The Sixth Circuit Court of Appeals recently reversed a Michigan District Court’s grant of a motion to compel arbitration and dismissal in an unpublished decision Fleming v. Kellogg Company et al., No. 23-1966.
Case Overview: ERISA Claims Against Kellogg Company
In the case, Plaintiff Bradley Fleming brought Employee Retirement Income Security Act (ERISA) claims against his former employer, Kellogg Company, and the fiduciaries of the company 401(k) plan. Fleming alleged Kellogg and the fiduciaries of the 401(k) plan breached their fiduciary duties owed to the 401(k). Fleming alleges the defendants caused the plan to incur excessive recordkeeping fees, costing the plan over $7 million. Fleming sought plan-wide relief to recover these fees, including the appointment of an independent fiduciary to manage the 401(k) plan, restoring all losses to the plan, and disgorging any profits the defendants obtained from their fiduciary breaches.
Kellogg’s Motion to Dismiss and Compel Arbitration
Kellogg moved to dismiss the complaint and compel arbitration per the 401(k) plan’s arbitration clause. Kellogg argued that Fleming claims had to be arbitrated individually, based on the arbitration clause that barred barring class, collective, and representative actions. The Michigan District Court granted the motion and dismissed Fleming’s case.
The Sixth Circuit’s Reversal on Appeal
On appeal, the Sixth Circuit reversed, emphasizing that ERISA claims under section 502(a)(2) are representative actions brought on the 401(k) plan’s behalf. Since the arbitration clause prohibited representative actions, the court found it incompatible with ERISA’s provisions under the “effective vindication exception.” This exception can invalidate an arbitration clause if the clause attempts to forbid certain statutory rights or acts to waive a party’s right to pursue statutory remedies. The Sixth Circuit took note to call this exception rare.
Implications for ERISA Claims and Arbitration Clauses
Consequently, the Sixth Circuit held the arbitration clause to be unenforceable, as it prevented Fleming from fully vindicating his statutory rights under ERISA. Thus, Fleming is now able to proceed with his suit.
This case shows a split in the circuit courts that will likely need to be decided by the U.S. Supreme Court. While the courts agree that ERISA claims are generally arbitrable, they differ on whether arbitration clauses apply to plan-wide claims for breach of fiduciary duties under Section 502(a), like with Fleming’s claims. Currently, the Second, Third, Seventh, and Tenth Circuit have declined to enforce an ERISA plan’s arbitration clause on these representative actions. However, the Ninth Circuit had held in Dorman v. Charles Schwab Corp. that claims like Fleming’s could be subject to an arbitration provision in the plan document. Other district courts have held the same and enforced the arbitration provisions to prevent these representative actions in courts.
Conclusion
Although this is seemingly a blow to arbitration provisions for ERISA claims in the Sixth Circuit, it could change given the split among the circuit courts. A practical tip for employers who want to ensure arbitration is to include it in their 401(k) plan documents, instead of relying solely on individual employment agreement arbitration clauses. This, at least for now, is one part on which the courts are generally uniform.
If you have questions on an arbitration clause, or want to include one in your plan, please reach out to KJK attorney Jeffrey R. Vaisa (JRV@KJK.com).