United States: Arbitration Of ERISA Claims Part II: Courts Continue To Grapple With Competing Considerations

This column previously considered the issue of whether the Employee Retirement Income Security Act ("ERISA") allowed plans to require arbitration of ERISA claims ("Part I").¹ Part I discussed the competing views of the U.S. Court of Appeals for the Ninth Circuit in Dorman v. Charles Schwab Corp. ("Dorman II")² and a lower court from the U.S. District Court for the Northern District of Illinois in Smith v. Greatbanc Tr. Co.³

As Part I noted at the time, Smith was pending before the U.S. Court of Appeals for the Seventh Circuit. Since then, the Seventh Circuit issued its decision in Smith v. Board of Directors of Triad Mfg., Inc., affirming the lower court's decision.⁴ However, as discussed below, the Seventh Circuit's reasoning differs slightly from the lower court in at least one significant respect that is supportive of the idea that ERISA claims can be arbitrated. But in other respects, the Seventh Circuit's decision points to some possible limits on what plan sponsors may require be arbitrated.

The upshot is continued uncertainty that plan sponsors will have to navigate to the extent they wish to require arbitration of ERISA claims.

Background on Arbitration Generally

By way of reminder, whether arbitration can, as a general matter, be required is fully endorsed by the Federal Arbitration Act's⁵ "liberal federal policy favoring arbitration agreements" because it can provide employees and employers "quicker, more informal, and often cheaper resolutions" of workplace-related disputes.⁶ The question remains, however, whether that general endorsement of arbitration has been "overridden by a contrary congressional command,"⁷ by any provision of ERISA. The answer to that question points to some of the remaining tension between the Dorman and Triad decisions.

Dorman II Holds ERISA Claims may Broadly be Arbitrated

As discussed in Part I, the Ninth Circuit in Dorman II endorsed a broad right of plan sponsors to require arbitration, both in terms of the breadth of that requirement and the ease by which participants can be deemed to have consented to arbitration.

To recap, the plaintiff in Dorman participated in Schwab's 401(k) plan which, after he left Schwab's employment, was amended to include an arbitration provision.⁸ The provision required binding arbitration of any "claim, dispute or breach arising out of or in any way related" to the plan.⁹ It also barred class or multi-participant claims.¹⁰

After leaving Schwab, the plaintiff filed an ERISA class action alleging various claims for breach of fiduciary duty and violations of ERISA's prohibited transactions rules.¹¹ In response, the defendants moved to compel arbitration, which the lower court denied. It reasoned, inter alia, that prior Ninth Circuit precedent precluded arbitration because class action waivers were deemed unenforceable.¹²

On appeal, Dorman v. Charles Schwab Corp. ("Dorman I")¹³ addressed the threshold question of whether ERISA claims could be subject to mandatory arbitration.¹⁴ The Ninth Circuit acknowledged that it had previously held in Amaro v. Continental Can Co.¹⁵ that "ERISA mandated 'minimum standards [for] assuring the equitable character of [ERISA] plans' that could not be satisfied by arbitral proceedings."¹⁶ However, Dorman I recognized that its prior skepticism had been addressed by subsequent Supreme Court decisions that held "arbitrators are competent to interpret and apply federal statutes."¹⁷ Accordingly, the Ninth Circuit held Amaro was no longer binding precedent.¹⁸

The Ninth Circuit in Dorman II then addressed whether arbitration should be compelled. The Ninth Circuit held that the district court erred in several respects. As an initial matter, and as is relevant here to our discussion of the Seventh Circuit's Smith decision, the Ninth Circuit held that the district court incorrectly concluded that the plaintiff was not bound by the Plan's arbitration provision.¹⁹ The Ninth Circuit noted that the plaintiff participated in the plan for almost a year after the arbitration provision was enacted.²⁰ And "[a] plan participant agrees to be bound by a provision in the plan document when he participates in the plan while the provision is in effect."²¹

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Footnotes

1. M. Hlousek and J. Torres, Arbitration of ERISA Claims - Courts Continue to Grapple with Competing Considerations, 47 Employee Relations L.J. No. 1 (Summer 2021).

2. Dorman v. Charles Schwab Corp., 780 Fed. Appx. 510 (9th Cir. 2019).

3. Smith v. Greatbanc Tr. Co., No. 20 C 2350, 2020 WL 4926560 (N.D. Ill. Aug. 21, 2020).

4. Smith v. Board of Directors of Triad Mfg., Inc., 13 F.4th 613 (2021).

5. 9 U.S.C. §§1-16.

6. Epic Sys. Corp. v. Lewis, 138 S.Ct. 1612, 1621 (2018). See also American Express Co. v. Italian Colors Restaurant, 570 U.S. 229 (2013).

7. Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987).

8. Schwab, 934 F.3d at 1109.

9. Id.

10. Id. at 1009-10.

11. Id.

12. Id. at 1111 (citing Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), reversed by Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018)).

13. Dorman v. Charles Schwab Corp., 934 F.3d 1107 (9th Cir. 2019).

14. Id. at 1109.

15. Amaro v. Continental Can Co., 724 F.3d 747 (9th Cir. 1984).

16. Dorman I, 934 F.3d at 1111 (quoting Amaro, 724 F.2d at 752).

17. Id., 934 F.3d at 1111 (citing Italian Colors, 570 U.S. at 233).

18. Dorman I, 934 F.3d at 1112.

19. Dorman II, 780 F. App'x 512-13.

20. Id.

21. Id. at 513 (citing Chappel v. Lab. Corp. of Am., 232 F.3d 719, 723-24 (9th Cir. 2000)).

Originally published by Employee Relations Law Journal.