ERISA Claims: A Chink in the Armor of Class Action Waivers
Bradley Fleming, an employee of the Kellogg Company (Kellogg) and a participant in its defined contribution (401(k)) retirement plan, alleged breach of fiduciary duty sounding in ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2) against Kellogg and the fiduciaries who ran the plan. He alleged that imprudence and excessive fees cost the plan $7 million over a four year period. Kellogg moved to compel arbitration, and the District Court granted that motion, finding that enforcing the arbitration provision and its foreclosure of class, collective, or representative actions would not prevent Mr. Fleming from effectively vindicating the statutory remedies sought in his complaint.
In Fleming v. Kellogg Company, the Sixth Circuit reversed. The Sixth Circuit cites Italian Colors for the effective vindication exception to the general rule that arbitration provisions will be enforced. That exception, the Court reminds us, “finds its origin in the desire to prevent ‘prospective waiver of a party’s right to pursue statutory remedies.’” But in that case, Justice Kagan noted in dissent, the message to plaintiffs was “Too darn bad.” The effective vindication section is rarely applied, but it has been applied to ERISA claims under § 502(a)(2) by the Sixth Circuit and two other Federal Circuit Courts of Appeals.
That is an appropriate result in this case, the Sixth Circuit concluded, because the action that Mr. Fleming brought is, by its nature, derivative in nature. He is suing for an injury that is both particular to him and that affects all participants in the plan. The very statutory scheme cannot be reconciled with Kellogg’s arbitration agreement and its waiver of a claimant’s ability to bring representative actions. Because Kellogg’s waiver of representative claims is, by its express terms, non-severable, the only way for Mr. Fleming’s claim to proceed is in federal court.
Proviso language in the arbitration agreement did not save it, as the arbitration provision expressly prohibits representative claims, rendering it fatally inconsistent with ERISA. Moreover, reading the arbitration provision in context, it unambiguously barred representative actions and thus fell within of the effective vindication exception to the general practice of enforcing arbitration provisions.
The Sixth Circuit’s logic seems inescapable. Conceptually, ERISA claims are distinguishable from the anti-trust claims at issue in Italian Colors. But if the effective vindication exception is about preventing bans on collective claims from preventing claimants from vindicating their statutory rights, the cases are not substantively distinguishable. That case was wrongly decided.