The Ninth Circuit affirmed thedistrict court and held that the participants' claims were notsubject to the arbitration clause because they were bringing aclaim on behalf of an ERISA plan. (Photo: Shutterstock)

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The U.S. Court of Appeals for the Ninth Circuit recently uphelda lower court ruling that a group of ERISA plan participants' claims under ERISASection 502(a)(2) for breach of fiduciary duty were not required to bearbitrated despite the fact that they had entered into employmentagreements requiring them to arbitrate all of their claims.

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In reaching this holding, the court emphasized that theparticipants had raised claims not on their own behalf, but onbehalf of an ERISA plan, which was not a party to the employmentagreement with the arbitration clause. Munro v. Univ. ofSouthern Cal., No. 2:16-cv-06191, 2018 WL 3542996 (9th Cir.July 24, 2018).

The ERISA claims and rulings

Allen Munro and eight other current and former employees of theUniversity of Southern California were participants in the USCRetirement Plan Oversight Committee. They sued the University, theRetirement Plan, and a committee member for breaching theirfiduciary duties by failing to reduce the retirement plan's fees and expenses and byfailing to use sound judgment when determining what investments toinclude in the plan. The participants seek monetary and equitableremedies that benefited the plans and its participants andbeneficiaries, including a determination about how to calculatelosses, removal of certain fiduciaries, an accounting of planlosses, reformation of the plans, and an order concerning futureinvestments.

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Related: 11 tips to reduce retirement plan litigationrisk

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The University moved to compel arbitration, contending that theparticipants agreed in their employment agreements to arbitrate“all claims … that [they] may have against the University,”including “claims for violation of any federal, state or othergovernmental law, statute, regulation, or ordinance.” The U.S.District Court for the Central District of California denied theUniversity's motion to compel arbitration, concluding that thedispute was outside of the arbitration clause “[b]ecause theparties [to the agreements] consented only to arbitrate claimsbrought on their own behalf” and the participants' “claims arebrought on behalf of the Plans.”

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The Ninth Circuit affirmed the district court and held that theparticipants' claims were not subject to the arbitration clause. Itinterpreted the arbitration clause and assessed whether theparticipants were bringing a claim on behalf of themselves or onbehalf of an ERISA plan. It noted that the arbitration clauserequired the parties to arbitrate “all claims … that Employee mayhave against the University,” but did not “extend to claims thatother entities have against the University.”

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The court also analogized the dispute to a case in which itrefused to compel arbitration of claims under the False Claims Actbecause those claims belonged to the government, not to therelator. There, it reasoned that the “government, rather than therelator, stands to benefit most from” that litigation. In Munro, itruled that the participants seek recovery for the plan, notthemselves. Likewise, the court found that, like a relator raisingFCA claims, the participants raising ERISA Section 502(a)(2) claims“may not alone settle a claim because that claim does not existfor” the participants' “primary benefit” but instead for the plan'sbenefit.

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Finally, although the employees asked the Ninth Circuit todepart from several other federal appellate courts by holding thatbreach of fiduciary duty claims on behalf of a plan under ERISASection 409(a) may not as a matter of law be arbitrable, the courtconcluded that deciding that issue was unnecessary because it hadruled that the claims were not covered by the arbitrationclause.

The significance of the ruling

Permitting ERISA participants and beneficiaries to pursue theirclaims in court rather than in arbitration has significantconsequences. First, arbitrations are typically private, but theparties' arguments, evidence, and filings–and the court'srulings–in Munro will be available to the public. Second, anarbitrator's rulings generally lack precedential force, but acourt's rulings will be available for other courts to considerusing as precedent in subsequent cases. Third, arbitration clauses(including the clause in Munro) often bar parties from raisingclaims in arbitration on behalf of a class of people, therebyremoving the efficiencies of a class action that generallyencourage claimants to raise claims at all. By holding that theERISA claims in Munro were not subject to the arbitration clause,the court permitted the nine participants to realize theefficiencies of pursuing their claims together.


JoshuaFowkes is a partner at Arent Fox.

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