Mandatory Arbitration and Class Action Waiver Questions Unresolved

The enforceability of class action waivers and mandatory arbitration agreements for fiduciary breach claims in ERISA plans won’t be clarified in the foreseeable future. The Supreme Court declined to hear two appeals that would have addressed those issues.

Mandatory arbitration provisions with class action waivers could be a solution to the problems posed by numerous class action lawsuits that have plagued 401(k) plans, according to the Kilpatrick Townsend blog, but results have been mixed. Some lower courts found mandatory provisions in ERISA plans enforceable under the Federal Arbitration Act, following the lead of the Ninth Circuit when it reversed a prior decision.

Courts that decline to enforce arbitration provisions that are limited to individual claims for relief have applied an “effective vindication” exception. This holds that arbitration provisions can specify the procedure for resolving claims, but cannot limit the statutory remedies that are available to participants and beneficiaries under ERISA.

Three Circuit Courts have found arbitration provisions unenforceable because of limitations they imposed on plan-wide relief. Two of those decisions were appealed.

In Harrison v. Envision Management Holding, Inc. Board of Directors, the Tenth Circuit applied the “effective vindication” exception and refused to enforce a plan’s arbitration provision that only provided for individual relief. This limited a participant to claiming a pro-rata share of losses to the plan that a fiduciary would be required to restore for a fiduciary breach. The Third Circuit applied virtually the same analysis when it refused to enforce a mandatory arbitration provision in Henry v. Wilmington Trust NA.

In October, the Supreme Court declined to hear appeals of those cases.