The Seventh Circuit in a recently issued decision held that an employer cannot invoke an arbitration provision to evade a shareholder class-action lawsuit seeking broad relief under the Employee Retirement Income Security Act (ERISA), a federal law aimed at protecting participants in private employer retirement plans. In its decision, the Court found that claims under ERISA are generally subject to arbitration, but ultimately concluded that the District Court did not err in denying the defendants’ motion to compel arbitration of plaintiff’s class action under section 1132(a)(2) of ERISA due to a class action waiver in the arbitration agreement that would have precluded the plaintiff from asserting certain statutory rights.
The plaintiff, James Smith, worked for Triad Manufacturing, a shelving and fixture company, back in 2015 and 2016. While employed by Triad, he participated in the company’s employee stock ownership program, known as a “defined contribution plan” under ERISA. Triad’s board of directors created the plan for its employees in early December 2015.
According to his lawsuit, after forming the plan, three members of Triad’s board sold all Triad’s stock to the plan at a price of $58.05 per share, totaling more than $106 million. Four days later the board appointed GreatBanc Trust Company as plan trustee. GreatBanc then approved the transaction, seemingly after it had already occurred. Less than two weeks later, Triad’s share price dropped to $1.85, according to the plan’s financial statements. In effect, what had been valued at over $106 million plummeted in two weeks to just under $4 million. The suit alleges that the earliest the plan’s members could sell their shares was the end of 2016 due to vesting requirements, at which time the shares were worth only $1.15. By the end of 2018, the share price had dipped to less than $1 per share. Continue reading ›