Excessive Fee Claims Don’t Need to Be Arbitrated, 9th Circuit Says

Participant-plaintiffs did not have to submit their ERISA claims through arbitration, according to a federal appellate court decision.

The decision (Munro v. Univ. of Calif., 2018 BL 261639, 9th Cir., No. 17-55550, order affirming district court order 7/24/18) was handed down by the U.S. Court of Appeals for the 9th Circuit. It was presented on appeal of a decision by the U.S. District Court for the Central District of California, which had determined that the plaintiffs’ ERISA claims did not have to be submitted via arbitration. The plaintiffs were represented by Schlichter Bogard & Denton LLP (Michael A. Wolff, who has participated in several NAPA conferences, argued the case), while Gibson Dunn & Crutcher LLP (the case was argued by Eugene Scalia) represented USC.

The three-judge ruling is the first time this particular circuit has dealt with whether arbitration clauses in employment agreements extend to ERISA claims. It has drawn the attention of the U.S. Chamber of Commerce (who had sided with the USC defendants, asking the court to give employers the power to force disputes over employee benefits into arbitration) and AARP (which had urged the court to affirm the district court decision barring arbitration).

The Issue

Allen Munro and eight other current and former USC employees are participants in both the USC Retirement Savings Program and the USC Tax-Deferred Annuity Plan – plans that they alleged committed multiple breaches of fiduciary duty in the administration of the plans. However, each of the individuals was required to sign an arbitration agreement as part of her employment contract – an agreement to arbitrate all claims that either the employee or USC has against the other party to the agreement – and agreements that, according to Judge Thomas, expressly cover claims for violations of federal law.

Judge Sidney R. Thomas issued the opinion, which was joined by Judge Michelle T. Friedland and Judge Thomas S. Zilly of the U.S. District Court for the Western District of Washington, sitting by designation. Noting that the Federal Arbitration Act (FAA) “was enacted … in response to widespread judicial hostility to arbitration agreements,” Judge Thomas cited precedent that held that, “[T]he party resisting arbitration bears the burden[s] of proving that the claims at issue are unsuitable for arbitration…” and that “[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.”

‘Outside’ Voice

Moreover, he explained that where there is no conflict between the FAA and the “substantive statutory provision,” the FAA limits courts’ involvement to “determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue,” and that “if the response is affirmative on both counts, then the Act requires the court to enforce the arbitration agreement in accordance with its terms,” with “no room for discretion.”

As for whether this particular agreement “encompasses the dispute at issue,” Judge Thomas noted that “because the parties consented only to arbitrate claims brought on their own behalf, and because the Employees’ present claims are brought on behalf of the Plans, we conclude that the present dispute falls outside the scope of the agreements.”

He went on to note that the court could not compel arbitration in the absence of an agreement to arbitrate, because to do so would be to defeat “the FAA’s primary purpose of ensuring that private agreements to arbitrate are enforced according to their terms.”

‘Diss’ Agreements

On the subject of whether the agreements extend to the present case, Judge Thomas said the court need first look to the text of the agreements, and then cited a similar issue in another legal context, noting the parties agreed to arbitrate “all claims … that Employee may have against the University or any of its related entities … and all claims that the University may have against Employee,” explaining that this language does not extend to claims that other entities have against the University, and that, as in that prior case, the court could not “interpret the catch-all clause” agreeing to arbitrate “[a]ny claim that otherwise would have been decidable in a court … for violation of any federal … statute” to cover claims belonging to other entities.

But while the Judge Thomas spent some time comparing the issues to that similar case, his decision – that the USC workers weren’t required to arbitrate their ERISA claims – came down to his determination that the relief they sought was really on behalf of the plan, not their individual accounts, even though they had individual accounts within that defined contribution plan, that therefore, “…the district court properly denied the motion to compel arbitration,” and that this court “need not – and [does] not ­– reach any other issues urged by the parties.”

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