April 29, 2022

ERISA Litigation Roundup: Sixth Circuit Holds ERISA § 502(a)(2) Claims May Not Be Arbitrated Absent Plan Consent

On April 27, 2022, the Sixth Circuit decided Hawkins v. Cintas Corporation, No. 21-3156, holding that claims for breach of fiduciary duty under § 502(a)(2) of the Employment Retirement Income Security Act of 1974 (ERISA), belong to the plan, and plaintiffs asserting such claims for alleged harm to their individual retirement accounts in defined contribution plans may not be compelled to arbitrate those claims absent the plan’s consent.

Hawkins is a putative class action that participants in an ERISA-governed defined-contribution retirement plan filed on behalf of the plan against Cintas Corporation, their former employer and the plan’s sponsor, under ERISA § 502(a)(2). The plaintiffs alleged that Cintas had breached fiduciary duties it owed to them under ERISA in connection with its administration of the plan, causing losses to the plan.

Each of the named plaintiffs had previously executed an employment agreement with Cintas that contained an arbitration provision (Arbitration Provision) obligating the plaintiffs to arbitrate, among others, any employment-related claims arising under ERISA. The Arbitration Provision also precluded the plaintiffs from asserting class action or representative claims against Cintas. The plan was not a party to the employment agreement, and the plan document contained no arbitration provision.

Based on the plaintiffs’ agreement to the Arbitration Provision, Cintas moved to stay the federal court proceedings and compel the plaintiffs to arbitrate their claims. The United States District Court for the Southern District of Ohio denied both motions.

On appeal, the United States Court of Appeals for the Sixth Circuit affirmed. Initially, the court observed that, though it had not had occasion to address the question, every federal court of appeals that has considered the issue has agreed that statutory ERISA claims are arbitrable. But because the parties did not dispute that ERISA claims may be subject to arbitration, the Sixth Circuit assumed that to be true for purposes of its analysis without reaching the question. Nonetheless, the Sixth Circuit held that the plaintiffs were not obligated to arbitrate their ERISA § 502(a)(2) claims against Cintas because those claims belonged to the plan, and the plan had not consented to arbitration.

The court based its holding on LaRue v. DeWolff, Boberg & Associates, Inc., 552 U.S. 248, 251 (2008), Munro v. University of Southern California, 896 F.3d 1088 (9th Cir. 2018), and Graden v. Conexant Systems Inc., 496 F.3d 291, 295 (3d Cir. 2007). The court interpreted Munro and Graden as confirming that ERISA § 502(a)(2) claims address losses to ERISA plans resulting from fiduciary misconduct and that they, therefore, are derivative in nature and belong, in the first instance, to the plan. And the court construed LaRue as holding that ERISA § 502(a)(2) authorizes participants in defined contribution plans to bring claims for harm that is inherently individualized to their respective retirement accounts, so long as the relief that they are seeking inures to the plan. Taking these authorities together, the court explicitly rejected Cintas’s argument that ERISA § 502(a)(2) claims that individual participants in defined contribution plans assert for alleged harm to their individual retirement accounts belong to the individuals, rather than the plan. It also rejected Cintas’s arguments that the individual plaintiffs could unilaterally bind the plan to arbitration and that, in the alternative, the plan sponsor’s moving to compel arbitration in the lawsuit manifested the plan’s consent to arbitrate. Instead, it concluded that arbitration agreements that bind only individual plaintiffs and do not establish the plan’s consent to arbitration cannot govern individual plaintiffs’ ERISA § 502(a)(2) claims because those claims belong to the plan. Notably, the court expressly declined to decide whether an arbitration provision in a plan document may subject ERISA § 502(a)(2) claims to arbitration.

Key Takeaways:

  • The Sixth Circuit still has not weighed in on whether it believes ERISA claims to be arbitrable, but indicia in this opinion suggest that it does.
  • Individual plaintiffs’ ERISA § 502(a)(2) claims for alleged individualized harm to their respective retirement accounts are derivative and “belong,” in the first instance, to the plan.
  • The Sixth Circuit joined several other federal courts in holding that individual plaintiffs pursuing ERISA § 502(a)(2) claims on behalf of a defined contribution plan may not be compelled to arbitrate those claims absent evidence the plan has consented to arbitration.
  • A plan must manifest consent to arbitrate ERISA claims and simply seeking to arbitrate those claims in pending litigation is insufficient to establish that consent. The Sixth Circuit has not addressed whether an arbitration provision in a plan would satisfy this plan-consent requirement.

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