Split appeals court panel rules against Aetna in ERISA arbitration case

In 2023, the food service giant sued Aetna in a federal court in Texas over allegations that Aetna had violated Employee Retirement Income Security Act plan fiduciary obligations by paying too many improper claims and giving Aramark misleading reports.

An arbitration clause in Aetna's agreement with Aramark requires Aramark to handle disputes with Aetna, except for requests for "temporary, preliminary, or permanent injunctive relief or any other form of equitable relief," through binding arbitration in Hartford, Connecticut.

At the 5th Circuit, Circuit Judge Patrick Higginbotham and Circuit Judge Leslie Southwick found that the arbitration clause is ambiguous enough to be subject to court review.

"Unless the parties clearly and unmistakably prove otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator," Higginbotham wrote in an opinion about the ruling, quoting a 1986 3rd Circuit ruling.

Related: Are ERISA breach of fiduciary duty claims arbitrable?

The third member of the panel, Edith Jones, agreed with the majority that Aramark need not go to arbitration, but she wrote in a dissent that she objects to the idea that Aramark can seek money damages through a request for equitable relief.

Aramark declined to comment on pending litigation.

Representatives for Aetna were not immediately available to comment.

What it means: The Aramark-Aetna case could show how the federal courts will involve suits involving ERISA fiduciary obligations, arbitration agreements and health plan sponsors' requests for equitable relief.

The backdrop: Lawyers have recently started helping many employers sue TPAs.

In the suits, the employers accuse the TPAs of violating ERISA plan fiduciary obligations by administering plans poorly and failing to give employers enough information about plan operations or about the TPAs' compensation.

The federal courts in Texas have a reputation for being friendly to employers and benefits firms. Some judges there have, for example, tried to overturn the Affordable Care Act and blocked implementation of U.S. Labor Department ERISA fiduciary rule regulations developed during the administration of former President Joe Biden that could have imposed a fiduciary obligation on annuity sellers.

The 5th Circuit appeals court handles appeals from the rulings of the federal district courts in a region that includes Texas and Louisiana. In 2018, Jones helped uphold a district court ruling that ultimately led to the death of the Biden-era fiduciary rule regulations.

Equitable relief: In the United States, the courts use "equitable relief" remedies to tell parties to do something or stop doing something.

If a court ordered an employer to let a worker into its health plan or told an employer to let a worker bring his dog to work, those would be forms of equitable relief.

An equitable relief remedy could involve a court asking one party to return "traceable funds" taken from the other party, but equitable relief usually does not involve other types of cash payments, Jones wrote in her dissent.

"Aramark's complaint repeatedly claims compensatory money damages," Jones wrote.

Higginbotham and Southwick used flawed rulings to support the idea that a plaintiff can try to collect money damages through an equitable relief action, Jones said.

Without using the flawed rulings, "there is no foundation for Aramark's recovery of money damages," Jones said. "Such relief is not 'typical equitable relief' and is therefore impermissible, as held repeatedly by the Supreme Court."