On April 27, 2022, the United States Court of Appeals for the Sixth Circuit affirmed the United States District Court for the Southern District of Ohio’s denial of a motion to compel arbitration, holding that the Cintas Partners’ Plan (the “Plan”) had not consented to arbitration, and, therefore, there was no basis for the Plaintiffs’ claims to be arbitrated.
Plaintiffs Raymond Hawkins and Robin Lung originally filed the action in December 2019, alleging that Cintas Corporation (“Cintas”), the Investment Policy Committee for the Plan, Scott D. Farmer, and the Board of Directors of Cintas (collectively, “Defendants”) breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 (“ERISA”).
Pursuant to ERISA, fiduciaries of defined contribution 401(k) retirement plans, like the Plan, must adhere to standards for plan administration to ensure that investments offered to employees are prudently selected and monitored.
Plaintiffs specifically claim that Defendants failed to meet these standards by (1) offering actively managed funds, rather than more cost-effective passively managed funds, and (2) allowing Plan participants to pay excessive recordkeeping fees.
In moving to compel arbitration, Defendants argued that each employee had signed agreements containing arbitration provisions, and that Plaintiffs’ claims were covered by these provisions and thus subject to binding arbitration. The District Court denied the motion, and Defendants appealed this decision to the Court of Appeals for the Sixth Circuit.
Defendants’ appeal claimed that the District Court erred in finding Plaintiffs were asserting claims on behalf of the Plan, instead of on their own behalf. However, the Sixth Circuit was unpersuaded that the case’s class-action posture suggests Plaintiffs are bringing individual claims as opposed to Plan claims. The Appellate Court ultimately agreed with the District Court and ruled that the injuries Plaintiffs present are injuries to the Plan as a whole.
The Sixth Circuit emphasized that ERISA claims of this nature belong to the Plan, which has the most to benefit from the litigation. While individual plaintiffs bring claims, it is the Plan that recovers damages. Therefore, as the Sixth Circuit reasoned, the claims “belong” to the Plan. Following this logic, the Court held that although the individual arbitration provisions in the employee agreements cover all employee claims and disputes, the sum of the individual claims does not equate to the Plan itself consenting to binding arbitration. Accordingly, the Sixth Circuit affirmed the District Court’s denial of Defendants’ motion to compel arbitration.
An update to this blog can be found here. The case caption for this lawsuit is Raymond Hawkins, et al. v. Cintas Corporation, et al. Case No. 1:19-cv-01062, filed in the Southern District of Ohio.
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