In the recently issued opinion Langlais v. PennMont Benefits Services, Inc., the United States Court of Appeals for the Third Circuit (encompassing New Jersey, Pennsylvania and Delaware) held that a plan administrator’s failure to participate in an arbitration proceeding barred it from challenging the arbitrator’s decision in a federal court. The effect of this decision was the requirement for a voluntary employees’ beneficiary association (the “Plan”) to pay $3.8 million as a death benefit for a claim the Plan’s administrator disputed.
By way of background, Jorli McLain was an owner-employee of a company that provided death benefits through the Plan. Upon McLain’s death in 2010, her beneficiaries filed a claim with the Plan administrator for death benefits. The Plan administrator denied the claim on the basis that McLain was not eligible for benefits because she did not receive a salary for the years preceding her death, and therefore was not considered an employee. Without internally appealing the denial, her beneficiaries filed a demand for arbitration. While the Plan clearly provided for arbitration, the Plan administrator argued the demand for arbitration was premature because there had not been an internal appeal of the claim denial. The Plan administrator communicated its objections through written correspondence, but the Plan did not participate in the actual arbitration proceedings. The arbitrator decided in favor of the beneficiaries and awarded them $3.8 million. The District Court confirmed the award and refused to consider any arguments made by the Plan because its failure to appear at the arbitration proceeding was deemed a waiver of those arguments. The Plan appealed the District Court’s waiver ruling and the arbitrator’s decision.
The Third Circuit affirmed the District Court because by failing to appear at the arbitration the Plan effectively waived its right to challenge the arbitration’s proceedings. The Third Circuit explained that when a party fails to object to an arbitrator’s jurisdiction during the arbitration proceeding, the party may not later raise such jurisdictional issues in federal court. Stated differently, the Plan’s pre-arbitration objections could not be used in federal court to challenge the arbitration’s proceedings.
Similarly, the Third Circuit ruled that by failing to attend the arbitration proceedings, the Plan waived its arguments regarding the merits of the arbitrator’s decision. The Third Circuit found that the Plan administrator’s original denial letter did not suffice to the level of raising an argument during arbitration. Therefore, the Third Circuit deemed the Plan’s arguments regarding the arbitrator’s decision waived.
This case reinforces the significance of careful adherence to dispute resolution procedures. As such, Plan administrators should participate in the arbitration process, even if they dispute the appropriateness of the proceedings. This case illustrates that courts may be unwilling to undermine agreements to arbitrate as they are intended to be a quicker, less formal way of resolving disputes. Moreover, employers should review their plan documents to review any arbitration provisions. Subject to limitations not presented in this case, arbitration is permitted in certain ERISA disputes.