Your ERISA Watch – Sixth Circuit Rules That Section 502(a)(2) Claims Cannot Be Forced into Arbitration

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Hawkins v. Cintas Corp., No. 21-3156, __ F.4th __, 2022 WL 1236954 (6th Cir. Apr. 27, 2022) (Before Circuit Judges Boggs, Gibbons, and Nalbandian).

One of the hot topics in ERISA law in the last few years has been arbitration. Can companies force their employees to arbitrate ERISA claims? What kind of language is required in order to ensure that an arbitration clause sticks? What about class actions? What about claims for equitable relief? There seems to be an endless list of issues and sub-issues, some of which have divided the federal courts.

The Sixth Circuit waded into the fray in this case involving plaintiffs Raymond Hawkins and Robin Lung, who alleged in a putative class action that their former employer, defendant Cintas Corporation, breached the fiduciary duties it owed to the company’s retirement plan. Specifically, the plaintiffs argued that Cintas only offered participants the ability to invest in actively managed funds instead of lower-cost passively managed funds, and that Cintas charged the plan excessive recordkeeping fees. The plaintiffs brought a single claim for relief under § 502(a)(2) of ERISA, which authorizes a plan participant or beneficiary to bring a civil action for breach of fiduciary duty.

However, both of the plaintiffs had signed employment agreements with Cintas that contained arbitration provisions. Thus, when the plaintiffs filed suit, Cintas fired back with a motion to compel arbitration, arguing that they had signed away their right to bring their claims in federal court.

The district court disagreed with Cintas, concluding that “the action was brought on behalf of the Plan, and it was therefore irrelevant that Hawkins and Lung had consented to arbitration through their employment agreements.” Cintas appealed to the Sixth Circuit.

The Sixth Circuit noted that this was a case of first impression, and stated at the outset that it had “not yet determined whether statutory ERISA claims are subject to arbitration,” although “every other circuit to consider the issue” had held that “ERISA claims are generally arbitrable.” However, the Sixth Circuit found that it “need not reach that issue” because it concluded that the plaintiffs’ claims “could not, in theory, be subject to arbitration” in the first place.

The Sixth Circuit explained that Section 502(a)(2) claims are “brought in a representative capacity on behalf of the plan as a whole.” The court further noted that the Supreme Court had clarified in LaRue v. DeWolff, Boberg & Assocs., Inc. that Section 502(a)(2) authorizes actions on behalf of a plan even if the harm is inherently individualized, such as the plaintiffs’ claim in this case. However, LaRue did not clarify whether such a claim “belongs” to either the plaintiff or the plan itself. This question was important because if the claim belongs to the plan, a participant does not have the right to bind it to arbitration.

The Sixth Circuit thus looked to other case law, and found persuasive the reasoning by the Ninth Circuit in Munro v. University of Southern California, which “presented facts nearly identical to this case.” In Munro, the Ninth Circuit analogized to qui tam actions under the False Claims Act in ruling that claims under Section 502(a)(2) belong to the plan, not the participant. The Sixth Circuit also relied on Third Circuit precedent which described Section 502(a)(2) claims as being “derivative in nature,” i.e., “it is the plan that takes legal claim to the recovery, suggesting that the claim really ‘belongs’ to the Plan.” Thus, the Sixth Circuit concluded, “because § 502(a)(2) claims ‘belong’ to the Plan, an arbitration agreement that binds only individual participants cannot bring such claims into arbitration.”

Cintas argued that its arbitration agreement was different from the one in Munro because its agreement covered “all rights or claims” under ERISA, whereas the agreement in Munro only covered “claims,” and did not mention ERISA specifically. However, the Sixth Circuit stated that this was a distinction without a difference, as the employees’ rights could only be vindicated through claims brought under ERISA.

Cintas also argued that the plaintiffs were “actually asserting claims on their own behalf, not on behalf of the Plan.” The Sixth Circuit rejected this argument because it “appears to conflict with LaRue,” which held that Section 502(a)(2) “does not provide a remedy for individual injuries distinct from plan injuries.” Furthermore, “the fact that the individual Plaintiffs will indirectly benefit from a remedy accruing to the Plan as a whole does not render the claims individualized.” As the court observed, “If, for instance, the named Plaintiffs were to be swapped out with two other employees, nothing material in the complaint would need to be changed.”

The Sixth Circuit was not done, however. It further stated that even if the claims at issue did “belong” to the individual plaintiffs, and the right to bring those claims was covered by the arbitration provision, Cintas still could not force the case into arbitration because the plaintiffs were not the sole owners of the claims. This was because “Section 502(a)(2) claims belong to the Plan as well,” and thus the plaintiffs could not “unilaterally bind an ERISA plan to arbitration in the absence of an arbitration provision in the plan documents or some other manifestation of the plan’s consent.”

Cintas countered that the plan in fact had consented to arbitration, because a plan can only act through its agents, and the plan sponsor had agreed to arbitration through its execution of the arbitration agreements. The Sixth Circuit, however, found that this “stretches case law too far.” The court found no authority “suggesting that the relationship between an ERISA plan and its sponsor is akin to that of alter-ego business entities.” Indeed, such an argument “dissolves the distinction between the Plan sponsor and the Plan as a legal entity,” and by making such an argument, “Cintas is hinting that it should be able to unilaterally decide it wants to arbitrate claims against itself.” This “would, in a sense, be allowing the fox to guard the henhouse.”

The court threw a bone to Cintas, suggesting that Cintas might be able to amend the plan documents to include an arbitration provision, but saved the question of whether this would pass legal muster for another day.

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