6th Circuit Revives Kellogg Excessive Fee Case Over Arbitration Clause Dispute

The U.S. 6th Circuit Court of Appeals on Monday granted an appeal overturning a district court decision that would have forced into arbitration a lawsuit against the Kellogg Co. over excessive 401(k) plan fees.

The appeals court reversed the U.S. District Court for the Western District of Michigan decision that the arbitration clause in the Kellogg Co.’s plan’s document prevents the plaintiff, Bradley Fleming, from bringing his breach of fiduciary duty lawsuit on behalf of the plan, stating that the plan’s language “has the practical effect of blocking a whole class of claims.”

The Original Case

In Fleming v. Kellogg Co. et al., filed in the Western District of Michigan in June 2022, Fleming, a participant in Kellogg’s 401(k) plan, claimed that Kellogg and its board of directors breached its fiduciary duties by failing to monitor plan recordkeeping costs, by causing participants to pay excessive fees and by failing to adequately monitor other fiduciaries. Fleming alleged that Kellogg’s imprudence cost the plan $7 million in excessive recordkeeping and administrative fees paid between 2016 and 2020.

Kellogg moved in April 2023 to dismiss the complaint and compel arbitration pursuant to the arbitration clause in its plan document. The district court granted the dismissal, concluding that enforcing the plan’s arbitration provision would not prevent Fleming from effectively vindicating the statutory remedies sought in his complaint.

Fleming appealed the dismissal, and the 6th Circuit has now reversed the lower court’s decision, leaving Fleming free to proceed with the original complaint in district court.

According to the appeals court’s opinion, the Kellogg 401(k) plan was amended, effective January 1, 2020, to require arbitration for certain claims, including those for breach of fiduciary duty. After the amendment, the plan document stated that “any arbitration would be conducted on an individual basis only, and not on a class, collective or representative basis.”

Fleming stopped working at Kellogg about four months before the arbitration clause went into effect and contended that he neither received notice of the mandatory arbitration clause nor personally assented to arbitration. About seven months after the plan adopted the mandatory arbitration provision, Fleming rolled out of the plan.

In December 2021, Kellogg retroactively amended the plan document to include, “The arbitrator shall have no authority to arbitrate any claim on a class or representative basis and may award relief only on an individual basis; provided, however, that the arbitrator may award any relief otherwise available under [the Employee Retirement Income Security Act].”

The Appellate Decision

Because Fleming’s breach of fiduciary claims were brought on behalf of Fleming and the plan, the arbitration clause prevented him from proceeding in a representative manner. While Kellogg argued that the manner of bringing suit is “merely a procedural matter,” the appeals court ruled that it effectively eliminates a participant’s right to bring a fiduciary breach claim under Section 502(a)(2) of ERISA.

“Arbitration clauses that forbid participants from obtaining planwide remedies under ERISA are unenforceable,” the 6th Circuit ruling stated. “And because the clause is void, we decline to reach Fleming’s alternative argument for reversal that he did not consent to the arbitration clause.”

The Bigger Picture

District courts have been split over the enforceability of arbitration clauses in ERISA plans, and Argent Trust Co. recently filed a petition in the U.S. 2nd Court of Appeals, asking the Supreme Court to provide guidance on whether complaints under ERISA should be addressed by arbitration or at trial.

In its filing, Argent asked the Supreme Court to consider “the important federal questions presented here as follows: ERISA does not require participants to bring claims on behalf of their entire benefit plans, and nothing in ERISA precludes individual arbitration.”

In addition, bills were recently introduced in both the House of Representatives and the Senate that would make mandatory arbitration clauses unenforceable in all ERISA-covered plans. If one were passed into law, all retirement plans covered by ERISA would be banned from requiring pre-dispute arbitration as a condition of joining the plan.

In the Kellogg case, Fleming is represented by law firms Haney Law Office PC and Walcheske & Luzi LLC, and Kellogg is represented by Jenner & Block LLP.

Kellogg did not immediately respond to a request for comment.