Courts have been mixed regarding the enforceability of arbitration provisions in Employee Retirement Income Security Act (ERISA) retirement plans since the U.S. 9th Circuit Court of.
Historically, courts around the country have approached the enforceability of class action waivers and arbitration provisions in ESOP and Employee Retirement Income Security Act of 1974.
On January 20, 2022, the United States District Court for the Southern District of Florida enforced a mandatory arbitration and class action-waiver provision (Arbitration Provision) in.
On September 10, 2021, the Seventh Circuit decided Smith v. Board of Directors of Triad Manufacturing Inc., No. 20-2708, holding that benefit plans may require claimants to arbitrate.
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Over the past few years, qualified retirement plans, including employee stock ownership plans (ESOPs) have been adding provisions requiring participant breach of fiduciary duty claims to be resolved through mandatory arbitration on an individual basis rather than through the courts or on a class basis. One reason for doing so is to prevent plaintiffs from bringing spurious lawsuits that contain sufficient facts to survive a motion to dismiss, which would lead to expensive discovery exercises. The risk of such expense could create an incentive for ESOP fiduciaries to agree to substantial settlements to avoid the cost of further litigation regardless of the underlying merits of the allegations. However, there are downsides to having such mandatory arbitration provisions, including the risk of facing a non-appealable adverse arbitration decision and its impact on the ESOP, the ESOP sponsor and the ESOP fiduciaries. While cour