The Capital Group Companies Inc. is arguing for enforcement of an arbitration provision in its 401(k) plan on appeal before the U.S. Circuit Court for the Ninth Circuit. The company claims that the lower court erred in refusing to enforce the arbitration provision. The case is Pover v. The Capital Group Cos. Inc. et al., Case Number 24-5298, U.S. Court of Appeals for the Ninth Circuit.
On appeal, Capital Group is challenging a California federal district court’s decision denying its motion to compel arbitration in a former worker’s ERISA suit. The lower court based its decision on a finding that the provision waived statutory rights under the Employee Retirement Income Security Act (ERISA) to seek class or collective relief on behalf of all plan participants and beneficiaries.
According to Capital Group, the district court judge improperly applied the effective vindication exemption to the Federal Arbitration Act (FAA). That exemption allows courts to decline to enforce an arbitration provision if it prohibits a party from filing claims in federal court. Capital Group argues that ERISA guarantees no plan participant the right to file a class action lawsuit, citing the U.S. Supreme Court’s 2008 decision in LaRue v. DeWolff, Boberg & Associates, Inc. In that case, the Supreme Court found that participants in defined-contribution plans have standing to file suit only in cases involving fiduciary breaches that directly impacted their individual accounts.
Former Capital Group employee Pover filed a proposed class action lawsuit in November 2023. The class would include about 11,000 participants in Capital Group’s employee 401(k) plan, which holds assets of $5 billion. Pover alleges that Capital Group violated its fiduciary duties under ERISA by maintaining expensive in-house fund offerings that resulted in substantial losses to workers’ investments and generated millions of dollars in fees for one of its subsidiaries.
The Capital Group appeal is of particular interest to benefits attorneys due to a split among appellate judges concerning the enforcement of individual arbitration provisions in ERISA class actions. The lower court’s ruling rejected Capital Group’s claim that a 2019 Ninth Circuit unpublished memorandum decision compelled arbitration of the dispute. In contrast, the proposed class cited case holdings in five other circuits, stating that the effective vindication doctrine applies when a contract provision conflicts with the FAA. Under these holdings, the conflict, i.e., the arbitration provision, triggers the application of the effective vindication doctrine, meaning that arbitration cannot be compelled.
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