Plaintiff-Appellant Bradley Fleming was frustrated in his attempt to hold the fiduciaries of his former company’s 401(k) Plan liable for alleged breaches of their ERISA fiduciary duties because the Plan contained an arbitration clause which the district court found enforceable. In Fleming v. Kellogg Company, et al., No. 23-1966, 2024 WL 4534677 (6th Cir. Oct. 21, 2024), Fleming appealed to the Sixth Circuit to get out of forced arbitration of his ERISA claims, which he sought to bring in a representative capacity. The Sixth Circuit sided with Fleming and held that the effective vindication exception invalidates the arbitration provision.
Fleming worked for Kellogg Company and was a participant in its 401(k) retirement plan (“the Plan”). He filed suit against the Plan’s fiduciaries, alleging that they violated their fiduciary duties under ERISA by causing the Plan to pay more than $7 million in excessive recordkeeping and administrative fees between 2016 and 2020. He sought various forms of relief, including appointment of an independent fiduciary to manage the Plan, an order requiring Kellogg to restore all losses to the Plan, and an order for the fiduciaries to disgorge any profits from the fiduciary breaches. The Plan was amended in 2020 to require arbitration of certain claims, including the ERISA claims brought by Fleming in this action. Section 17.4(b) of the Plan stated:
Any arbitration will be conducted on an individual basis only, and not on a class, collective or representative basis …. The arbitrator shall have no authority to arbitrate any claim on a class or representative basis and may award relief only on an individual basis. By participating in the Plan and accepting benefits hereunder, Participants and Beneficiaries waive the right to participate in a class, collective or representative action; provided, however, that if such waiver is held by a court of competent jurisdiction to be unenforceable, any claim on a class, collective or representative basis shall be filed and adjudicated in federal district court in the Western District of Michigan, and not in arbitration.
The above provision was added to the Plan after Fleming stopped working at Kellogg. This additional provision was added by the Plan in 2021 to retroactively amend the arbitration provision:
The arbitrator shall have no authority to arbitrate any claim on a class or representative basis and may award relief only on an individual basis; provided, however, that the arbitrator may award any relief otherwise available under ERISA.
When Fleming sued the defendants (collectively, “Kellogg”), he asserted two claims under ERISA § 502(a)(2). They moved to dismiss the lawsuit and order arbitration. The district court granted Kellogg’s motion, finding that the arbitration provision constitutes sufficient manifestation of the Kellogg Plan’s consent to arbitrate, and it properly applies to representative suits brought on behalf of the Plan.
The Sixth Circuit analyzed the Federal Arbitration Act (FAA), ERISA, and the effective vindication exception to the enforcement of arbitration provisions. The court found that Fleming’s ERISA claims are representative actions brought on behalf of the Plan since he seeks to redress a shared injury suffered by the Plan. Under Section 502(a)(2), Fleming can only act in a representative capacity on the Plan’s behalf. The court further found that Kellogg’s arbitration provision does not allow Fleming to proceed in a representative capacity, and therefore, it infringes on the remedies available under ERISA. Because the arbitration provision bars Fleming’s ability to bring a breach of fiduciary claim, it violates the effective vindication exception. The use of this exception is “rare”, but the court found that this case fits within the narrow construction of that exception. The court also explained that the ability to bring a breach of fiduciary duty claim under Section 502(a)(2) is a substantive right granted by ERISA, and the arbitration provision effectively eliminates the ability to bring a claim under this Section. The court concluded: “Given the impermissible restrictions built into Kellogg’s arbitration provision and its non-severability clause, we find that Kellogg’s arbitration provision is invalid and unenforceable.”
*Please note that this blog is a summary of a reported legal decision and does not constitute legal advice. This blog has not been updated to note any subsequent change in status, including whether a decision is reconsidered or vacated. The case above was handled by other law firms, but if you have questions about how the developing law impacts your ERISA benefit claim, the attorneys at Roberts Disability Law, P.C. may be able to advise you so please contact us.
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