A Fifth Circuit panel asked a former employee of International Bancshares Corp. to explain why an arbitration clause shouldn’t govern his Employee Retirement Income Security Act (ERISA) class action case. The case is Paul Parrott v. International Bancshares Corp. et al., Case Number 25-50367, in the U.S. Court of Appeals for the Fifth Circuit.
According to Paul Parrott, he didn’t consent to the arbitration clause in the plan, which rendered it unenforceable as to his suit. However, one judge on the appellate panel pointed out that the legal theory would be an easy way to overcome arbitration clauses in ERISA class actions, but that no other courts had adopted it, casting doubt on its feasibility.
In his claim, Parrott accuses his former employer of engaging in self-dealing and imprudent investment strategies, which allegedly caused $20 million in losses to the plan. The lower court gave Parrott’s class action the green light to move forward, finding that the arbitration clause was inapplicable because Parrott left his employment before the company added the clause to the plan.
Parrott argued that the class action should proceed on behalf of all plan beneficiaries, including those who continued to work after the arbitration clause took effect. The appellate judge expressed concern that, as she characterized it, a “straightforward” argument had not worked in any other court. In response, Parrott’s attorney pointed out that although no other court has addressed an identical circumstance, other courts, including the Fifth Circuit, have held that an employer that amends a plan is acting in its own interest, not in the plan’s or its members’ interests.
Parrott also noted that amendments to plans only are legally valid if they comply with ERISA, and he portrayed arbitration agreements as inconsistent with ERISA. For instance, the Federal Arbitration Act (FAA) requires plan consent for an arbitration clause.
Nonetheless, the company’s attorney argued that Parrott’s claims belong not only to a prospective class of plan members, but to the plan itself. As a result, he claimed that Parrott’s individual consent is irrelevant to the plan and class member claims. Instead, he noted that the only relevant consent to arbitration must come from the plan.
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