On August 20, 2019, the United States Court of Appeals for the Ninth Circuit overturned its long-standing precedent, and ruled statutory claims under ERISA are subject to arbitration under the Federal Arbitration Act. In
Dorman v. Charles Schwab Corp.
, the Ninth Circuit considered a putative class action under ERISA that alleged “various [d]efendants breached their fiduciary duties of loyalty and prudence and violated ERISA’s prohibited transaction rules by selecting for inclusion in the Plan investment funds that are affiliated with Schwab.” The defendants moved to compel individual arbitration pursuant to agreements requiring the same in the plan documents and others. The district court denied the defendants’ motion to compel arbitration.
In deciding that the agreements to arbitrate were enforceable, the Ninth Circuit examined its prior decision in
Amaro v. Continental Can Co.
, 724 F.2d 747 (9th Cir. 1984), in which the court held that ERISA claims were not arbitrable. The court concluded the prohibition against the arbitration of ERISA claims was no longer good law based on recent decisions from the Supreme Court of the United States, which held that arbitrators are competent to interpret and apply federal statutes. Consequently, the Ninth Circuit clarified that ERISA claims were subject to arbitration if the arbitration agreements sought to be enforced were otherwise valid.
Dorman
is an important case because the law regarding the enforcement of arbitration provisions in ERISA cases is unsettled. In particular, a number of courts held that the distinction of whether a claim was contractual (e.g., a claim for benefits under a benefit plan) or statutory (e.g., a claim for interference with the attainment of a right under ERISA) was the principal consideration. In this formulation, these courts held that while a claim for benefits may be arbitrable, a claim seeking relief under a specific statutory provision of ERISA was not. Complicating matters further, some courts also concluded all ERISA claims were arbitrable, and still others determined that no ERISA claims were subject to the Federal Arbitration Act.
In sum, the Ninth Circuit’s decision in
Doman
furthers the federal policy favoring arbitration, although the case may be subject to a rehearing
en banc
by a panel of 11 Ninth Circuit judges and/or appeal. It also remains to be seen if other courts that relied on similar reasoning in past decisions reach the same result, and whether the Supreme Court of the United States will weigh in on an appeal of this case or another. For the moment, however, there is every reason to believe that arbitration may become a more familiar aspect of ERISA plan drafting, claims processes, and litigation.
If you have any questions about this issue, please contact:
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