope of the employees’ agreement to arbitrate all claims against their employer because the Section 502(a)(2) claims were brought on behalf of the plan, and the plaintiffs consented only to arbitrate claims brought on their own behalf); Hawkins v. Cintas Corp., 32 F.4th 625, 637 (6th Cir. 2022), cert. filed, __ U.S.L.W. __ (U.S. Sept. 12, 2022) (No. 22-226) (holding that arbitration agreements were unenforceable regarding plaintiffs’ Section 502(a)(2) claims because, although the plaintiffs were bringing the claim on behalf of the plan, the arbitration agreement was unenforceable without the plan’s consent); see also Dorman v. Charles Schwab Corp., 780 Fed. Appx. 510, 514 (9th Cir. 2019) (holding that an arbitration agreement was enforceable in connection with a Section 502(a)(2) claim because both the plan and the plaintiffs consented to the agreement).

This issue could soon be resolved by the U.S. Supreme Court should it grant a petition for writ of certiorari recently filed in Cintas, seeking to reverse the Sixth Circuit’s decision.  In their petition, defendants point to Supreme Court authority on the enforceability of arbitration agreements in derivative actions, see Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (2022) (holding that plaintiff’s claims under California’s Private Attorneys General Act, a similarly derivative cause of action, were preempted by the Federal Arbitration Act (FAA) and subject to arbitration), and contrast the Sixth Circuits’ holding in Cintas with the Second, Fifth, and Tenth Circuits’ holdings in Bird, Kramer, and Williams.

Another group of cases have questioned enforcement of arbitration clauses to the extent they would foreclose plan-wide equitable or remedial relief.  The Second and Seventh Circuits, for example, have recently considered this issue and have suggested that arbitration agreements cannot prohibit claimants from obtaining plan-wide equitable or remedial relief through ERISA claims.  See Cooper v. Ruane Cunnif & Goldfarb Inc., 990 F.3d 173, 184 (2d Cir. 2021) (refusing to compel arbitration of a 502(a)(2) claim despite plaintiffs having signed an arbitration agreement that required them to arbitrate all legal claims arising out of or relating to employment because arbitrating such claims may be inconsistent with the “representative nature of the Section 502(a)(2) right of action”); Smith v. Board of Directors of Triad Manufacturing Inc., 12 F 4th 613, 621 (7th Cir. 2021) (refusing to enforce arbitration agreement that prohibited plan-wide remedies because plaintiffs’ right to a plan-wide remedy under ERISA Section 409 and 502(a)(2) could not be prospectively waived by agreement).

Whether the Supreme Court grants a writ of certiorari in Cintas may have important impacts on clarifying the extent to which arbitration agreements are enforceable in connection with claims under ERISA Section 502(a)(2) and could continue a trend of recent Supreme Court activity in the ERISA context.  In any event, the scope of enforceability of arbitration agreements for ERISA claims will continue to be an important issue to monitor especially as employers and plan sponsors face increased class-action and other claims under ERISA.

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