Sixth Circuit Affirms Denial of Arbitration Under Effective Vindication Doctrine

The U.S. Court of Appeals for the Sixth Circuit is the latest federal appellate circuit to rule that the "effective vindication" doctrine precludes enforcement of an agreement compelling individual arbitration of claims brought under ERISA §502(a)(2) for relief under ERISA § 409(a). The court issued this ruling in Parker v. Tenneco, Inc., No. 23-1857 (6th Cir. Aug. 20, 2024), a putative class action involving ERISA claims against 401(k) plan fiduciaries for allegedly failing to prudently select, monitor, and remove investment options from two plans and for agreeing to allegedly excessive fees charged for managed account services, recordkeeping, and account administration. The plaintiffs sought as a remedy, among other things, the recovery of losses to their plans resulting from the defendants' alleged breaches and an allocation of those recoveries to participants' individual accounts in proportion to the accounts' losses. The defendants filed a motion to compel arbitration, relying on a plan arbitration provision that required a plan participant to bring suit in arbitration only in an individual capacity, not in a representative, class, collective, or group capacity, and to seek remedies only for losses to the participant's individual plan account, not for monetary benefits that would accrue to any other participant's account.

A three-judge panel of Sixth Circuit affirmed the district court's denial of the motion to compel arbitration, agreeing with the lower court that the arbitration provision improperly limited participants' substantive rights and remedies rights under ERISA to bring suit on behalf of a plan and pursue plan-wide remedies under ERISA §502(a)(2). Citing recent Second, Third, Seventh, and Tenth Circuit decisions where the courts have struck down arbitration provisions that barred "effective vindication" of statutory rights guaranteed by ERISA, and Hawkins v. Cintas Corp., 32 F.4th 625, 631-33 (6th Cir. 2022), holding that ERISA § 502(a)(2) claims "belong to the plan," the Sixth Circuit held that the plaintiffs were explicitly requesting plan-wide, not individual, relief for plan-wide, not individualized, harms and therefore the arbitration provision was an unenforceable prospective waiver of their statutory rights to pursue claims and remedies that ERISA affords. In addition, the court rejected the fiduciaries' argument that the carve out in the arbitration clause allowing claimants to seek "injunctive relief" rendered it distinguishable from prior cases and enforceable, stating instead: "[t]hat the individual arbitration provision here still allows for plan-wide injunctive relief has no bearing on the fact that it eliminates statutorily created plan-wide monetary relief."

Circuit Judge David McKeague authored a noteworthy concurrence focused on the "judge-made" effective vindication doctrine and, citing recent Supreme Court decisions including Loper Bright Enterprises v. Raimondo, stating that such doctrines are "being scaled back." According to Judge McKeague, "the effective vindication doctrine may be next," reasoning that it has "never been used by the Supreme Court to bar an arbitration provision under ERISA" and that the doctrine conflicts with the "national policy favoring arbitration." He nevertheless supported affirmance of the district court's judgment in favor of the plaintiffs under current Sixth Circuit precedent.

Ninth Circuit Sends Pension Offset Dispute Back to District Court

On August 19, 2024, the U.S. Court of Appeals for the Ninth Circuit reversed in part and affirmed in part a district court's grant of summary judgment in favor of Northrop Grumman Corporation and its benefits committee (collectively, Northrop Grumman) in an ERISA lawsuit brought by a class of retirees challenging how the company managed pension offset disclosures and administration over a course of years. Baleja v. Northrop Grumman, No. 22-56042 (9th Cir. Aug. 19, 2024). The plaintiffs alleged that Northrop Grumman failed to disclose sufficiently the offset and its effects, which were described in summary plan descriptions (SPD) dating back to 1985, and they brought claims for breach of fiduciary duty under ERISA § 502(a)(3) and for benefits under ERISA § 502(a)(1)(B).

The Ninth Circuit reviewed the evidence in the record from the lower court's bench trial and determined that it supported a finding that genuine issues of material facts existed as to whether the defendants breached their duty of disclosure by "failing reasonable and accurately to apprise [the plaintiffs] of their rights under the ERISA plans." The court cited the content of participant disclosures over multiple years that it interpreted as suggesting that the pension offset at issue "would reduce their pensions by a relatively small amount," as well as to portions of the record that showed that "the offsets resulted in much more significant pension reductions," including pensions "reduced to zero." The court recognized, however, other evidence, highlighted by the defendants, indicating that some of the disclosures apprised participants that the offset could zero-out their pension, as well as letters some participants received regarding their situations. On this record, the court determined that issues of fact remained and it sent the fiduciary breach claim back to the district court for a trial.

On the benefits claim, the court affirmed in part and reversed in part the district court's judgment in the defendants' favor. According to the court, the plan administrator did not abuse its discretion and "reasonably interpreted the plan as authorizing offsets for payouts" and when applying actuarial assumptions, even though the plan administrator's application of plan terms "caused the severe reduction or even elimination of many class members' pensions." However, the court concluded the opposite with respect to the plan administrator's "failing to conclude that [the plan] provided a guaranteed minimum monthly payment" irrespective of the offset, finding as a matter of law that the plan's text provides for a guaranteed monthly benefit. As a result, the court also remanded this portion of the benefits claim back the district court for further proceedings.

Upcoming Speaking Engagements and Events

Joanne and Tony are presenting "Legal Developments in Employee Benefits Law" to members of the ERISA Industry Committee on September 4.

The firm is sponsoring the ERISA 50th Anniversary Symposium and Gala on September 12.

Joanne is speaking at two ABA webinars in September. On September 10, she will discuss "Health Care Equality," and on September 17, she will co-present "50 Years of ERISA Preemption: Where Do We Stand?"

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