James Smith v. Board of Directors of Triad Ma ( 2021 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 20-2708
JAMES SMITH, on behalf of himself and all others similarly
situated, and on behalf of the Triad Manufacturing, Inc.,
Employee Stock Ownership Plan,
Plaintiff-Appellee,
v.
BOARD OF DIRECTORS OF TRIAD MANUFACTURING, INC., et al.,
Defendants-Appellants.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:20-cv-02350 — Ronald A. Guzmán, Judge.
____________________
ARGUED MARCH 30, 2021 — DECIDED SEPTEMBER 10, 2021
____________________
Before KANNE, BRENNAN, and SCUDDER, Circuit Judges.
BRENNAN, Circuit Judge. In this complex ERISA case, James
Smith sued fiduciaries of the retirement plan offered by his
former employer, Triad Manufacturing, Inc., for alleged fi-
nancial misconduct. Add in a class action, an arbitration pro-
vision, and issues of notice and consent to plan amendments,
and this lawsuit gets even more complicated.
2 No. 20-2708
The correct resolution here is straightforward, though.
The ERISA provisions Smith invokes have individual and
plan-wide effect. But the arbitration provision in Triad’s de-
fined contribution retirement plan precludes relief that “has
the purpose or effect of providing additional benefits or mon-
etary or other relief to any Eligible Employee, Participant or
Beneficiary other than the Claimant.” Because that provision
prohibits relief that ERISA expressly permits, we affirm the
district court’s denial of Triad’s motion to compel arbitration
or, in the alternative, to dismiss.
I
A
James Smith worked for Triad Manufacturing, Inc., a
shelving and fixture company, from 2015 to 2016. 1 As part of
his employment, Smith participated in Triad’s Employee
Stock Ownership Plan, a defined contribution employee re-
tirement plan under the Employee Retirement Income Secu-
rity Act. A defined contribution plan allows the employee or
the employer (or both) to contribute to the employee’s indi-
vidual account (e.g., a 401(k) plan). By contrast, a defined ben-
efit plan provides a fixed monthly benefit based on a general
pool of assets (e.g., a pension plan). See Hughes Aircraft Co. v.
Jacobson, 525 U.S. 432, 439–40 (1999). ERISA governs both
plans. 29 U.S.C. § 1002 (34), (35).
Triad’s board of directors, including shareholders David
Caito, Robert Hardie, and Michael McCormick, created the
plan for its employees in early December 2015. The plan
1We draw the relevant facts from Smith’s complaint and accept those
well-pleaded as true in resolving Triad’s motion. We also consider docu-
ments, like the plan itself, submitted with that motion.
No. 20-2708 3
provides that “[t]he Primary Sponsor reserves the right at any
time to modify or amend or terminate the [plan] in whole or
in part.” The primary sponsor, per the plan, is Triad through
its board.
On December 17, 2015, Caito, Hardie, and McCormick
sold all of Triad’s stock to the plan, which at $58.05 per share
totaled more than $106 million. Triad’s board appointed
GreatBanc Trust Company as plan trustee on December 21,
2015, and GreatBanc approved the transaction in short order,
seemingly after it had already occurred.2 Notably, the plan’s
holdings consisted entirely of Triad stock.
Triad’s share price then dropped to $1.85 on December 31,
2015, according to the plan’s financial statements. What had
been valued at over $106 million plummeted in two weeks to
just under $4 million. But under the plan’s provisions, no
participant could sell their shares until they vested—at the
earliest, on December 31, 2016, for some employees. As of De-
cember 31, 2018, Triad’s share price dipped to less than one
dollar per share.
Caito, Hardie, and McCormick, though, seem to have ben-
efited from the transaction. The plan financed its purchase of
their shares through loans provided by the three men. Triad
guaranteed these loans, charged against the company’s equity
that had just been purchased by the plan. The plan also re-
quired Triad to make retirement contributions in amounts no
less than necessary to service the loan payments. So Caito,
2 GreatBanc did not move to compel or dismiss with the rest of the de-
fendants, but rather answered the complaint. It is not a party to this ap-
peal.
4 No. 20-2708
Hardie, and McCormick received repayment on the loans—at
least in theory—no matter Triad’s financial situation.
On July 17, 2018, Triad’s board, as the plan’s primary
sponsor, amended the plan to include an arbitration provision
with a class action waiver. That amendment includes a sub-
section, “(a) Covered Claims,” requiring binding arbitration
for any claim “which arises out of, relates to, or concerns this
[plan], including without limitation, any claim for benefits
under the [plan]; any claim asserting a breach of, or failure to
follow, the [plan]; and any claim asserting a breach of, or fail-
ure to follow, any provision of ERISA or the [Internal Reve-
nue] Code.” Another subsection—entitled “(b) No Group,
Class, or Representative Arbitrations”—warrants emphasis
here. That subsection requires, in relevant part, that:
• “All Covered Claims must be brought solely in the
Claimant’s individual capacity and not in a repre-
sentative capacity or on a class, collective, or group
basis.”; and
• “Each arbitration shall be limited solely to one
Claimant’s Covered Claims, and that Claimant may
not seek or receive any remedy which has the pur-
pose or effect of providing additional benefits or
monetary or other relief to any Eligible Employee,
Participant or Beneficiary other than the Claimant.”
That subsection also, with respect to any claim brought under
ERISA § 502(a)(2) to seek appropriate relief under § 409, ex-
pressly limits the Claimant’s remedy. What is more, “[i]n the
event a court of competent jurisdiction were to find these re-
quirements to be unenforceable or invalid, then the entire Ar-
bitration Procedure … shall be rendered null and void in all
No. 20-2708 5
respects as to the particular claim that is the subject of that
court’s ruling.” In other words, the arbitration provision is
nonseverable, at least for the claim at issue in its invalidation.
Smith, though, contends that he received no notice of this ar-
bitration provision before its addition to the plan. 3
B
In April 2020, Smith filed a class action complaint against
Triad’s board, Caito, Hardie, and McCormick (collectively,
the “board defendants”), as well as GreatBanc, under 29
U.S.C. § 1132(a)(2) and (a)(3). The December 2015 transaction
between Triad and the plan, according to Smith, violated nu-
merous ERISA provisions. Three of the alleged violations are
relevant here. In Count II, Smith alleged that the board de-
fendants breached their fiduciary duties by failing to monitor
fellow fiduciary GreatBanc as plan trustee, in violation of 29
U.S.C. § 1104(a)(1)(A) and (B). 4 Smith alleged in Count IV that
the board defendants engaged in prohibited transactions in
violation of 29 U.S.C. § 1106(a). And according to Smith in
Count V, the board defendants knowingly participated in
GreatBanc’s fiduciary violations, in violation of 29 U.S.C.
§ 1105(a)(1) and (a)(3).
3 According to Smith, the district court made a factual finding that he re-
ceived no notice of the arbitration provision. But what the district court
said was that a certain argument—that only the plan’s consent matters—
“might have more force had defendants offered evidence that plaintiff had
received notice of the amendment.” Either way, our resolution of this ap-
peal does not turn on this issue.
4 In Count I, Smith alleged that GreatBanc breached its fiduciary duty, in
violation of 29 U.S.C. § 1104(a)(1)(A) and (B). In Count III, Smith alleged
that GreatBanc engaged in prohibited transactions in violation of 29 U.S.C.
§ 1106(a).
6 No. 20-2708
Smith’s prayer for relief was wide-ranging. As relevant
here, Smith requested that the district court “[r]emove Great-
Banc as the Trustee of the Triad [plan] or bar it from serving
as a fiduciary of the [plan] in the future” and that it “[a]ppoint
a new independent fiduciary to manage the Triad [plan] and
order the costs of such independent fiduciary be paid for by
Defendants.” He also asked that the district court “[a]ward
such other and further relief” under § 1132(a)(2) and/or (a)(3),
Federal Rule of Civil Procedure 54(c), “or that is equitable and
just.”
Based on the class action waiver, the board defendants
then moved to compel arbitration or, in the alternative, to dis-
miss Smith’s claims under Federal Rules of Civil Procedure
12(b)(3) or (b)(6). The district court denied that motion on two
grounds. First, assuming that ERISA claims are generally ar-
bitrable—a question this court has not yet addressed—and
applying Missouri state law (per the parties’ mutual conten-
tion), the district court held that because Smith had not con-
sented to the arbitration provision, it could not bind him.
Smith’s work with Triad ended in 2016, the arbitration provi-
sion came in 2018, and no evidence had been offered that
Smith received notice of the amendment. For the district
court, it was Smith’s consent, and not the plan’s consent
(through the primary sponsor, Triad), that mattered. That
court thus rejected the Ninth Circuit’s analysis in Dorman v.
Charles Schwab Corp. (Dorman II), 780 F. App’x 510, 513 (9th
Cir. 2019) (unpublished memorandum opinion), which
No. 20-2708 7
enforced a similar ERISA arbitration provision unilaterally
added by the plan sponsor. 5
Second, the district court relied on American Express Co. v.
Italian Colors Restaurant to hold the arbitration provision un-
enforceable because it prospectively waived Smith’s right to
statutory remedies provided by ERISA. 570 U.S. 228, 235–36
(2013). The plan’s arbitration provision, the district court rea-
soned, prohibited plan-wide statutory remedies that ERISA
permits under §§ 1132(a)(2) and 1109(a), so it could not be en-
forced. The district court again disagreed with Dorman II, 780
F. App’x at 515, rejecting the Ninth Circuit’s determination
that individualized arbitration for claims concerning a de-
fined contribution plan, as here, accorded with ERISA. After
the district court denied the motion, this appeal followed.
II
The board defendants moved to compel arbitration or to
dismiss under Rules 12(b)(3) or (b)(6), and we construe their
motion as one to compel. See Brickstructures, Inc. v. Coaster Dy-
namix, Inc., 952 F.3d 887, 890 (7th Cir. 2020) (noting that “[i]t
is the substance of a motion that counts, not its label” when
resolving a jurisdictional issue over Rule 12(b)(3) and the Fed-
eral Arbitration Act on interlocutory appeal). The standard
for reviewing a ruling on a motion to compel arbitration
“turns on the procedural posture of that ruling.” Scheurer v.
Fromm Fam. Foods LLC, 863 F.3d 748, 751 (7th Cir. 2017). The
district court’s resolution here turned on legal, not factual,
issues, so our review is de novo. See id. at 751–52. And our
5 The same day the Ninth Circuit issued a companion published case, Dor-
man v. Charles Schwab Corp., 934 F.3d 1107, 1112 (9th Cir. 2019), which we
refer to as Dorman I.
8 No. 20-2708
“interpretation of language in a plan governed by ERISA is
controlled by federal common law, which draws on general
principles of contract interpretation, at least to the extent that
those principles are consistent with ERISA.” Schultz v. Aviall,
Inc. Long Term Disability Plan, 670 F.3d 834, 838 (7th Cir. 2012).
A
We begin with the ERISA provisions relevant here. Section
1132(a)(2) provides that a civil action may be brought “by the
Secretary [of Labor], or by a participant, beneficiary or fiduci-
ary for appropriate relief under section 1109 of this title.” In
turn, § 1109(a) imposes liability for any fiduciary who
breaches his duties to the plan and holds him “personally lia-
ble 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.” That provision also authorizes
“other equitable or remedial relief as the court may deem ap-
propriate, including removal of such fiduciary.” 29 U.S.C.
§ 1109(a). Taken together, § 1109(a) creates fiduciary liability,
and § 1132(a)(2) allows for its enforcement.
In Massachusetts Mutual Life Insurance Co. v. Russell, the
Supreme Court examined these provisions in the context of a
defined benefit plan. 473 U.S. 134, 136, 139 (1985). A plan par-
ticipant in that case sued a fiduciary under § 1132(a) “for ex-
tra-contractual compensatory or punitive damages caused by
improper or untimely processing” of her plan benefit claims,
in violation of § 1109(a). Id. at 136. The Court held that
§ 1132(a) precluded such individualized relief. Id. at 139–44.
Recovery under § 1132(a) for a violation of § 1109, the Court
explained, benefits the whole defined benefit plan. Id. at 140.
This was because the “principal statutory duties” under
No. 20-2708 9
§ 1109(a) are those that “relate to the proper management, ad-
ministration, and investment of fund assets, the maintenance
of proper records, the disclosure of specified information, and
the avoidance of conflicts of interest.” Id. at 143–44 (footnote
omitted). In addition, “[a] fair contextual reading of the stat-
ute ma[de] it abundantly clear that its draftsmen were primar-
ily 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 144 (foot-
note omitted). So for the Court, “the entire text of § [1109]
persuade[d] [it] that Congress did not intend that section to
authorize any relief except for the plan itself.” Id. at 142. Be-
cause the plan participant alleged an individualized, and not
plan-wide, harm, § 1132(a) provided no viable cause of action.
Id.
The Court revisited §§ 1132(a) and 1109(a) in LaRue v.
DeWolff, Boberg & Associates, Inc., albeit in the defined contri-
bution plan context. 552 U.S. 248, 250 (2008). There, a plan par-
ticipant alleged that a fiduciary’s misconduct—failing to
make certain changes to his 401(k) account—had “‘depleted’
his interest in the [defined contribution plan] by approxi-
mately $150,000, and amounted to a breach of fiduciary duty
under ERISA.” Id. at 251. The Court held that § 1132(a) permit-
ted such individualized relief, distinguishing Russell in the
process. Id. at 253–56. “Unlike the defined contribution plan”
in LaRue, “the disability plan at issue in Russell did not have
individual accounts; it paid a fixed benefit based on a percent-
age of the employee’s salary.” Id. at 255. And so “[t]he ‘entire
plan’ language in Russell,” the Court noted, “speaks to the im-
pact of § 409 on plans that pay defined benefits.” Id. at 255.
Put another way, “Russell’s emphasis on protecting the ‘entire
plan’ from fiduciary misconduct reflects the former landscape
10 No. 20-2708
of employee benefit plans. That landscape has changed.” Id.
at 254.
The difference between a defined benefit plan and a de-
fined contribution plan was dispositive in LaRue. Id. at 254-55.
As the Court explained, “[m]isconduct by the administrators
of a defined benefit plan will not affect an individual’s entitle-
ment to a defined benefit unless it creates or enhances the risk
of default by the entire plan.” Id. at 255. But “[f]or defined
contribution plans,” misconduct by a fiduciary “need not
threaten the solvency of the entire plan to reduce benefits be-
low the amount that participants would otherwise receive.”
Id. at 255–56. The defined contribution plan participant in
LaRue—unlike the defined benefit plan participant Russell—
alleged fiduciary misconduct that fell “squarely within”
§ 1109, so the Court permitted his claim under § 1132(a). Id. at
253, 256. With Russell cabined to defined benefit plans, LaRue
concluded “that although § [1132(a)] does not provide a rem-
edy 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. at 256.
B
Against this backdrop, we begin with a threshold issue:
whether ERISA claims are arbitrable as a general matter.
Under the Federal Arbitration Act, “[a] written provision
in any maritime transaction or a contract evidencing a trans-
action involving commerce to settle by arbitration a contro-
versy thereafter arising out of such contract or transaction, …
shall be valid, irrevocable, and enforceable,” except for “such
grounds as exist at law or in equity for the revocation of any
No. 20-2708 11
contract.” 9 U.S.C. § 2. The FAA allows a party to an arbitra-
tion agreement to petition a federal district court “for an order
directing that such arbitration proceed in the manner pro-
vided for in such agreement.” Id. § 4. And “[w]hether enforc-
ing an agreement to arbitrate or construing an arbitration
clause, courts and arbitrators must ‘give effect to the contrac-
tual rights and expectations of the parties.’” Stolt-Nielsen S.A.
v. AnimalFeeds Int’l Corp., 559 U.S. 662, 682 (2010) (quoting Volt
Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489
U.S. 468, 479 (1989)). Put differently, we must “enforce arbi-
tration agreements according to their terms.” Epic Sys. Corp.
v. Lewis, 138 S. Ct. 1612, 1621 (2018) (internal quotation marks
omitted). The FAA, as the Court said recently, “establishes ‘a
liberal federal policy favoring arbitration agreements.’” Id.(quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 24 (1983)).
Claims under federal statutes are no exception. In Shear-
son/American Express, Inc. v. McMahon, the Court explained
that “standing alone,” the FAA “mandates enforcement of
agreements to arbitrate statutory claims.” 482 U.S. 220, 226
(1987). But “[l]ike any statutory directive,” the FAA’s “man-
date may be overridden by a contrary congressional
command.” Id. In CompuCredit Corp. v. Greenwood, the Court
reiterated this understanding, 565 U.S. 95, 98 (2012), and the
Court confirmed it again in Italian Colors. 570 U.S. at 233.
In ERISA, we see no “contrary congressional command”
precluding arbitration. True, ERISA provides that “the dis-
trict courts of the United States shall have exclusive jurisdic-
tion of civil actions under this subchapter.” 29 U.S.C.
§ 1132(e)(1). Yet similar provisions in other statutory schemes
have not prevented the Court from permitting arbitration. In
12 No. 20-2708
McMahon, for example, 482 U.S. at 227, the Court enforced an
arbitration agreement covering claims under the Securities
Exchange Act of 1934, even though per 15 U.S.C. § 78aa “ex-
clusive jurisdiction of violations” is granted to “[t]he district
courts of the United States.” See also Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 632–37 (1985) (en-
forcing arbitration agreement for claims under the Clayton
Act, which contained similar jurisdictional provision in 15
U.S.C. § 15(a)). As the Court stated later, it has “repeatedly
recognized that contractually required arbitration of claims
satisfies the statutory prescription of civil liability in court.”
CompuCredit Corp., 565 U.S. at 100–01 (collecting cases).
Joining every other circuit to consider the issue, we recog-
nize that ERISA claims are generally arbitrable. See, e.g., Dor-
man I, 934 F.3d at 1112; Williams v. Imhoff, 203 F.3d 758, 767
(10th Cir. 2000); Kramer v. Smith Barney, 80 F.3d 1080, 1084 (5th
Cir. 1996); Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
7 F.3d 1110, 1122 (3d Cir. 1993); Bird v. Shearson Lehman/Am.
Exp., Inc., 926 F.2d 116, 122 (2d Cir. 1991); Arnulfo P. Sulit, Inc.
v. Dean Witter Reynolds, Inc., 847 F.2d 475, 478–79 (8th Cir.
1988); see also Simon v. Pfizer Inc., 398 F.3d 765, 774–75 (6th Cir.
2005) (noting, but not deciding, this issue). So the FAA applies
with full force to claims under ERISA. See G. Richard Shell,
ERISA and Other Federal Employment Statutes: When Is Commer-
cial Arbitration an “Adequate Substitute” for the Courts?, 68 TEX.
L. REV. 509, 572–73 (1990) (“A careful review of ERISA
discloses that, if Congress intended anything with respect to
enforcement of the FAA, it intended to preserve the full appli-
cation of the FAA in ERISA cases.”).
No. 20-2708 13
C
The pivotal question here is whether this ERISA arbitra-
tion provision is enforceable. We conclude the answer is no.
Italian Colors shows the way. In that case, the Court located
“no contrary congressional command” precluding arbitration
in the Sherman Antitrust Act, upholding an arbitration provi-
sion that waived class arbitration. 570 U.S. at 235 (internal
quotation marks omitted). That ruling, though, did “not end
the case.” Id. Plaintiffs there also “invoke[d] a judge-made
exception to the FAA which,” in their words, “serve[d] to har-
monize competing federal policies by allowing courts to in-
validate agreements that prevent the ‘effective vindication’ of
a federal statutory right.” Id. “[N]o economic incentive to pur-
sue their antitrust claims individually in arbitration” existed,
so enforcement of the class arbitration waiver would bar “ef-
fective vindication” of their statutory rights, plaintiffs argued.
Id.
But that argument left the Court unpersuaded. Id. at 236.
The “effective vindication” exception, it explained, “origi-
nated as dictum in Mitsubishi Motors.” Id. at 235. As described
in Italian Colors, Mitsubishi Motors “expressed a willingness to
invalidate, on ‘public policy’ grounds, arbitration agreements
that ‘operat[e] … as a prospective waiver of a party’s right to
pursue statutory remedies.’” Id. (quoting Mitsubishi Motors,
473 U.S. at 637 n.19 (alteration in original) (emphasis omit-
ted)). Willingness, however, did not translate into action; the
Court in Mitsubishi Motors upheld the arbitration agreement
at issue. 473 U.S. at 637–38. “Subsequent cases” after
Mitsubishi Motors “similarly asserted the existence of an
‘effective vindication’ exception,” although they “similarly
declined to apply it to invalidate the arbitration agreement at
14 No. 20-2708
issue.” Italian Colors, 570 U.S. at 235 (footnote omitted) (citing
14 Penn Plaza LLC v. Pyett, 556 U.S. 247, 273–274 (2009); Gilmer
v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28 (1991)).
The Court in Italian Colors likewise declined that invita-
tion. There, the class action arbitration waiver “merely
limit[ed] arbitration to the two contracting parties,” so “[i]t no
more eliminat[ed] those parties’ right to pursue their statu-
tory remedy than did federal law before its adoption of the
class action for legal relief in 1938.” Italian Colors, 570 U.S. at
236. But Italian Colors did not entirely shut the door to the
“effective vindication” exception, explaining that it “would
certainly cover a provision in an arbitration agreement forbid-
ding the assertion of certain statutory rights.” Id.
Although rare, we conclude that is what happened here.
Recall that Smith invokes § 1132(a)(2)’s cause of action to seek
relief for (alleged) fiduciary breaches under § 1109(a). That re-
lief, by statute, includes “such other equitable or remedial re-
lief as the court may deem appropriate, including removal of
such fiduciary.” 29 U.S.C. § 1109(a). Yet the plan’s arbitration
provision, which also contains a class action waiver, pre-
cludes a participant from seeking or receiving relief that “has
the purpose or effect of providing additional benefits or mon-
etary or other relief to any Eligible Employee, Participant or
Beneficiary other than the Claimant.” Removal of a fiduci-
ary—a remedy expressly contemplated by § 1109(a)—would
go beyond just Smith and extend to the entire plan, falling ex-
actly within the ambit of relief forbidden under the plan.
All this is to say that the plain text of § 1109(a) and the
terms of the arbitration provision cannot be reconciled: what
the statute permits, the plan precludes. In that way, the plan’s
arbitration provision acts as a “prospective waiver of a party’s
No. 20-2708 15
right to pursue statutory remedies,” Mitsubishi Motors, 473
U.S. at 637 n.19, so the “effective vindication” exception ap-
plies. See Hayes v. Delbert Servs. Corp., 811 F.3d 666, 675 (4th
Cir. 2016) (applying “effective vindication” exception when
an “arbitration agreement use[d] its ‘choice of law’ provision
to waive all of a potential claimant’s federal rights.”). And be-
cause the plan’s arbitration provision is nonseverable, no
claim under § 1132(a)(2) may be arbitrated.
To reiterate, the problem with the plan’s arbitration provi-
sion is its prohibition on certain plan-wide remedies, not
plan-wide representation. It is not that the plan funnels its
participants away from class actions. The Court has blessed
that arbitration maneuver many times, including under the
National Labor Relations Act in Epic Systems, 138 S. Ct. at
1632, the Sherman Act in Italian Colors, 570 U.S. at 238–39, the
Credit Repair Organization Act in CompuCredit, 565 U.S. at
100, and the Age Discrimination in Employment Act in
Gilmer, 500 U.S. at 35. Indeed, Epic Systems explained as much.
138 S. Ct. at 1627–28 (collecting these cases). Nor is individu-
alized arbitration inherently incompatible with ERISA. Be-
cause Smith participated in a defined contribution plan, Larue,
and not Russell, governs, and the Court made clear in Larue
that § 1132(a) “authorize[s] recovery for fiduciary breaches
that impair the value of plan assets in a participant’s individual
account.” 552 U.S at 256 (emphasis added); see Rogers v. Baxter
Int’l, Inc., 521 F.3d 702, 705 (7th Cir. 2008) (noting that under
LaRue, §§ 1132(a)(2) and 409(a) “may be used by the benefi-
ciary of a defined-contribution account that suffers a loss,
even though other participants are uninjured by the acts said
16 No. 20-2708
to constitute a breach of fiduciary duty”). 6 The bottom line is
that our holding turns on the impermissible relief, and not the
chosen vehicle, for ERISA claims under the plan here.
The board defendants disagree. Turning again to the
Ninth Circuit’s decision in Dorman II, they contend that indi-
vidualized arbitration can provide Smith and other plan par-
ticipants with all the relief available to them under ERISA,
and so the plan’s arbitration provision—with its class action
waiver—should be enforced. The board defendants also tell
us that Smith has not borne his burden in showing that the
FAA and ERISA “cannot be harmonized” under Epic Systems,
138 S. Ct. at 1614. The FAA, they assert, must prevail.
Smith’s prayer for relief shows the flaws in that thinking.
Take for example his request that the district court remove
GreatBanc as plan trustee, or that the court appoint a new in-
dependent fiduciary. Just like the removal of a fiduciary, the
appointment of a new one cannot have anything but a plan-
wide effect. The same is true for removing GreatBanc as plan
trustee. Both examples would have “the purpose or effect of
providing additional benefits or monetary or other relief” to
6 Throughout Smith’s brief he contends that Russell remains relevant to
our inquiry in this defined contribution plan context, claiming that it “in-
volved a welfare plan, not a defined benefit plan.” But LaRue treated Rus-
sell as a defined benefit plan case, and so will we. LaRue, 552 U.S. at 256(“Consequently, our references to the ‘entire plan’ in Russell, which accu-
rately reflect the operation of § [1109] in the defined benefit context, are
beside the point in the defined contribution context.”). We place no em-
phasis on language in footnote nine of Russell—arguably, dicta—that
“[i]nclusion of the Secretary of Labor [in § 1132(a)(2)] is indicative of Con-
gress’ intent that actions for breach of fiduciary duty be brought in a repre-
sentative capacity on behalf of the plan as a whole.” Russell, 473 U.S. at 142
n.9 (emphasis added).
No. 20-2708 17
someone other than Smith, so neither would be permitted un-
der the plan’s arbitration provision. In that sense, 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 §§ 1132(a)(2) and
1109(a) expressly permit. What is more, we see no conflict
with Dorman II, either. 780 F. App’x at 513–15. The arbitration
provision in that case, as far as we can tell, lacked the prob-
lematic language present here. Dorman v. Charles Schwab & Co.
Inc., No. 17-cv-00285-CW, 2018 WL 467357, at *2 (N.D. Cal.
Jan. 18, 2018) (reciting arbitration provision). The plan here is
different from the plan in Dorman, and so are the resolutions.
In closing, we note the limits of our holding, as well as its
lessons. We express no view on whether Smith consented to
the arbitration provision, whether he received notice of that
provision, or even whether a plan’s sponsor can unilaterally
amend the plan to include such a provision. In addition,
Smith does not parcel out what relief he seeks under
§ 1132(a)(2) and what relief he seeks under § 1132(a)(3). In this
case, we hold only that the “effective vindication” exception
bars application of the plan’s arbitration provision to claims
under § 1132(a)(2). Whether Smith’s claims, and those of other
plan participants, under § 1132(a)(3) are barred is a question
best left for another day. See Cent. States, Se. & Sw. Areas Health
& Welfare Fund by Bunte v. Am. Int’l Grp., Inc., 840 F.3d 448,
452–53 (7th Cir. 2016) (thoroughly cataloguing the Supreme
Court’s precedents involving relief under § 1132(a)(3)). In the
end, the “effective vindication” exception may be rare, but it
applies here.
18 No. 20-2708
III
For these reasons, we AFFIRM the district court’s denial of
the board defendants’ motion to dismiss or compel arbitra-
tion.