Federal Court Compels Proposed ESOP Class Action to Individual Arbitration Based on Plan Document

Highlights

• Federal courts have taken varying fact-specific approaches when determining the viability of mandatory class-action waivers and arbitration provisions contained in employee stock ownership plans (ESOPs).
• The U.S. District Court for the District of Arizona recently issued an opinion synthesizing the historical case law and also providing guidance and clarification on when mandatory class-action waiver and arbitration provisions in ESOP plans are enforceable. Ultimately, the Court compelled the plaintiff to arbitrate her claim on an individual basis, enforcing the mandatory class action waiver and arbitration provisions set forth in the ESOP plan document.

Historically, federal courts around the country have approached the enforceability of class action waivers and arbitration provisions in ESOP and Employee Retirement Income Security Act of 1974 (ERISA) plan documents differently, creating varying levels of uncertainty in the marketplace. In the recent Robertson v. Argent Trust Company decision, plaintiff Shana Robertson brought a putative class action against an employee stock ownership plan (ESOP) trustee and others alleging, among other things, that the trustee breached its fiduciary duties in connection with the formation of the Isagenix Worldwide Inc.’s ESOP in violation of ERISA.  See No. 21-cv-01711-PHX-DWL, 2022 WL 2967710 (D. Ariz. July 27, 2022).

Ultimately, the Court found that the plaintiff’s reliance on the effective vindication doctrine was misplaced, stating that “none of the cited cases suggest that an ERISA § 502(a)(2) plaintiff has an unqualified right to bring a collective action to recoup all of a fiduciary’s losses and gains at once” and “the Plan’s arbitration provision does not prevent Plaintiff from effectively vindicating statutory rights under ERISA.” Robertson, 2022 WL 2967710, at *10. Importantly, the Court stated “[t]here is no indication that ERISA bars plan participants from choosing to waive collective action when an individualized remedy is still available.” Id. (citing Dorman II, 780 F. App’x at 514).

Conclusion and Considerations

The district court’s analysis in Robertson synthesizes relevant case law and provides additional guidance for those seeking to enforce arbitration provisions and class action waivers in ERISA plan documents.