Supremes Duck ERISA Arbitration Case—Again

The nation’s highest court has decided not to decide the applicability of an arbitration clause in fending off an ERISA suit.

The case that had been appealed to the United States Supreme Court was decided in favor of the participant-plaintiffs by the United States Court of Appeals for the 10th Circuit—which in January affirmed the decision of the district court that had held that the arbitration clause in the plan document impermissibly blocked rights afforded under the Employee Retirement Income Security Act (ERISA). 

The Case

At issue was a suit brought by former employee and participant Robert Harrison who in January 2021 had sued Envision Management Holding (parent of radiology company Envision), the company's board of directors; a number of company executives; and plan trustee Argent Trust Co. on behalf of a proposed class of employees.

In essence the appellate court summed up his claims as alleging that "the seller defendants, with the effective assistance of Argent, were able to financially benefit by selling Envision to the ESOP for significantly more than it was worth, while at the same time leaving the ESOP with a $154.4 million debt.” That said, the focus here was on Harrison’s ability to bring suit in view of an arbitration clause contained in the plan document—to which he arguably had not been a party.

The fiduciary defendants for their part had argued that Section 21 of the Plan Document (entitled “ERISA ARBITRATION AND CLASS ACTION WAIVER” “require[d] arbitration of” Harrison’s claims and that Harrison, “[b]y filing his complaint in federal court,” was “seek[ing] to circumvent two federal laws—the Federal Arbitration Act [(FAA)] . . . , which mandates enforcing arbitration provisions, and ERISA, which dictates enforcing the terms of governing plan documents.” Oh, and they not only asked that the court compel Harrison to arbitrate all of his claims on an INDIVIDUAL basis (under the FAA), stay the suit, or dismiss it—along with awarding them “their attorneys’ fees and costs incurred in seeking this relief.”

In petitioning for a review by the Supreme Court, the defendants Argent and Envision’s board of directors, had argued that the 10th Circuit “sidestepped” relevant precedent and improperly “read into ERISA an inherent, substantive right by an individual participant to sue in federal court on behalf of an entire plan that cannot be modified by a provision requiring individual arbitration.”

That said, the Supreme Court declined to consider the case—leaving in place the decision of the 10th Circuit, which declined to allow the arbitration clause in the plan document to block the participant suit. 

What This Means

All in all, this decision leaves the matter of enforceability of these arbitration clauses in a bit of a muddle. As it turns out, the Second, Sixth, and Seventh circuits have recently issued rulings allowing these cases to stay in court, while the Ninth Circuit has previously granted Charles Schwab Corporation’s bid for arbitration over its retirement plan investments.  In 2022, the Supreme Court, after initially expressing some interest in the topic, declined to hear an ERISA arbitration case involving Cintas Corp.