In a published decision issued yesterday, the U.S. Court of Appeals for the Ninth Circuit held that collective claims for alleged breaches of fiduciary duty under ERISA were not subject to the arbitration agreements in plaintiff employees’ employment contracts. Instead, since those claims were brought for the benefit of the ERISA plans in which the plaintiffs participated as a whole, they were outside the scope of the employees’ individual arbitration agreements, and could be litigated in court on a collective basis.

Qui Tam Claims Guided the Court’s Analysis, and May Guide Plaintiffs’ Counsel Going Forward

The Ninth Circuit’s decision may provide something of a roadmap for plaintiffs’ counsel seeking to keep ERISA claims in federal court—and in class-action format. In affirming the district court’s denial of the defendants’ motion to compel arbitration, the Ninth Circuit analogized the plaintiffs’ action to qui tam claims brought under the False Claims Act (FCA).

There is no shortage of similarities between qui tam suits under the FCA and suits for breach of fiduciary duty under ERISA. Most importantly, both qui tam relators and ERISA § 502(a)(2) plaintiffs are not seeking relief for themselves. . . . Out of this basic similarity arises a related principle—neither the qui tam relator nor the ERISA § 502(a)(2) plaintiff may alone settle a claim because that claim does not exist for the individual relator or plaintiff’s primary benefit.

Breadth of Claims Put Them Outside Scope of Arbitration Agreements

The fact that the named plaintiffs brought their ERISA claims individually—and stood to benefit individually from a recovery in the case—did not give the court pause. It noted that, in an analogous FCA decision published last year, another panel of the Ninth Circuit was “unconcerned that the FCA provides that the relator brings suit not only for the United States Government but also for the person” (internal quotations omitted). Moreover, the plaintiffs’ ERISA claims alleged “fiduciary misconduct as to the Plans in their entireties,” not merely “mismanagement of individual accounts,” and were brought “to benefit their respective Plans across the board, not just to benefit their own accounts.” Consequently, the claims were not captured within the scope of the employees’ arbitration agreements, and were not subject to arbitration.

Court Acknowledges in Dictum the Weight of Authority that ERISA Claims Are Generally Arbitrable

Deciding the case on the basis of the scope of the arbitration clause allowed the court to sidestep a more fundamental issue: its split with other courts on whether ERISA claims are arbitrable generally as a matter of law. The court acknowledged there being “considerable force to” the modern position that ERISA claims are arbitrable—a position adopted by several other circuit courts, but not yet endorsed by the U.S. Supreme Court—but considered it unnecessary to decide that question in this case.