By: Meg Troy and Ron Kramer

Seyfarth Synopsis: Over the last several years, the law governing disputes on lifetime retiree health benefits in the Sixth Circuit has had many twists and turns. A recent decision may put an end to this uncertainty, confirming that a CBA’s general durational clause applies to healthcare benefits unless the CBA contains clear, affirmative language indicating the contrary.

The Sixth Circuit’s approach to retiree health benefits has been in flux since 2015, when the Supreme Court rejected the Circuit’s use of what is known as the Yard-Man inference, which courts used to infer that negotiated retiree benefits were intended to continue for the retirees’ lives. You can read about the Court’s decision in M&G Polymers USA, LLC v. Tackett, 135 S.Ct. 926 (2015), here. Post-Tackett, the Sixth Circuit’s continued use of a watered-down version of the Yard-Man inference prompted the Supreme Court to again step in and affirm the court’s duty to use ordinary principles of contract law when weighing retiree healthcare benefit disputes. You can read about CNH Industrial N.V. v. Reese, 138 S.Ct. 761 (2018), here.

On February 15, 2019, in Zino v. Whirlpool Corp., No. 17-3851/3860, the Sixth Circuit followed this line of precedent (and other more recent decisions from the Sixth Circuit) and reversed a 2017 Northern District of Ohio decision finding certain CBAs vested plaintiffs with lifetime healthcare benefits. The Court found that the CBAs covering the retirees lacked clear, affirmative language that Whirlpool had an obligation to fund their health benefits after the expiration of the agreements’ general durational clause. Thus, Whirlpool was under no obligation to continue to offer those benefits past the general durational clause’s expiration.

In Zino, the plaintiffs worked for a Hoover Company plant in Canton, Ohio and retired between 1980 and 2007. Following a reduction in their benefits, the plaintiffs filed suit alleging the CBAs vested retiree health benefits at unalterable levels. The Sixth Circuit clearly laid out how Sixth Circuit courts in retiree benefit vesting cases must first address a threshold issue: “either a CBA says clearly and affirmatively — that is unambiguously — that its general durational clause doesn’t control the termination of healthcare benefits, or the clause controls.” If a CBA does unambiguously disconnect certain benefits from the agreement’s general durational clause, the agreement might well vest those benefits, even absent clear vesting language, or there may be ambiguity as to whether vesting might exist. To make the call, a court would need to examine any “clues” that “spring from the CBA.” Because the relevant CBAs in Zino did not unambiguously disconnect healthcare benefits from the general durational clauses, they did not vest lifetime healthcare benefits even though plaintiffs claimed CBA otherwise had “clues” that show an intention to vest benefits.

Judge Jane B. Stranch dissented, stating that the Sixth Circuit’s approach fails to give effect to the parties’ intentions, which is the goal of ordinary contract interpretation.

 

Seyfarth Synopsis: In an unpublished yet fascinating decision, the California Court of Appeal held that ERISA § 514 preempts state law causes of action premised on wrongful disclosure of protected private health information. Although not-binding as precedent, the decision is noteworthy to Plan sponsors and administrators because it demonstrates the expansive preclusive effect of federal law over state privacy and consumer protection statutes that impact ERISA benefit claims.

By Jonathan A. Braunstein and Michael W. Stevens

In an unpublished decision, the Fifth District of the California Court of Appeal held that ERISA Section 514 preempts state law causes of action for invasion of privacy and violations of unfair competition law arising from an underlying claim for ERISA plan benefits. See Weaver v. Healthcomp, Inc., No F075072, 2019 WL 151564.

Ms. Rose was a former employee of Harris Ranch Beef Company (Harris Ranch), and a participant in the Harris Farms Inc. Employee Health Care Plan (the plan), a self-insured ERISA employee health benefits plan for employees of Harris Farms and its related companies, including Harris Ranch. Harris Farms was the plan administrator and sponsor. HealthComp, Inc., was the plan’s third-party administrator; its services included case management.

In December 2011, Ms. Rose was diagnosed with liver failure; she needed a liver transplant and was placed the waiting list. Healthcomp assigned Rose a nurse case manager. Rose alleged the nurse case manager had Rose sign a form authorizing release of medical records, and the nurse case manager passed along to Rose’s employer medical information she received using the signed authorization. In December 2012, Harris Ranch terminated Rose’s employment, which Rose alleged occurred shortly after Harris Ranch received a report from the nurse case manager about Rose’s increased need for a liver transplant. Rose alleged defendant closed the nurse case management file after Rose’s termination but reopened it at Harris Ranch’s request after Rose filed a wrongful termination action against Harris Ranch. Defendant allegedly resumed accessing Rose’s medical records via the release and supplying her medical information to Harris Ranch.

The complaint alleged two causes of action: (1) invasion of privacy in violation of California Constitution, article I, section 1, and Civil Code section 56.20; and (2) unfair business practices in violation of California unfair competition law (Bus. & Prof. Code, § 17200 et seq.). Both causes of action were premised on defendants’ alleged improper disclosure or use of plaintiff’s personal health information. Defendants moved for summary judgment, asserting plaintiff’s two state law causes of action were preempted by ERISA section 514, 29 United States Code section 1144(a). Plaintiff opposed the motion. The trial court granted defendants’ motion and entered judgment in defendants’ favor. Plaintiff appealed.

The Court of Appeal affirmed. After engaging in an extensive analysis of ERISA preemption law, including the recent US Supreme Court decision in Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct. 936 (2016), the Court of Appeal concluded that where “a plaintiff asserts state law claims based on alleged misconduct that was within the scope of the conduct regulated by ERISA, including the privacy protections required to be included in ERISA group health plans, invoking state law remedies for that alleged misconduct constitutes an impermissible attempt to enforce ERISA privacy rights by means of an alternative enforcement mechanism . . . the state law provisions have an impermissible connection with ERISA plans and are therefore preempted” (emphasis added).

The Court of Appeal found that regardless of“[w]hether the plan administrator is ‘managing’ the fiscal health of the plan or ‘administering’ claims, California privacy laws, if not preempted, would limit what private health information could be disseminated.” The Court concluded [Plaintiff’s] attempt to distinguish use of protected health information for administrative, as opposed to management, purposes does not change the analysis of the preemption issue.”

Though unpublished, Weaver is notable. Privacy issues and concerns are hot button topics. This case will certainly not be the last to present questions as to the scope of federal preemption of state privacy and consumer protection laws. Indeed, California just recently enacted its broad and comprehensive Consumer Privacy Act of 2018, which legislation will soon go into effect. It is only a matter of time before that new law confronts federal preemption head on. Stay tuned!

Seyfarth Synopsis: A recent case from the Western District of North Carolina contains a helpful example of how the standards applicable to an employee’s request for accommodation of a disability differ from those for determining whether the same employee is eligible for benefits under a short-term disability plan. At the same time, it demonstrates the importance of following a deliberate, principled claims handling process, even when the decision appears simple.

By: Tom Horan and Ron Kramer

In Cannon v. Charter Commc’ns Short Term Disability Plan, No. 3:18-CV-041-DCK, 2019 WL 235325 (W.D.N.C. Jan. 16, 2019), the Plaintiff sought benefits under his employer’s self-insured short-term disability plan (the “Plan”), claiming he was unable to work due to recurrent vertigo, sleep apnea, heart disease, insomnia, and other, related conditions. In support of his claim, he submitted documentation from his sole treating physician, which stated he was unable to perform the essential functions of his position, but identified his only restriction as an inability to “drive in traffic.” To be eligible for benefits under the Plan, Plaintiff needed to demonstrate that he was unable to perform the essential duties of his occupation.

Defendant denied the claim, after determining that Plaintiff’s only documented restriction—an inability to drive—did not impact his ability to perform the essential functions of his “sedentary” job, which consisted of reviewing orders from customers for accuracy, keying those orders into the billing system, and scheduling certain installation services. In making this determination, Defendant relied on reviews conducted by two different intendent, board certified specialists, and the fact that for several years before making his claim for benefits, Plaintiff had been accommodated for his medical conditions with an agreement allowing him to work from home. Accordingly, as driving—the sole activity from which he was restricted from performing—was not an essential function of his job, Plaintiff’s claim was denied. After exhausting his administrative remedies, Plaintiff filed suit, alleging he was wrongfully denied benefits under the Plan.

In granting the employer’s motion for summary judgment the Court credited the administrator for its deliberate, principled review process, and found no abuse of discretion in denying the claim. In doing so the Court apparently accepted that Plaintiff’s sole restriction—his inability to drive—was irrelevant, since it did not impact an essential job function.

More notable for employers, however, is Defendant’s underlying argument that the fact that Plaintiff could perform his job with a reasonable accommodation meant that Plaintiff was not eligible for STD benefits under the Plan, because it demonstrated that (while requiring accommodation) he was not incapable of performing the essential functions of his occupation. In short, this case demonstrates that the fact that an employee has a “disability” for which he receives an accommodation does not mean—depending on the applicable plan language—he is entitled to disability benefits.

By Mark Casciari and Kristine Argentine

Synopsis : Many parties to ERISA litigation and arbitration pay lip service to the burden of proof, put on their respective cases and leave it to the trier of fact to decide which side deserves the victory.   Burdens of proof have become increasingly important, however, as procedural and substantive issues become more complex, and judges often have less time to deal with the subtleties in ERISA litigation. Burdens of proof thus demand more attention.

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It is easy to glaze over a basic tenet of law that is getting more attention — Who has the burden of proof?

Emphasizing burdens of proof can mean the difference between winning or losing, and potentially millions of dollars in damages. Earlier this year, Putnam Investments LLC stated its intention to file a petition with the U.S. Supreme Court asking the high court to weigh in on who bears the burden of proving injury and whether retirement investment choices were prudent in ERISA fiduciary breach cases. (See Brotherston v. Putnam Investments, LLC, No. 17-1711 (1st Cir. Oct. 15, 2018)).   This is not the first time that the Supreme Court has been asked to take up this issue as there is a significant split among the circuits—certain circuit courts have said causation is an element of the cause of action, other circuits have said it is the plaintiff’s burden to prove that the harm was attributable to the fiduciary, and still other circuits have said that the burden shifts to the fiduciary to show that it did not cause the harm. This is but one example where the burden of proof can have a significant effect on the outcome of a case.

Also, as cases become more complex, and judges and arbitrators are asked to navigate through more evidence, weigh the credibility of witnesses testifying by deposition video and transcript, and parse through heightened attorney showmanship, burdens of proof are likely to get more attention. A U.S. District Court Judge recently admonished an attorney for glazing over the evidence necessary to meet his burden, stating “I am not co-plaintiff counsel . . . I’m [not] supposed to now go find evidence to supplement your record. That’s totally improper.” (See Law360, 12/4/18, 10:40 PM, https://www.law360.com/articles/1107974 ).

There is no denying that employee benefit claims can include emotional appeals, given the personal relationship aspect of employment and the financial consequences of an award of fewer benefits than expected. When faced with emotional appeals in the context of increasingly complicated laws and regulations, employers and fiduciaries should remember that they can make their case on a burden of proof procedural ground, i.e., “plaintiff should lose because, notwithstanding his emotional appeal, he has not met his burden of proof under the law.”

A judge or arbitrator overwhelmed by complexity may be more receptive than counsel thinks. No party should ask the trier of fact to define his or her case. It is a claimant’s job to present his or her case with specificity and within the confines of the substantive and procedural law.

Seyfarth synopsis: The Second Circuit reversed dismissal of an ERISA stock drop class action finding plaintiff alleged enough to plausibly show that disclosure of alleged corporate problems would not have done more harm than good and sketching a treasure map for ERISA plaintiffs seeking to recover for 401(k) plan losses.

By Ian H. Morrison and Michael W. Stevens

Many thought ERISA stock drop claims were doomed by the Supreme Court’s 2014 decision in Fifth Third Bancorp v. Dudenhoeffer, and given court rulings since that decision they largely were. The Second Circuit may have reversed that trend in a recent decision.

In Jander v. Retirement Plans Committee of IBM et al., No. 17-3518 (2d Cir. Dec. 10, 2018), investors in the IBM Company Stock Fund, an ESOP contained within the company’s 401(k) plan, claimed that the plan fiduciaries violated the duty of prudence by continuing to invest ESOP funds in IBM common stock, despite knowing that IBM’s microelectronics business was losing money, and was allegedly overvalued in company disclosures. The troubled division was losing $700 million annually, and eventually had to be sold on a write-down, causing IBM’s stock to fall by $12 per share, the complaint alleges.

The district court dismissed the complaint, finding plaintiffs had not pleaded facts showing the fiduciaries could not have reasonably concluded that available alternatives, such as disclosing the alleged difficulties, halting investment in IBM stock, or investing in hedging investments, would not have caused more harm than good.

The Second Circuit reversed. The Second Circuit analyzed Dudenhoeffer, and standards of pleading for a breach of the duty of prudence. The Second Circuit focused on the difference between whether a plaintiff must plead merely that an “average” fiduciary “would not” have viewed available alternatives as more likely to do harm than good to a plan, or a more stringent requirement to plead that “any” fiduciary “could not” have viewed the available alternatives as more likely to harm than help.

The Court declined to weigh in on the difference, however, because it found that the plaintiffs had adequately pleaded a breach of the duty of prudence under either standard. The Court recited several specific factual allegations, such as the fiduciaries’ alleged knowledge of the supposedly artificial price inflation, their power to disclose the truth, and the negative impact of the failure to disclose on the reputation of the company’s management, that cumulatively satisfied the plaintiffs’ burden. Notably, the Court also focused on the allegation that the defendants knew that the eventual disclosure regarding the troubled division was inevitable, and therefore earlier disclosure would have been less harmful to stock price than later disclosure.

By not weighing in on which of the “harm versus help” standards apply, but extensively examining the adequacy of plaintiffs’ specific allegations, and repeatedly noting the district courts’ duty to construe inferences in plaintiffs’ favor on a motion to dismiss, the Second Circuit has given putative ERISA stock drop plaintiffs a roadmap to survive a motion to dismiss, something that has largely eluded them since 2014. ESOP fiduciaries take heed.

Seyfarth Synopsis: Please join us at our Chicago Willis Tower office on Thursday, December 6th, for breakfast along with a Seyfarth Legal Forum and Continuing Legal Education (CLE): 2018 Highlights and a Look Ahead to 2019.

About the Program

Providing our clients with a multidisciplinary overview of Legal Hot Button issues and Best Practice:  Featuring:

  • Biometric Information Privacy Act: What a long, strange year it’s been (and there’s more on the way!)
  • Legalize it: will Illinois go from medical to recreational marijuana and what would that mean to the real estate industry?
  • Affordable Care Act Update & Enforcement Activities, 401(k) Student Loan Repayment Arrangements, Socially Responsible Investments, and HIPAA Privacy & Security Audits
  • Mergers and Acquisitions: Current State of the Market and Post-Merger Integration Strategies
  • The “Cloud”…is in a building?: Data Centers are the newest, and maybe most important, type of real estate
  • Latest Developments in Pregnancy Accommodation (Illinois’ New Lactation Law and Nationwide Trends)
  • Litigation Hot Topics for 2019, including: Developments in trade secret and non-compete law; New laws affecting threshold issues such as forum selection and choice of law; Frontloaded discovery in federal court: Mandatory Initial Discovery Pilot Programs; Best practices for protecting the attorney-client privilege for in-house counsel
  • Welcome to the Future: It arrived yesterday – The intersection of Technology and Legal Services
  • Bots, bits and bytes… Artificial Intelligence and its leading role in recent legal projects

The program will feature a panel of Seyfarth Chicago subject matter experts — with an eye toward preparing for the developments in the coming year. Our overview will be targeted at highlighting issues for the General Counsel, Chief Information Officer, Chief Human Resource Officer, and other members of their teams.

The program will consist of an engaging ninety minute presentation with speakers from each of Seyfarth Chicago’s practice groups: Benefits, Corporate, Labor & Employment, Litigation, and Real Estate, as well as an exciting presentation on the use of technology in law. Then, we will offer 30 minute break-out sessions on hot topics warranting a deeper dive that companies are facing when looking at their legal compliance needs. The break-out sessions will address Privacy/Data Security, Managing in the #metoo Environment, and Blockchain/Cryptocurrency in business.

The program is on Thursday, December 6, 2018, at 8:00 a.m. – 8:30 a.m., for breakfast and registration, 8:30 a.m. – 10:00 a.m., for the panel presentations, and 10:00 a.m. – 10:30 a.m., for the breakout sessions.  Our offices are at 233 S. Wacker Drive, Suite 8000, in Chicago, IL.

While there is no cost to attend, registration is required and space is limited.  If you have any questions, please contact Fiona Carlon at fcarlon@seyfarth.com and reference this event.

Also, for those that need the credits, note that Seyfarth Shaw LLP is an approved provider of Illinois CLE credit. This seminar is approved for 1.5 hours of CLE credit CA, IL, NY, NJ and TX. CLE Credit is pending for GA and VA. HR professionals: please note that the HR Certification Institute accepts CLE credit toward recertification.

By: Tom Horan and Sam Schwartz-Fenwick

Seyfarth Synopsis: A recent case from the Eastern District of Pennsylvania reaffirms the basic principle that a threshold element of any ERISA claim is pleading the existence of an ERISA plan.

In Dixon v. Washington, No. 18-cv-2838, 2018 WL 5046033 (E.D. Pa.), plaintiffs—members of the congregation of the First Baptist Church of Fairview—brought suit against the Church’s elected Pastor and CEO, and the members he selected to serve on the Church’s Board of Directors.

Plaintiffs asserted both state law claims and a breach of fiduciary duty claim under ERISA. The ERISA claim alleged that the defendant pastor stole money collected to award scholarships to two church members, who had never received the promised benefits, and misappropriated funds from the sale of real estate and from a FEMA grant intended to cover repairs related to damages caused by a flood. The ERISA claim did not allege the existence of an ERISA plan, a pre-requisite for any ERISA claim.

Defendants moved to dismiss both for lack of subject matter jurisdiction and for failure to state a claim for relief that was plausible on its face.

The court first considered whether it had subject matter jurisdiction. Because the complaint asserted claims arising under § 409 of ERISA, the court concluded that it presented a valid federal question. Accordingly, the court held that it could not dismiss for lack of subject matter jurisdiction.

Having found that it had subject matter jurisdiction from the face of the complaint, the court considered whether plaintiffs had presented a plausible claim for relief. Here, the court found the complaint deficient, holding that plaintiffs had not plead enough facts to make their ERISA claim plausible. Specifically, without deciding whether plaintiffs’ allegations regarding the misappropriation of funds constituted a breach of fiduciary duty, the court found that plaintiffs had not alleged sufficient facts to show the involvement of a plan covered by ERISA, which was necessary to make an ERISA claim plausible. The court thus dismissed the complaint, noting plaintiffs could amend the complaint if they could plead sufficient detail to make their claim plausible.

While the holding of the case is relatively straightforward—a claim under ERISA must involve a plan covered by ERISA—this case highlights the importance of evaluating whether a complaint is sufficiently pled as to all required elements.

Seyfarth Synopsis: Excessive fee complaint dismissed because the diverse selection of funds available to plan participants negates any claim that Defendants breached their duties of prudence simply because cheaper funds were available.

By Ron Kramer and Shannon Callahan

Nearly 20 universities have been sued under the Employee Retirement Income Security Act (“ERISA”) over the fees paid in their Section 403(b) qualified employee benefit defined contribution plans.

Many of these actions have survived the motion to dismiss stage. Still, some courts have been willing to look carefully at ERISA’s requirements and quickly determine that these suits have no basis because they do not allege violations of ERISA. Most recently, the Southern District of New York ruled against plaintiffs, noting after a trial that plaintiffs have not proven a violation of ERISA, that prudent process does not require perfection, and that, relative to performance there is no such claim under ERISA. Sacerdote v. New York University, Case No. 16-cv-6284, 2018 WL 3629598 (July 31, 2018 S.D.N.Y.).

The latest blow to these largely cookie cutter cases is Davis v. Washington University, Case No. 17-cv-1641 (E.D. Mo.), which alleged that the plan paid excessive fees for administrative or investment management services, the plan should have consolidated to one recordkeeper (as opposed to two), that certain funds underperformed and that the plan’s fiduciaries caused the plan to engage in prohibited transactions.

On Friday, September 28, 2018, Judge Ronnie L. White dismissed Davis holding that Plaintiffs failed to allege a breach of fiduciary duties based upon Plan participants’ payment of purportedly excessive fees and recordkeeping fees. The court reasoned that the complaint starts with the false premise that just because the plan’s fees could have been lower, there must have been some breach of duty. Relying on precedent in other circuits, the court held that the diverse selection of funds available to the plan’s participants negates any claim that defendants breached their duties of prudence because cheaper funds were available. The court further held that allowing plan participants to pay fees on an asset basis is a pure question of where the burden of recordkeeping costs should be placed and that plaintiffs pled no basis for removing the discretion of a reasonable plan administrator. The court likewise dismissed the prohibited transaction claims, noting that plaintiffs pled the affirmative defense in their complaint.

With the recent defense victories in Divane v. Northwestern University, Sacerdote v. New York University and Sweda v. University of Pennsylvania, Washington University brings another beacon of hope to the universities facing these claims and reinforces the discretion incumbent upon plan administrators.

 

 

By: Michelle M. Scannell and Kathleen Cahill Slaught

Seyfarth Synopsis: A district court recently denied a motion to dismiss a 401(k) proprietary fund class action, continuing an overwhelming trend of allowing these cases to survive pleading challenges. On the bright side, however, the Eighth Circuit recently affirmed a dismissal of such a case, and the first of these cases to be tried resulted in a defense victory, which is on appeal with the First Circuit.

The plaintiffs’ bar sparked a new 401(k) class action trend a few years ago by targeting “proprietary” in- house investment products, alleging that fiduciaries were committing a breach by including their in-house proprietary funds in plans to the exclusion of less expensive, better-performing comparable options.

In most of these cases, plaintiffs have survived initial pleading challenges. Generally courts have found that allegations underlying these cases supported an inference that the fiduciaries engaged in a flawed process. See, e.g., Cryer v. Franklin Templeton Res., No. 16-cv-4265 (N.D. Cal. Jan. 17, 2017); Urakhchin v. Allianz Asset Mgmt. of Am., L.P., No. 15-cv-1614 (C.D. Cal. Aug. 5, 2016).

A district court in Maryland recently continued the trend by denying a motion to dismiss a first amended complaint for a proprietary fund case. See Feinberg v. T. Rowe Price Group, Inc., et al., D. Md. Case No. MJG-17-0427, 2018 BL 298391 (Aug. 20, 2018). In Feinberg, plaintiffs alleged that fiduciaries breached their duties and committed related ERISA violations by, among other things, including in the plan retail-class versions of in-house funds even though purportedly cheaper versions of the same funds were available for commercial customers. Notably, in addressing defendants’ argument that the plan documents required that they select an exclusive line-up of proprietary funds, the court found that the decision to structure the plan that way was a settlor, non-fiduciary function, and “did not provide a blanket defense” for the fiduciaries. The court concluded that plaintiffs pled sufficient allegations to raise plausible inferences to support all of their claims.

Defendants also argued that plaintiffs’ prohibited transaction claim was barred under ERISA’s six-year statute of repose, because no prohibited transaction (i.e. the initial inclusion of the fund in the plan) occurred within six years of the lawsuit. The court noted that while defendants “may have viable defenses,” the claim would not be dismissed now, because the court could infer a plausible timely claim of prohibited transactions, including the continuous monthly fees being paid for the funds at issue.

In contrast to this decision and the plaintiff-friendly trend on pleading challenges for these cases, one defense victory on a motion to dismiss was recently affirmed by the Eighth Circuit. See Meiners v. Wells Fargo & Co., No. 0:16-cv-003981, 2017 WL 2303968 (D. Minn. May 25, 2017); Eighth Circuit No. 17-2397 (Aug. 3, 2018). In that case, the Eighth Circuit expressly acknowledged the “challenging pleading burden” for plaintiffs because they have different levels of knowledge regarding the investment choices the fiduciary made versus how the choices were made. The Eighth Circuit held that the existence of a cheaper fund, as pled by plaintiff, doesn’t mean that a particular proprietary fund is too expensive in the market generally or that it’s otherwise an imprudent choice.

As any litigator knows, losing a motion to dismiss is the loss of merely one battle in what can be a long-fought (and not to mention, costly) war. In fact, in the first of these cases to go to trial resulted in a defense victory, which is pending appeal in the First Circuit. Brotherston v. Putnam Investments LLC, 1:15-cv-13825, 2017 WL 2634361, (D. Mass. June 19, 2017). While some companies avoid protracted litigation and choose to settle these cases at early stages, this is not to say that a sound fiduciary process cannot be ultimately vindicated in court. Stay tuned on further developments. . .

By: Mark Casciari and Jim Goodfellow

Seyfarth Synopsis: The Ninth Circuit declined to enforce an agreement to arbitrate ERISA Section 502(a)(2) claims, but did not rule out enforcement in other ERISA claim contexts.

In Munro v. University of Southern California, et al., No. 17-5550, 2018 WL 3542996 (9th Cir. July 24, 2018), plaintiffs sought to represent a class of participants in two ERISA-governed defined contribution plans sponsored by the University of Southern California, alleging multiple breaches of fiduciary duty stemming from the administration of those plans. Plaintiffs sought equitable relief on behalf of the plans under ERISA Section 502(a)(2) in the form of monetary relief, removal of the breaching fiduciaries, a full accounting of losses, reformation of the plans, and an order regarding appropriate future investments.

The defendants moved to compel arbitration, as all of the potential class members had signed arbitration agreements to arbitrate all claims that the putative class members or USC had against one another. The agreements expressly covered claims under federal law, including ERISA. The defendants sought further to compel individual, and not class arbitrations, because the arbitration agreements did not specifically allow class arbitration.

The district court denied the motion, and the Ninth Circuit affirmed. The Ninth Circuit analogized the plaintiffs in this case to plaintiffs in a qui tam action brought on behalf of the U.S. Government under the False Claims Act. Citing to its 2017 decision in U.S. ex rel. Welch v. My Left Foot Children’s Therapy, LLC, 871 F.3d 791 (9th Cir. 2017), the Court stated that individual agreements to arbitrate do not extend to qui tam actions because those are brought on behalf of the government by the plaintiffs. Similarly, the Court said, an ERISA Section 502(a)(2) breach of fiduciary duty claim is brought on behalf of an ERISA plan by its participants.

There is more to take away from this decision, however. The Ninth Circuit specifically declined to rule that an agreement to arbitrate ERISA claims is always unenforceable. The Court suggested that it might disagree in a future case with its 1984 decision in Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), which it held that ERISA’s “equitable character” could not be satisfied in an arbitral proceeding. The Court referred to “intervening Supreme Court case law,” obviously referring to a number of Supreme Court decisions after 1984, including, most recently the Epiq Systems decision that broadly enforce agreements to arbitrate. So we have not heard the last word from the Ninth Circuit on the enforceability of agreements to arbitrate ERISA claims. And we should expect other Courts of Appeal to address arbitration of ERISA claims, and perhaps create a split in the Circuits that would lead to Supreme Court review. Notwithstanding the Ninth Circuit decision in Munro, arbitration agreements remain a hot topic in federal jurisprudence. Stay tuned.