Federal Appeals Court Protects Worker Class Action Rights, Rejecting Demands for Individual Arbitrations

Bailey Glasser’s ERISA litigation team won a victory before the U.S. Court of Appeals for the Second Circuit on behalf of a proposed class of employees seeking relief under federal ERISA law.

The Second Circuit ruled May 1st that an employee stock ownership plan (ESOP) trustee and former shareholders of the ESOP’s wholly-owned financial services firm can’t compel individual arbitration of a proposed class action accusing them of overcharging the ESOP for company stock, saying that doing so would prevent a plan participant from seeking plan-wide remedies authorized by federal benefits law. In a 2-1 decision, the court ruled that the lower court was right to deny the motion to compel arbitration by Argent Trust Co., which served as trustee to Strategic Financial Solutions, LLC’s ESOP, and the former shareholders. Plaintiff and BG client, employee Ramon Dejesus Cedeno, filed the Employee Retirement Income Security Act (ERISA) suit in November 2020, alleging the defendants cost the retirement plan and its participants millions when they overcharged the ESOP in a $242 million sale of company stock.

The ruling comes more than a year after oral arguments in which a three-judge federal appeals panel questioned whether individual arbitration could be forced on Dejesus Cedeno given a plan participant’s right to seek relief on behalf of a plan as a whole under ERISA Sections 409(a) and 502(a)(2). The majority decision held that arbitration could not be so compelled, writing: “Because Cedeno’s avenue for relief under ERISA is to seek a plan-wide remedy, and the specific terms of the arbitration agreement seek to prevent Cedeno from doing so, the agreement is unenforceable.” This decision addressed one of the most important issues in employee benefits litigation today: Whether ERISA plan sponsors can force employees to waive plan-wide relief in favor of individualized arbitration, thereby gutting participants’ ability to enforce the core private right of action ERISA affords. This victory for participant rights follows a victory by BG’s ERISA litigation team on the same issue before the Third Circuit in June 2023.

The Bailey Glasser team in this matter is comprised of partner and Practice Group Leader Gregory Porter and partner Ryan Jenny, both in Bailey Glasser’s Washington, D.C. office. Co-counsel in this case is Tillman J. Breckenridge, Peter K. Stris, Rachana A. Pathak, and John Stokes of Stris & Maher LLP.

To learn more about Gregory Porter, visit this link.

To learn more about Ryan Jenny, visit this link.

To learn more about our award-winning ERISA practice, visit here.

To read a Law 360 article about this win, visit this link.

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