A lawsuit criticizing a private company's employee stock ownership plan has turned into a policy dispute about arbitration clauses in ERISA plans, pitting the U.S. Department of Labor against prominent retirement industry trade organizations.
In its first-ever amicus brief about arbitration clauses in an ERISA plan, the Labor Department supports a plaintiff suing his employer and fiduciaries over the value of an ESOP. The defendants argue that the complaint should be addressed by arbitration rather than in the courts.
The DOL "is not here contending that ERISA claims are categorically non-arbitrable," said the amicus brief filed June 10 in Cedeno vs. Argent Trust Co. et al., which is now before the 2nd U.S. Circuit Court of Appeals in New York. However, "a participant cannot be compelled to arbitrate if they are deprived of the full range of ERISA remedies that would be available had they brought the same claim in federal court," the document said.
The Labor Department noted that Mr. Cedeno alleged fiduciary breaches "that caused losses to the plan extending beyond his own account," which, the DOL wrote, means "'appropriate' relief to remedy those breaches could also extend accordingly."
But the "remedy provision" in the arbitration clause "categorically precludes any participant from seeking recovery for the plan beyond that which would inure to the participant's individual account," the Labor Department wrote, adding that this clause "cut off" an arbitrator's ability to consider the "full range of relief" depending on the context of the fiduciary breach claim.
The DOL declined to comment beyond its amicus brief.
"This has moved toward a bigger policy issue," said Chantel Sheaks, vice president of retirement policy for the U.S. Chamber of Commerce, Washington. "It's a broader issue" than an ESOP lawsuit.
The Chamber filed an amicus brief March 11 supporting the defendants. It asked the appeals court to overturn a November 2021 New York U.S. District Court ruling that the arbitration clause was unenforceable because it failed to protect participants' rights under ERISA. "If the decision is allowed to stand, plaintiffs and their lawyers will be emboldened to pursue wasteful and unnecessary class action litigation," the Chamber's amicus brief said.