January 17, 2023
- Arbitration clause limits remedies provided by statute
- Company urges court to focus on ‘effective’ vindication
Envision Management Holding Inc.’s effort to force arbitration in a dispute over its employee stock ownership plan appeared to be in jeopardy on Tuesday, when a panel of Tenth Circuit judges had tough questions for the company’s lawyer.
Judge Mary Beck Briscoe honed in on a perceived mismatch between the type of relief authorized by the Envison plan’s arbitration provision and the remedies available under the Employee Retirement Income Security Act. She appeared skeptical of whether an arbitration provision that only allows a participant to get their “little tiny bit of money back” is sufficient under ERISA, which authorizes participants to file lawsuits seeking the removal of plan fiduciaries.
Envison’s attorney, Barbara A. Smith with Bryan Cave Leighton Paisner LLP, urged the court to focus on whether the arbitration clause allows participants to effectively vindicate their “core” ERISA right to protect their own plan benefits. The Envision plan allows any participant to seek their own alleged damages, and the Labor Department is authorized to seek other remedies, like removal of fiduciaries, she said.
Briscoe appeared unpersuaded, calling Smith’s response a concession that fiduciary removal is an effective remedy that plan participants should be able to pursue.
Judge Robert E. Bacharach pushed back on the idea that participants who can seek individual damages but not fiduciary removal have been allowed to exercise their core ERISA rights. His questions suggested he saw Envison’s argument as improperly weighing one ERISA remedy as more important than others.
Growing Debate
The case gives the US Court of Appeals for the Tenth Circuit an opportunity to weigh in on the growing debate over whether employers can force class litigation over their retirement plans into arbitration by pointing to such clauses in either plan documents or individual employment contracts. The Second, Sixth, Seventh, and Ninth Circuits have issued varying rulings on these questions over the past few years, and the US Supreme Court recently declined to hear a petition seeking arbitration in an ERISA dispute involving Cintas Corp.’s 401(k) plan, despite initially expressing some interest in the topic.
The lawsuit against Envision targets a 2017 transaction in which the company’s former owners sold their shares in the company to a newly created employee stock ownership plan for $164 million—a price plan participants say was significantly inflated. Envision sought to have the lawsuit sent to arbitration, pointing to a provision in the plan document requiring that disputes involving the plan be resolved through individual, binding arbitration.
A Colorado federal court denied the request in 2022, ruling that the provision is invalid because it acts as a prospective waiver of plan participants’ right to seek statutory remedies that are guaranteed by ERISA, including the right to seek relief on behalf of the entire plan.
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Envision is also represented by Groom Law Group. The plan participants are also represented by Cohen Milstein Sellers & Toll PLLC.
Read the article on Bloomberg Law.