The U.S. Court of Appeals for the Sixth Circuit has reversed a Michigan federal district court’s April 2023 dismissal of a 401(k) plan mismanagement class action against Kellogg, finding that an arbitration provision in the plan didn’t preclude the claims. The case is Bradley Fleming v. Kellogg Co. et al., case number 23-1966, in the U.S. Court of Appeals for the Sixth Circuit.
Former Kellogg employee Bradley H. Fleming filed suit against the cereal company under the Employee Retirement Income Security Act (ERISA) in 2022. In his suit, Fleming alleged that Kellog breached its fiduciary duties to retirees by failing to monitor more than $7 million in excess recordkeeping and administration fees charged to the plan between 2016 and 2020.
U.S. District Judge Jane M. Beckering dismissed the suit, finding that an amended arbitration provision in Kellogg’s plan from 2021 specified that an arbitrator could award any relief otherwise available under ERISA. The effective vindication doctrine under the Federal Arbitration Act (FAA) permits judges to disregard arbitration agreements that eliminate statutory remedies. Nonetheless, the judge reasoned that the effective vindication doctrine didn’t apply in this case, as the arbitration provision didn’t prevent individuals from vindicating their rights under federal benefits law. As a result, the judge dismissed the suit.
A panel of the Sixth Circuit disagreed with the lower court, finding that the effective vindication exception did apply to the case. They found the arbitration provision invalid and unenforceable since it prevented Fleming from filing claims in a class, collective, or representative capacity. However, the only way for Fleming to file a fiduciary breach under ERISA on behalf of the plan was in a representative capacity. Hence, the provision effectively blocked his rights under federal benefits law. Therefore, the effective vindication doctrine is applicable and permits the suit to proceed.
The Sixth Circuit has declined to enforce arbitration provisions in at least two previous decisions involving ERISA class actions, including Hawkins v. Cintas Corp. and Parker v. Tenneco Inc.
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