Denial of Arbitration Leads to Another Petition for Certiorari Challenging Effective Vindication Doctrine

On November 15, 2024, Tenneco Inc. filed a petition for certiorari with the U.S. Supreme Court, asking the Court to overturn the denial of its motion to compel arbitration of ERISA fiduciary breach claims brought by participants of Tenneco's 401(k) plan (Tenneco plan). Tenneco, Inc. v. Parker, No. 24-559 (U.S. Nov. 15, 2024). The petition argues that the Court should repudiate the "effective vindication" doctrine on which five Circuit Courts have relied to invalidate arbitration provisions in ERISA plan documents in favor of allowing plan participants to pursue certain ERISA claims for plan-wide relief in court. In the alternative, the petition requests that the Court find that the effective vindication doctrine does not apply to arbitration provisions that cover the type of ERISA claim brought in this case. 

The plaintiffs, two participants in the Tenneco plan, brought suit in federal district court under ERISA §502(a)(2), claiming various breaches of fiduciary duty under ERISA §409(a) and seeking monetary and injunctive relief on behalf of the plan. Tenneco filed a motion to compel arbitration in accordance with the plan terms, which provide that plan participants must bring §502(a)(2) claims for monetary relief to arbitration in the participant's individual capacity. In August 2024, the Sixth Circuit in Parker v. Tenneco, Inc. upheld the lower court's rejection of Tenneco's motion on the grounds that the arbitration provision, by restricting participants to acting in their individual capacity, is an impermissible prospective waiver of the statutory right under §502(a)(2) to bring claims on behalf of the entire plan, in violation of the effective vindication doctrine.

Tenneco's petition for certiorari argues that the Sixth Circuit's decision relies on a "dubious judge-made exception" to the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16, which requires that written arbitration agreements be enforced on their terms. Citing Loper Bright v. Raimondo, the case that overruled the Chevron doctrine, the petition asserts that effective vindication lacks both a congressional basis and a legal justification. The petition states that Congress has made no indication that ERISA should displace the FAA, yet the effective vindication doctrine impermissibly allows ERISA to do so. Further, the petition notes that the Court has never used effective vindication to invalidate an arbitration agreement, under ERISA or otherwise. The petition urges the Court to "harmonize" ERISA and the FAA by rejecting the idea that there is an "effective vindication exception" to the FAA.

The petition goes on to argue that even if there is an effective vindication doctrine, it is inapplicable to individual arbitration provisions like the one in the Tenneco plan because plan participants in defined contribution plans do not have an "unfettered, statutory right to represent the plan to seek monetary relief on behalf of all absent plan participants." The petition reasons that the Court's recent precedent on ERISA remedies compel the conclusion that § 502(a)(2), by providing for "appropriate" relief, limits participants of defined contribution plans to bringing a claim on the participant's individual plan account. To find that such participants have a statutory right to represent the entire plan, the petition continues, would not be "appropriate" because a participant's interest in a defined contribution plan is limited to their plan account, and allowing individual participants to seek monetary damages on behalf of the plan poses due process concerns for the participants not present in the suit. If § 502(a)(2) were instead understood to confer upon defined contribution plan participants the right to individual monetary relief and plan-wide equitable relief, there would be no conflict between the scope of the statutory right and the Tenneco plan's arbitration provision.

Should the Supreme Court grant Tenneco's petition, it would have the opportunity to upend established precedent approving of the effective vindication doctrine in the Second, Third, Sixth, Seventh, and Tenth Circuits in favor of a position only the Ninth Circuit reached in Dorman v. Charles Schwab Corp. (9th Cir. 2019). Further, the Court could significantly narrow the scope of relief available in many courts under § 502(a)(2) for claims of fiduciary breach. Earlier this month, the Court declined to hear an appeal by Argent Trust Co. challenging the Second Circuit's decision declining to enforce an individual arbitration and class action waiver provision in an ERISA plan. Argent Trust Co. v. Cedeno, No. 24-392 (U.S. Nov. 4, 2024).

Second Circuit Hears Oral Argument on ERISA Pleading Standard

On November 15, 2024, a Second Circuit panel heard oral argument in Boyette v. Montefiore Medical Center, No. 24-1279 (2d Cir. 2024). In Boyette, the plaintiffs-appellants appealed the dismissal of claims for breach of ERISA's fiduciary duty of prudence for the alleged failure of the plan fiduciaries to adequately monitor and control the recordkeeping fees of a 403(b) defined contribution plan with over $3 billion in assets. The legal question teed up – one contemplated recently by the Third, Fifth, and Seventh Circuits – is whether circumstantial evidence of an alleged breach of the duty of prudence for excessive fees, namely comparator fee schedules, plausibly states a claim. See Mator v. Wesco Distribution Inc., 102 F. 4th 172 (3d Cir. May 16, 2024) (reversing dismissal of duty of prudence claim for excessive recordkeeping fees where the complaint alleged the amount of fees paid by comparator plans notwithstanding differences in service codes in the Form 5500, differences in plan sizes, and alleged problems with fee calculation by plaintiffs); Kruchten v. Ricoh USA, Inc., No. 23-1928, 2024 WL 3518308 (3d Cir. July 24, 2024) (reversing in non-precedential decision dismissal of excessive fee claim where there was no mismatch in services between comparators and defendants); Hughes v. Northwestern Univ., 63 F.4th 615 (7th Cir. 2023) (Hughes II) (reversing dismissal of excessive fee claim where the plaintiffs pled "that the quality or type of recordkeeping services provided by competitor provides are comparable to that provided by" their plan's service providers and that "recordkeeping services are fungible and... the market for them is highly competitive"); and Perkins v. United Surgical Partners Int'l Inc., No. 23-10375, 2024 WL 1574342 (5th Cir. Apr. 11, 2024) (reversing district court's dismissal of duty of prudence and duty to monitor claims given sufficiency of allegations regarding comparators based on shares offered in plan and the plan's recordkeeping costs). We previously discussed the Hughes II decision here. 

In Boyette, the district court found in April 2024 that the plaintiffs' third amended complaint (TAC) did not "plead with specificity what services provided by the recordkeepers for the eight comparator plans were the same as those provided by the Plan's recordkeepers" and did not provide the "requisite 'apples to apples' comparison required...." The district court also found that the comparator data in the TAC demonstrated that the fees were not unreasonable, especially given that the plan documents demonstrated that the plan elected optional services. Lastly, the district court dismissed the plaintiffs' duty to monitor claim as derivative of the duty of prudence claim.

During oral argument, the Second Circuit asked both sides their positions on holding a decision in Boyette until the resolution of the appeal of a similar case pending before the Second Circuit, decided by the same district court judge as Boyette, Singh v. Deloitte LLP, No. 23-01108 (2d Cir. Aug. 3, 2023), in which oral argument was already held. Neither side objected to this approach, but the plaintiffs-appellants requested the opportunity for further briefing in this event.

The Court also asked the defendants-appellees whether these types of excessive fee cases could ever really be dismissed at the motion to dismiss stage, given their fact-specific nature. The defendants-appellees responded that the pleading in Boyette was so deficient that there was no way it could meet the plausibility standard. During argument, the defendants-appellees also pointed to the plaintiffs-appellants' pleading inconsistencies and the tension between the idea that it is sufficient for the plaintiffs to offer comparator data with the idea that these types of cases concerning reasonableness of compensation for services are inherently fact-based questions that can never be addressed on a motion to dismiss. The Court also seemed unimpressed with the argument by the plaintiffs-appellants that comparing the specific type of services was unnecessary given that these services are "fungible," an argument that was successful before the Seventh Circuit in Hughes II.

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