2nd Circ. Panel Considers ERISA Arbitration Request in Light of Viking River

April 19, 2023
Hall Benefits Law, LLC

A U.S. Court of Appeals for the Second Circuit panel recently heard oral arguments over whether a proposed class action concerning alleged overcharges to an employee stock ownership plan (ESOP) should go to individual arbitration. ESOP plan trustee Argent Trust Co., employer Strategic Financial Solutions, and other executives and financial services companies appealed after a federal district court judge denied their motion to compel arbitration in November 2021. The judge found that an arbitration provision blocked rights violating the Employee Retirement Income Security Act (ERISA), making it invalid under the Federal Arbitration Act (FAA)’s effective vindication doctrine.

Ex-workers at Strategic filed the class action suit alleging that the defendants had cost retirement plan participants millions when they overcharged the ESOP in a $242 million sale of company stock. The former workers further claimed that the transaction violated ERISA. The case is Dejesus Cedeno et al. v. Argent Trust Co. et al., case number 21-2891, U.S. Court of Appeals for the Second Circuit.

During oral arguments, at least two of the three judges on the Second Circuit panel appeared skeptical that they could force individual arbitration on an individual’s rights under ERISA to seek relief for the entire plan in the form of a representative action under Section 502(a)(2). In addition, the parties disagreed on how the U.S. Supreme Court’s decision in Viking River Cruises v. Moriana should impact the case. Argent Trust’s attorney contended that in Viking River, the U.S. Supreme Court reiterated that the critical inquiry was whether the arbitration provision sought to alter substantive rights or merely change how the rights are processed. The attorney said the arbitration provision did not alter or abridge the plaintiff’s rights. One judge on the Second Circuit panel pointed out that statutory remedies existed that wouldn’t be available under the individual arbitration agreement, suggesting that the arbitration provision did alter the plaintiff’s rights.

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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Hall Benefits Law, LLC

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.

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