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10th Circ. Skeptical of Forcing Arbitration in ESOP Row

Law360

January 17, 2023

The Tenth Circuit appeared skeptical Tuesday of a radiology company’s argument that ex-workers alleging the company mismanaged their employee stock ownership plan should be booted to individual arbitration, citing language in the Employee Retirement Income Security Act allowing workers to seek plan-wide relief.

A three-judge panel during oral arguments quickly focused on whether workers’ rights to plan-wide relief under ERISA would be illegally cut off if the arbitration provision from Envision Management Holding Inc.’s ESOP was enforced as written. That’s because Envision’s ESOP specified that plan participants couldn’t sue in court and that any arbitration had to be brought individually.

Within minutes of arguments beginning, Senior Circuit Judge Mary Beck Briscoe zeroed in on whether the proposed class led by ex-imaging technician Robert Harrison could obtain the relief they were seeking under ERISA given the arbitration clause at issue.

That was key to the reasoning behind District Judge Regina M. Rodriguez’s denial of the motion to compel from Envision and plan trustee Argent Trust Co. in March, when she held the arbitration agreement conflicted with an individual’s rights under ERISA to seek relief on behalf of the entire plan under Section 502(a)(2). Judge Rodriguez cited the effective vindication doctrine, an exception to the Federal Arbitration Act that permits a court to overrule an arbitration agreement if it blocks a party from being able to bring claims under federal law.

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Kai Richter, attorney for Harrison and the proposed class, said during a brief interview following the argument that “we’re pleased with the way that the argument went. We think the arguments reflect why the district court decision was properly decided.”

“The arbitration provision here — it’s really a misnomer that it’s even an arbitration provision. They did the one thing that you absolutely cannot do, and in that provision, it literally cited provisions of the United States Code with respect to statutory remedies under ERISA, and says ‘you can’t have that.’ And that is obviously not lawful,” Richter said.

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Robert Harrison and the proposed class are represented by Rachana Pathak, John Stokes and Peter K. Stris of Stris and Maher LLP and Mary J. Bortscheller, Ryan Wheeler, Michelle C. Yau and Kai H. Richter of Cohen Milstein Sellers & Toll PLLC.

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