*1 Before: LOHIER, MENASHI, and ROBINSON, Circuit Judges .
Defendants-Appellants Argent Trust Company, Ryan Sasson, Daniel Blumkin, Ian Behar, Strategic Financial Solutions, LLC, Duke Enterprises LLC, Twist Financial LLC, and Blaise Investments LLC appeal from an order of the District Court denying their motion to compel arbitration.
Plaintiff Ramon Dejesus Cedeno was an employee of Strategic Financial Solutions, LLC, and a participant in its Strategic Employee Stock Ownership *2 Plan, a defined contribution retirement plan. Argent, the trustee for the Plan, represented the Plan in the purchase of Strategic Family, Inc. from selling shareholders Sasson, Blumkin, Behar, and their wholly owned LLCs. Cedeno sued in the United States District Court for the Southern District of New York under the Employee Retirement Income Security Act (ERISA), alleging the transaction caused the Plan to incur substantial losses and that Argent breached fiduciary duties owed to Plan participants and beneficiaries under ERISA. Cedeno brought claims under ERISA Section 502(a)(2) on behalf of the Plan, and sought relief including restoration of Plan-wide losses, a surcharge, accounting, constructive trust on wrongfully held funds, disgorgement of profits from the transaction, and further equitable relief as the court deemed just.
Defendants moved to compel arbitration under the Federal Arbitration Act (FAA), pointing to a provision in the Plan’s governing document that required Plan participants to resolve any claims related to the Plan in arbitration, and specifically limiting the relief available in the arbitration proceeding to remedies impacting the participant’s own account and forbidding any relief that would benefit any other employee, participant, or beneficiary. The District Court (Koeltl, J .) denied the motion, reasoning that the agreement was unenforceable because it would prevent Cedeno from effectuating rights guaranteed by Congress through ERISA, namely, the plan-wide relief available under Section 502(a)(2) to enforce the rights established in ERISA Section 409(a). We agree that the arbitration provision is unenforceable because it would prevent Cedeno from pursuing the Plan-wide remedies Sections 409(a) and 502(a)(2) unequivocally provide. Accordingly, we AFFIRM the decision of the district court.
Judge Menashi dissents in a separate opinion.
P ETER K. S TRIS (Rachana A. Pathak, Douglas D. Geyser, John Stokes, Tillman J. Breckenridge, on the brief ), Stris & Maher LLP, Los Angeles, CA and Washington, D.C., for Plaintiff-Appellee . A LYSSA C. G EORGE (Seema Nanda, G. William Scott, Jeffrey M. Hahn, on the brief ), U.S. Department of Labor, Office *3 of the Solicitor, Washington, D.C., as Amicus Curiae in support of Plaintiff- Appellee.
S ARAH M. A DAMS (Lars C. Golumbic, Michael J. Prame, Paul J. Rinefierd, on the brief ), Groom Law Group, Chartered, Washington, D.C., for Defendant- Appellant Argent Trust Co . Jeremy P. Blumenfeld, Margaret M. McDowell, Jared R. Killeen, Antonia M. Moran, Michael E. Kenneally, Morgan, Lewis & Bockius LLP, Philadelphia, PA and Washington, D.C., for Defendants- Appellants Ryan Sasson, Daniel Blumkin, Ian Behar, Duke Enterprises LLC, Twist Financial LLC, Blaise Investments LLC, and Strategic Financial Solutions, LLC . Jennifer B. Dickey, U.S. Chamber Litigation Center, Washington, D.C., Andrew J. Pincus, Archis A. Parasharami, Daniel E. Jones, Erica A. White, Nancy G. Ross, Jed W. Glickstein, Washington, D.C. and Chicago, IL.
Mark D. Taticchi, Elizabeth M. Casey, Richard J. Pearl, Faegre Drinker Biddle & Reath LLP, Philadelphia, PA and Chicago, IL, for Amici Curiae the ESOP Association and the American Benefits Council in support of Defendants- Appellants.
ROBINSON, Circuit Judge:
This case requires us to consider the enforceability under the Federal Arbitration Act (FAA) of certain provisions in an arbitration agreement that limit the remedies an employee benefit plan participant or beneficiary can pursue under Section 502(a)(2) of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1132(a)(2). Sections 502(a)(2) and 409(a) of ERISA, 29 U.S.C. § 1109(a), allow employee benefit plan participants and beneficiaries to seek equitable relief on behalf of the plan against plan fiduciaries for various statutory violations and breaches of fiduciary duties, and do not include a distinct set of remedies directed solely at individuals. The provisions within the parties’ arbitration agreement at issue here, on the other hand, purport to limit participants or beneficiaries to seeking relief in arbitration solely for the benefit of their own individual plan accounts, and preclude relief that would benefit other account holders. At issue is whether those provisions are enforceable under the FAA.
Plaintiff-Appellee Ramon Dejesus Cedeno sued his former employer, Defendant-Appellant Strategic Financial Solutions, LLC, along with Defendant- Appellant Argent Trust Company—the trustee of his Strategic Employee Stock Ownership Plan (the “Plan”)—and the selling shareholders of Strategic Family, *5 Inc.: Defendants-Appellants Ryan Sasson, Daniel Blumkin, Ian Behar, and their wholly owned LLCs Duke Enterprises LLC, Twist Financial LLC, and Blaise Investments LLC (collectively “Defendants”). Cedeno’s primary allegation is that Argent breached fiduciary duties owed to the Plan in connection with the Plan’s purchase of shares of Strategic Family for more than fair market value. Cedeno’s complaint seeks several forms of relief under Section 502(a)(2) of ERISA, including restoration of Plan-wide losses, surcharge, accounting, constructive trust on wrongfully held funds, disgorgement of profits gained from the transaction, and further equitable relief as the court deems necessary.
Defendants moved to compel arbitration, citing a provision in the Plan’s governing document that required Plan participants to resolve any legal claims arising out of or relating to the Plan in individualized arbitration. Two provisions within the arbitration agreement explicitly limited any relief sought under Section 502(a)(2) of ERISA to the restoration of losses within the participant’s individual account, and they prohibited any relief that would benefit any other employee, participant, or beneficiary, or otherwise bind the Plan, its trustee, or administrators.
The United States District Court for the Southern District of New York (Koeltl, J .) denied the motion. See Cedeno v. Argent Trust Co. , No. 20-cv-9987, 2021 *6 WL 5087898 (S.D.N.Y. Nov. 2, 2021). The district court concluded that the agreement was unenforceable because it would prevent Cedeno from pursuing remedies under Section 502(a)(2) that were, by their nature, Plan-wide. For the reasons explained below, we agree with the district court that the contested provisions within the arbitration agreement are unenforceable because they amount to prospective waivers of participants’ substantive statutory rights and remedies under ERISA. Accordingly, we AFFIRM the district court’s denial of the Defendants’ motion to compel arbitration.
BACKGROUND
I. Facts [1]
Ramon Dejesus Cedeno worked as a senior customer service
representative at Strategic Financial Solutions, LLC—a financial services firm—
from 2016 to 2019. He has participated in the Plan since May 1, 2017, the date the
Plan was adopted. An employee stock ownership plan is “a type of pension plan
that invests primarily in the stock of the company that employs the plan
*7
participants.”
Fifth Third Bancorp v. Dudenhoeffer
,
This case arises from Defendants’ alleged violations of ERISA in connection with the management of the Plan and implicates several specific Plan provisions.
A. Defendants’ Alleged Breaches
Because the details of Defendants’ alleged breaches are ancillary to the issues in this appeal, we include only a general overview. Cedeno’s primary allegations under Sections 409(a) and 502(a)(2) are that Argent violated its fiduciary obligations under ERISA in connection with the Plan’s purchase of shares in Strategic Family (the “Transaction”).
The Transaction involved the following players. As noted above, Defendant Strategic Financial, LLC is a financial services firm that employed Cedeno and the Plan’s administrator. Strategic Family, Inc. is Strategic Financial’s parent company. It is a private company with no public market for its stock. Defendant Argent Trust Company is an investment management firm that was the trustee of the Plan through October 31, 2019, when it was replaced *8 as trustee. As trustee, it had “exclusive authority to manage and control the assets of the Plan and had sole and exclusive discretion to authorize and negotiate the . . . Transaction on the Plan’s behalf.” App’x 17. Defendants Ryan Sasson, Daniel Blumkin, and Ian Behar were selling shareholders in the Transaction via their wholly owned LLCs, Defendants Duke Enterprises LLC, Twist Financial LLC, and Blaise Investments LLC. These selling shareholders, who controlled Strategic Family at the time of the Transaction, retained control afterward by controlling the board of directors and holding leadership positions, including CEO, President, and Chief Sales Officer.
The Plan’s purchase of the Strategic Family shares was financed through notes payable by the Plan to the selling shareholders. Cedeno alleges that the Plan overpaid for the shares by well over one hundred million dollars, allowing the selling shareholders to “unload their interests in Strategic Family above fair market value . . . and saddle the Plan with tens of millions of dollars of debt.” App’x 14-15. As a result, the value of the Plan to its beneficiaries and participants, including Cedeno, suffered “substantial[ly].” App’x 31.
Argent, as trustee of the Plan, negotiated the Transaction. Cedeno alleges that Argent violated its fiduciary duties to Plan participants like him by causing the Plan to overpay for the Strategic Family shares. Argent allegedly accepted *9 unreasonably optimistic financial projections by Strategic Family; conducted poor due diligence; improperly included a control premium in valuing the shares rather than applying a control discount, even though the Plan did not assume control of Strategic Family upon its purchase of the company; and improperly approved a term that caused the Plan, subsequent to the initial purchase, to assume an additional obligation of over $100 million for the Strategic Family stock. Cedeno further alleges that Argent received fees from and an indemnification agreement with Strategic Family and Strategic Financial, and that these benefits provided a motive for Argent to accept an inflated value for Strategic Family’s shares.
B. The Plan
Several features of the Plan are relevant to the issues in this case. First, the Plan is a “defined contribution plan,” with a separate individual account for each participant. App’x 21. A defined contribution plan “promises the participant the value of an individual account at retirement, which is largely a function of the amounts contributed to that account and the investment performance of those contributions.” LaRue v. DeWolff, Boberg & Assocs., Inc. , 552 U.S. 248, 250 n.1 (2008). In contrast, a “defined benefit plan” “generally promises the participant a fixed level of retirement income, which is typically based on the *10 employee’s years of service and compensation.” Id. The defined contribution framework has overtaken the defined benefit paradigm as the more common type of employee retirement plan. See, e.g. , James F. Parker, Revival of Substantive Equity: Increased Household Risk, Safety Valve Litigation, and Availability of the Stock Drop Jury , 21 W ASH . & L EE J. OF C.R. & S OC . J UST . 425, 433 (2015) (citing Edward A. Zelinsky, The Defined Contribution Paradigm , 114 Y ALE L.J. 451, 471 (2004)).
The Plan, adopted in 2017, is governed by the terms of the Plan Document, subject to the requirements of ERISA. Section 17.10 of the Plan Document is titled “Mandatory and Binding Arbitration.” App’x 105. The relevant provisions of Section 17.10 are as follows:
(b) Any claim by a Claimant [2] (i) that arises out of, concerns or relates to the Plan or the Trust, including without limitation, any claim for benefits, (ii) asserting a breach of, or failure to follow, the Plan or Trust; or (iii) asserting a breach of, or failure to follow, any provision of ERISA . . . including without limitation claims for breach of fiduciary duty. . . (collectively, “Covered Claims”), shall be settled by binding arbitration . . . .
(f) All Covered Claims must be brought solely in the Claimant’s individual capacity and not in a representative capacity or on a class, collective, or group basis. Each arbitration shall be limited solely to one Claimant’s Covered Claims and that Claimant may not seek or receive any remedy that has the purpose or effect of providing *11 additional benefits or monetary or other relief to any Employee, Participant or Beneficiary other than the Claimant.
(g) If a Covered Claim is brought under ERISA section 502(a)(2) to seek relief under ERISA section 409, the Claimant’s remedy, if any, shall be limited to (i) the alleged losses to the Claimant’s Accounts resulting from the alleged breach of fiduciary duty, (ii) a pro-rated portion of any profits allegedly made by a fiduciary through the use of Plan assets where such pro-rated amount is intended to provide a remedy solely for the benefit of the Claimant’s accounts, or (iii) such other remedial or equitable relief as the arbitrator deems proper so long as such remedial or equitable relief does not include or result in the provision of additional benefits or monetary relief to any Employee, Participant or Beneficiary other than the Claimant, and is not binding on the Administrator or the Trustee with respect to any Employee, Participant or Beneficiary other than the Claimant.
App’x 105-06.
Additionally, Section 17.10(h) includes a non-severability clause which provides that if a court finds the requirements of Sections 17.10(f) or 17.10(g) “unenforceable or invalid, then the entire Arbitration Procedure shall be rendered null and void in all respects.” App’x 106.
II. District Court Proceedings
In 2020, Cedeno filed a class action complaint. In it, he alleged that Argent breached its fiduciary duties by causing the Plan to enter into the Transaction and pay more than fair market value for the Strategic Family shares. Among other provisions of ERISA, Cedeno brought claims for relief under Sections 409 *12 and 502(a)(2) based on Argent’s alleged breach of its fiduciary duties. He sought various forms of relief, including:
• A declaration that Argent breached its fiduciary duties to the Plan under ERISA;
• An order requiring that each Defendant found to have violated ERISA make good to the Plan the losses resulting from the breaches of ERISA and restore any profits made through use of the Plan assets; • An order requiring Defendants to provide “other appropriate equitable relief to the Plan and its participants and beneficiaries, including but not limited to surcharge, providing an accounting for profits, and imposing a constructive trust and/or equitable lien on any funds wrongfully held by Defendants;”
• An order requiring that Argent “disgorge any fees it received in conjunction with its services as Trustee for the Plan” in the Transaction in addition to any earnings or profits made; and • “[S]uch other and further relief as the Court deems equitable and just.” App’x 41-42.
Defendants moved to compel arbitration pursuant to the FAA. They
asserted that Cedeno was bound by the mandatory arbitration provision in
Section 17.10 of the Plan Document. Defendants specifically requested that the
district court compel arbitration “on an individual basis, rather than in a
representative capacity or class, collective, or group basis.” D. Ct. Dkt. No. 60
(Memorandum in Support of Motion to Compel) at 2. Defendants argued that
compelling individual arbitration would “not affect the remedy that [Cedeno]
could personally achieve under ERISA section 502(a)(2),” asserting that Cedeno
*13
could, in any event, recover losses only within his individual plan account.
See
id.
at 18-19 (citing
LaRue
,
The district court denied the Defendants’ motion to compel arbitration.
See Cedeno v. Argent Trust Co.
, No. 20-cv-9987,
DISCUSSION
We have appellate jurisdiction because the FAA “permits interlocutory
appeals from the denial of a motion to compel arbitration.”
Meyer v. Uber Techs.,
Inc.
,
On appeal, Defendants argue that the district court erred by not enforcing
the arbitration agreement. Specifically, they argue that the FAA “requires courts
to enforce arbitration agreements rigorously according to their terms,” including
agreements for individualized arbitration, and that the district court erred in
applying a “theoretical exception to the FAA” in concluding the arbitration
provision here would result in a prospective waiver of participants’ statutory
rights under ERISA. Appellant’s Br. at 16 (citing
Epic Sys. Corp. v. Lewis
, 138 S.
Ct. 1612, 1623 (2018)). They further argue that the district court “manufactured
a . . . conflict by misreading ERISA [Sections] 502(a)(2) and 409(a) as giving
participants an unwaivable right to pursue recovery on behalf of all other plan
participants as well as themselves,” and that because Section 502(a)(2) claims can
*15
be pursued on a “purely individualized basis,” a plan participant’s right to “seek
remedies on behalf of other participants’ accounts . . . is waivable.”
Id.
at 16-17
(citing
LaRue
,
We disagree. 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. [3] To explain our conclusion, we consider the Supreme Court’s guidance and our own caselaw concerning the reach of the FAA, controlling Supreme Court caselaw establishing the framework that applies to claims under Sections 409(a) and 502(a)(2) of *16 ERISA, and the application of these legal principles to the arbitration provisions at issue in this case.
I. The Federal Arbitration Act
Under the FAA, “[a] written provision in any . . . contract evidencing a
transaction involving commerce to settle by arbitration a controversy thereafter
arising out of such contract or transaction . . . shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the
revocation of any contract.” 9 U.S.C. § 2. The statute was enacted “in response
to widespread judicial hostility to arbitration.”
American Express Co. v. Italian
Colors Restaurant
,
A core concern of the FAA is protecting the enforceability of agreements to
vindicate substantive rights through an arbitral
forum
using arbitral
procedures
.
See, e.g.
,
Scherk v. Alberto-Culver Co.
,
The Supreme Court recently reemphasized that the FAA “does not require
courts to enforce contractual waivers of substantive rights and remedies” in
Viking River Cruises, Inc. v. Moriana
.
The FAA’s mandate is to enforce arbitration agreements . And as we have described it, an arbitration agreement is a specialized kind of forum- selection clause that posits not only the situs of suit but also the procedure to be used in resolving the dispute. An arbitration agreement thus does not alter or abridge substantive rights; it merely changes how those rights will be processed. And so we have said that by agreeing to arbitrate a statutory claim, a party does not forego the substantive rights afforded by the statute; it only submits to their resolution in an arbitral … forum. Id . (internal quotation marks, brackets, and citations omitted) (emphasis and alterations in original).
The Court also made it clear that the policy favoring enforcement of
agreements
to arbitrate
does not automatically extend to enforcement of
any
provision within an arbitration agreement.
Id
. at 1919 n.5. The Court explained
that the basis of the principle that the FAA does not mandate enforcement of
waivers of substantive rights is “that the FAA requires only the enforcement of
*18
‘provisions’ to settle a controversy ‘by arbitration,’ and not any provision that
happens to appear in a contract that features an arbitration clause.”
Id.
(internal
citation omitted);
see also Mitsubishi Motors
,
For that reason, terms in an arbitration agreement that have the effect of
prospectively waiving a party’s statutory remedies are not enforceable. As the
Court noted in considering an arbitration agreement in
Mitsubishi
, “[I]n the event
the choice-of-forum and choice-of-law clauses operated in tandem as a
prospective waiver of a party’s right to pursue statutory remedies for antitrust
violations, we would have little hesitation in condemning the agreement as
against public policy.”
Although the Supreme Court has never invalidated a provision in an
arbitration agreement on this basis, it has repeatedly recognized the general
principle that provisions within an arbitration agreement that prevent a party
from effectively vindicating statutory rights are not enforceable.
See, e.g.
,
Italian
Colors
,
This Court has recognized the effective vindication doctrine and applied it
to invalidate arbitration agreements that purport to waive enforcement of federal
statutory rights.
See, e.g.
,
Gingras v. Think Finance, Inc.
,
The lesson from these binding decisions—that courts will not enforce provisions in arbitration agreements that prevent a party from effectively vindicating their statutory rights and securing their statutory remedies— critically informs our analysis here.
II. ERISA Section 502(a)(2) Claims
At issue in this case is how this lesson applies to Cedeno’s claims under ERISA Section 502(a)(2). The text of the statute and two Supreme Court decisions establish a framework for our analysis and inform our conclusion that ERISA contemplates plan-wide remedies, and only plan-wide remedies, to address certain breaches of fiduciary duties by plan fiduciaries.
A. ERISA
ERISA Sections 409(a) and 502(a)(2) work in tandem to allow plan participants to bring civil actions against plan fiduciaries who breach their duties to the plan. Section 409(a), titled “Liability for breach of fiduciary duty,” provides:
Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.
29 U.S.C. § 1109(a) (emphases added). Section 502(a)(2), titled “Civil enforcement,” is essentially the enforcement mechanism of Section 409(a). It enables the Secretary of Labor or participants, beneficiaries, or fiduciaries of a *22 plan to bring civil actions to seek “appropriate relief” under Section 409. 29 U.S.C. § 1132(a)(2).
These two provisions together establish the vehicle for individual plan
participants to pursue claims based on a plan fiduciary’s breach of its duties
pursuant to Section 409(a). ERISA provides avenues for individual participants
to pursue claims for
other kinds
of violations by plan fiduciaries.
See, e.g.
, 29
U.S.C. § 1132(a)(1) (allowing civil actions by a participant or beneficiary to
recover benefits due under the plan, to enforce rights under terms of plan, to
clarify rights to future benefits under the plan, or to address plan administrator’s
refusal to supply certain information);
id.
§ 1132(a)(4) (allowing civil actions for
appropriate relief by the Secretary or a participant or beneficiary arising from
violations of plan’s statutory reporting obligations). But the Supreme Court has
repeatedly recognized that Section 502(a)(2) is the enforcement mechanism for
violations of Section 409(a).
See, e.g.
,
LaRue
,
B. Massachusetts Mutual Life Insurance Company v. Russell
The foundational case for purposes of the issue here is
Massachusetts
Mutual Life Insurance Company v. Russell
.
The Supreme Court disagreed, holding that although Section 502(a)(2)
authorized a beneficiary to bring an action against a fiduciary who violated
Section 409, any recovery for such an action “inures to the benefit of the plan as a
whole.”
Id.
at 140. Justice Stevens, writing for the Court, explained that the text
of Section 409 emphasized that the fiduciary was liable “to make good
to such
*24
plan
any losses
to the plan
. . . and to restore
to such plan
any profits of such
fiduciary which have been made through use of assets
of the plan
.”
Id.
at 140
(quoting 29 U.S.C. § 1109(a)) (alterations and emphases in original). Justice
Stevens continued, “[a] fair contextual reading of the statute makes it abundantly
clear that its [drafters] were primarily concerned with the possible misuse of plan
assets, and with remedies that would protect the entire plan, rather than with the
rights of an individual beneficiary.”
Id.
at 142. Thus, Russell could not use
Section 502(a)(2) to recoup her personal losses caused by the delayed processing
of her claim, because such losses would benefit her individually, and not the
entire plan.
See also Coan
,
C. LaRue v. DeWolff, Boberg & Associates, Inc.
One issue in this case is whether and to what extent the Supreme Court’s subsequent decision in LaRue casts doubt on the Court’s conclusion that Sections 502(a)(2) and 409(a) together establish a framework pursuant to which a plan participant aggrieved by a breach of duty by a plan fiduciary may seek remedies only on behalf of and for the plan .
In
LaRue
, the Supreme Court allowed a plaintiff to use a Section 502(a)(2)
claim to recover for losses sustained in his individual account within a defined
contribution plan.
Justice Stevens—again writing for the Court—held that he could, and that this result directly flowed from the rationale of Russell . Id. at 250. The Court explained that the misconduct LaRue alleged fell “squarely” within the category of breached fiduciary obligations to the plan addressed in Section 409(a), and thus that LaRue could pursue his claim under Section 502(a)(2). Id. at 253. The Court distinguished Russell , explaining that the plaintiff there had “received all the benefits to which she was contractually entitled, but sought consequential damages arising from a delay in the processing of her claim”—a remedy unavailable under Section 409(a) because such relief would not benefit the plan. Id. at 254. In short, a critical distinction between Russell and LaRue was that Russell did not allege a breach of fiduciary duties as defined in Section 409(a)— *26 that is, fiduciary duties “ with respect to a plan ”—but LaRue did. 29 U.S.C. § 1109(a) (emphasis added). Consequently, LaRue could pursue a claim through Section 502(a)(2), whereas Russell could not.
In its discussion, the
LaRue
court walked back some of the broad language
in
Russell
that suggested that the only violations cognizable under Section 409(a)
are those that impact the “entire plan.”
LaRue
,
Whether a fiduciary breach diminishes plan assets payable to all participants and beneficiaries, or only to persons tied to particular individual accounts, it creates the kind of harms that concerned the [drafters] of § 409. Consequently, our references to the “entire plan” in Russell , which accurately reflect the operation of § 409 in the defined benefit context, are beside the point in the defined contribution context.
Id . at 256. The Court reinforced its conclusion by pointing to other provisions of ERISA that indicate that fiduciaries can be liable for losses experienced only at the individual account level. Id. The Court then concluded: “We therefore hold that although § 502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries , that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account.” Id. (emphasis added).
The LaRue Court thus recognized that Section 409(a) protects against breaches of fiduciary duty involving the management of assets within defined contribution plans, whether the injury is felt at the plan level or directly at the individual account level , and that such breaches are thus actionable under Section 502(a)(2). But the Court also held firm to its conclusion in Russell that even in such cases, Section 502(a)(2) provides no remedy for “individual injuries distinct from plan injuries.” Id.
The dissent’s suggestion that LaRue in any way abrogated Russell ’s holding that section 502(a)(2) provides a remedy only for injuries to the plan , dissent at 8 and 15 n.14, is thus squarely at odds with the Supreme Court’s own holding. At most, LaRue recognized that Section 502(a)(2) provides a remedy for injuries to the plan that are felt only at an individual account level; the Court did not suggest that Section 502(a)(2) allows individualized relief for injuries that are felt at the plan level. [4]
We recently affirmed this view in a post-
LaRue
decision, explaining,
“Sections 502(a)(2) and 409, read together, mean that a plaintiff suing for breach
of fiduciary duty under [Section] 502(a)(2) . . .
may seek recovery only for injury done
to the wronged plan
.”
Cooper v. Ruane Cunniff & Goldfarb Inc.
,
III. Application
In light of this legal framework, we conclude that Sections 17.10(f) and (g) of the arbitration agreement, which waive Cedeno’s statutory remedies under Sections 409(a) and 502(a)(2), are unenforceable. We are not swayed by Defendants’ arguments to the contrary, and find support for our view in the persuasive decisions of sister circuits. Because these provisions within the arbitration agreement are unenforceable, and in light of the non-severability provision, we conclude that the arbitration agreement itself is unenforceable.
A. Enforceability of Sections 17.10(f) and (g)
On their face, Sections 17.10(f) and (g) prevent claimants like Cedeno from pursuing the substantive statutory remedies available to them under Sections 409(a) and 502(a)(2) of ERISA, leaving them without effective avenues for vindicating their substantive rights under Section 409(a). Because the provisions operate as a prospective waiver of claimants’ statutory rights and remedies, they are unenforceable.
Sections 17.10(f) and (g) prevent Cedeno from pursuing remedies on behalf of the Plan . In particular, Section 17.10(f) requires claimants like Cedeno to bring their claims solely in their “individual capacity and not in a representative capacity,” and prohibits them from seeking or receiving “any remedy that has the purpose or effect of providing additional benefits or monetary or other relief to any Employee, Participant or Beneficiary other than the Claimant.” App’x 105. Section 17.10(g) limits a claimant’s remedy to recovering for the alleged losses to the claimant’s accounts , a pro-rated portion of the profits allegedly made by a fiduciary through the use of Plan assets, and other remedial or equitable relief as long as it “does not include or result in the provision of additional benefits or monetary relief to any Employee, Participant, or Beneficiary other than the Claimant, and is not binding on the Administrator or the Trustee with respect to any Employee, Participant or Beneficiary other than the Claimant.” Id. at 105-06.
These restrictions effectively preclude Cedeno from pursuing the remedies
available to him under Section 502(a)(2) for Defendants’ violations of their
obligations under Section 409(a). As explained above, this Court recognized in
Russell
, and reaffirmed in
LaRue
, that the statutory remedies available to
claimants like Cedeno under Section 502(a)(2) run only to
the Plan
.
See
Section II,
*31
above. Though Section 409(a) codifies fiduciary duties that protect a plan as a
whole, as well as holders of individual accounts within the plan, the Section
502(a)(2) vehicle for enforcing Section 409(a) provides for only plan-wide
remedies.
Russell
,
And, for the reasons set forth above, if the provisions within the arbitration
agreement operate as a “prospective waiver of [Cedeno’s] right to pursue
statutory remedies” under Sections 409(a) and 502(a)(2), then it follows that they
are unenforceable.
Mitsubishi
,
B. Response to Defendants’ Arguments
Relying on a line of cases upholding provisions requiring individualized arbitration rather than proceedings in which claims are aggregated, Defendants argue that Cedeno has no unwaivable statutory right to pursue collective, as opposed to individualized, arbitration. They contend that ERISA contains no “clearly expressed congressional intention” to displace the FAA and create a right to engage in legal proceedings on a group basis. Appellant’s Br. at 26-35. *32 And they argue that, like the plaintiff in LaRue , Cedeno can effectively vindicate his statutory rights by pursuing individualized claims for relief that make him whole without impacting the rights of other participants and beneficiaries. Defendants’ arguments are unavailing.
1. Waivers of Collective-Action Procedures
Defendants argue that “[a] long series of Supreme Court rulings, involving
a variety of statutory rights, recognizes that agreements to waive the ability to
pursue claims in an aggregated manner—such as through a representative, class
or collective action—must be enforced under the FAA.” Appellant’s Br. at 24
(citing
Epic Systems v. Lewis
,
This argument misses the mark for at least two reasons. For one thing, Cedeno is not asserting a free-floating right to proceed through collective action for its own sake; he is asserting a right to pursue the full range of statutory remedies to enforce his substantive statutory rights under Section 409(a). Sections 17.10(f) and (g) do not simply take off the table the means to secure a claimant’s statutory rights and remedies through collective action, while leaving intact an *33 alternative path through individual arbitration. As we’ve explained, these provisions, if enforced, would leave claimants like Cedeno without any means of securing the full range of statutory remedies available to him.
That fact distinguishes this case from the line of authority Defendants rely
upon. For example, in
Epic Systems
, in the context of claims against employers
under the Fair Labor Standards Act, the Supreme Court upheld an arbitration
agreement that required “individualized arbitration.”
Defendants’ argument misses a second critical point: in considering the enforceability of provisions in arbitration agreements that prohibit “representational” arbitration of various sorts, the Supreme Court has not adopted a one-size-fits-all approach because not all “representational” arbitration is the same. The Court has recognized a qualitative difference between waivers of collective-action procedures like class actions, and waivers that preclude a party from arbitrating in a representational capacity on behalf of a single absent principal, a point it recently drove home in Viking River . See 596 U.S. at 656-58.
In
Viking River
, the Court considered whether, and to what extent, the FAA
preempts a California law that invalidates contractual waivers of the right to
assert representative claims as provided for in California’s Labor Code Private
Attorneys General Act of 2004 (PAGA).
Id.
at 643. In doing so, the Court
distinguished between two kinds of “representational” claims: those in which a
plaintiff is authorized by statute to act as an agent or proxy of a single
principal—the State, in the case of PAGA—and those in which a representative
plaintiff’s individual claims are a basis to “adjudicate claims of multiple parties
*35
at once, instead of in separate suits.”
Id.
at 654 (quoting
Shady Grove Orthopedic
Associates, P.A. v. Allstate Ins. Co.
,
The Court explained that in the latter category of representative claims, including class-action claims, “the changes brought about by the shift from bilateral arbitration to class-action arbitration are too fundamental to be imposed on parties without their consent.” Id. at 657 (citation and internal quotation marks omitted) (emphasis in original). But claims in which a single agent arbitrates in a representative capacity on behalf of a single principal are a different matter. The Court explained,
Nothing in the FAA establishes a categorical rule mandating enforcement of waivers of standing to assert claims on behalf of absent principals. Non-class representative actions in which a single agent litigates on behalf of a single principal are part of the basic architecture of much of substantive law. Familiar examples include shareholder-derivative suits, wrongful-death actions, trustee actions, and suits on behalf of infants or incompetent persons. Single-agent, single-principal suits of this kind necessarily deviate from the strict ideal of bilateral dispute resolution posited by Viking [River Cruises]. But we have never held that the FAA imposes a duty on States to render all forms of representative standing waivable by contract. Nor have we suggested that single-agent, single-principal representative suits are inconsistent [with] the norm of bilateral arbitration as our precedents conceive of it.
Id . at 641.
*36 The Court explained that in contrast to class-action arbitration, arbitration between one party and a single agent acting in a representative capacity on behalf of an absent principal does not involve a “degree of deviation from bilateral norms” that is “alien to traditional arbitral practice.” Id. at 658. Thus, PAGA’s restriction on the enforceability of waivers of representative capacity litigation on behalf of a single principal—namely, the State of California—was not preempted by the FAA. Id. at 662-63.
The aspect of PAGA that did run afoul of the FAA was the statute’s built-in mechanism of claim joinder, which allowed an aggrieved employee to use the Labor Code violations the employee personally suffered as a basis to join to the action any claims that could have been raised by the State in an enforcement proceeding, whether or not those claims were related to the aggrieved employee’s own grievances. Id. at 659. The Court reasoned that such a rule would leave parties to choose between an arbitration “in which the range of issues under consideration is determined by coercion rather than consent” and forgoing arbitration altogether. Id. at 661. To the extent that California law provided that PAGA actions could not be divided into individual and non- individual claims, the Court concluded that rule was preempted and Viking River Cruises was entitled to compel arbitration of the plaintiff’s individual *37 claims. Id. at 662. Having so concluded, and because PAGA provided no mechanism to enable a court to adjudicate non-individual claims once the individual claim has been sent to arbitration, the Court concluded that the non- individual claims should be dismissed. Id. at 663.
Although Viking River explored the reach of the FAA’s preemption of state laws prohibiting parties from waiving representational arbitration—a context distinct from this case—its core insight that from the perspective of the FAA there is a qualitative difference between arbitrating on behalf of an absent principal and arbitrating on behalf of a class of individuals is instructive. The line of cases upholding “individualized arbitration” provisions all deal with the latter scenario. This case involves the former.
The dissent’s challenges to the analogy between a plaintiff seeking relief
for the plan under Section 502(a)(2) for fiduciary breaches that violate Section
409(a) and specific other kinds of representative litigants miss the point. Dissent
at 10-11. The common thread is that, as in those other cases, a plaintiff seeking
relief under Section 502(a)(2) acts in a representative capacity seeking relief for a
single entity—the plan—as opposed to a collection of individuals. That an
individual must have a personal stake in the relief sought on behalf of the plan to
have Article III standing for a suit under Section 502(a)(2) does not mean the
*38
plaintiff therefore litigates in an individual capacity to recover for the plaintiff’s
own individual injuries rather than in a representative capacity to secure relief
for the plan. Dissent at 8-9 (citing
Thole v. U.S. Bank
,
2. Clear Statement of Congressional Intent *39 In arguing that ERISA contains no “clearly expressed Congressional intention” to prohibit agreements to engage in individualized arbitration, Appellant’s Br. at 29, Defendants likewise respond to an argument Cedeno has not made.
In Epic Systems , the Supreme Court considered an argument that the National Labor Relations Act (NLRA) overrides the FAA’s ordinary guidance that provisions in arbitration agreements, including provisions requiring individualized arbitration, should be enforced according to their terms. 138 S. Ct. at 1623-30. The Court explained that a party suggesting that two statutes cannot be harmonized, and that one displaces the other, “bears the heavy burden of showing a clearly expressed congressional intention that such a result should follow.” Id. at 1624 (internal quotation marks omitted). It discerned no such clearly expressed intent in the NLRA. Id. at 1624-27. Rather, the Court explained the NLRA was silent about any class or collective action procedures required in litigation or arbitration. Id. at 1628.
The problem for Defendants, and for the dissent, is that Cedeno does not argue that ERISA and the FAA conflict such that ERISA overrides the FAA. Instead, he argues that specific provisions in the arbitration agreement prevent him from vindicating statutory remedies provided by ERISA, making those *40 provisions unenforceable. See Appellee’s Br. at 13-15 (summarizing argument). As the Supreme Court explained in Italian Colors , after considering whether any clear congressional command required it to reject the contested waiver of class arbitration, “Our finding of no ‘contrary congressional command’ does not end the case.” Id. at 235. The Court went on to consider separately whether the waiver at issue prevented the aggrieved merchant from effectively vindicating its statutory rights. Id. at 235-38.
In short, Defendants’ contention that ERISA reflects “no clear
congressional intent” to displace the FAA with respect to matters involving
individualized arbitration is inapposite to Cedeno’s arguments and our analysis. 3. Cedeno’s Individualized Rights and Remedies
Finally, with respect to Defendants’ argument that
LaRue
suggests that
Cedeno
can
effectively vindicate his substantive rights if Sections 17.10(f) and (g)
are enforceable, we reiterate that
LaRue
reinforced, rather than undermined, the
Supreme Court’s holding in
Russell
that the remedies available under Section
502(a)(2) for fiduciary breaches that violate Section 409(a) inure to the benefit of
the plan
, thereby providing only indirect relief to individual plan participants and
beneficiaries.
See
Section II.C, above. In
LaRue
, the defendant’s alleged breach
under Section 409(a) caused a loss solely within LaRue’s individual account.
*41
Accordingly, the remedy available to him, while directed at the plan, impacted
only LaRue’s individual account within the plan.
Moreover, contrary to Defendants’ argument, Cedeno cannot vindicate his substantive statutory rights if Sections 17.10(f) and (g) are enforceable. Those provisions take the only available statutory vehicle for vindicating Cedeno’s rights under Section 409(a)—a suit under Section 502(a)(2) seeking remedies directed at the Plan—off the table. The alternative enforcement framework spelled out in the arbitration agreement, which contemplates relief directed solely at Cedeno’s account within the plan and allows recovery only of Cedeno’s pro rata shares of a fiduciary’s misbegotten gains, implicitly rests on the fiction that such a statutory enforcement mechanism exists. It doesn’t. Nothing in *42 Section 409(a) or 502(a)(2) allows a court or arbitral forum to slice and dice individual plan participants’ and beneficiaries’ injuries resulting from mismanagement by fiduciaries in the way Sections 17.10(g) and (f) suggest.
And even if there were a mechanism for making Cedeno financially whole
through adjustments only to his individual account within the Plan, contrary to
Defendants’ claims, there is no legal way to provide many of the equitable
remedies allowed by statute and sought by Cedeno without impacting the
accounts of other plan participants and beneficiaries or binding the Plan
Administrator and Trustee vis-à-vis other participants. In addition to seeking
restoration of
plan-wide losses
, Cedeno is also seeking relief that is by definition
plan-wide, including a surcharge, accounting for profits, the imposition of a
constructive trust on any funds wrongfully held by Defendants, and
disgorgement of fees, earnings, or profits Argent received from the Transaction.
These are plan-wide remedies that fall squarely within the scope of the relief
Sections 409(a) and 502(a)(2) make available to plan participants.
See
29 U.S.C. §
1109(a);
see also Munro
,
The dissent’s suggestion that Cedeno could, in fact, secure these kinds of plan-wide equitable relief in an individualized arbitration makes no sense. Dissent at 16-17. Echoing the Defendants, the dissent suggests that a plan participant like Cedeno could secure equitable relief such as replacement of the plan administrator (relief Cedeno does not seek in this case). But the Defendants argue (and the dissent suggests) that even an arbitral order for that relief would not be binding on the administrator or trustee “with respect to someone other than him.” Oral Argument Transcript at 4; see dissent at 17-18. Whether Defendants would be precluded from declining to replace the plan administrator in the context of challenges by other participants would be another question for another court on another day. Oral Argument Transcript at 7. But ERISA doesn’t contemplate different plan administrators for different participants within the same group; “plan administrator” is a unitary position. See 29 U.S.C. § 1002(16)(A) (defining the term “administrator” to mean “the person” specifically designated by the plan, “the plan sponsor” if no administrator is designated, or “such other person as the Secretary may by regulation prescribe”). Defendants’ position that Cedeno could secure through individual arbitration equitable relief *44 that is plan-wide in nature, but that is not binding on any other participant, is thus incoherent.
C. Sister Circuit Decisions
Our conclusion that the challenged provisions in the arbitration agreement operate as an impermissible prospective waiver of Cedeno’s substantive statutory rights is bolstered by three decisions from our sister circuits in closely analogous cases. Each case involved provisions in arbitration agreements seeking to compel individualized arbitration of Section 502(a)(2) claims and limiting the remedies available in such arbitrations. Two of those cases involved language nearly identical to the contested arbitration provisions here.
First, in
Smith v. Board of Directors of Triad Manufacturing, Inc.
, the Seventh
Circuit held that a nearly identical individual arbitration provision could not be
enforced because it would prevent a plaintiff from vindicating statutory rights
guaranteed by ERISA under Section 502(a)(2).
The
Smith
court, noting that the effective vindication doctrine applies
where “a provision in an arbitration provision forbid[s] the assertion of certain
statutory rights,” concluded that the arbitration provision at issue had done just
that.
Id.
at 621 (quoting
Italian Colors
,
Recall that Smith invokes § [502](a)(2)’s cause of action to seek relief for (alleged) fiduciary breaches under § [409](a). That relief, by statute, includes “such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.” Yet the plan’s arbitration provision, which also contains a class action waiver, precludes a participant from seeking or receiving relief that “has the purpose or effect of providing additional benefits or monetary or other relief to any Eligible Employee, Participant or Beneficiary other than the Claimant.” Removal of a fiduciary—a remedy expressly contemplated by § [409](a)—would go beyond just Smith and extend to the entire plan, falling exactly within the ambit of relief forbidden under the plan.
Id. at 621 (quoting 29 U.S.C. § 1109(a)). Thus, the arbitration provision acted as a waiver of Smith’s right to pursue statutory remedies, and the provision could not be enforced. Id. The Seventh Circuit rejected the defendants’ suggestion that it *46 must “harmonize” the FAA and ERISA in light of the strong federal policy favoring arbitration, observing, “the conflict in need of harmonization is not between the FAA and ERISA; it is between ERISA and the plan’s arbitration provision, which precludes certain remedies that [Sections 502(a)(2) and 409(a)] expressly permit.” Id. at 622-23.
It is true that Smith is distinguishable insofar as Cedeno does not seek removal of the plan fiduciary—Argent has already been replaced as the Plan’s trustee. But Cedeno seeks other forms of plan-wide relief that would either benefit other participants or bind the Plan’s administrator and trustee as to other participants, see App’x 41-42, so the reasoning in Smith is on point.
Similarly, in
Harrison v. Envision Management Holding, Inc.
, the Tenth
Circuit held a nearly identical provision within an arbitration agreement was
unenforceable when applied to a Section 502(a)(2) claim.
The Tenth Circuit upheld the district court’s denial of the defendants’ motion to compel arbitration. The court explained that the arbitration provision’s “prohibition on class or collective actions” standing alone did not invalidate the arbitration agreement, id. at 1106, but it concluded that the contested arbitration provision effectively prevented Harrison from vindicating many of the statutory remedies that he sought under [Section] 502(a)(2). Id. at 1101. The court further observed that it was “not clear what remedies Harrison would be left with” if the arbitration provision was enforced as written. Id. at 1107.
Finally, in Henry on behalf of BSC Ventures Holdings, Inc. Emp. Stock Ownership Plan v. Wilmington Tr. NA , the Third Circuit likewise declined to *48 enforce a provision in an arbitration agreement requiring individual arbitration where a plan participant sought plan-wide remedies under Section 502(a)(2). 72 F.4th 499, 505-07 (3d Cir. 2023).
These decisions of our sister circuits reinforce our conclusion that Sections 17.10(f) and (g) are unenforceable with respect to Cedeno’s Section 502(a)(2) claims. [6]
[6] The parties spend much time in their briefing sparring over the significance of a pair of Ninth Circuit cases—one published, one not—that seem to point in opposite directions as to the arbitrability of Section 502(a)(2) claims. Neither case relies on the principle that provisions preventing a party from effectively vindicating statutory rights and remedies are unenforceable, but the reasoning in these cases also supports our holding.
In
Munro v. University of Southern California
, the Ninth Circuit concluded that an
arbitration agreement could not be enforced as to a Section 502(a)(2) claim brought by plaintiffs
seeking to recover plan losses caused by alleged mismanagement of retirement savings plans.
In contrast, in Dorman v. Charles Schwab Corporation , the Ninth Circuit concluded that a district court erred in refusing to compel arbitration of a Section 502(a)(2) claim. 780 F. App’x 510, 512 (9th Cir. 2019). The arbitration provision at issue was within a plan document, and the Dorman court did not consider an argument invoking the effective vindication doctrine. See 780 F. App’x at 513-14 (finding arbitration agreement enforceable under the FAA because plan consented to arbitration based on plan document). Because it does not address the primary argument at issue here, Dorman is not persuasive.
CONCLUSION
For the reasons stated above, we conclude that Sections 17.10(f) and (g) are unenforceable. Section 17.10(h) of the Plan contains a non-severability clause providing that if a court finds the requirements of Sections 17.10(f) or 17.10(g) “unenforceable or invalid, then the entire Arbitration Procedure shall be rendered null and void in all respects.” App’x 106. Accordingly, we conclude the entire arbitration provision is null and void, and we AFFIRM the district court’s order denying the motion to compel arbitration.
21-2891
Cedeno v. Sasson
M ENASHI , Circuit Judge , dissenting:
The Federal Arbitration Act (“FAA”) provides that arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Through the FAA, Congress established “a liberal federal policy favoring arbitration agreements.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24 (1983). Nonetheless, parties who have agreed to arbitrate sometimes try to avoid arbitration later by “conjur[ing] conflicts between the Arbitration Act and other federal statutes.” Epic Sys. Corp. v. Lewis ,584 U.S. 497 , 516 (2018). The Supreme Court “has rejected every such effort to date.” Id. ; see id. at 502 (National Labor Relations Act); Am. Express Co. v. Italian Colors Rest. , 570 U.S. 228, 234 (2013) (Sherman Antitrust Act); Gilmer v. Interstate/Johnson Lane Corp. ,500 U.S. 20 , 27 (1991) (Age Discrimination in Employment Act).
And here we are again. This time, the purported conflict is with the Employee Retirement Income Security Act (“ERISA”). Petitioner Ramon DeJesus Cedeno argues that the arbitration clause in the documents governing his ERISA plan prevents him from effectively vindicating his statutory rights under Section 409(a) of ERISA, which makes plan fiduciaries liable for the mismanagement of plan assets. The arbitration clause prohibits Cedeno from bringing a claim in arbitration “in a representative capacity or on a class, collective, or group basis,” and it limits his relief under Section 409(a) to remedies that neither “result in the provision of additional benefits or monetary relief” to other plan participants nor bind the plan fiduciaries with respect to other participants. J. App’x 105-06. The court concludes that, because Cedeno’s only “avenue for relief under ERISA is to seek a plan-wide remedy, and the specific terms of the arbitration *51 agreement seek to prevent Cedeno from doing so, the agreement is unenforceable.” Ante at 15.
I disagree. Enforcing the arbitration agreement would not diminish Cedeno’s ability to vindicate his statutory rights. The court’s holding depends on its acceptance of Cedeno’s tendentious reading of ERISA. The Supreme Court has warned that “we must be alert to new devices and formulas” by which litigants seek to revive the old “judicial antagonism toward arbitration.” Epic Sys. , 584 U.S. at 509 (citing AT&T Mobility LLC v. Concepcion ,563 U.S. 333 , 342 (2011)). The manufactured conflict between ERISA and the arbitration clause here is just such a device. I would reject it, and therefore I dissent.
I
This is a straightforward case. The documents governing Cedeno’s ERISA plan provide that any claim for a breach of fiduciary duty is to be resolved through binding arbitration. The arbitration clause requires Cedeno to bring any claims “solely in [his] individual capacity and not in a representative capacity or on a class, collective or group basis,” and it limits him to the remedies that are necessary to redress his individual injuries. J. App’x 105-06. Cedeno nevertheless brought a lawsuit in federal court—a class-action lawsuit, no less—asserting a breach of fiduciary duty by Argent, the trustee of the plan. The district court should have granted the motion to compel arbitration.
When it enacted the FAA, Congress directed the courts to “respect and enforce” not only “agreements to arbitrate” but also “the parties’ chosen arbitration procedures.” Epic Sys. ,584 U.S. at 506 . We must respect the parties’ choice “to use individualized [arbitration] rather than class or collective action procedures.” Id. ; see also *52 Concepcion , 563 U.S. at 348 (“[C]lass arbitration, to the extent it is [imposed] rather than consensual, is inconsistent with the FAA.”). Had the district court respected and enforced the arbitration clause, Cedeno would have been able to seek whatever legal or equitable relief was necessary to make him whole; he simply would have been required to seek that relief in an individualized arbitration proceeding. The arbitration clause would have prohibited Cedeno from pursuing money damages on behalf of other plan participants, but the Supreme Court has repeatedly held that, pursuant to the FAA, parties may waive the right to pursue relief on behalf of others through class arbitration. See Epic Sys. ,584 U.S. at 506 ; Concepcion , 563 U.S. at 348. Under those precedents, the arbitration clause in this case is enforceable.
Cedeno, however, insists that there is a conflict with ERISA, and the court agrees. Section 502(a)(2) of ERISA provides that “[a] civil action may be brought … by the Secretary [of Labor], or by a participant, beneficiary or fiduciary for appropriate relief under” Section 409(a). 29 U.S.C. § 1132(a)(2). The court understands Sections 502(a)(2) and 409(a) to require Cedeno to act in a “representative capacity” on behalf of the plan itself and to seek a “plan-wide remedy” on its behalf, effectively making Cedeno a guardian ad litem for the plan (much as a shareholder would represent a corporation in a derivative suit). Ante at 24. [1] Because the arbitration clause prohibits Cedeno from asserting claims in a representative capacity, the court *53 concludes that, in this case, the FAA’s mandate to enforce arbitration agreements conflicts with ERISA, which purportedly does not allow Cedeno to make claims on his own behalf. [2] The court also interprets the arbitration clause to prohibit Cedeno from seeking relief that affects other plan participants in any way , including equitable relief contemplated by ERISA. The court therefore holds that the arbitration agreement is “not enforceable” because it “ha[s] the effect of prospectively waiving [Cedeno’s] statutory remedies.” Ante at 18. In reaching this conclusion, the court relies on “the ‘effective vindication’ exception,” a “judge-made exception to the FAA” that “originated as dictum in Mitsubishi Motors. ” Italian Colors , 570 U.S. at 235. [3] As today’s decision describes it, the effective vindication exception to the FAA means that “terms in an arbitration agreement *54 that have the effect of prospectively waiving a party’s statutory remedies are not enforceable.” Ante at 18. The court concludes that the arbitration clause prevents Cedeno from vindicating his statutory rights because it prohibits him from acting in a representative capacity on behalf of the plan, and it operates as a waiver of statutory remedies because it prohibits him from seeking equitable relief that would incidentally benefit other participants.
That is incorrect. Even assuming that there is an “effective vindication” exception to the FAA—notwithstanding that the Supreme Court has never applied it—the exception is not implicated here. A participant in a defined-contribution pension plan, such as Cedeno, may proceed under Sections 502(a)(2) and 409(a) to seek relief that benefits only his or her individual account within the plan. Requiring Cedeno to pursue relief in an arbitral forum does not alter that substantive right. The court ruminates over the abstract question of whether Sections 502(a)(2) and 409(a) of ERISA transform an individual claimant into a representative of the plan. ERISA does no such thing. But even if it did, nothing would prevent the claimant from waiving the right to bring a claim as the plan representative and agreeing to individualized arbitration. In the individualized procedure contemplated by the arbitration clause, Cedeno could obtain any legal or equitable remedy that is necessary to make him whole. Accordingly, I would reverse the district court’s denial of the motion to compel arbitration.
II
There are three problems with the court’s analysis. First, the effective vindication exception is a questionable principle of uncertain legal status. Second, neither Section 502(a)(2) nor Section 409(a) of ERISA requires Cedeno to act in a representative capacity on behalf *55 of the plan. To the contrary, an ERISA plaintiff represents his own individual interest. Third, the arbitration clause allows Cedeno to obtain any legal or equitable relief that is necessary to make him whole. There is no reason to interpret the clause to prohibit such relief, even if an equitable remedy would incidentally benefit other plan participants. Ultimately, there is no conflict between ERISA and the mandate of the FAA to enforce arbitration agreements.
A
While the Supreme Court has acknowledged the theoretical possibility of an effective vindication exception to the FAA, it has always declined to apply the exception whenever litigants have asked it to do so. See Italian Colors ,570 U.S. at 235-36 ; 14 Penn Plaza LLC v. Pyett , 556 U.S. 247, 273-74 (2009); Green Tree Fin. Corp.-Alabama v. Randolph ,531 U.S. 79 , 90-91 (2000); Gilmer ,500 U.S. at 28 ; Mitsubishi Motors ,473 U.S. at 636-37 . In his concurrence in Italian Colors , Justice Thomas observed that the purported exception conflicts with “the plain meaning of the Federal Arbitration Act.” 570 U.S. at 229 (Thomas, J., concurring). It does so because “the FAA requires that an agreement to arbitrate be enforced unless a party successfully challenges the formation of the arbitration agreement, such as by proving fraud or duress.” Id. (quoting Concepcion , 563 U.S. at 353 (Thomas, J., concurring)); see 9 U.S.C. § 2 (providing that an arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract”). And Justice Ginsburg concluded that the Court’s decision in Italian Colors meant that the effective vindication exception was no longer relevant. “Although the Court in Italian Colors did not expressly reject this ‘effective vindication’ principle,” she wrote, “the Court’s refusal to apply the principle in that case suggests that the *56 principle will no longer apply in any case.” DIRECTV, Inc. v. Imburgia ,577 U.S. 47 , 68 n.3 (2015) (Ginsburg, J., dissenting).
To be sure, the Supreme Court appears to have referenced the exception in a recent case. The Court stated that “the FAA does not require courts to enforce contractual waivers of substantive rights and remedies.” Viking River Cruises, Inc. v. Moriana , 596 U.S. 639, 653 (2022). But the Court emphasized that “[a]n arbitration agreement … does not alter or abridge substantive rights; it merely changes how those rights will be processed.” Id. (emphasis added). Thus, “by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral forum.” Id. (alterations omitted) (quoting Preston v. Ferrer , 552 U.S. 346, 359 (2008)). In this way, the Court clarified that an agreement to arbitrate, by itself, never involves an impermissible waiver of substantive rights. Rather, what had previously been described as the effective vindication “exception” really refers to the principle that “the FAA requires only the enforcement of provisions to settle a controversy by arbitration, and not any [substantive] provision that happens to appear in a contract that features an arbitration clause.” Id. at 653 n.5 (internal quotation marks, alteration, and citation omitted). In other words, a court must always enforce agreements to arbitrate; it may decline to enforce agreements that go beyond arbitration to alter substantive rights. Given this latest authoritative statement from the Supreme Court, we should pause before embracing the argument the court adopts today: that the agreement to proceed by individualized arbitration would itself so distort the statutory claim as to implicate the effective vindication exception. Cf. Estle v. IBM Corp. ,23 F.4th 210 , 214 (2d Cir. 2022) (“[C]ollective action, like arbitration, is a *57 ‘procedural mechanism,’ not a substantive right.”) (quoting Sutherland v. Ernst & Young LLP ,726 F.3d 290 , 297 n.6 (2d Cir. 2013)).
B
In this case, the effective vindication exception is a solution in search of a problem. Both the arbitration clause and ERISA afford Cedeno the right to seek remedies for harm to himself. Section 502(a)(2) authorizes Cedeno to seek “appropriate relief” for a breach of fiduciary duty. 29 U.S.C. § 1132(a)(2). Section 409(a) makes the fiduciary liable “to make good to such plan” any losses resulting from its breach and for any “other equitable or remedial relief” that a court “may deem appropriate.” 29 U.S.C. § 1109(a). While Section 409(a) establishes a fiduciary duty owed to the plan, it does not follow that the specific parties authorized to sue for breach of that duty—the Secretary of Labor or “a participant, beneficiary or fiduciary,” id. § 1132(a)(2)—must seek relief for the plan as a whole rather than to remedy their own distinct harms.
In fact, the Supreme Court has specifically held that a participant in a defined-contribution plan—such as Cedeno—may sue under Sections 502(a)(2) and 409(a) to recover losses to his own individual account, without any recovery for other accounts. See LaRue v. DeWolff, Boberg & Assocs. ,552 U.S. 248 , 256 (2008). [4] Even in *58 the defined-benefit context, the Court has held that a plan participant who sues under Section 502(a)(2) must establish his own concrete “injury in fact.” Thole v. U.S. Bank N.A .,590 U.S. 538 , 543 (2020). Plan participants do not have “standing as representatives of the plan.” Id. [5] They must seek recovery for their own injuries. If ERISA prohibited a participant from seeking to remedy his own distinct injuries, this requirement would make little sense.
As the court notes, there are established forms of “[n]on-class representative actions in which a single agent litigates on behalf of a single principal,” such as a shareholder derivative suit, a trustee’s suit on behalf of a trust, or an action by a guardian ad litem . Ante at 35 (quoting Viking River Cruises , 596 U.S. at 657). Many representative actions are recognized by statutes or procedural rules. [6] Others, such as trustee actions against third parties for injuries to the trust or trust property, are recognized by the common law. [7] But an ERISA suit is not a representative action. ERISA does not authorize, much less require, an action in a representative capacity on behalf of the plan. … authorizes defined contribution plan participants to recover losses from their individual accounts using § 502(a)(2) of ERISA. That is exactly what Plaintiff is allowed to do under the Plan.”).
[5] The dissenters in Thole argued that plan participants should be able to maintain a “representational suit” to “sue on their plan’s behalf.” Thole , 590 U.S. at 564-65 (Sotomayor, J., dissenting). But that view did not prevail. [6] See, e.g. , Fed. R. Civ. P. 23.1 (shareholder derivative suit); N.Y. C.P.L.R. § 1202 (guardian ad litem ); Cal. Lab. Code § 2698 et seq. (California Labor Code Private Attorneys General Act of 2004).
[7] See Restatement (Third) of Trusts § 107 cmt. b (Am. L. Inst. 2012) (“As holder of the title to trust property … [and] representative of the trust and its beneficiaries, the trustee is normally the appropriate person to bring … an action against a third party on behalf of the trust.”).
See Thole , 590 U.S. at 543-44 (explaining that participants have not “been legally or contractually appointed to represent the plan” and cannot “assert standing as representatives of the plan itself” but must seek recovery for individual injuries in fact). To the contrary, LaRue and Thole make clear that an ERISA plaintiff sues in his own individual capacity to recover for his own injuries. Courts should be “‘reluctant to tamper with the enforcement scheme’ embodied in the statute by extending remedies not specifically authorized by its text,” Great-West Life & Annuity Ins. Co. v. Knudson ,534 U.S. 204 , 209 (2002) (quoting Mass. Mut. Life Ins. Co. v. Russell ,473 U.S. 134 , 147 (1985)), and the notion that Cedeno must recover only plan-wide remedies is such an extension.
This lawsuit does not resemble any of the traditional types of representative actions that the court references. A trustee, for example, may sue on behalf of a trust. But here, Cedeno is not the trustee of the plan; at the time of the alleged misconduct, Argent was the trustee, and Cedeno is suing Argent. Cedeno is effectively a trust beneficiary, not a trustee, and a trust beneficiary sues a trustee for breach of trust in his individual capacity as a beneficiary; he does not do so on behalf of the trust. [8] That is true even when the beneficiary seeks equitable remedies that affect the administration of the trust. [9] *60 The shareholder derivative suit is not an apt analogy either. The Supreme Court has explained that “the term ‘derivative action’ … has long been understood to apply only to those actions in which the right claimed by the shareholder is one the corporation could itself have enforced in court.” Daily Income Fund, Inc. v. Fox , 464 U.S. 523, 529 (1984). Therefore, “[b]ecause ERISA plans cannot bring suit against fiduciaries on the plans’ own behalf under section 502, the lawsuits of individual participants are not derivative.” Coan v. Kaufman , 457 F.3d 250, 258 (2d Cir. 2006). [10] The derivative suit originated as an equitable remedy that allowed individual shareholders, who lacked standing to bring an action at law, to assert a cause of action that properly belonged to the corporation. See Ross v. Bernhard , 396 U.S. 531, 534 (1970). Unlike a shareholder, a participant in an ERISA plan has individual rights as a plan participant. In a defined contribution plan, for example, a participant has the right to direct the management of the assets in his individual account. [11] A participant in an ERISA plan does not resemble a shareholder.
to account,” “directing the trustee to administer the trust” in accordance with “the terms of the trust or the powers and duties of the trusteeship,” “enjoining the trustee to take or refrain from taking certain action(s) or otherwise to avoid committing a breach of trust,” and “removing the trustee”).
[10] See also Pressroom Unions-Printers League Income Sec. Fund v. Cont’l Assurance Co. , 700 F.2d 889, 893 (2d Cir. 1983) (“In light of the frequent references in the Act and its legislative history to ‘participants, beneficiaries and fiduciaries,’ th[e] conclusion [that the plan itself may sue] is untenable.”) (citations omitted).
[11] The plan in this case is an Employee Stock Ownership Plan (“ESOP”), not a traditional 401(k) plan. As an ESOP, the plan “was designed to invest primarily in the employer securities of Strategic Family,” and its principal *61 I recognize that the Supreme Court stated in dicta about forty years ago that the “[i]nclusion of the Secretary of Labor [in Section 502(a)(2)] is indicative of Congress’ intent that actions for breach of fiduciary duty be brought in a representative capacity on behalf of the plan as a whole.” Russell ,473 U.S. at 142 n.9. But the Court clarified in LaRue that its “references to the ‘entire plan’ in Russell , which accurately reflect the operation of § 409 in the defined benefit context, are beside the point in the defined contribution context.” LaRue , 552 U.S. at 256. The “entire plan” language in Russell described the “kind of harms that concerned the draftsmen of § 409”—namely, “[m]isconduct by the administrators of a defined benefit plan … [that] creates or enhances the risk of default by the entire plan.” Id. at 255- 56. “For defined contribution plans, however, fiduciary misconduct need not threaten the solvency of the entire plan” to create the kind of injury that Section 409(a) was intended to remedy. Id. at 255. The lesson of Russell , which the Court clarified and reaffirmed in LaRue , is that Section 502(a)(2) “does not provide a remedy for individual injuries distinct from plan injuries .” Id. at 256 (emphasis asset was Strategic Family’s stock. J. App’x 20-21. In general, the beneficiaries could not choose how the plan would invest its assets. Id. at 17 (“As Trustee, Argent had exclusive authority to manage and control the assets of the Plan.”). However, the participants in the plan had some discretionary rights. For example, participants who were still employed, were over 55 years old, and had participated in the plan for at least ten years could “elect to diversify a portion of [their] ESOP Stock Accounts” by receiving a cash distribution equal to a portion of the value of the stock in their accounts and investing the cash in other assets. Id. at 225. By contrast, a shareholder cannot compel the corporation to make a distribution to him. See 11 Fletcher Cyclopedia of the Law of Corporations § 5321 (September 2023 update) (“The shareholders have no legal right to share in the corporation’s profits unless the directors declare a dividend … [and] cannot compel the declaration of dividends by agreement.”).
added). In Russell , the plaintiff sought damages resulting from the plan’s improper delay in processing her claim and paying her the benefits to which she was entitled.473 U.S. at 136 . She alleged that the delay “forced [her] disabled husband to cash out her retirement savings which, in turn, aggravated the psychological condition that caused [her] back ailment.” Id. at 137. The Court decided that Section 502(a)(2) does not provide a cause of action to remedy injuries unrelated to the administration of the plan. See id. at 142-43 (“[T]he principal statutory duties imposed on the trustees relate to the proper management, administration, and investment of fund assets, the maintenance of proper records, the disclosure of specified information, and the avoidance of conflicts of interest.”).
But Section 502(a)(2) “ does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account” because such an individual injury is not “distinct” from an injury to the plan. LaRue ,552 U.S. at 256 (emphasis added); see also id. at 262-63 (Thomas, J., concurring in the judgment) (“Because a defined contribution plan is essentially the sum of its parts, losses attributable to the account of an individual participant are necessarily ‘losses to the plan’ for purposes of § 409(a).”). If a participant can seek relief for his own individual injuries, ERISA does not prevent him from agreeing to arbitrate his claims on an individualized basis.
Russell
’s “representative capacity” language, like its references
to the “entire plan,” similarly reflected the distinction between
injuries unrelated to plan administration, on the one hand, and
injuries resulting from such administration, on the other. The very
next sentence of footnote 9 in
Russell
explains that “the common
interest shared by all four classes [of plaintiffs named in Section
502(a)(2)] is in the financial integrity of the plan.”
Even Cedeno does not really believe that. Cedeno brought this lawsuit as a class action under Rule 23, not as a representative suit on behalf of the plan as an entity. [12] A class action involves the aggregation of individual claims, not a single claim brought by a representative on behalf of a single principal. See Fed. R. Civ. P. 23(b) (providing that “[a] class action may be maintained” if, inter alia , “prosecuting separate actions by … individual class members” risks inconsistent adjudications or unfair prejudice to nonparty class members) (emphasis added). [13] No one disputes that the FAA *64 requires a court to enforce a class-action waiver in an arbitration agreement. See Concepcion , 563 U.S. at 344. Cedeno’s recharacterization of his attempted class action as a single-principal representative-capacity suit allows him to evade this rule. And the court, by excusing Cedeno from his arbitration agreement and allowing him to proceed in a “representative capacity,” has authorized an ersatz class action that lacks the “procedural safeguards” we would require if Cedeno were proceeding under Rule 23. Coan ,457 F.3d at 261 . [14]
In fact, Cedeno was right the first time. Because a plan participant proceeds under Section 502(a)(2) in an individual capacity, his claim can be aggregated with similar actions by other individual plan participants under Rule 23. Cedeno’s arbitration agreement preserves his right to pursue his individual claim, but he must pursue it in the arbitral forum. ERISA does not authorize a “representative capacity” action that allows Cedeno to avoid both the requirements of Rule 23 and his own agreement to arbitrate his claim.
C
Beyond its representative-capacity theory, the court worries that “there is no legal way to provide many of the equitable remedies allowed by statute and sought by Cedeno without impacting the accounts of other plan participants and beneficiaries or binding the Plan Administrator and Trustee vis-à-vis other participants.” Ante at 42. The court assumes that the arbitration clause prohibits the award to Cedeno of any relief with a “plan-wide” effect, “including a surcharge, accounting for profits, the imposition of a constructive trust on any funds wrongfully held by Defendants, and disgorgement of fees, earnings, or profits.” Id.
But Cedeno has not shown— and the defendants deny —that any equitable relief available under ERISA would be unavailable to Cedeno in an individualized arbitration. The defendants maintain that the arbitration clause “does not limit Plaintiff’s ability to seek any equitable remedies to which he may be entitled on his own behalf.” Reply Br. 17. And the defendants agreed at oral argument that “if removal of the fiduciary [or other equitable relief] is necessary to make Mr. Cedeno whole, to provide him a remedy for his own harm, … [it is] available in arbitration.” Oral Argument Transcript at 4-5. In the defendants’ view, the arbitration agreement “only prohibits providing money to other people.” Id. at 5. It does not prevent Cedeno from seeking any equitable relief that may be necessary to make him whole and thereby to vindicate his statutory rights—even if that equitable relief has an impact on other plan participants. [15] This is the *66 most sensible reading of the contractual language. There is no reason to conclude that any form of relief ERISA envisions would be categorically denied to Cedeno in arbitration.
The court insists that it is “incoherent” to say that Cedeno could obtain equitable relief that affects the plan and yet that the order providing such relief would not bind the plan administrator or trustee in proceedings with other plan participants. Ante at 44. But that is how equitable remedies work. If a litigant obtains an injunction requiring her employer to discontinue a discriminatory employment practice, for example, the injunction will affect other employees. But the employer may still argue, in a separate lawsuit by a different employee, that the second employee is not entitled to the same remedy. [16] The individualized arbitration process required in this remedies, such as removal of a fiduciary, that would benefit other participants”).
[16] See, e.g. , Martin v. Wilks ,490 U.S. 755 , 762 (1989) (“A judgment or decree among parties to a lawsuit resolves issues as among them, but it does not conclude the rights of strangers to those proceedings.”); 18A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 4464.1 (3d ed.) (“[N]onmutual claim preclusion continues to be denied in decisions that probably reflect a general assumption that it is not ordinarily available.”). The employer is not even necessarily precluded from arguing in the second lawsuit that the employment practice is not discriminatory. See 18A Wright, Miller & Kane, supra , § 4465 (“Nonmutual issue preclusion is not available as a matter of right.”); see also Parklane Hosiery Co., Inc. v. Shore , 439 U.S. 322, 331 (1979) (explaining that “a trial judge should not allow the use of offensive collateral estoppel” when the “plaintiff could easily have joined in the earlier action” or when “the application of offensive estoppel would be unfair to a defendant”).
case parallels this familiar process of case-by-case adjudication. The court’s idiosyncratic view of equitable relief, by contrast, is novel. [17] Even if it were uncertain that Cedeno could obtain equitable relief in arbitration that affects other plan participants, that would not be enough to affirm the judgment in this case. The Supreme Court has told us that “the proper course is to compel arbitration” when it is possible that the arbitration agreement might impermissibly limit a plaintiff’s remedies but “we do not know how the arbitrator will construe the remedial limitations.” PacifiCare Health Sys., Inc. v. Book , 538 U.S. 401, 407 (2003). “[W]e should not, on the basis of ‘mere speculation’ that an arbitrator might interpret these ambiguous agreements in a manner that casts their enforceability into doubt, take upon ourselves the authority to decide the antecedent question of how the ambiguity is to be resolved.” Id. at 406-07 (quoting Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer ,515 U.S. 528 , 541 (1995)). That approach is consistent with the longstanding “federal policy to construe liberally arbitration clauses … and to resolve doubts in favor of arbitration.” Metro Indus. Painting Corp. v. Terminal Constr. Co. , *68287 F.2d 382 , 385 (2d Cir. 1961); see also PacifiCare ,538 U.S. at 407 n.2 (“Given our presumption in favor of arbitration, we think the preliminary question whether the remedial limitations at issue here prohibit an award of [remedies available under the statute] is not a question of arbitrability.”).
Because it is ambiguous—at the very least—whether the arbitration agreement prevents Cedeno from seeking equitable relief with plan-wide consequences, the “proper course” would be to compel arbitration despite Cedeno’s speculation that the arbitrator might construe the agreement in a way that would call its enforceability into question. PacifiCare ,538 U.S. at 407 .
The case that originated the effective vindication exception,
Mitsubishi Motors
, involved a similar situation. In that case, the
parties’ contract provided for arbitration in Japan and specified that
Swiss law would govern the contract. The United States, as amicus
curiae, suggested that if the court compelled arbitration, the Japanese
arbitrator might read the choice-of-law clause “not simply to govern
interpretation of the contract terms, but wholly to displace American
law”—in particular, the Sherman Antitrust Act—“even where it
would otherwise apply.”
III
Even if the court were correct that a plaintiff proceeding under Section 502(a)(2) is a representative of the plan—and that the arbitration clause prohibits Cedeno from acting in that capacity—the district court still erred in refusing to compel arbitration. Pursuant to the purported effective vindication exception, “the FAA does not require courts to enforce contractual waivers of substantive rights and remedies.” Viking River Cruises ,596 U.S. at 653 . Thus, for example, a party cannot waive the right to bring a claim if his civil rights have been violated. See 14 Penn Plaza , 556 U.S. at 273 (“[A] substantive waiver of federally protected civil rights will not be upheld.”). In this case, however, Cedeno does not argue that he has waived any of his substantive rights. Rather, he argues—and the court agrees—that because he agreed to arbitrate on an individual basis, he has waived the right to bring a claim on behalf of the plan to vindicate its substantive rights. But the effective vindication exception does not prevent such a waiver.
To the extent that the court relies on Viking River Cruises for the proposition that the FAA does not allow parties to waive the right to bring a representative-capacity claim on behalf of another individual or entity, that reliance is misplaced. In Viking River Cruises , the Court *70 considered whether the FAA conflicted with a California statute that gave individual citizens a non-waivable right to bring civil actions as private attorneys general on behalf of the state. In holding that the California law and the FAA did not conflict, the Court noted that “[n]on-class representative actions in which a single agent litigates on behalf of a single principal”—such as “shareholder-derivative suits, wrongful-death actions, trustee actions, and suits on behalf of infants or incompetent persons”—form “part of the basic architecture of much of substantive law.”596 U.S. at 657 . The Court held that such actions are not “inconsistent [with] the norm of bilateral arbitration” in the same way that class actions are. Id. For that reason, California could prohibit contractual waivers of “representative standing” in this context without impermissibly interfering with contracting parties’ ability to choose the comparatively informal and efficient procedure of bilateral arbitration. Id.
But the fact that states have the authority to ban waivers of representative standing does not mean that a federal court—on its own initiative and in the absence of any statutory ban—may itself decide to prohibit such waivers by refusing to enforce arbitration agreements.
* * *
The district court should have compelled arbitration because the effective vindication exception—assuming it exists—is inapplicable. The court’s opinion cannot be reconciled with our obligation to enforce an arbitration agreement according to its terms and to avoid finding conflicts between the FAA and other federal statutes when possible. I dissent.
Notes
[1] The facts are drawn from the record before the district court when it adjudicated the
Defendants’ motion to compel arbitration, chiefly Cedeno’s complaint and the exhibits to the
Defendants’ motion.
See Nicosia v. Amazon.com, Inc.
,
[2] A “claimant” under the Plan is defined as a “Participant, Beneficiary, or any other person” who claims entitlement to benefits under the Plan or has unresolved questions about benefits under the Plan. App’x 104.
[3] We briefly note what is
not
in dispute on this appeal. Defendants do not dispute the Plan is
subject to ERISA, that Argent is a plan fiduciary under ERISA, and that Cedeno is a plan
participant for purposes of ERISA and therefore can properly bring a Section 502(a)(2) claim.
Nor do Defendants dispute that the relief Cedeno seeks is available under Section 502(a)(2).
Cedeno does not dispute that the arbitration agreement applies to the claims he brings against
the Defendants. He contends only that the challenged provisions are unenforceable. Nor does
Cedeno contend that mandatory binding arbitration provisions cannot be enforced with respect
to ERISA claims in general; this Court has long held that ERISA claims for breach of fiduciary
duty may be remanded to arbitration.
See Bird v. Shearson Lehman/Am. Exp., Inc.
,
[4] Defendants’ alleged breach of fiduciary duties here had plan-wide impact; in contrast to LaRue , the impact of the breach was not felt only at the individual account level. The Plan’s purchase of Strategic Family shares at above-market rates, saddling the Plan with millions of dollars of debt, allegedly undermined the value of the Plan “to the substantial detriment of the Plan and its participants and beneficiaries,” including Cedeno. App’x 31.
[5] Harrison was issued after briefing and argument in this case, but the parties addressed its impact in Rule 28(j) letters before this Court.
[1] See Miller v. Brightstar Asia, Ltd. ,43 F.4th 112 , 122 (2d Cir. 2022) (explaining that, in a derivative suit, “the plaintiff-shareholder does not sue for his own direct benefit or in his own direct right but rather as a guardian ad litem for the corporation”) (quoting Harry G. Henn, Handbook of the Law of Corporations and Other Business Enterprises 560 (1961)).
[2] The court insists that the relevant conflict is “not between the FAA and
ERISA” but “between ERISA and the plan’s arbitration provision.”
Ante
at
46 (quoting
Smith v. Bd. of Dirs. of Triad Mfg.
,
[3] The Supreme Court in Mitsubishi Motors remarked that if an arbitration agreement “operated … as a prospective waiver of a party’s right to pursue statutory remedies, we would have little hesitation in condemning the agreement as against public policy.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. ,473 U.S. 614 , 637 n.19 (1985). However, “so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function,” and public policy would not prevent the enforcement of the arbitration agreement. Id. at 637.
[4] See also Dorman v. Charles Schwab Corp. , 780 F. App’x 510, 514 (9th Cir. 2019) (explaining that “the Supreme Court has recognized that [Section 502(a)(2)] claims are inherently individualized when brought in the context of a defined contribution plan” and that “ LaRue stands for the proposition that a defined contribution plan participant can bring a 502(a)(2) claim for the plan losses in her own individual account”); Robertson v. Argent Tr. Co. , No. CV-21-01711,2022 WL 2967710 , at *10 (D. Ariz. July 27, 2022) (“ LaRue
[8] See Restatement (Third) of Trusts § 94 (“A suit against a trustee … to enjoin or redress a breach of trust … may be maintained only by a beneficiary or by a co-trustee, successor trustee, or other person acting on behalf of one or more beneficiaries .”) (emphasis added); id. § 94 cmt. b (“A suit to enforce a private trust ordinarily … may be maintained by any beneficiary whose rights are or may be adversely affected by the matter(s) at issue.”).
[9] See Restatement (Third) of Trusts § 95 cmt. c (explaining that equitable remedies available in a suit by the beneficiary include “ordering the trustee
[12] The court asserts that this lawsuit “is not actually a class action.” Ante at 38. That would appear to be news to Cedeno, who stated in his complaint that he “brings this action as a class action pursuant to Fed. R. Civ. P. 23(a) and (b), on behalf of the following class: All participants in the Strategic ESOP (the ‘Plan’) and the beneficiaries of such participants as of the date of the December 28, 2017 ESOP Transaction or anytime thereafter.” J. App’x 38.
[13] By contrast, an established representative-capacity action on behalf of a single principal, such as a shareholder derivative action, cannot be brought as a class action. See F5 Capital v. Pappas , 856 F.3d 61, 76 (2d Cir. 2017) (holding that the shareholder plaintiffs’ equity-dilution claim “ may not proceed as a class action because the claim belongs to [the corporation], not its shareholders”) (emphasis added); see also Anwar v. Fairfield Greenwich Ltd. , 676 F. Supp. 2d 285, 297 (S.D.N.Y. 2009) (holding that shareholder derivative suits are not “mass actions” under the Class Action Fairness Act because “[a] derivative suit is neither a claim by multiple plaintiffs consolidated by State court rules, nor a class action in disguise”) (internal quotation marks omitted).
[14] In Coan v. Kaufman , we held that summary judgment was appropriate when an ERISA plaintiff had failed to take procedural steps to ensure that she “represent[ed] adequately the interests of other plan participants” and thus “properly proceeded in a representative capacity as required by section 502(a)(2).” 457 F.3d at 262. Coan predated the Supreme Court’s decisions in LaRue and Thole , and to the extent that it holds a defined contribution plan participant must proceed in a representative capacity and seek plan-wide relief, it is no longer good law. However, to the extent that an ERISA plaintiff chooses to seek class-wide relief, he should proceed under Rule 23 or join necessary parties under Rule 19, as Coan suggested. See id. at 261.
[15] See Robertson ,2022 WL 2967710 , at *10 (explaining that “invocation of the effective vindication doctrine is misplaced” when an arbitration clause requiring individualized arbitration of fiduciary duty claims under ERISA does not “preclude[] an individual participant from pursuing equitable
[17] See United States v. Texas ,599 U.S. 670 , 693 (2023) (Gorsuch, J., concurring in the judgment) (“Traditionally, when a federal court finds a remedy merited, it provides party-specific relief, directing the defendant to take or not take some action relative to the plaintiff. If the court’s remedial order affects nonparties, it does so only incidentally.”); Trump v. Hawaii , 585 U.S. 667, 717 (2018) (Thomas, J., concurring) (“[A]s a general rule, American courts of equity did not provide relief beyond the parties to the case. If their injunctions advantaged nonparties, that benefit was merely incidental. … While [some] injunctions benefited third parties, that benefit was merely a consequence of providing relief to the plaintiff.”); Samuel L. Bray, Multiple Chancellors: Reforming the National Injunction , 131 Harv. L. Rev. 417, 420 (2017) (noting that the “American practice was that an injunction would restrain the defendant’s conduct vis-à-vis the plaintiff, not vis-à-vis the world”).
[18] For these reasons, the decisions of other courts that arbitration agreements should be invalidated because similarly ambiguous language “prohibits relief that ERISA expressly permits” are not persuasive. Smith , 13 F.4th at 615; see also Henry ex rel. BSC Ventures Hldgs., Inc. Emp. Stock Ownership Plan v. Wilmington Tr. NA , 72 F.4th 499, 508 (3d Cir. 2023); Harrison v. Envision Mgmt. Hldg., Inc. ,59 F.4th 1090 , 1109 (10th Cir. 2023).