In a recent development, the Supreme Court has refrained from clarifying the enforceability of mandatory arbitration provisions in fiduciary breach claims, a topic of increasing significance in light of the surge in class action litigation against 401(k) plans in recent years. This decision continues to leave corporations and law firms in a state of uncertainty.
Some have suggested that mandatory arbitration provisions with class action waivers could potentially be a remedy to this growing wave of class action lawsuits. The argument stands on the notion that these provisions, enforced under the Federal Arbitration Act (FAA), would streamline the process and serve as a deterrent for mass litigation.
Recent cases demonstrate a variance in court approaches to such provisions. Courts have enforced mandatory arbitration provisions in ERISA (Employee Retirement Income Security Act of 1974) plans in some cases, finding them enforceable under the Federal Arbitration Act. Precedential cases include Dorman v. Charles Schwab Corp 934 F.3d 1107 (9th Cir. 2019) and Holmes v. Baptist Health S. Fla., Inc., No. 21-22986-CIV, 2022 WL 180638 (S.D. Fla. Jan. 20, 2022).
However, the Supreme Court’s recent stance on declining to clarify the enforceability of such provisions leaves a cloud of ambiguity. Corporate lawyers, and indeed the industry as a whole, are left to navigate these troubled waters with a measure of guesswork. While the Supreme Court’s reticence may imply judicial restraint, the practical effect is that corporations and their counsel must continue to grapple with fiduciary breach claims amidst changing legal trends without definitive direction.
The full details of the Supreme Court’s decision can be found on the official report available here.