- with readers working within the Utilities industries
- within Finance and Banking topic(s)
A three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit appeared skeptical of an arbitration provision in a legal technology company's employee stock ownership plan (ESOP). The judges appeared unlikely to force arbitration after hearing arguments in the Employee Retirement Security Insurance Act (ERISA) lawsuit alleging that the company's ESOP shares were undervalued in a plan termination. The case is Eboni Williams et al. v. Gerald Shapiro et al., Case Number 24-11192, in the U.S. Court of Appeals for the Eleventh Circuit.
A360 Holdings LLC, a360inc executives, and Argent Trust Co., the ESOP trustee, appealed to the Eleventh Circuit after a Georgia federal district court judge denied their motion to compel arbitration in March 2024. A360 ESOP participants filed their proposed class action lawsuit in September 2022, claiming that A360 bought almost 883,000 shares of the ESOP at a rate of $30 per share. According to workers, the shares should have been valued at $70 per share, which resulted in a loss of more than $30 million for plan participants.
During the arguments before the Eleventh Circuit panel, one judge repeatedly asked the company attorney how the ESOP arbitration provision was legally enforceable. The judge pointed out that language in the plan blocked relief in arbitration that would benefit other ERISA plan participants besides the claimant. The judge's line of questioning indicated a potential reference to the effective vindication doctrine of the Federal Arbitration Act (FAA). This doctrine allows judges to overrule arbitration agreements if they cut off a party's ability to bring claims under another federal law.
Going further with this line of questioning, the judge pointed out that plan participants are seeking reformation and rescission under ERISA in their challenge to the 2019 termination of the company's ESOP. Reformation of the plan would provide a benefit to people other than the claimant, seemingly implicating the effective vindication doctrine.
Another panel judge from the Middle District of Florida sitting by designation also questioned the enforceability of the ESOP arbitration provision, noting multiple recent appellate opinions denying employer-side arbitration relief in similar cases. The company attorney attempted to distinguish this case through plan language that differed from the plans in the other appellate cases. However, his efforts resulted only in another exchange with the first judge about how arbitration might block other types of relief under ERISA, again implicating the effective vindication doctrine.
The U.S. Department of Labor weighed in on the dispute in its October amicus brief in support of workers. The American Association for Justice, a trial advocacy group, also filed a brief supporting continuation of the case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
