Are ERISA breach of fiduciary duty claims arbitrable?

With arbitration agreements becoming more common in employment relationships, the question has arisen whether employers can enforce arbitration of breach of fiduciary duty claims under the Employee Retirement Income Security Act (ERISA) Section 502(a)(2).  Attempts to enforce arbitration of such claims over the years have had varying results.[1]  As one court recently noted, “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 year, the issue is before two federal courts on appeal.  So far, the court rulings in the cases seem to provide some guidance but also create further uncertainty.

Cooper v. Ruane Cunniff & Goldfarb Inc.

In March, the Second Circuit Court of Appeals reversed a district court order that compelled arbitration of breach of fiduciary claims under an arbitration clause in an employment agreement.  The plaintiff in Cooper v. Ruane Cunniff & Goldfarb Inc. [3] 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 that had been engaged by the employer to manage the investments in the profit-sharing fund for several decades.

The claims against all defendants but Ruane were dismissed early in the case after mediation between the plaintiff and those parties.  Ruane and the plaintiff then engaged in discovery, after which Ruane filed a motion 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 to arbitration.

The district court issued an order enforcing 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 court’s decision on the latter point was based on a finding 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.

The plaintiff appealed the decision to the Second Circuit.  There, Ruane argued that the arbitration agreement applies, and is enforceable, because it covers all legal claims “related to” the plaintiff’s employment [4] with the employer.  Ruane’s argument was based on two factors:  that the plaintiff would not have been able to assert the claims against Ruane but for his employment, and that the plaintiff’s stake in the plan was part of his overall compensation from the employer.

The Second Circuit disagreed with the district court and Ruane, concluding that the arbitration agreement did not apply to the plaintiff’s claims in the first place.  The court stated 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 in this case did not involve such facts.  The court was unpersuaded by Ruane’s 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.

The Second Circuit also stated that enforcement of the arbitration agreement would disallow a prerequisite for the claims.  Specifically concerned with the requirement in the agreement that arbitration of claims “be asserted, heard and resolved on a single Associate basis,” the court said that the language was effectively a waiver by the employee to assert claims on behalf of a class of individuals, noting that its own precedent in Coan v. Kaufman [5] 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.”

That the particular claims at issue in the Cooper decision were against a third party is of little significance.  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.  There remains the possibility of enforcing arbitration of such claims where the arbitration agreement is found elsewhere – as discussed below.  However, the Second Circuit’s side note regarding the enforceability of a class action waiver as to such claims may be another obstacle to enforcement.

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, and through that employment 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 enforce 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.

In its decision on the employer’s request, the district court said 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) and, consequently, 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 determined 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.  Such language has been enforced in other cases such as in the Ninth Circuit’s 2019 decision in Dorman v. Charles Schwab Corp. The court also was unpersuaded, and so rejected, the argument 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.

Takeaways

While the question of whether ERISA breach of fiduciary duty claims are arbitrable remains unsettled, the recent decisions in Cooper and Hawkins, as well other district court decisions in recent years, indicates that courts are less likely to enforce arbitration of such claims where the agreement to arbitrate is part of an employment agreement.  The trend seems to indicate that an arbitration clause in the plan document may be enforceable – however, the Second Circuit’s comments questioning the enforceability of any class action waivers with regard to ERISA breach of fiduciary duty claims may be an issue in future cases.  Though not binding, such reasoning will probably show up in future arguments challenging arbitration.

Notes:

[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).

Pamela S.C. Reynolds of Littler Mendelson represents and counsels national corporations, small businesses, universities, and other clients in a broad range of labor and employment matters. In particular, she has litigated cases nationwide involving claims under ERISA, including successfully defending clients against claims of denial of medical, severance or retirement benefits, and breach of fiduciary duty, among others.