Forced Arbitration, Stock Drop Disputes and ACA Repeal Loom Large for ERISA Lawsuits in Latter Half of 2019

Washington, DCIt’s semiannual prognostication time for ERISA lawsuits, and in our crystal ball, we see a mysterious stranger, great fortune and heartbreak. No, actually, not. But relying on our lesser powers, we suspect that, for the next six months, three issues will loom large.

These include the impact of forced arbitration clauses, the future viability of stock drop lawsuits and what might happen to employer provided health insurance if the ACA is struck down in the courts. The consequences of decisions in these areas could alter the ERISA legal landscape in major ways.

Will employers be allowed to block class action lawsuits with mandatory arbitration clauses in ERISA plan documents?

In June, the Ninth Circuit Court of Appeals heard an appeal from a decision of the Northern District of California in Dorman v. Charles Schwab, Inc.. The lower court’s decision upheld the plaintiff’s right to litigate, rather than submit the claim to arbitration.

The ability to compel arbitration is extremely important for plan sponsors because it prevents plan participants from participating in class action lawsuits. Not surprisingly, this has been a point of considerable legal contention in recent years.

In Munro v. University of Southern California, the Ninth Circuit held that employees pursuing ERISA claims could not be compelled to arbitrate the dispute because of mandatory arbitration language included in their employment agreements. The Supreme Court declined to review the decision.

Dorman is different, however, because the mandatory arbitration language is included in plan documents. If the defendants lose again, it would not be surprising to see another petition for certiorari.They are rolling the dice with the Supreme Court.

Will employees be able to sue plan fiduciaries who knew, but did not disclose adverse information about employer stock investments

These so-called “stock drop” lawsuits have had a recent resurgence. At its most basic, the plaintiffs’ argument focuses on the conflicting obligations of retirement plan fiduciaries who are also often corporate officers and directors with access to non-public financial information about the company.

As fiduciaries, they have an obligation to act solely in the interest of plan participants and beneficiaries. As corporate officers, they have the obligation to act in the company’s best interest. Those duties can come into conflict when a retirement plan invests in company stock. Disclosure of adverse company information may allow participants to diversify away from a bad investment or it can precipitate a financial crisis. It can also trigger insider trading violations.

Recent lawsuits involving Boeing and Johnson & Johnson have focused on individual account plans and collective fiduciary responsibility. The big policy question is about which duty is more important.

These cases were given new life by a Second Circuit decision in Jander v. IBM. The court held that no prudent fiduciary would think it proper to keep employees' retirement savings invested in company stock after learning that IBM's microchip division was losing $700 million per year. The company continued to maintain publicly that the business was doing well. IBM, the Second Circuit reasoned, could have told employees or halted the trade of company stock before the stock tanked and took employee retirement savings down with it.

It is a very participant-friendly interpretation of an existing rule. The Supreme Court has agreed to review the Second Circuit decision in the next term and could limit it in ways that return to the previous employer- friendly standard.

What will happen to employer-provided health insurance if the ACA is struck down?

Suddenly, once again, the fate of the Affordable Care Act seems up in the air. On July 9, a three-judge panel in the Fifth Circuit seemed likely to uphold a District Court ruling that a central provision of the Affordable Care Act — the requirement that most people have health insurance — is unconstitutional.

Many people think of the ACA and ERISA as separate bodies of law, particularly since the latter applies specifically to employer-sponsored plans. The truth is that they are intertwined in many ways. It is worth considering how ERISA would apply differently to health plans if the ACA were suddenly gone.

In a post-ACA world, employees who have employer-sponsored health insurance, protected by ERISA might see the following changes:

Pre-existing condition restrictions: Today, as many as 133 million Americans under the age of 65 have pre-existing medical conditions that could disqualify them from buying a health insurance policy or cause them to pay significantly higher premiums if the health law were overturned. This affects even those who might be covered by an employer plan.

Lifetime caps: Before the ACA, people with conditions like cancer or hemophilia that were very expensive to treat often faced enormous out-of-pocket costs once their medical bills reached these caps. Ever had twins? Are you over 55? You could become an undesirable employee because, frankly dear, you’re too expensive.

Kicking kids off plans: Expecting kids who are 26 and younger to be economically independent may be unrealistic because of student loan debt.

Resurgence of junk plans: The ACA defined minimum standards for health plans. If it doesn’t cover cancer or diabetes or childbirth, is it a health plan? More to the point, should an employer offer this option and claim credit for offering health insurance?

These are dire predictions – more in the heartbreak than the great fortune categories -- but lawsuits about mandatory arbitration, stock drops and ACA legal challenges are likely to loom large in the latter half of 2019.