Attempt to Invoke Arbitration Clause Rebuffed Again

A second attempt to invoke an arbitration clause in an excessive fee suit has been rejected.

The suit had been filed on behalf of Michael Dorman, a former Charles Schwab employee, who alleged that Schwab-affiliated funds “charged higher fees and performed more poorly than other investment options on the market,” and further that the Schwab entities “violated their fiduciary duties to the Plan in offering these Schwab-affiliated funds without ‘meaningful investigation’ into whether they were prudent investments and whether there were better options available.”

Judge Claudia Wilken of the U.S. District Court for the Northern District of California had previously ruled that Schwab couldn’t rely on an arbitration agreement in employment contracts or 401(k) plan documents to block a lawsuit over how the plan’s managed since the claim was brought on behalf of the plan, and the plaintiff “…cannot waive rights that belong to the Plan, such as the right to file this action in court.” Moreover, she held that “a plan document drafted by fiduciaries – the very people whose actions have been called into question by the lawsuit – should not prevent plan participants and beneficiaries from vindicating their rights in court.”

Motion to Reconsider

The Schwab defendants had filed a motion for a partial reconsideration of the Court’s January 18, 2018 order, or alternatively, to stay the action, pursuant to Civil Local Rule 7-9(b)(1), which Judge Wilken noted (Dorman v. Charles Schwab Corp., N.D. Cal., No. 4:17-cv-00285-CW, order denying defendants’ motion for leave to move for partial reconsideration 7/9/18) requires that the moving party show that at the time of the motion for leave, a material difference in fact or law exists from that which was presented to the Court, and that in the “exercise of reasonable diligence the party applying for reconsideration did not know such fact or law at the time of the interlocutory order.”

However, Judge Wilken noted, here the “Defendants fail to explain why, at the time of the Court’s order, they did not know that a Plan Document (which presumably was in their possession) contained an arbitration provision was allegedly adopted on December 8, 2014, and made effective on January 1, 2015.” Lacking that explanation, she wrote that their motion didn’t warrant reconsideration of her order.

Correct “Shun?”

Judge Wilken also noted that the defendants here had suggested that “the Court could correct its order on its own accord pursuant to Federal Rule of Civil Procedure 60(a),” going on to explain that Rule 60(a) allows the Court to correct clerical mistakes or mistakes arising from oversight or omission. However, she noted that “none of these circumstances applies here.”

She wrote that the Schwab defendants here brought their motion to compel arbitration “based on their assertion that the version of the Plan Document dated January 1, 2016, and executed on June 13, 2016, contained an enforceable arbitration agreement” – but she determined it did not “for three independent reasons, including the fact that the June 13, 2016 version of the Plan Document was executed after the participant had ceased participation in the plan and thus cannot bind the participant to arbitration,” and that the court’s holding “still holds true with respect to the June 13, 2016 Plan Document, which was the basis of Defendants’ motion,” and thus there was “no reason for the Court to change its order pursuant to Rule 60(a).”

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