Sixth Circuit Rejects Arbitration for Proposed Fiduciary Breach Class Action

The Sixth Circuit, in a matter of first impression for that Circuit, held an arbitration clause contained in a person employment settlement didn’t apply to ERISA fiduciary breach claims introduced on behalf of an outlined contribution plan.  The case is Hawkins et al. v. Cintas Corp., No. 21-2156, __ F.4th __, 2022 WL 1236954 (sixth Cir. 2022).

Plaintiffs, former Cintas Corp. staff, sued the corporate and its funding committee below Part 502(a)(2) of ERISA on behalf of its 401(okay) plan, alleging that defendants breached their fiduciary duties of prudence and loyalty with respect to the administration of the plan.  Cintas moved to compel arbitration, arguing that an arbitration clause in plaintiffs’ employment agreements lined the claims they now sought to convey.

Final 12 months, a choose within the Southern District of Ohio denied defendants’ movement to compel arbitration, reasoning that particular person arbitration agreements couldn’t cowl claims below Part 502(a)(2) as a result of such claims are introduced on behalf of the plan.

The Sixth Circuit affirmed.  Whereas the courtroom stopped wanting deciding whether or not Part 502(a)(2) claims may ever fall throughout the scope of an arbitration clause in a person employment settlement, it held that plaintiffs’ claims didn’t fall throughout the arbitration clauses right here.  The courtroom reasoned that as a result of such claims “belong” to the Plan, they can’t be compelled into arbitration based mostly on agreements that bind solely particular person contributors.  Furthermore, the courtroom discovered that, on this case, the agreements established solely plaintiffs’ consent to arbitration, however not the plan’s.

Proskauer’s Perspective

The Sixth Circuit’s resolution is notable in a number of methods.  For one, it joins the Second, Seventh, and Ninth Circuits in rejecting arbitration of Part 502(a)(2) claims based mostly on a clause in a person employment settlement, although these courts reached the identical outcome based mostly on diversified causes, together with that the clause didn’t attain ERISA claims (versus typical employment-related claims) and that the clause violated the “effective vindication” exception to the Federal Arbitration Act the place it will restrict the aid approved below Part 502(a)(2) (see our earlier weblog posts discussing the Second and Seventh Circuit selections).

Moreover, the Sixth Circuit explicitly restricted its resolution to the arbitration clause contained within the employment agreements however left open the query of whether or not an arbitration clause in a plan doc would result in a special outcome, because it did within the Ninth Circuit in 2019 (see our previous post).  Given the elevated use of arbitration clauses and frequency with which plaintiffs convey ERISA fiduciary breach claims, courts exterior the Ninth Circuit might very properly face this query within the close to future.

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