Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
Over the years, attempts to arbitrate breach of fiduciary duty claims under the Employee Retirement Income Security Act (ERISA) Section 502(a)(2) have had varying results.1 One court recently recognized that “whether any benefits plan may agree to submit to arbitration and/or whether an individual employment agreement may compel claims on behalf of a benefits plan to proceed to arbitration are not issues of clearly settled law.”2 This issue is before two circuit courts of appeal this year. So far, the court rulings in the cases seem to provide some guidance while also creating further uncertainty.
The Second Circuit Decision in Cooper v. Ruane Cunniff & Goldfarb Inc.3
In March, the Second Circuit reversed a district court order compelling arbitration of breach of fiduciary claims under an arbitration clause in an employment agreement. The plaintiff in Cooper v. Ruane Cunniff & Goldfarb Inc. asserted claims of breach of fiduciary duty under ERISA § 502(a)(2) on behalf of the plan and other plan participants against his employer and Ruane Cunniff & Goldfarb Inc. (Ruane), among others, for alleged mismanagement of the profit-sharing fund in which all employees of the company participate. Ruane was a third-party investment advisor engaged by the employer to manage the investments in the profit-sharing fund for several decades.
The plaintiff mediated his claims against the employer and the other defendants early in the case and, as a result, dismissed the claims against all defendants but Ruane. After a period of discovery, Ruane moved to compel the plaintiff to arbitrate his claims against Ruane based on an arbitration clause in the employer’s Associates’ Handbook. The plaintiff had signed an Acknowledgment and Agreement Form during his employment, which stated if he did not “opt out” within 30 days after receiving the arbitration agreement, the employer would consider him to have agreed.
The district court ordered enforcement of the arbitration agreement as to the plaintiff’s claims against Ruane based on two determinations: that the plaintiff’s claims “related to” his employment, as stated in the arbitration agreement, and that Ruane was entitled to enforce the agreement under the doctrine of equitable estoppel. The latter conclusion was reached after the court found that Ruane had a sufficiently close relationship with the employer to enable it to assert the employer’s arbitration rights and that the plaintiff’s claims against the employer and Ruane substantially overlapped.
On appeal, the Second Circuit disagreed, concluding that the arbitration agreement did not apply to the plaintiff’s claims in the first place. Ruane argued that the arbitration agreement was applicable because it covers all legal claims “related to” the plaintiff’s employment4 with the employer, claiming this position is supported by two factors: that the plaintiff would not have been able to assert the claims against Ruane but for that employment, and that the plaintiff’s stake in the plan was part of his overall compensation from the employer.
The Second Circuit stated, though, that “in the context of an employment arbitration agreement, a claim will ‘relate to’ employment only if the merits of that claim involved facts particular to an individual plaintiff’s own employment,” and determined that the merits of the plaintiff’s claims against Ruane did not involve such facts. The court was unpersuaded by the argument that the plaintiff would not have been able to bring the claims but for his employment with the employer, stating “we weigh heavily the consideration that none of the facts relevant to the merits of the plaintiff’s claims against Ruane relates to his employment.” The court also noted that the claims brought by the plaintiff could have been brought by nonemployees as well, such as the plan itself or U.S. Secretary of Labor, further indicating that employment is not essential to the claims.
Another point that the Second Circuit found weighed against enforcement of the arbitration agreement with regard to the plaintiff’s ERISA fiduciary claims was that the agreement required arbitration of claims “be asserted, heard and resolved on a single Associate basis,” which the court said disallowed a prerequisite for the claims. The language was effectively a waiver by the employee to assert claims on behalf of a class of individuals. The Second Circuit said that its own precedent in Coan v. Kaufman5 requires that parties suing on behalf of a plan under ERISA § 502(a)(2) must be able to “demonstrate suitability to serve as representatives of the interests of other plan stakeholders.” The court opined that it was unclear how an employee could comply with the employer’s arbitration agreement and bring an ERISA fiduciary claim that satisfied the Coan requirement and declined to adopt a reading that “casts the enforceability of the agreement in doubt.”
While the particular claims at issue in the Cooper decision were against a third party, the court’s reasoning could be applicable to claims against the employer, as well, indicating that arbitration of ERISA breach of fiduciary claims under an employment agreement may not be enforceable. This leaves open the possibility of enforcing arbitration of such claims where the arbitration agreement is found elsewhere – as discussed below. However, the court’s side note regarding the enforceability of a class action waiver as to such claims may be another obstacle to enforcement.
The Sixth Circuit Considers the Question in Hawkins v. Cintas Corporation
A district court in Ohio addressed a similar situation in Hawkins v. Cintas Corp. in January, also declining to enforce arbitration of breach of fiduciary claims under an employment agreement.6 The plaintiffs in Hawkins were former employees of the defendant employer, through which they were participants in a defined contribution retirement plan. They asserted breach of fiduciary duty claims against the employer and others, claiming that the plan was mismanaged and charged excessive fees. The defendants asked the court to compel arbitration of the claims on the basis of employment agreements that the plaintiffs had signed during their employment, which stated, in pertinent part, that “should any dispute or difference arise between” the employee and the employer concerning whether either party at any time violated any duty, right, law, regulation, public policy, or provision of the agreement, the parties agreed to submit the dispute to arbitration. The agreement also included a class action waiver.
First finding that the plaintiffs in the case were bringing claims on behalf of the entire plan (and not merely asserting claims regarding specific injuries to their specific accounts), the district court denied the motion to compel arbitration,7 stating that the arbitration provision was “limited to the employee and does not extend to nonentities, such as claims on behalf of the Plan.” The court then found that there was no evidence of an arbitration agreement between the plan and the employer, noting in particular that there was no evidence of a plan document that bound the plan to arbitration, which had been enforced in other cases such as in the Ninth Circuit’s 2019 decision in Dorman v. Charles Schwab Corp. The court also rejected the notion that the plan had consented to arbitration by seeking to compel it in court.
In April, the court granted a request by the defendants in Hawkins to appeal the court’s decision to the Sixth Circuit.8 It is expected to be argued later this year.
While it remains that there is no overarching authority definitively addressing the question of whether ERISA breach of fiduciary duty claims are arbitrable, the recent decisions in Cooper and Hawkins, as well other district court decisions in recent years, indicate such claims are not subject to arbitration where the agreement to arbitrate is part of an employment agreement. The trend in these recent cases indicate that an arbitration clause in the plan document is more likely to be enforceable. However, be aware that the Second Circuit’s comments questioning the enforceability of any class action waivers with regard to ERISA breach of fiduciary duty claims, though not binding, will probably show up in future arguments challenging arbitration.
1 See, e.g., Williams v. Imhoff, 203 F.3d 758 (10th Cir. 2000) (reversing the district court’s decision denying a motion to compel arbitration where arbitration clause was in employment agreement); DuCharme v. DST Systems, Inc., et al., No. 4:17-cv-00022 2017 U.S. Dist. LEXIS 220432 (W.D. Mo. June 23, 2017) (finding that the plaintiff waived his right to file a breach of fiduciary duty action on behalf of the plan when he signed his employment arbitration agreement); Roches v. Dickerson Employee Benefits, Inc., No. 09-04279, 2010 U.S. Dist. 152637 (C.D. Cal. 2010) (compelling arbitration where arbitration clause was in trust agreement).
2 Hawkins v. Cintas Corps., No. 19-cv-1062, 2021 U.S. Dist. LEXIS 72511, *5 (S.D. Ohio Apr. 15, 2021).
3 Cooper v. Ruane Cunniff & Goldfarb Inc., 990 F. 3d 173 (2d Cir. 2021).
4 Cooper’s arbitration agreement also contained language addressing what types of claims were included in, and specific claims that were excluded from, the agreement. Cooper, 990 F. 3d. 173.
5 Coan v. Kaufman, 457 F.3d 250 (2d Cir. 2006).
6 Hawkins v. Cintas Corporation, No. 19-cv-1062, 2021 U.S. Dist. LEXIS 14766 (S.D. Ohio Jan. 27, 2021).
7 Dorman v. Charles Schwab Corp., 780 F. App/x 510 (9th Cir. 2019).
8 Hawkins v. Cintas Corps., No. 19-cv-1062, 2021 U.S. Dist. LEXIS 72511 (S.D. Ohio Apr. 15, 2021).