WALTER H. RICE, District Judge.
Plaintiff Wilma Brown, on behalf of the Henny Penny Corporation Employee Stock Ownership Plan (the "Plan" or "ESOP"), and on behalf of a class of all other persons similarly situated, filed suit against Wilmington Trust, N.A. ("Wilmington Trust"), as successor to Wilmington Trust Retirement and Institutional Services Company, which was the Plan's trustee in 2014 when the Plan acquired shares of the Henny Penny Corporation. Plaintiff alleges that Wilmington Trust engaged in prohibited transactions and paid more than fair market value for the stock, causing losses to the Plan and its participants. Brown seeks declaratory and injunctive relief under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 U.S.C. §§ 1106, 1109, and 1132(a), as well as damages for losses suffered by the Plan.
This matter is currently before the Court on two pending motions: (1) Motion of Henny Penny Corporation to Compel Individual Arbitration and to Strike Any Claims Purportedly Brought on a Class or Representative Basis (Doc. #13)
Henny Penny Corporation ("Henny Penny") manufactures foodservice equipment. It was owned by the Cobb family until December 30, 2014, when the corporation sold all of its stock to the Henny Penny Corporation Employee Stock Ownership Plan (the "Plan" or "ESOP") for $165,000,000. In order to facilitate this transaction, Henny Penny, as the Sponsoring Employer, appointed Wilmington Trust Retirement and Institutional Services Company as Trustee of the Plan. The Trustee represented the Plan and its participants in the ESOP transaction and had sole authority to authorize the stock purchase. The stock purchase was paid for by a $165,000,000 loan from Henny Penny to the Plan, to be repaid over 45 years.
The Plan is a pension plan, governed by ERISA, with individual accounts established for each participant. It is administered by the ESOP Committee, which was appointed by Henny Penny. Effective January 1, 2017, the Plan was amended to add a Mandatory and Binding Arbitration provision. This provision, Section 12.21, requires arbitration of all "Covered Claims" asserted by a "Claimant," and requires that these claims be brought solely in the Claimant's individual capacity. Arbitration of "group, class, or representative" claims is prohibited. Doc. #1-1, PageID##101-02.
Plaintiff Wilma Brown worked at Henny Penny for approximately 30 years. On December 31, 2014, when the ESOP transaction took place, her individual stock account was allocated 83.892 shares of Henny Penny stock. The Complaint alleges that she "is a participant in the Plan and is vested in shares of Henny Penny allocated to her account in the Plan." Doc. #1, PageID#2. Brown left Henny Penny in May of 2015, and, in November of 2016, she cashed out of the Plan. Doc. #18, PageID##264-65.
On July 27, 2017, Brown filed suit against Wilmington Trust, N.A., as successor to Wilmington Trust Retirement and Institutional Services Company, on behalf of the Henny Penny Corporation Employee Stock Ownership Plan, and on behalf of a class of all other persons similarly situated. She generally alleges that Wilmington Trust paid more than the fair market value for the stock, relying on a faulty valuation, and paying a "control premium" for the stock even though the Cobbs remained in control of Henny Penny following the ESOP transaction. She maintains that Wilmington Trust is liable for the difference between the price paid by the Plan and the actual value of the stock.
The Complaint asserts three causes of action under ERISA: (1) Causing and Engaging in Prohibited Transactions Forbidden by ERISA, 29 U.S.C. § 1106 (prohibiting transactions between a plan and a party in interest); (2) Invalidation of Arbitration Procedure and Full Satisfaction/Release of Claims Provisions Pursuant to ERISA, 29 U.S.C. § 1132(a)(3); and (3) Violations of ERISA, 29 U.S.C. §§ 1110 and 1104(A)(1), stemming from Plan provisions purporting to relieve Wilmington Trust of liability. Plaintiff seeks a variety of declaratory and injunctive relief, and asks that the Court order that any recovery for losses to the Plan be allocated to the individual accounts of class members. Doc. #1.
On September 28, Henny Penny filed a Motion to Intervene as a Limited-in-Scope Third Party Plaintiff. Doc. #11. By separate Order, the Court has sustained that motion. This matter is currently before the Court on Henny Penny's Motion to Compel Individual Arbitration and to Strike Any Claims Purportedly Brought on a Class or Representative Basis, Doc. #13, and on Wilmington Trust's Motion to Compel Arbitration, Doc. #14. Wilmington Trust has also joined in Henny Penny's motion. After both motions were fully briefed, the parties each submitted Notices of Supplemental Authority, Docs. ##21, 24, 27 and 30, and response briefs, Docs. ##22, 25, 29.
Pursuant to 9 U.S.C. § 4, Henny Penny and Wilmington Trust have filed motions to compel Plaintiff to arbitrate her claims, and to do so on an individual basis, not on behalf of the entire Plan and its participants.
Doc. #1-1, PageID##101-04.
Plaintiff maintains that, for a variety of reasons, she is not bound by this Arbitration Procedure: (1) she did not agree to arbitrate, given that the provision was added to the Plan after she left Henny Penny; (2) she received no consideration in exchange for the arbitration amendment; and (3) because she falls outside the Plan's definition of a "Claimant," her claims are not "Covered Claims," so the Arbitration Procedure does not apply to her. Plaintiff further argues that the Arbitration Procedure is generally unenforceable because: (1) there is no mutual obligation to arbitrate; (2) it impairs substantive statutory rights; and (3) it violates ERISA's anti-cutback provision, 29 U.S.C. § 1054(g).
The Court need not reach all of these arguments. For two reasons, the Court finds that the Arbitration Procedure does not apply to Plaintiff's claims. She did not agree to arbitrate and, even if she did, her specific claims fall outside the scope of the Arbitration Procedure. Accordingly, the Court overrules the motions to compel arbitration and to strike any claims purportedly brought on a class or representative basis.
The Federal Arbitration Act ("FAA") states that a written provision to arbitrate a controversy "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 FAA reflects a "liberal federal policy favoring arbitration agreements." Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). The Sixth Circuit has specifically upheld mandatory arbitration provisions in plans governed by ERISA. Smith v. Aegon Cos. Pension Plan, 769 F.3d 922, 932 (6th Cir. 2014). Moreover, class waivers in arbitration agreements are enforceable even if the statute at issue expressly permits collective actions. Am. Express Co. v. Italian Colors Rest., 133 S.Ct. 2304, 2311 (2013). See also Epic Systems Corp. v. Lewis, 138 S.Ct. 1612, 1624 (2018) (holding that the right to "engage in other concerted activities" under the NLRA does not manifest congressional intent to displace the FAA).
Nevertheless, as the Sixth Circuit noted in Simon v. Pfizer, Inc., 398 F.3d 765 (6th Cir. 2005), "no matter how strong the federal policy favors arbitration, `arbitration is a matter of contract between the parties, and one cannot be required to submit to arbitration a dispute which it has not agreed to submit to arbitration.'" Id. at 775 (quoting United Steelworkers, Local No. 1617 v. Gen. Fireproofing Co., 464 F.2d 726, 729 (6th Cir. 1972)). See also AT&T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648 (1986) (holding same).
Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000).
Here, because the Court finds that Plaintiff did not agree to arbitrate and, even if she did, her claims are outside the scope of the Arbitration Procedure, the Court need not address the remaining tasks.
Plaintiff first argues that she is not bound by the Plan's Arbitration Procedure because she never agreed to it. She left Henny Penny in May of 2015, and completely cashed out of the Plan in November of 2016. Doc. #18, PageID##264-65. The Arbitration Procedure was not added to the Plan until January of 2017. Plaintiff filed suit in July of 2017.
Henny Penny and Wilmington Trust argue that, because the breach-of-fiduciary-duty claims belong to the Plan
In support of the first argument, Henny Penny and Wilmington Trust rely on Smith v. Aegon Companies Pension Plan, 769 F.3d 922 (6th Cir. 2014). When Smith retired in 2000, he was given a lump sum benefit; thereafter, he also received monthly pension payments. In 2007, a venue provision was added to the pension plan, requiring all lawsuits related to the plan to be filed in federal court in Iowa. In 2011, the plan informed Smith that it had been overpaying him for the past eleven years and would be eliminating his monthly payments until it had recouped the money. Smith filed suit in federal court in Kentucky, alleging violations of ERISA. The district court dismissed the suit without prejudice, citing the plan's venue selection clause.
Smith appealed, but the Sixth Circuit affirmed. It noted that pension plan administrators "are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate welfare plans." Id. at 930. Smith argued that the venue provision was invalid because it was not the product of an arms-length transaction. The court rejected this argument. Id. It further held that, even though the venue selection provision was added eight years after Smith retired, his claims did not accrue until 2011, when the plan informed him of the overpayment. The court reasoned that, because the venue selection clause was added after his claims accrued, he was bound by it. Id. at 931. Citing Smith, Henny Penny and Wilmington Trust argue that, because the Arbitration Procedure was in effect when Brown filed suit, she is bound by it.
Plaintiff argues that Smith is factually distinguishable in two important respects. First, the venue selection clause was added while Smith was still an active participant in the pension plan. In contrast, by the time the Arbitration Procedure was added to the Plan, Plaintiff had completely cashed out her account and had ceased all participation in the Plan. In addition, while Smith's cause of action accrued after the venue selection clause was added to the pension plan, Plaintiff's cause of action accrued in 2014, when the ESOP transaction took place, more than two years before the Arbitration Procedure was added to the Plan.
Plaintiff argues that this case is more analogous to Dorman v. Charles Schwab & Co., Inc., No. 17-cv-285, 2018 WL 467357 (N.D. Cal. Jan. 18, 2018). In Dorman, the plaintiff left the company, cashed out his account balance in the retirement savings plan, and ceased all participation in the pension plan. He later filed suit under ERISA to recover losses to the pension plan that stemmed from allegedly prohibited transactions and breaches of fiduciary duty.
In denying the defendant's motion to compel arbitration, the court held that the plan document containing the arbitration provision "does not bind Dorman because it was executed after he ceased all participation in the Plan." Id. at *5. The court further held that because the plan document was executed unilaterally by the plan sponsor — the same fiduciary whose actions were being challenged in the lawsuit — plaintiff should not be prevented from pursuing his claims in court. Allowing the fiduciary to unilaterally require plan participants to arbitrate claims for breach of fiduciary duty "would, in a sense, be allowing the fox to guard the henhouse." Id. (quoting Munro v. Univ. of S. California, 2017 WL 1654075, at *6 (C.D. Cal. Mar. 23, 2017)).
Based on the factual distinctions noted by Plaintiff, the Court finds that Smith is not controlling authority. Neither is Dorman controlling authority, but it is somewhat persuasive.
Henny Penny and Wilmington Trust also argue that, because Plaintiff seeks additional payments from the Plan, she is subject to the Arbitration Procedure under an equitable estoppel theory. The doctrine of equitable estoppel "precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes as well." Washington Mut. Fin. Grp., LLC v. Bailey, 364 F.3d 260, 267 (5th Cir. 2004). See also Javitch v. First Union Sec., Inc., 315 F.3d 619, 629 (6th Cir. 2003) ("a nonsignatory may be bound to an arbitration agreement under an estoppel theory when the nonsignatory seeks a direct benefit from the contract while disavowing the arbitration provision"); Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 418 (4th Cir. 2000) (the doctrine of equitable estoppel "recognizes that a party may be estopped from asserting that the lack of his signature on a written contract precludes enforcement of the contract's arbitration clause when he has consistently maintained that other provisions of the same contract should be enforced to benefit him.").
Here, however, Plaintiff is not seeking to enforce any of the terms of the Plan or alleging a breach of any of its provisions. She is not seeking any direct benefit from the Plan itself, and her claims do not arise from the Plan document. Instead, her claims are wholly statutory in nature, brought under ERISA to remedy alleged breaches of fiduciary duty by the Trustee, which resulted in losses to the Plan.
In similar circumstances, courts have refused to apply the doctrine of equitable estoppel to bind a non-signatory to an arbitration agreement. For example, in Tennessee Tractor, LLC v. WH Administrators, Inc., No. 1:17-cv-2829, 2018 WL 1277751 (W.D. Tenn. Mar. 12, 2018), the district court recently refused to bind the non-signatory plaintiff to an arbitration agreement that was contained in a health agreement between his employer and a third-party provider. The court noted that the plaintiff was not seeking to enforce the third-party provider's contractual obligations to the employer, but was instead seeking to enforce the third-party provider's statutory obligations under ERISA. Id. at *3. See also Comer v. Micor, Inc., 436 F.3d 1098, 1102 (9th Cir. 2006) (equitable estoppel did not apply where plaintiff, who was simply a plan participant, did not seek to enforce the terms of a management agreement or benefit from that agreement, but rather brought breach-of-fiduciary-duty claims under ERISA). As in these cases, the Court finds that the doctrine of equitable estoppel does not apply to bind Plaintiff to the Arbitration Procedure.
Even assuming arguendo that Plaintiff is deemed, under one of the theories discussed above, to have agreed to arbitrate her claims, the claims that she has asserted fall outside the scope of the Arbitration Procedure. As previously discussed, the enforceability of an arbitration agreement is a matter of contract law. "When an arbitration clause by its terms extends only to a specific type of dispute, then a court cannot require arbitration on claims that are not included." Simon, 398 F.3d at 775.
As noted above, the Arbitration Procedure at issue reads as follows:
Doc. #1-1, PageID##101-04 (emphasis added).
This Arbitration Procedure encompasses a wide variety of claims, including claims of breach of fiduciary duty asserted against a Trustee. Nevertheless, by its terms, the Arbitration Provision applies only to "Covered Claims," and "Covered Claims" include only claims asserted "by a Claimant." Because Plaintiff falls outside the Plan's definition of a "Claimant," her claims are not "Covered Claims." Accordingly, they are not subject to the Arbitration Procedure.
A "Claimant" is defined by the Plan as "an Employee, Participant, or Beneficiary." Doc. #1-1, PageID#39. It is undisputed that Plaintiff is no longer an Employee, and she is not a Beneficiary. Accordingly, she is a "Claimant" only if she is a "Participant."
The Plan defines a "Participant" as "anyone who has met the eligibility and participation requirements under Article 2." Id. at PageID#45. It is undisputed that Plaintiff satisfies this requirement. Nevertheless, the definition of a "Participant" also states that "an individual who is no longer an Employee will cease to be a Participant if his or her entire Plan benefit: . . . (b) is paid in a lump sum distribution which represents such individual's entire interest in the Plan." Id. The "Plan" is defined as "the Henny Penny Corporation Employee Stock Ownership Plan." Id. at PageID#46.
Given that Plaintiff has terminated her employment, cashed out the entire balance in her ESOP account, and ceased all participation in the Plan, she no longer qualifies as a "Participant." Accordingly, she cannot be a "Claimant," as that term is defined by the Plan. Therefore, her claims are not subject to the Arbitration Procedure.
Henny Penny and Wilmington Trust argue that a finding that Plaintiff was "paid in a lump sum distribution which represents such individual's entire interest in the Plan" is completely inconsistent with her claim that she is entitled to recover additional benefits from losses that resulted from Wilmington Trust's alleged wrongdoing.
The Court disagrees. "The general principles of contract law dictate that we interpret the Plan's provisions according to their plain meaning, in an ordinary and popular sense." Perez v. Aetna Life Ins., Co., 150 F.3d 550, 556 (6th Cir. 1998). The Plan expressly states that a former employee "will cease to be a Participant if his or her entire Plan benefit: . . . (b) is paid in a lump sum distribution which represents such individual's entire interest in the Plan." Doc. #1-1, PageID#45.
Here, Plaintiff was allocated a certain number of shares in the ESOP. She terminated her employment and, in November of 2016, she cashed out her entire ESOP account. Doc. #18, PageID#265. Her entire Plan benefit was paid in one lump sum, representing her entire interest in the ESOP on that date. Giving the Plan language its plain and ordinary meaning, she then ceased to be a "Participant" in the Plan.
Plaintiff alleges that Wilmington Trust paid more than the fair market value when it purchased the shares of stock from the Cobb family, thereby causing injury to the Plan. If Plaintiff succeeds on her claims of breach of fiduciary duty, and recovers some or all of the alleged losses on behalf of the Plan, she and others will receive a proportionate share of any recovery. However, it does not change the fact that Plaintiff ceased to be a "Participant" when she received her lump sum payment.
Henny Penny and Wilmington Trust note that the Complaint alleges that "Plaintiff is a participant in the Plan and is vested in shares of Henny Penny allocated to her account in the Plan." Doc. #1, PageID#2. They maintain that Plaintiff cannot have it both ways; because she admits that she is "a participant in the Plan," she must be deemed a "Participant" for purposes of the Arbitration Provision.
Not so. A former employee may be deemed a "participant" for purposes of standing to bring an ERISA claim, and yet fall outside the Plan's definition of a "Participant" who is bound by the Arbitration Provision.
ERISA broadly defines a "participant" as "any employee or former employee of an employer . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer . . ., or whose beneficiaries may be eligible to receive any such benefit." 29 U.S.C. § 1002(7). The Supreme Court has interpreted this to include former employees who have "a colorable claim to vested benefits." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117 (1989) (internal quotation omitted).
The Sixth Circuit has held that a former employee alleging a breach of fiduciary duty "has `participant' standing despite having `cashed out' his defined-contribution plan." Bridges v. Am. Elec. Power Co., 498 F.3d 442, 445 (6th Cir. 2007). Nevertheless, the fact that Plaintiff has statutory standing, as a "participant," to assert claims on behalf of the Plan does not necessarily mean that she qualifies as a "Participant" who is contractually bound by the Plan's Arbitration Procedure. Because Plaintiff was paid a lump sum distribution, representing the entire interest in her ESOP account, she is no longer a "Participant" in the Plan, as the Plan has defined that term. In turn, she does not fall within the Plan's definition of a "Claimant" and her claims are not "Covered Claims."
Accordingly, the Arbitration Procedure does not apply. Plaintiff need not submit her claims to binding arbitration. Nor is she prohibited from pursuing claims on behalf of a class of others who may have been deprived of benefits as the result of Wilmington Trust's alleged violations of ERISA.
For the reasons set forth above, the Court OVERRULES the Motion of Henny Penny Corporation to Compel Individual Arbitration and to Strike Any Claims Purportedly Brought on a Class or Representative Basis, Doc. #13, and Wilmington Trust, N.A.'s Motion to Compel Arbitration, Doc. #14.
The previously-imposed stay, see Doc. #9, is lifted. The Court will schedule a Preliminary Pretrial Conference after Wilmington Trust files its Answer or other responsive pleading.
