On July 24, the US Court of Appeals for the Ninth Circuit held in Munro v. University of Southern California that ERISA Section 502(a)(2) claims for breach of fiduciary duty fell outside the scope of the plaintiffs’ individual arbitration agreements because only those individual employees—and not their 403(b) plans—consented to arbitration. The ruling affirmed the district court’s denial of the University of Southern California’s motion to compel arbitration. The 403(b) plan litigation will now continue in the Central District of California, where District Judge Virginia A. Philips had previously stayed the matter pending USC’s appeal.
In Munro, the plaintiffs brought a putative class action lawsuit against USC alleging claims for breach of ERISA’s fiduciary duties in connection with fees and expenses charged to two ERISA defined contribution plans (the USC Plans). The plaintiffs filed their claims under ERISA Section 502(a)(2), 29 U.S.C. § 1132(a)(2), on behalf of the USC Plans. Thereafter, USC moved to compel arbitration pursuant to arbitration agreements signed by each of the nine plaintiffs. These agreements required the plaintiffs to arbitrate “claims for violation of any federal, state or other governmental law, statute, regulation, or ordinance.” However, the district court denied USC’s motion to compel arbitration, holding that the arbitration agreements were unenforceable as to the plaintiffs’ ERISA claims because the USC Plans were the real parties in interest to Section 502(a)(2) claims, and the USC Plans had not consented to arbitration. Munro v. Univ. of S. Cal. (C.D. Cal. Mar. 23, 2017) (“[P]articipants cannot sign an arbitration agreement, without the consent of a plan, that prevents the participants from bringing a § 502(a)(2) claim on behalf of the plan.”).
The Ninth Circuit agreed, holding that the plaintiffs’ ERISA Section 502(a)(2) claims asserted on behalf of the USC Plans did not fall within the scope of the plaintiffs’ individual arbitration agreements. In reaching this conclusion, the Ninth Circuit reasoned by analogy to its previous decision in US ex rel. Welch v. My Left Foot Children’s Therapy, LLC (9th Cir. 2017), in which the court held that qui tam claims brought by the employee on behalf of the United States under the False Claims Act belonged to the government and were not claims that the employee had against the employer, and thus fell outside the scope of a standard employment arbitration agreement. Likewise, in Munro, the Ninth Circuit determined that the plaintiffs “are bringing their claims to benefit their respective [USC] Plans across the board, not just to benefit their own accounts.”
Of note, the arbitration agreements at issue also contained class action waivers, which the plaintiffs argued were unenforceable under the Ninth Circuit’s prior ruling in Morris v. Ernst & Young (9th Cir. 2016). As we noted in our prior blog post, the US Supreme Court recently reversed Morris, ruling in Epic Systems Corp. v. Lewis that class and collective action waivers in employment arbitration agreements are enforceable under the Federal Arbitration Act. However, because the Ninth Circuit in Munro refused to enforce the arbitration agreements entirely, the court did not reach the class action waiver issue.
USC has not yet indicated whether it will appeal the Ninth Circuit’s ruling. While petitioning the Supreme Court for writ of certiorari is always a longshot, this case could be a decent candidate. The Supreme Court has been particularly interested in arbitration-related issues, and the Ninth Circuit’s hostility to arbitration has certainly attracted the Court’s attention in the past, including the Supreme Court’s recent reversal of Morris in its Epic Systems decision.
Takeaway
Following the Ninth Circuit’s ruling in Munro, employers seeking to arbitrate ERISA Section 502(a)(2) claims should include an arbitration provision in their ERISA plans. Additionally, because the Ninth Circuit in Comer v. Micor, Inc. (9th Cir. 2006) also previously refused to enforce an arbitration agreement that was signed on behalf of the plan but not the individual plan participant, we would recommend that employers seeking to arbitrate these ERISA claims also include an arbitration provision in their employment agreements. Note, however, that these decisions pertain to claims brought on behalf of an ERISA plan, rather than claims brought on behalf of individual plan participants, such as under ERISA Sections 502(a)(1)(B) or 502(a)(3). Further, we question whether an employer would want to arbitrate an ERISA action in the first place, as doing so would forfeit certain judicial protections, such as the ability to appeal an adverse ruling. Thus, we recommend that employers perform a thorough legal analysis of the potential implications of arbitrating an ERISA action prior to including an arbitration provision covering such actions in their ERISA plans or employment agreements.