By Gerald L. Maatman, Jr. and Derek Franklin
Duane Morris Takeaways: In Parker, et al. v. Tenneco Inc., et al., Case No. 2:23-CV-10816 (E.D. Mich. Aug. 21, 2023), Judge George Steeh of the U.S. District Court for the Eastern District of Michigan denieda motion to compel arbitration based on finding an ERISA class action waiver in an arbitration agreement unenforceable. The Court determined that Plaintiffs’ breach-of-fiduciary-duty claim under the ERISA “seeks relief for the [Benefits] plan as a whole,” and that “the harm (and the recovery) is to the Plan, rather than to plaintiffs specifically.” Id. at 14-15. In turn, the Court concluded that compelling arbitration and enforcing the class action waiver would prevent plan participants from seeking plan-wide remedies conferred by the ERISA statute. For these reasons, the Parker decision is instructive for employers seeking to implement an enforceable class action wavier and configure arbitration agreements that are best suited to account for the possibility of a class action waiver being nullified.
Case Background
The group of Plaintiffs in the Parker lawsuit were led by Tanika Parker, a current employee of DRiV Automotive Inc. (“DRiV”), and Andrew Farrier, a former worker for Tenneco Inc. (“Tenneco”). DRiV and Tenneco were two of several affiliated entities named as Defendants in the case. Parker and Farrier, participants in ERISA-covered 401(k) plans (the “Plans”) sponsored by their respective employers, alleged that Defendants breached their fiduciary duties under the ERISA by failing to prudently monitor and control the Plans’ investments and expenses. Defendants moved to compel arbitration of Plaintiffs’ claims on an individual basis, pursuant to an Arbitration Procedure adopted by the Plans containing language barring participants from bringing ERISA claims as a group or class. The Arbitration Procedure also provided that, if the class action waiver was found unenforceable or invalid by a court, the entire arbitration procedures would become null and void.
Eastern District of Michigan Opinion
In denying Plaintiffs’ motion to compel arbitration, Judge Steeth ruled that the class action waiver within the Arbitration Procedure was unenforceable because it “limits a participant’s substantive right under ERISA by prohibiting plan participants from bringing suit.” Id. at 15.
The Court’s reasoning cited an April 2022 Sixth Circuit decision in Hawkins v. Cintas Corp., 32 F.4th 625, 630 (6th Cir. 2022), which held that breach-of-fiduciary-duty claims under the ERISA are “brought in a representative capacity on behalf of the plan as a whole.” Id. at 10. The Court also quoted the explanation in the Hawkins decision that, although an ERISA breach-of-fiduciary-duty claim is typically brought by individual plaintiffs, “it is the plan that takes legal claim to the recovery, suggesting that the claim really ‘belongs’ to the Plan,” and that “an arbitration agreement that binds only individual participants cannot bring such claims into arbitration.” Id. at 12.
Consistent with that rationale, the Court in Parker held that the ERISA class action waiver in the Arbitration Procedure at issue was unenforceable because it would preclude Plan participants from pursuing “plan-wide remedies” provided for under the ERISA statute that cannot be waived by an agreement. Id. at 15. According to the Court, this would occur by the class action waiver “(1) prohibiting participants from bringing suit in a representative capacity on behalf of the plan, and (2) limiting relief to losses attributable to individual participant accounts, as opposed to plan-wide remedies.” Id.
Given that the Arbitration Procedure provided that it “shall be rendered null and void in all respects” if the class action waiver were to be “found unenforceable or invalid by the court,” the Court declared the entire Arbitration Procedure null and void and denied Defendants’ motion to compel arbitration. Id. at 15-16.
Implications for Class Action Defendants
As federal courts continue to issue decisions limiting the application of class action waivers relative to claims under the ERISA, it remains critical for businesses and employers to regularly review their arbitration agreements and class action waiver language to ensure legal compliance. Any business trying to implement an enforceable class action waiver should carefully consider the potential risks of extending that language to cover plan mismanagement claims under the ERISA. Businesses should also review their arbitration procedures to ensure they are best positioned to function independently of a potentially unenforceable class action waiver.