A Blow for ERISA Plaintiffs in the Ninth Circuit

The legal team at SFMS are knowledgeable in matters of ERISA arbitration agreements.On August 20, 2019, the Ninth Circuit Court of Appeals held that mandatory arbitration agreements in employee retirement and investment plans are enforceable, overturning a recent district court ruling and upsetting Circuit precedent.

In recent years, corporations have regularly inserted arbitration clauses into contracts with their employees and customers. Arbitration clauses bind parties to resolving issues arising out of a contract through arbitration and typically waive parties’ rights to partake in collective arbitration or even pursue their issues in Court, either individually or within a class action.

Arbitration clauses are becoming more prevalent in private retirement plans. The Employee Retirement Income Security Act of 1974 (“ERISA”) protects individuals enrolled in private retirement and health plans by setting minimum standards and requirements for such plans. The enforcement of ERISA is extremely important because nearly all Americans rely on these ERISA-governed plans in retirement. The drafters of ERISA took this responsibility seriously; indeed, any attempt to relieve ERISA fiduciaries of their liability is void under 29 U.S.C. §1110(a).

In Dorman v. The Charles Schwab Corporation, however, the Ninth Circuit suggested that a defendant fiduciary need only face liability for a single participant’s losses, even in the face of allegations of a breach of fiduciary duty affecting an entire plain.[1] In this case, Plaintiff Michael Dorman was enrolled in the Schwab Retirement Savings and Investment Plan, which had an arbitration clause. Dorman alleges that Schwab impermissibly invested in Schwab-affiliated funds, which performed poorly and injured plan participants. Dorman claims that Schwab breached its fiduciary duties by selecting the Schwab-affiliated investment funds and he seeks plan-wide relief.

In holding that arbitration clauses are enforceable under these circumstances, the Ninth Circuit dealt a devastating blow to ERISA plaintiffs, since the decision may preclude ERISA plaintiffs from seeking plan-wide relief and bind them to individual arbitration. Arbitration comes short of meeting ERISA plaintiffs’ needs because, on average, employees win less often and receive significantly lower damages in arbitration than in court. Also, the costs of arbitration on an individual basis run high and discourage customers and employees from pursuing small claims. This undercuts the advantage of class actions: to pursue damages for issues that might not be worth it individually, but amount to a lot collectively. Additionally, the decision will set a precedent for employers to adopt similar arbitration provisions and eliminate critical protections of workers’ retirement plans. If a breach occurs, ERISA plaintiffs may now find fewer viable avenues for legal recourse, which threatens the efficacy and enforcement of ERISA, at large.

Plaintiff-Appellee filed a petition for Rehearing and Rehearing En Banc with the Ninth Circuit on September 20, 2019, and the AARP and NACA have written Amicus Briefs in support of the petition. We await the Ninth Circuit’s decision on this important petition.

The legal team at SFMS has substantial experience litigating class action and employment matters. If you have any questions regarding this subject or this posting, please contact John Roberts (jroberts@sfmslaw.com) or Alec Berin (aberin@sfmslaw.com). We can also be reached toll-free at 877-891-9880.

Shepherd, Finkelman, Miller & Shah, LLP, is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, and Pennsylvania. SFMS is an active member of Integrated Advisory Group (www.iaginternational.org), which provides our firm with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.sfmslaw.com.

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