Ninth Circuit Set to Weigh in on Whether Defendants May Compel Arbitration of ERISA Claims

Two California district court decisions, the most recent issued in January, have set the stage for the Ninth Circuit to rule on when courts may require plaintiffs to arbitrate ERISA fiduciary breach claims. In March 2017, the Central District of California held in Munro v. University of Southern Californiathat plaintiffs who had signed employment agreements requiring arbitration could nevertheless pursue their claims in court. The court reasoned that the plaintiffs, all ERISA plan participants, brought the claims on behalf of plans, which had not consented to arbitration. Weeks ago, in Dorman v. Charles Schwab & Co., Inc., the Northern District of California concluded that it would not compel arbitration even where an arbitration provision was written into the plan itself.

Munro and Dorman both involved claims challenging plans’ investment offerings and fees under ERISA Section 502(a)(2). That provision states that “a civil action may be brought . . . by a participant, beneficiary or fiduciary for appropriate relief” under Section 409, which in turn provides that a fiduciary who breaches his or her duties is liable to the plan. See generally LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248, 261 (2008) (“The plain text of § 409(a) . . . leaves no doubt that § 502(a)(2) authorizes recovery only for the plan.”). While the Ninth Circuit and other circuits have uniformly held that ERISA claims generally are arbitrable, the Munro plaintiffs argued that Section 502(a)(2) claims are an exception. The court, noting that there was no Ninth Circuit authority on point, relied on cases holding that an individual plaintiff’s execution of a release does not prevent him or her from suing on a plan’s behalf. See Bowles v. Reade, 198 F.3d 752, 760 (9th Cir. 1999).

The Dorman court carried Munro’s reasoning a step further. The court found inapplicable several arbitration clauses—two in documents that the named plaintiff had executed did not cover the dispute; one in the plan document itself was executed after Plaintiff’s termination. The court went on to say that even if the plan document were binding, it would not compel arbitration of Plaintiff’s Section 502(a)(2) claim because the plan document was executed “unilaterally” by the plan sponsor. The court concluded: “A plan document drafted by fiduciaries—the very people whose actions have been called into question by the lawsuit—should not prevent plan participants and beneficiaries from vindicating their rights in court.”

Both cases point to interesting issues related to Section 502(a)(2) and the interplay between ERISA and the Federal Arbitration Act. The Munro appeal has attracted amicus attention from the AARP and the AARP Foundation (supporting the plaintiffs) and the U.S. Chamber of Commerce (weighing in for defendants), whose briefs take opposing views on whether the FAA requires courts to compel arbitration for any ERISA claims. Moreover, the opinions highlight the distinct nature of claims under Section 502(a)(2), which courts have generally not read to impose requirements such as demand obligations typical for derivative cases or certification standards applied in class actions. See, e.g., Perez v. Bruister, 823 F. 3d 250, 258 (5th Cir. 2016) (declining to address “theoretically difficult question” of whether plaintiff “was required to sue as a class representative, or the court was required to impose safeguards to ensure that all class members are notified, fairly treated, and not disadvantaged” because the fact that Secretary brought parallel case obviated concerns). This leads to some tension with the courts’ reasoning that a plan must consent to arbitration, since it is arguable that a plan or its participants has not “consented” to federal court litigation either. Courts have also differed with Bowles, reasoning that even if a single participant cannot release a plan’s claims, a participant’s execution of a release can preclude that participant from bringing such claims. Wagner v. Stiefel Labs., Inc., No. 1:12-CV-3234-MHC, 2015 WL 4557686, at *11–12 (N.D. Ga. June 18, 2015); cf. Howell v. Motorola, Inc., 633 F.3d 552, 561 (7th Cir. 2011) (reading ERISA Section 410 broadly “would make it impossible, as a practical matter, to settle any ERISA case”). The ultimate decision in Munro may address some or none of these issues.

The Ninth Circuit is unlikely to decide Munro for several months (recent docket entries point to oral argument in May or later), but a wildcard may come in the next few weeks from the Supreme Court. The Court appears likely to issue an opinion soon in Epic Systems Corp. v. Lewis, a case argued on the first day of the October Term. Epic Systems, which was consolidated with two other cases including one from the Ninth Circuit, addresses whether the National Labor Relations Act prohibits enforcement of an agreement requiring an employee to arbitrate claims against an employer on an individual basis, waiving class and collective actions. Dorman declined to stay proceedings pending a decision in Epic Systems, but depending on how the Court decides the case, it may influence how broadly courts apply the FAA and how they construe its interaction with federal laws like ERISA. In any case, plans and practitioners may receive greater clarity soon on which ERISA claims are arbitrable.

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