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It appears questions raised by the Ninth Circuit’s decision in Dorman v. Charles Schwab Corp., Case No. 18-15281 (9th Cir., Aug. 20, 2019), may move towards resolution sooner than anticipated, with the plaintiff filing an en banc petition last week.

Arguments within the statement and supporting memorandum center on the Dorman court’s application of the Supreme Court’s Epic Systems Corp. v. Lewis precedent, chiefly that its applicability is limited in relation to ERISA claims brought in a representative capacity:

Epic Systems “did not address whether ERISA, an entirely different statute, creates a right to bring a representative action.  Mass. Mutual, LaRue and Munro, by contrast, have all ruled that fiduciary breach claims under ERISA are inherently representative.”  En Banc Petition Brief, p. 12, n.5.

The petition also claims that

the panel’s decision crashes head-on with the Supreme Court’s concern about arbitration-related waivers eliminating the enforcement of federal rights; namely, when they purport to eliminate the right to pursue a remedy guaranteed by statute.

EP Brief, p. 13. The petition argues that if an ERISA plaintiff brings claims subject to a valid arbitration clause, under the Dorman court’s ruling, any relief sought would be limited to individual relief, and fiduciary defendants “would be relieved of virtually all of their liability under  § 1109, except to the extent that liability relates to an individual’s account.” EP Brief, pp. 12-13.

The Dorman court distinguished the case from those in Munro v. University of Southern California, No. 16-cv-06191, 2018 WL 3542996 (9th Cir., Jul. 24, 2018) on two separate fronts.

The first obvious factual difference is that the Dorman plans contained an arbitration agreement (as opposed to the clause appearing in an employment agreement in Munro).  The second difference was the scope of the agreements at issue.  In Dorman, the plaintiff’s relief could, conceptually at least, be resolved as an individual claim – ultimately the recovery of losses sustained on his individual retirement account(s) owing to alleged fiduciary breach.

The larger issue is, hypothetically, somewhere between both Dorman and Munro – a class of plaintiffs seeking to litigate claims clearly brought on behalf of their plan (removal of breaching fiduciaries and reformation) yet faced with an arbitration provision contained within the relevant plan itself and barring class-wide arbitration.  Consistent with the Munro holding, an ERISA plaintiff seeking judicial remedy which exists for the benefit of a plan may not alone settle a claim.  Munro, Slip Op. at 11.  If arbitration were compelled, would a plan-appointed representative step in or is that not the position already occupied by a plaintiff bringing a derivative action? Would a split of the individual claims and the ‘clear’ plan-relief claims be compelled, resulting in the possibility of two distinct resolutions on fact?

While these specific questions may not be directly answered even through an en banc rehearing, the hope is that clarity in some form regarding protection guaranteed to ERISA plans of a right to representational adjudication of plan-wide relief, in the context of an (arguably) otherwise valid arbitration clause, may emerge.[1]

[1] The Dorman plaintiff’s brief also argues that “§ 1110(a) renders void the arbitration provision’s prohibition on seeking plan-wide relief under § 1109 in a representative capacity.”  EB Brief, p. 15.  ERISA Section 410, 29 U.S.C. § 1110(a), bars any contractual provision which would relieve a fiduciary from liability.  In this sense, clarification of the general rights guaranteed to an ERISA plan, as a whole, for a “deputized” plan-appointed representative may hold the answers toward the validity of broad ERISA arbitration clauses, such as that at issue in Dorman.

The Ninth Circuit Court of Appeals ruled yesterday that, contrary to prior Circuit precedent, the presence of an arbitration provision in an employee benefits plan could compel arbitration.  See, Dorman v. Charles Schwab Corp., Case No. 18-15281 (9th Cir., Aug. 20, 2019).  The plaintiff had filed a class action suit in district court alleging that the defendants, plan fiduciaries, administrators, and employers, had improperly selected proprietary funds for inclusion within the offerings of multiple 401(k) plans, despite their poor performance, and to the detriment of the plans and individual participants.

Relying principally on the holding of American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013), the court ruled that Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), was no longer good law and ERISA claims could be subject to contractually-mandated arbitration.

The relevant arbitration provision, contained within the plan document itself, was wide-reaching, stating that “[a]ny claim, dispute or breach arising out of or in any way related to the Plan shall be settled by binding arbitration….”  The provision also included a waiver of class or other collective action, “even if absent the waiver [the plaintiff] could have represented the interests of other Plan participants. The arbitration provision within the second plan at issue was materially identical.

The plaintiff sought to recover under both ERISA Section 502(a)(2) and (3), “seeking plan-wide relief on behalf of a class comprising all participants in, and beneficiaries of, the Plan at any time within six years of the filing of the Complaint.” The complaint’s claims were focused on violation of ERISA’s prohibited transaction rules through demonstrated preference of inclusion of investment funds affiliated with Schwab, despite mounting evidence of poor performance across benchmarks.

The district court had previously denied the motion to compel arbitration, holding the provisions were inapplicable since enacted after the plaintiff’s participation in the plan ended and that “the claims were ‘claims for benefits’ that were expressly carved out of the arbitration agreement in the Compensation Plan.” Further, the district court ruled that even if the agreements were applicable, they were unenforceable as the plaintiff’s claims were “brought on behalf of the Plan,” not for individual relief, and an individual “cannot waive rights that belong to the Plan, such as the right to file this action in court.”

While the Dorman opinion cites Munro v. University of Southern California, No. 17-55550 (9th Cir., Jul. 24, 2018), multiple times throughout as complimentary, the outcome in Munro was, notably, the opposite of that within Dorman – the Ninth Circuit held that the Plaintiffs, who had been required to sign arbitration agreements as part of their employment contracts, were asserting claims squarely on behalf of their plans and, accordingly, arbitration clauses executed on behalf of the individuals themselves, pursuant to employment contracts, would not compel arbitration of claims clearly brought on behalf of the plans.

Under the Munro court’s holding, employees

seek[ing] financial and equitable remedies to benefit the Plans and all affected participants… including a determination as to the method of calculating losses, removal of breaching fiduciaries, a full accounting of Plan losses, reformation of the Plans, and an order regarding appropriate future investments” are clearly “bringing their claims to benefit their respective Plans across the board, not just to benefit their own accounts as in LaRue.

Munro slip op. at 12-13. The Dorman court was arguably facing a distinguishable analysis on two separate fronts – while the obvious difference is the fact the plans at issue in Dorman contained the relevant arbitration agreement (rather than individual employment agreements, as in Munro), the scope and direction of the separate plaintiffs’ claims would also seem to be critically different.  The Dorman plaintiff was seeking relief which could, conceptually at least, be segregated into an individual claim – ultimately, the recovery of losses sustained on his individual retirement account(s) owing to alleged fiduciary breach, versus the clear plan-wide relief sought in Munro.

But take for instance a hybrid-hypothetical, somewhere between both Dorman and Munro – a class of plaintiffs seeking to litigate claims clearly brought on behalf of their plan (removal of breaching fiduciaries and reformation) yet faced with an arbitration provision contained within the relevant plan itself and barring class-wide or collective arbitration.  Consistent with the Munro holding, an ERISA plaintiff seeking judicial remedy which exists for the benefit of a plan may not alone settle a claim.  Id. at 11.  If arbitration was compelled, would a plan-appointed representative step-in or is that not the position already occupied by a plaintiff bringing a derivative action? Would a split of the individual claims and the ‘clear’ plan relief-related claims be compelled, resulting in the possibility of two distinct resolutions on fact?

The Dorman court also addressed, in a separate memorandum, the effectiveness of an arbitration provision in barring class-wide arbitration of 502(a)(2) claims brought by a plaintiff.  However those claims are, as articulated in the memorandum, and under LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008), “inherently individualized when brought in the context of a defined contribution plan….”  Dorman, et al. v. The Charles Schwab Corporation, et al., No. 17-cv-00285, ECF No. 53, at 5-6 (Aug. 20, 2019).