PLANADVISER - Fall 2023 - 34

Case Sensitive
Are They Legally Binding?
Circuit courts are mixed on arbitration clauses in plan documents
ARE MANDATORY arbitration clauses and class action
waivers in the plan documents of plans governed by the
Employee Retirement Income Security Act enforceable?
The use of these clauses has grown in recent years, says
Mark Boyko, a plaintiff's ERISA attorney and a partner in
Bailey Glasser LLC in St. Louis. This trend is partially attributable
to a decision from the 9th Circuit, in Michael F. Dorman
v. The Charles Schwab Corporation, et al. (2019), Boyko says.
Dorman held that mandatory arbitration-i.e., participant
breach of fiduciary claims must be resolved in arbitration,
participant by participant, and the option for class action
waived-is enforceable for ERISA-governed plans because
the Supreme Court,
in American Express Co. v. Italian Colors
Restaurant (2013), wrote that arbitrators may review federal
law and are competent to do so. The legal tide is turning
against this interpretation, though, and, because four other
circuits-the 2nd, 6th, 7th and 10th-ruled against mandatory
arbitration and class action waivers, the 9th Circuit
decision is " becoming increasingly an outlier, " Boyko says.
Kimberly Jones, a partner in Faegre Drinker in Chicago
and an ERISA defense attorney, acknowledges this losing
streak for defendants. " Most courts so far have found [these
procedures] to be unenforceable. They say [arbitration
requirements] violate ERISA by taking away substantive
rights from the participants. "
The Case
The most recent case to side against a plan fiduciary on this
issue is Marlow Henry v. Wilmington Trust, et al. (2022).
Marlow Henry was a participant in an employee stock
ownership plan sponsored by BSC Ventures, a custom
envelope manufacturer. Wilmington Trust, an investment
manager, was the plan's trustee. Since BSC's stock was not
publicly traded, it had to be valued-a service that Wilmington
Trust performed-before it could be used in an ESOP.
The ESOP was created in 2015, and Henry was employed
by BSC from 2012 to 2019. In 2017, the plan amended its plan
document to add a mandatory arbitration provision and a
class action waiver. The two provisions were tied together,
meaning that, if a court found the class action waiver to be
invalid, then the arbitration provision would also be voided.
Henry brought a suit in the U.S. District Court for the
District of Delaware in 2019 and alleged that Wilmington
Trust was overvaluing the price of the ESOP's BSC stock. The
complaint argued that the institution violated its fiduciary
duties to the plan by buying BSC stock at an inflated price and
by over-relying on financial data produced by the self-interested
executives of BSC. The stock price also did not account
for what Henry described as a flawed business model.
The complaint further argued that the arbitration and
waiver provisions prevented Henry from seeking planwide
34 planadviser.com | Fall 2023 | Practice Management
Art by Tilda Rose
http://www.planadviser.com
PLANADVISER - Fall 2023

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