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Harrison v. Envision Management Holding, Inc.

No. 22-1098. 2/9/2023. D.Colo. Judge Briscoe. Employee Retirement Income Security Act—Federal Arbitration Act—Defined Contribution Plan—Plan Document Arbitration Provisions—Effective Vindication Provision—Non-Severability Clause.

February 9, 2023

Harrison is a participant in a defined contribution retirement plan established by Envision Management Holding, Inc. (Envision). Envision owns Envision Management, LLC, which provides diagnostic imaging services in several states and was founded by Creps II, Sherwood, and Jones (collectively, Sellers). Sellers were members of Envision’s Board of Directors (Board) along with Ramsay and Kahn. Sellers created the Envision Employee Stock Ownership Plan (the ESOP), a defined contribution plan under the Employee Retirement Income Security Act (ERISA). Under the ESOP, Envision makes contributions on behalf of employee-participants, which are invested in the employer’s stock. The ESOP was administered and managed by Envision’s ESOP Committee, whose members included Sellers and other unidentified individuals. Under the plan document governing the ESOP, the ESOP’s named fiduciaries included the ESOP Committee, in its own capacity and as plan administrator; the Board; the named trustee to the ESOP, which was Argent Trust Company (Argent); and the ESOP’s investment manager.

Harrison initiated these proceedings by filing a district court complaint against Envision, the Board, the ESOP Committee, Argent, Sellers, Ramsey, Kahn, and John and Jane Does 1 to 15 (collectively, defendants). The complaint alleged that Sellers (1) created the ESOP so that it could purchase 100% of Sellers’ private Envision stock for $163.7 million (the ESOP Transaction); (2) selected Argent to serve as Trustee of the ESOP; and (3) even though the sale occurred, Sellers retained control over both Argent and the ESOP. Harrison further alleged that Sellers, with Argent’s assistance, financially benefited by selling Envision to the ESOP for significantly more than it was worth, while at the same time leaving the ESOP with a $154.4 million debt, which caused Harrison and other ESOP participants to suffer significant losses to their ESOP retirement savings. He also alleged that notwithstanding the sale, Sellers were able, with the assistance of Argent, to retain control of Envision. The complaint was filed pursuant to ERISA for plan-wide relief on behalf of the ESOP based on the ESOP Transaction. Defendants moved to compel arbitration and to stay the proceedings under the ESOP plan document’s arbitration provision. The district court denied the motion.

On appeal, defendants argued that the district court erred in denying their motion to compel arbitration. They maintained that the district court’s order circumvented the Federal Arbitration Act (FAA) by invoking the “effective vindication” exception to invalidate the plan document’s arbitration provisions, which otherwise required Harrison to individually arbitrate his ERISA claims. The effective vindication exception applies where an arbitration provision impermissibly restricts remedies and abridges substantive rights. ERISA §§ 502(a)(2) and 409(a) authorize participants to bring actions to recover plan losses resulting from a fiduciary breach and to seek removal of such fiduciary. Whether the exception applies depends on whether the prospective litigant is able to vindicate its statutory cause of action in the arbitral forum. Here, the complaint seeks relief under ERISA §§ 502(a)(2) and (a)(3). Section 21 of the plan document includes a non-severability clause, and the remedies limitation therein prevents Harrison from effectively vindicating his statutory remedies. This means that the entire arbitration procedure outlined in section 21 of the plan is null and void, and the effective vindication exception applies. Therefore, the district court did not err.

Defendants also argued that the district court’s order violates ERISA’s requirements that fiduciaries act in accordance with the written plan document. However, nothing in ERISA states that a plan document can override statutory remedies that Congress afforded to claimants. Further, ERISA expressly states that fiduciaries must discharge their duties in accordance with the plan documents and instruments only to the extent that those documents and instruments are consistent with other ERISA provisions, and a plan provision that waives a participant’s right to seek plan-wide relief from a breaching fiduciary is inconsistent with the right to such relief under ERISA §§ 502(a)(2) and 409(a).

Defendants also contended that the district court’s finding that the individualized arbitration provision violates the effective vindication exception means that an ERISA plan participant can never arbitrate an individual claim, because the participant can never waive the ERISA provision allowing for plan-wide remedies. However, both the nature of the claims and the specific relief sought by the complainant matter. Here, Harrison’s claims concern defendants’ actions with respect to the ESOP as a whole rather than only himself. Further, Harrison’s complaint cites ERISA provisions that allow for plan-wide remedies and specifically requests such remedies. Thus, an ERISA complainant who is asserting a claim unique to themself could not, simply by citing to the same ERISA provisions cited by Harrison, avoid arbitration in reliance on the effective vindication exception. Accordingly, the district court did not err.

Defendants further argued that the Supreme Court’s decision in Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018), requires a clearly expressed congressional intention to override the FAA and forbid arbitration. Defendants argument is misplaced because Epic did not involve the effective vindication exception, and the Supreme Court’s rulings regarding this exception, including its statements in Epic, make clear that the exception applies only where, as here, an arbitration agreement alters or effectively eliminates substantive forms of relief that are afforded to a claimant by statute.

Defendants also contended that ERISA contains no clearly expressed congressional intent to prohibit individual arbitrations. While this is true, this argument is irrelevant because in this case, it is the plan document’s prohibition on an individual claimant seeking any form of relief that would benefit anyone other than the claimant that is problematic, rather than the ESOP’s requirement that a claimant engage in individual arbitration. Relatedly, defendants suggested that even if ERISA §§ 1132(a)(2) and 1109 allow participants to obtain plan-wide relief, it does not prove that plan-wide remedies cannot be waived. This argument is also mistaken because §§ 1132(a)(2) and 1109 allow claimants to obtain certain forms of plan-wide relief.

Lastly, defendants asserted that ERISA authorizes the secretary of labor to bring actions on behalf of a plan to recover plan-wide relief, so notwithstanding the ESOP’s arbitration provisions, the Department of Labor (DOL) can investigate and seek to remedy any broader breach. Section 1132(a)(2) authorizes DOL as well as plan participants, beneficiaries, and fiduciaries, to sue and obtain the forms of relief outlined therein. However, regardless of who files suit under § 1132(a)(2),  the suit is on behalf of plan itself, and the same statutory remedies are available regardless of the named plaintiff. Moreover, nothing in the statute requires the DOL secretary to file any such suit, and it is unreasonable to assume that the DOL is capable of policing every employer-sponsored benefit plan in the country.

The decision was affirmed.

Official US Court of Appeals for the Tenth Circuit proceedings can be found at the US Court of Appeals for the Tenth Circuit website.

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