10th Circ. Refuses to Compel Individual Arbitration of ESOP Suit

A three-judge panel of the U.S. Court of Appeals has rejected an appeal from Envision Management Holding and employee stock ownership plan (ESOP) trustee Argent Trust Co., seeking to compel arbitration of an Employee Retirement Income Security Act (ERISA) lawsuit. The court found that an agreement in the ESOP plan documents directly contradicted plan participants’ remedies under ERISA, which triggered the effective vindication doctrine under the Federal Arbitration Act. The effective vindication doctrine permits courts to overrule arbitration agreements if it prohibits parties from being able to pursue federal law claims.

By specifically identifying a particular sentence in the ESOP plan documents as blocking the statutory remedies available under Section 502(a)(2) of ERISA, the Second Circuit panel left other issues about the arbitrability of ERISA claims unanswered. These issues could result in cases concerning the arbitrability of ERISA claims reaching the U.S. Supreme Court.

For example, the panel concluded that a general prohibition on collective or class actions in an arbitration agreement was not cause for invoking the effective vindication doctrine. This decision left undetermined whether the remainder of the arbitration agreement, absent the disqualifying language, would also be invalid under ERISA. Likewise, it is unclear whether an arbitration that permits non-monetary relief but limits monetary relief is acceptable under ERISA.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.