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Sixth Circuit Finds Dispute Between ERISA Fund Trustees Belongs in Arbitration

In Baker, et al. v. Iron Workers Local 25 Vacation Pay Fund, et al., No. 20-1946, __F.3d__, 2021 WL 2177666 (6th Cir. May 28, 2021), three trustees of an employee vacation fund brought suit against the fund, claiming they had a fiduciary duty to amend one of its tax returns to bring the fund in compliance with the tax code. They are trustees of a six-member board where the other trustees did not agree to the need to amend the tax return. The other three trustees intervened, arguing that the dispute belongs in arbitration. The Sixth Circuit affirmed the district court’s order dismissing the complaint.

The trust agreement provides that an arbitrator will resolve any deadlocks, including when “a proposal, nomination, motion or resolution made by any Trustee is not adopted by a majority vote (unless the same has been defeated by a majority vote)” and when “a quorum is lacking at a meeting duly called.” A quorum requires four trustees to gather, two from the employer side and two from the union side. At one meeting, the employer trustees moved to change the vacation plan to bring it into compliance with the tax code, but the union trustees refused, and the matter did not come to a vote. At the next meeting, the motion was made again but two union trustees did not attend so there was no quorum, and the chair of the board rejected the motion as procedurally improper.

The court found that the deadlock provision applies to this dispute because the proposal to amend the tax return failed to receive a majority vote. The court also found that a deadlock caused by a lack of a quorum amounts to a covered dispute. Further, before going to court, the trustees had an obligation to exhaust remedies under the plan. “The point of this exhaustion requirement is to reduce frivolous lawsuits, minimize costs, prevent premature judicial intervention into decisions by the board of a trust fund, and allow trustees to correct errors of their own making.” No exception to exhaustion applies here. The court also rejected the trustees’ claim that arbitration is not appropriate since the dispute does not concern the administration of a trust, but a legal dispute concerning whether the tax laws require the fund to amend its returns. The court explained that arbitrators resolve legal questions and mixed law and fact questions all the time.

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