A federal district court in Florida sent a proposed ERISA breach of fiduciary duty class action to individual arbitration on the basis of a plan arbitration clause that allowed for individual relief and plan-wide injunctive relief.  The case is Holmes v. Baptist Health South Florida, Inc., No. 21-cv-22986, 2022 WL 180638 (S.D. Fla. Jan. 20, 2022).

Plaintiffs, a proposed class of current and former Baptist Health employees, sued the nonprofit health care organization in the Southern District of Florida, alleging that defendants breached their fiduciary duties in their management and selection of investments for the organization’s 403(b) retirement plan.  In response, defendants invoked the plan’s arbitration clause, which required individual arbitration of claims relating to the plan and prohibited individuals from receiving “remedial or equitable relief” that would provide “additional benefits or monetary relief to any person . . . other than the Claimant[.]”  The district court granted defendants’ motion to compel arbitration, holding that the clause was enforceable under the Federal Arbitration Act (the “FAA”).

In doing so, the court held that the arbitration clause did not fall within the “effective vindication” doctrine, a rarely invoked exception to the FAA.  The doctrine—a judge-made exception to the FAA—permits courts to invalidate arbitration agreements that prospectively waive a party’s right to pursue statutory remedies.  Plaintiffs argued that the exception applied because the clause prospectively waived plan-wide relief specifically authorized by ERISA.  The district court rejected this argument, finding that the Eleventh Circuit has never applied the doctrine and has expressed a hesitancy to do so.

In rejecting the application of the “effective vindication” doctrine, the district court distinguished the arbitration clause from one recently invalidated by the Seventh Circuit in Smith v. Bd. of Directors of Triad Mfg., Inc., 13 F.4th 613 (7th Cir. 2021).  Unlike the clause in Smith, which barred certain relief entirely, the clause in Baptist Health’s plan still allowed individual claimants to recover through arbitration the loss to their individual accounts, as well as plan-wide relief, so long as it would not provide “additional benefits or monetary relief” to any other person.

The district court also held that Baptist Health’s plan amendment adding the arbitration clause after the participant ceased being a plan participant did not render the clause unenforceable.  Instead, the district court noted that the relevant inquiry is whether the plan agreed to arbitration, because plaintiffs’ fiduciary-breach claims were brought on behalf of the plan under ERISA § 502(a)(2).  Here, because the plan expressly provided for unilateral amendment by the plan sponsor, the plan validly consented to the arbitration clause even if the plaintiffs did not.

Proskauer’s Perspective

The court’s decision in Holmes is significant in at least two respects.  First, the district court’s interpretation of the provision as permitting claimants to obtain non-monetary relief for the plan through arbitration may lead to outcomes that circumvent arbitration’s individual nature.  As discussed in a previous post, the Ninth Circuit previously enforced a similar arbitration provision in a 401(k) plan but limited any potential relief to only the losses to the plaintiff’s individual 401(k) plan account.  See Dorman v. Charles Schwab Corp., 780 F. App’x 510 (9th Cir. 2019).  Although the ruling in Holmes limits defendants’ monetary exposure, it allows for broader and potentially impactful non-monetary relief, such as the removal of a plan fiduciary or a particular plan investment option.

Second, insofar as the outcome here diverges from the outcome in Smith, an appeal of the district court ruling could give rise to a split between the Eleventh and Seventh Circuits regarding the application of the effective vindication exception.

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Photo of Sydney Juliano Sydney Juliano

Sydney L. Juliano is an associate in the Labor & Employment Department and a member of the Employee Benefits & Executive Compensation Group, where she focuses on ERISA Litigation.

Sydney works on a variety of ERISA litigation matters, including fee- and investment-related breach…

Sydney L. Juliano is an associate in the Labor & Employment Department and a member of the Employee Benefits & Executive Compensation Group, where she focuses on ERISA Litigation.

Sydney works on a variety of ERISA litigation matters, including fee- and investment-related breach of fiduciary duty claims, benefit claims, and claims by trustees of multiemployer plans for withdrawal liability and delinquent contributions. Sydney is also a frequent contributor to Proskauer’s Employee Benefits & Executive Compensation Blog.

Sydney maintains an active pro bono practice, including representing clients in immigration and family court matters.

Sydney received her J.D. from the University of Virginia School of Law, where she was an Articles Editor of the Journal of Law and Politics and Director of Coaching for the Extramural Moot Court team.  While at UVA, she worked at the U.S. Attorney’s office for the Southern District of Florida.

Photo of Tulio Chirinos Tulio Chirinos

Tulio D. Chirinos is an associate in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group and the Workplace Investigations Practice Group.

Tulio works on a wide variety of ERISA and non-ERISA plan litigation matters…

Tulio D. Chirinos is an associate in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group and the Workplace Investigations Practice Group.

Tulio works on a wide variety of ERISA and non-ERISA plan litigation matters, including fee and investment litigation cases, breach of fiduciary duty claims and benefits claims. He also represents management in workplace investigations and litigation of employment-related matters, including claims of unlawful discrimination, harassment and retaliation. Tulio focuses his pro bono efforts on immigration matters where he has represented several juveniles from Central America in their asylum petitions and special immigrant juvenile status (SIJ) petitions.

Tulio is the author of several ERISA-related articles, including several focusing on ERISA fee and investment litigation that appeared in the Benefits Law Journal (2016-2023), Bloomberg BNA, and Law360. He is a contributing author to Chapter 10 (Fiduciary Responsibility) of BNA’s Employee Benefits Law treatise. He is also the co-editor and a frequent contributor to Proskauer’s Employee Benefits & Executive Compensation Blog.

Prior to joining Proskauer, Tulio clerked for the Federal Public Defender’s office for the Middle District of Florida. Tulio is a retired Lieutenant Colonel in the Army National Guard and served three tours of duty in Iraq, Kuwait, and Jordan.