Holmes v. Baptist Health South Florida, Inc.

United States District Court

for the

Southern District of Florida

Lawanda Holmes and others, )

Plaintiffs, )

)

Civil Action No. 21-22986-Civ-Scola

v. )

)

Baptist Health South Florida, Inc. )

and others, Defendants. )

Order

In this Employee Retirement Income Security Act breach-of-fiduciary-

duty case, the Defendants filed three motions when responding to the

complaint: a motion to compel arbitration, a motion to stay, and a motion to

dismiss under Rule 12(b)(6). (ECF Nos. 17, 18, 19.) The Court here addresses

only the Defendants’ motion to compel arbitration,1 to which the Plaintiffs filed

a response in opposition (ECF No. 31) and the Defendants filed a reply in

support (ECF No. 35). After careful review of the briefing and the relevant legal

authorities, the Court grants the motion. (ECF No. 17.)

1. Background

Baptist Health South Florida, Inc. employs approximately 23,000 people

and, in 1989, created a 403(b) employee retirement plan (the “Plan”) to

facilitate employee retirement savings. (ECF No. 1 at ¶¶ 33, 53–54); (ECF

No. 17-1 at 10.) The Plan is a defined contribution plan where each participant

has a separate account based on the amounts individually contributed. (ECF

No. 1 at ¶ 55.) The Plaintiffs, who purport to bring this action on behalf of

themselves, the Plan, and a putative class of similarly-situated individuals,

each participated in the Plan. (Id. at ¶ 31.) The Plaintiffs allege that during the

Class Period—February 3, 2015 to the date of judgment—the Defendants, each

a fiduciary of the Plan, breached their fiduciary duties by failing to review and

contain costs and by investing in high-cost investment funds despite the

availability of similar funds with lower costs or better performance histories.

(Id. at 2 n.2, ¶ 20.)

In 2020, the Plan was amended to include, in relevant part, an

arbitration agreement. (ECF No. 17-1 at 67.) This amendment was made

1 The Defendants also sought to dismiss the complaint pursuant to Rule 12(b)(1). (ECF No. 17

at 16–19.) As the Court grants the motion to compel arbitration, the Court does not address

the Defendants’ arguments under Rule 12(b)(1).

pursuant to the Plan Sponsor’s express, unilateral ability to amend the Plan.

(Id. at 47–48, 67.) The arbitration clause provides that “[a]ny claim . . . which

arises out of, relates to, or concerns the Plan . . . shall be resolved exclusively

by binding arbitration[.]” (Id. at 67.) The arbitration agreement forbids

arbitrations brought on a representative or class basis. (Id. at 68.) Moreover, it

precludes individuals that bring an arbitration claim from receiving “remedial

or equitable relief” that provides “additional benefits or monetary relief to any

person . . . other than the Claimant[.]” (Id.)

2. Legal Standard

The Federal Arbitration Act (“FAA”) governs the validity of an arbitration

agreement. See Walthour v. Chipio Windshield Repair, LLC, 745 F.3d 1326,

1329 (11th Cir. 2014) (citation omitted). The FAA “embodies a liberal federal

policy favoring arbitration agreements.” Id. (internal quotations omitted).

Therefore, courts hold that a written agreement to arbitrate is “valid,

irrevocable, and enforceable, save upon such grounds as exist at law or in

equity for the revocation of any contract.” See id. (internal quotations and

citations omitted). A court must enforce an agreement to arbitrate upon a

showing that “[1] the plaintiff entered into a written arbitration agreement that

is enforceable . . . and [2] the claims before the court fall within the scope of

that agreement.” Lambert v. Austin Ind., 544 F.3d 1192, 1195 (11th Cir. 2008).

Relevant here, courts have recognized a “rare” exception preventing

enforcement of an arbitration agreement if the agreement “prevent[s] the

effective vindication of a federal statutory right.” Am. Express Co. v. Italian

Colors Rest., 570 U.S. 228, 235 (2013); Smith v. Brd. of Dirs. of Triad Mfg., Inc.,

13 F.4th 613, 621 (7th Cir. 2021).

3. Analysis

In arguing that the arbitration agreement is not enforceable, the Plaintiffs

raise two challenges. First, the Plaintiffs argue that the arbitration agreement

and its waiver of certain Plan-wide remedies violates the “effective vindication”

doctrine.2 Second, the Plaintiffs argue that the arbitration agreement is not

2 The Plaintiffs do not argue that their ERISA claims are not arbitrable, only that this

arbitration agreement is void under the effective vindication doctrine. The Court notes that

while the Eleventh Circuit has not ruled on the question, most circuit courts have held that

ERISA claims are generally arbitrable. See Louis v. Aetna Health Inc., No. 6:16-cv-1922, 2017

WL 6939166, at *3 (M.D. Fla. Jan. 13, 2017) (noting that the 2d, 3d, 5th, 8th, and 10th circuit

courts have held that ERISA claims are arbitrable); see also Smith, 13 F.4th at 620; Dorman v.

Charles Schwab Corp., 934 F.3d 1107, 1112 (9th Cir. 2019).

binding as the agreement was added to the Plan by unilateral amendment in

2020. The Court will address both arguments.

A. Effective Vindication

The “effective vindication” doctrine is a judge-made exception to the FAA

that seeks to balance the competing federal policies in enforcing arbitration

agreements and in vindicating plaintiffs’ rights to pursue statutory remedies.

See Italian Colors, 570 U.S. at 235. Though rarely applied, the doctrine holds

that courts may invalidate arbitration agreements that “operate as a

prospective waiver of a party’s right to pursue statutory remedies.” Id. (cleaned

up) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.

614, 637 n.19 (1985)).

The Plaintiffs argue that the Plan’s arbitration agreement prevents the

effective vindication of rights guaranteed in 29 U.S.C. § 1109(a). In particular,

the Plaintiffs argue that they seek Plan-wide relief—such as removal of the

Plan’s fiduciaries and appointment of new fiduciaries, which is authorized

under § 1109(a)3—but that the waiver provision of the arbitration agreement

forbids such Plan-wide relief. (ECF No. 31 at 13.) The Plaintiffs point to Smith,

where the Seventh Circuit held that an arbitration clause, which precluded

relief that provided “additional benefits or monetary or other relief to any” other

individual, was unenforceable under the effective vindication doctrine, as the

clause prohibited plan-wide relief that ERISA expressly permitted. See Smith,

13 F.4th at 615, 621.

The Defendants argue that such Plan-wide relief is only available to those

who bring a class action on behalf of the Plan. And, the Defendants argue, as

courts have held that class-action arbitration waivers are permissible, any

waiver of a remedy unique to representative or class actions is also permissible.

See Randolph v. Green Tree Fin. Corp., 244 F.3d 814, 819 (2001) (holding that

“a contractual provision to arbitrate [Truth in Lending Act] claims is

enforceable even if it precludes a plaintiff from utilizing class action procedures

in vindicating statutory rights under TILA”).

The Plaintiffs point to no authority where the Eleventh Circuit has

applied the “effective vindication” doctrine to void an arbitration clause. And

the Eleventh Circuit has expressed a hesitancy to do so. See Sierra v. Cruise

Ships Catering and Servs., N.V., 631 F. App’x 714, 718 (11th Cir. 2015)

(declining to apply the effective vindication doctrine and noting that the

3 Section 1109(a) provides various types of relief, including “other equitable or remedial relief as

the court may deem appropriate[.]” See 29 U.S.C. § 1109(a).

Supreme Court has never applied it); cf. Randolph, 244 F.3d at 818–19

(declining to “make the same mistake again” by “giving too little weight to the

FAA’s pro-arbitration policy”).

Given the FAA’s pro-arbitration policy, as well as the rarity with which

courts apply the effective vindication doctrine, the Court declines to follow the

Smith rationale and holds that the arbitration agreement at issue is valid and

enforceable. While the arbitration agreement prohibits the recovery of some

Plan-wide monetary relief, such relief is only available to those who bring a

representative or class action. See Kennedy v. Geronemus, No. 10-61153-CIV,

2010 WL 11549886, at *5 (S.D. Fla. Nov. 4, 2010) (Altonaga, J.) (holding that a

claim under Section 1132(a)(2) “must be brought in a representative capacity”);

see generally LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248, 256

(2008) (holding that Section 1109(a) only provides remedies for plan injuries

but that individuals may recover for harm to that participant’s individual

account in a defined contribution plan). And as the Eleventh Circuit has

already held that a waiver of the right to bring a class action in arbitration is

permissible, the concomitant waiver of remedies associated with class actions

is also permissible. Cf. Randolph, 244 F.3d at 819.

In any event, even if the Court were to follow the Seventh Circuit’s

rationale in Smith, the arbitration clause at issue here is narrower than the one

in Smith. The arbitration clause in Smith prohibited relief that provided

“additional benefits or monetary or other relief” to anyone besides the claimant.

See Smith, 13 F.4th at 616 (emphasis added). Therefore, certain relief, such as

the removal of a fiduciary, was completely barred, as no claimant in an

arbitration would have been able to obtain such remedy under the arbitration

clause. See id. at 621. Here, the arbitration clause only prohibits relief that

provides “additional benefits or monetary relief to any person” other than the

claimant. (ECF No. 17-1 at 68.) Therefore, the specific relief that the Plaintiffs

argue has been barred—the ability to seek removal and appointment of the

Plan’s fiduciaries—is not barred by the arbitration clause. While that sought-

after relief has a Plan-wide effect, it does not provide additional benefits or

monetary relief as prohibited. Thus, while the arbitration clause in Smith

completely denied some types of statute-authorized relief to the Plan, the

clause here does not, as individual claimants can each recover the harm to

their defined contribution accounts, and they can recover Plan-wide relief that

does not provide additional benefits or monetary relief to others. For this

reason, the arbitration agreement here is valid and enforceable.

B. Unilateral Amendment

Next, the Plaintiffs contend that the arbitration agreement is not binding

on them because they did not knowingly agree to it. The Plaintiffs argue that

the arbitration agreement was unilaterally adopted by amendment in 2020 by

Baptist Health, as Plan Sponsor, and that no Plan participant was given the

option of consenting to the amendment. (ECF No. 31 at 16–17.) In support of

their argument, the Plaintiffs primarily rely on two district court opinions, one

of which was affirmed on different grounds by the Seventh Circuit and one that

was reversed by the Ninth Circuit. See Smith v. Greatbanc Trust Co., No. 20 C

2350, 2020 WL 4926560, at *2–3 (N.D. Ill. Aug. 21, 2020), aff’d, Smith, 13

F.4th at 623; Dorman v. Charles Schwab & Co. Inc., No. 17-cv-00285, 2018 WL

467357, at *5 (N.D. Cal. Jan. 18, 2018), rev’d, Dorman v. Charles Schwab

Corp., 780 F. App’x 510, 514 (9th Cir. 2019). Despite the lack of case support,

the underlying principle is potent—permitting the adoption of a binding

arbitration agreement by unilateral amendment by the Plan Sponsor, a

fiduciary accused of a breach of fiduciary duty, would be akin to letting the “fox

guard the henhouse.” See Brown v. Wilmington Trust, N.A., No. 3:17-cv-250,

2018 WL 3546186, at *5 (S.D. Ohio July 24, 2018) (quoting Dorman, 2018 WL

467357, at *5)).

Despite the unseemly nature of requiring Plan-participant Plaintiffs to

arbitrate a claim that they never personally agreed to arbitrate, the Plan agreed

to arbitrate. Section 1109(a) claims belong to the Plan. See LaRue, 552 U.S.

at 253 (holding that Sections 1109(a) and 1132(a)(2) permit individuals to

“bring actions on behalf of a plan”); Mass. Mut. Life Ins. Co. v. Russell, 473 U.S.

134, 142 n.9 (1985) (holding that “actions for breach of fiduciary duty [must]

be brought in a representative capacity on behalf of the plan as a whole”).

Therefore, the relevant inquiry is not whether individual participants agreed to

the arbitration agreement but whether the Plan agreed to arbitrate. See

Dorman, 780 F. App’x at 513 (holding that Section 1109(a) claims “belong to a

plan—not an individual” and therefore courts must look to “whether the Plan

agreed to arbitrate”). Here, the Plan consented to the 2020 amendment, which

added the arbitration clause, as the Plan expressly provided for unilateral

amendment by the Plan Sponsor. See id.; (see ECF No. 17-1 at 47–48, 67.) As

the Plan consented to the arbitration agreement, the Plan, and those that bring

claims on its benefit, must arbitrate.

Last, the Plaintiffs also argue that the arbitration agreement can only be

binding on the Plaintiffs who were participating in the Plan at the time that the

arbitration clause was added. Cf. Dorman, 780 F. App’x at 512 (holding that “a

plan participant agrees to be bound by a provision in the plan document when

he participates in the plan while the provision is in effect”). Here, Plaintiff

Lawanda Holmes was a participant in the Plan during the Class Period, but she

was terminated and removed all her funds from the Plan in September 2018,

before the arbitration agreement was added to the Plan. (ECF No. 31-1 at 4 4.)

However, as discussed above, the Plaintiffs’ breach-of-fiduciary-duty

claims are brought on behalf of the Plan. See Russell, 473 U.S. at 142 n.9.

While Plaintiff Holmes never agreed to arbitrate and was not put on notice of an

agreement to arbitrate while she was a participant in the Plan, the Plan agreed

to arbitration, and any claims on behalf of the Plan, including those brought by

Plaintiff Holmes, must be brought in arbitration.

For the reasons set out above, the Court holds that the Plan consented to

arbitrate and that the Plaintiffs who bring claims on behalf of the Plan must

arbitrate their claims.

4. Conclusion

In total, the Court grants the Defendants’ motion to compel arbitration.

(ECF No. 17.) The Court orders the parties to submit their disputes to

arbitration. This case is stayed pending arbitration, and the Court orders the

parties to advise the Court once the arbitration is terminated or once the

claims are otherwise resolved. In the meantime, the Clerk is directed to

administratively close this case. All pending motions are denied as moot.

Done and ordered in Miami, Florida, on January 20, 2022.

Abel L—

United States District Judge