Benefits Bulletin: Retirement Plans/Executive Compensation ' January 2022

• Published date: 28 January 2022
• Subject Matter: Employment and HR, Litigation, Mediation & Arbitration, Retirement, Superannuation & Pensions, Employee Benefits & Compensation, Employment Litigation/ Tribunals, Arbitration & Dispute Resolution, Class Actions
• Law Firm: Winston & Strawn LLP
• Author: Mr Joseph Adams and Anne Becker

District Court Allows Arbitration in Attempted ERISA Class Action Fee Lawsuit

The U.S. District Court for the Southern District of Florida recently granted a 403(b) defined contribution plan's motion to compel arbitration in Holmes et al v. Baptist Health South Florida, Inc. et al. The plaintiffs filed an ERISA class action suit claiming breach of fiduciary duty related to a failure to monitor and contain plan investment expenses. However, in 2020, the plan was amended to require arbitration of "[a]ny claim . which arises out of, relates to, or concerns" the plan and forbids litigation on a representative or class basis.

The plaintiffs raised two challenges to the arbitration clause.

1. First, the plaintiffs asserted that the arbitration language prevented plaintiffs from seeking plan-wide relief in violation of the "effective vindication" doctrine - a rare exception to the Federal Arbitration Act that allows a court to invalidate an arbitration agreement if it "operates as a prospective waiver of a party's right to pursue statutory remedies." The plaintiffs cited a recent ERISA decision by the U.S. Court of Appeals for the Seventh Circuit, Smith v. Board of Directors of Triad Manufacturing, Inc., et al., which invoked the effective vindication doctrine. However, the court in this case noted that the Eleventh Circuit has never applied the effective vindication doctrine and distinguished the narrower arbitration clause at issue in this case, from the broader arbitration clause at issue in Specifically, the court stated, "while the arbitration clause in Smith completely denied some types of statute-authorized relief to the Plan, the clause here does not, as individual claimants can each recover the harm to their defined contribution accounts, and they can recover Plan-wide relief that does not provide additional benefits or monetary relief to others."
2. Second, the plaintiffs challenged the plan's unilateral adoption of the arbitration clause. However, the court determined that breach of fiduciary duty claims belong to the plan and that "the relevant inquiry is not whether individual participants agreed to the arbitration agreement but whether the Plan agreed to arbitrate." The plan document expressly permits amendment by the plan sponsor. (For this same reason, the court concluded that binding arbitration could apply even to participants who were active in the plan prior to the time the arbitration clause was added in 2020.)

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