In Dorman v. Charles Schwab Corp.,1 the U.S. Court of Appeals for the Ninth Circuit held on August 20, 2019 that claims under the Employee Retirement Income Security Act of 1974 (“ERISA”) can generally be subject to mandatory arbitration. In doing so, the court overruled its long-standing decision in Amaro v. Continental Can Co.,2 which had generally stood for the proposition that ERISA claims are not arbitrable.
In Dorman, the plaintiff participated in an ERISA-governed defined contribution (individual account) “401(k)” retirement plan (the “Plan”) that included a provision requiring 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 Plan document also required that all claims be brought in individual arbitration.
The plaintiff brought a putative class action under Section 502(a)(2) of ERISA, which generally, among other things, permits participants and beneficiaries to bring an action on behalf of a plan for fiduciary violations.3 The plaintiff alleged breaches of fiduciary duty under ERISA, including violations of ERISA’s prohibited transaction rules, in connection with the operation of the Plan. The defendants moved to compel individual arbitration, as contemplated by the Plan.
In addressing the plaintiff’s assertions, the District Court for the Northern District of California did not reach the question of whether an ERISA claim can be subject to mandatory arbitration. In reversing the District Court’s decision, however, the Court of Appeals directly confronted that question. The Court of Appeals reviewed its earlier decision in Amaro, which had held that ERISA’s protections could not be satisfied in arbitration proceedings because arbitrators “lack[ed] the competence of courts to interpret and apply” ERISA.4
In reconsidering Amaro, the Court of Appeals looked to the U.S. Supreme Court’s more recent decision in American Express Co. v. Italian Colors Restaurant.5 In American Express, reflecting an arguable trending in Congress and the courts in favor of arbitration generally,6 the Supreme Court determined that federal statutory claims may generally be arbitrated and, potentially undercutting the rationale of Amaro, concluded that arbitrators are indeed capable of competently interpreting and applying federal statutes.
Accordingly, in Dorman, the Court of Appeals identified American Express as intervening Supreme Court authority, and, after determining that American Express is “irreconcilable with Amaro,” concluded that Amaro is no longer binding precedent. In a concurrent unpublished opinion, the Court of Appeals then went on to hold that the Plan’s arbitration requirements were enforceable7 and that the parties should be ordered into individual arbitration.8
The Dorman decision is important from a number of perspectives. As to the types of ERISA claims that were at issue in Dorman, a Federal appellate court has now validated an arbitration clause in an employee benefit plan in the context of a fiduciary claim under ERISA. More generally, though, Dorman can be seen as reflecting an ever-expanding tendency in favor of arbitration clauses,9 potentially buoying those who support and favor alternative dispute resolution rather than resolution in the courts. Indeed, the Ninth Circuit, seen by some as being one of the more influential circuit courts, here validated an arbitration provision even in the face of its own prior specific contrary authority.
Footnotes
1) No. 18-15281 (9th Cir. Aug. 20, 2019).
2) 724 F.2d 747 (9th Cir. 1984).
3) Cf. LaRue v. DeWolff, Boberg & Assoc., 552 U.S. 248 (2008) (case involving fiduciary claim by a participant in a defined contribution plan that addressed, among other thing, the nature of the claim as being a claim of the plan’s). See generally Oringer, Lichtenstein and Stella, Release Us from Confusion Over ERISA Fiduciary Claims, Pensions & Benefits Daily, Vol. 40, March 16, 2010 (containing a general discussion of the procedural posture of certain fiduciary actions under ERISA).
4) Amaro, 724 F.2d at 750
5) 570 U.S. 228 (2013).
6) This trend had previously manifested itself in the ERISA context with respect to the now-defunct amended fiduciary rule of the US Department of Labor (the “DOL”), which was later invalidated by the Fifth Circuit in Chamber of Commerce v. DOL, 885 F.3d 360 (5th Cir. 2018). See generally Dechert Newsflash, ERISA’s Amended Fiduciary Rule – Done, Done, on the Next One (June 2018). In general terms, the DOL in Field Assistance Bulletin (“FAB”) 2017-03 confirmed that it would not seek to enforce the condition in the Best Interest Contract (“BIC”) Exemption (also later invalidated) that the fiduciary’s contract with a retirement investor not include a restriction on an investor’s right to bring or participate in a class action (the “Class-Action Condition”). The DOL stated that, in light of the position adopted in a DOL amicus brief in NLRB v. Murphy Oil USA, Inc., Case No. 16-307 (U.S. Sup. Ct.), the United States was no longer defending the Class-Action Condition as applied to arbitration agreements that prevent investors from participating in class-action litigation. As noted in FAB 2017-03, the United States in a brief filed in the Chamber of Commerce case had made a similar concession to the effect that the Class-Action Condition should be “vacated insofar as it applies to arbitration clauses because it cannot be harmonized with the Federal Arbitration Act and AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) [(generally holding that state laws that prohibit contracts from disallowing class-wide arbitration are preempted)].” Foreshadowing these developments, the DOL had earlier submitted a letter in the then-pending case of Thrivent v. Acosta, Case No. 16-cv-03289 (D. Minn.), stating that a claim there revolving around the Class-Action Condition “will likely be mooted in the near future.”
7) The court also held that the Plan’s arbitration provision was not invalid under Section 410(a) of ERISA, which generally renders void as against public policy any contractual provision that purports to relieve a fiduciary from responsibility or liability under ERISA. The court stated that an agreement to “conduct arbitration on an individual basis . . . does not relieve a fiduciary from responsibility or liability.”
8) It is noted that the practical effect of upholding individualized arbitration provisions in the particular context of a fiduciary claim under ERISA is not entirely clear. While the court suggested that the monetary relief recoverable by specific plaintiffs could be limited to “the plan losses in [the plaintiff’s] individual account,” because fiduciary actions under ERISA are brought on behalf of a plan, a judgment could potentially have significant effect for the plan as a whole and plan participants generally (regardless of whether the action is expressly fashioned as a “class action”).
9) At least one federal administrative agency has seen the value of arbitration for the resolution of its own matters. See U.S. Dept. of Justice, Press Rel. 19-932 (Sept. 4, 2019) (noting that the Antitrust Division would be using a certain type of arbitration for “the first time,” and quoting the Assistant Attorney General as saying that “[a]lternative dispute resolution is an important tool that the Antitrust Division can and will use, in appropriate circumstances, to maximize its enforcement resources to protect American consumers”).
