Highlights
- Courts have taken varying fact-specific approaches when
determining the viability of mandatory class action waivers and
arbitration provisions contained in employee stock ownership plans
(ESOPs).
- Previous Holland & Knight alerts have discussed recent
decisions and the impact of those decisions on such waivers and
arbitration provisions.
- More recently, the U.S. District Court for the District of Arizona issued an opinion synthesizing the historical case law and also providing guidance and clarification on when mandatory class action waiver and arbitration provisions in ESOP plans are enforceable. Ultimately, the Court compelled the plaintiff to arbitrate her claim on an individual basis, enforcing the mandatory class action waiver and arbitration provisions set forth in the ESOP plan document.
Historically, courts around the country have approached the enforceability of class action waivers and arbitration provisions in ESOP and Employee Retirement Income Security Act of 1974 (ERISA) plan documents differently, creating varying levels of uncertainty in the marketplace.
In the recent Robertson v. Argent Trust Company decision, plaintiff Shana Robertson brought a putative class action against an employee stock ownership plan (ESOP) trustee and others alleging, among other things, that the Trustee breached its fiduciary duties in connection with the formation of the Isagenix Worldwide Inc.'s ESOP in violation of ERISA. See No. 21-cv-01711-PHX-DWL, 2022 WL 2967710 (D. Ariz. July 27, 2022).
Case Background
Specifically, the Plaintiff sued to "enforce her rights under ERISA and the Plan, to recover the losses incurred by the Plan and/or the improper profits realized by Defendants resulting from their breaches of fiduciary duty and prohibited transactions, and equitable relief, including rescission of the ESOP Transaction and removal of fiduciaries who have failed to protect the Plan." See Robertson, 2022 WL 2967710, at *1 (citing the Compl. at ' 7). The Plaintiff claimed "the Plan ha[d] been injured and its participants ha[d] been deprived of hard-earned retirement benefits resulting from Defendants' violations of ERISA." Id. In response to the complaint, the defendants moved to compel the "Plaintiff to arbitrate her claims on an individual basis" pursuant to an arbitration clause in Sections 17.9(a)(ii) and (iii) of the ESOP plan that stated:
Any claim by a Claimant that arises out of this Plan or the Trust Agreement, including, without limitation, any claim for benefits under this Plan or the Trust Agreement; [and] any claim asserting a breach of, or failure to follow, any provision of ERISA or the Code, including without limitation, a breach of fiduciary duty ... shall be settled by binding...
