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7th Circ. Refuses to Kick ERISA Class Action to Arbitration


September 13, 2021

The Seventh Circuit rejected a St. Louis manufacturing company’s push to send a would-be class action from workers who say they were overcharged for company stock to individual arbitration, saying a “rare” exception to federal law applied.

The three-judge panel issued a unanimous opinion Friday backing a district court’s decision not to send the Triad Manufacturing Co. workers’ suit into arbitration, citing an exception to the Federal Arbitration Act that permits a court to overrule an arbitration agreement if it blocks a party from being able to bring claims under federal law.

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The proposed class of current and former Triad workers led by James Smith had accused the company’s board of directors and three board members in April 2020 of violating the Employee Retirement Income Security Act by selling Triad stock to the company’s employee stock ownership plan, or ESOP, at an inflated price, giving board members “a hefty profit at their employees’ expense.”

In Friday’s decision, the Seventh Circuit cited the 1985 Supreme Court case Mitsubishi v. Soler Chrysler-Plymouth¬† , which first presented the “effective vindication” exception in the opinion as a side observation, as well as the 2013 high court case American Express Co. v. Italian Colors Restaurant¬† .

While the Supreme Court decided against invalidating the arbitration agreements at the heart of both cases, the Seventh Circuit panel noted that the court in Italian Colors left the door open for the exception in cases where an arbitration provision prevented a party from exercising a statutory right.

The appeals court judges concluded Friday that ERISA suits in general could be sent to arbitration, but the arbitration provision in question was not valid under the effective vindication doctrine because it prevents plan participants from being able to seek relief and obtain remedies under ERISA.

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Counsel for the proposed class told Law360 on Monday that they are “thrilled with the 7th Circuit decision recognizing that ERISA allows our client to seek remedies on behalf of all participants in his retirement plan.”

“The decision confirmed that certain plan-wide remedies cannot be taken away through an arbitration clause. We look forward to prosecuting this case in district court,” the statement continued.

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The proposed class is represented by Karen L. Handorf, Michelle C. Yau and Jamie L. Bowers of Cohen Milstein Sellers & Toll PLLC and Peter K. Stris, Radha A. Pathak, Douglas D. Geyser and John Stokes of Stris & Maher LLP.

Read 7th Circ. Refuses to Kick ERISA Class Action to Arbitration.