Third Circuit Holds Retirement Plan Participants Must Arbitrate ERISA Breach of Fiduciary Duty Claims

Berkelhammer v. ADP TotalSource Grp., Inc., No. 22-1618, __F.4th__, 2023 WL 4554581 (3d Cir. July 17, 2023) (Before: Shwartz, Matey, and Fuentes, Circuit Judges).

Appellants Beth Berkelhammer and Naomi Ruiz were participants in the ADP TotalSource Retirement Savings Plan (“Plan”), an investment portfolio managed by NFP Retirement, Inc. (“NFP”). Appellants filed suit against Defendants, fiduciaries of the Plan, under ERISA § 502(a)(2), derivatively on behalf of the Plan to restore Plan losses. In the contract between the Plan and NFP is an agreement to arbitrate disputes between the two entities. Appellants argued that because they did not personally agree to arbitrate, that the arbitration provision does not govern their claims. The district court held that Appellants stand in the Plan’s contractual shoes and are bound by the arbitration agreement. The Third Circuit agreed and affirmed.

ADP Total Source is a Plan fiduciary. It created a committee to handle Plan administration. That committee entered into an Investment Advisory Agreement (“IAA”) with NFP to get NFP’s advice on the Plan’s investment strategies. In the IAA, the Plan and NFP agreed to arbitrate “[a]ll disputes and controversies relating to the interpretation, construction, performance, or breach of” the agreement. There is no dispute that Appellants’ claims are covered by the arbitration provision. The question is whether the Plan’s consent to arbitration is sufficient for the arbitration provision to apply to Appellants’ claims.

In holding that the Plan has the power to consent to arbitration, the court explained that civil actions under ERISA § 502(a)(2) are brought in a representative capacity on behalf of the plan as a whole to protect contractually defined benefits. The breaching fiduciary owes its duty to the plan, not the individual claimant. The plan takes legal title to any recovery, which then inures to the benefit of its participants and beneficiaries. The court cited to Hawkins v. Cintas Corp., 32 F.4th 625 (6th Cir. 2022) and to Munro v. University of Southern California, 896 F.3d 1088 (9th Cir. 2018) to support its position that “the presence or absence of an individual claimants’ consent to arbitration is irrelevant; what counts is the contract created by the plan. In these cases, the plaintiffs had agreed to arbitrate but the plans had not. Here, the reverse is true. The Plan agreed to arbitrate but the claimants did not. Because the Plan agreed to arbitrate, Appellants must arbitrate their claims on the Plan’s behalf.