Issue: Winter 2019

Are ERISA Cases the Next Frontier in the Ever-Expanding Realm of Arbitration? The Implications of Munro v. University of Southern California in the Ninth Circuit

By: Emily Bolt

In a legal landscape that has resoundingly embraced arbitration, a recent Ninth Circuit case stands out for applying the breaks to binding arbitration in an ERISA matter.  In Munro v. University of Southern California, 2018 WL 3542996 (9th Cir. July 24, 2018), the court found that employees pursuing a putative class action lawsuit for breaches of fiduciary duty related to their retirement plans under ERISA Section 502(a)(2) could not be compelled to arbitrate the dispute, even though their employment agreements included arbitration agreements.

I.               The Case of Munro v. University of Southern California

A.    Case Background

The employees in Munro were participants in two employer-sponsored retirement and annuity plans governed by ERISA (“the Plans”) and “sought financial and equitable remedies to benefit the Plans and all affected participants and beneficiaries, including but not limited to: a determination as to the method of calculating losses; removal of breaching fiduciaries; a full accounting of Plan losses; reformation of the Plans; and an order regarding appropriate future investments.”  2018 WL 3542996 at *1.  The employer sought to compel arbitration on the basis of arbitration agreements executed by the employees, which applied to claims “an Employee may have against the [Employer] or any of its related entities.”  Id.  The district court held that the Plans themselves were not subject to the arbitration agreements and that the employees could not so bind the Plans, therefore arbitration could not be compelled.  Id.

The Ninth Circuit took up the issue.  The court noted at the outset that it was tightly bound by the Federal Arbitration Act and attendant Supreme Court jurisprudence strongly favoring arbitration.  Munro, 2018 WL 3542996 at *2 (citing Moses H. Cone Mem. Hosp. v. Mercury Constr., 460 U.S. 1, 24-25 (1983) for the proposition that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration….”).  The Munro court explained, “Where there is no conflict between the FAA and the substantive statutory provision, ‘the FAA limits courts’ involvement to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.’” Id. (quoting Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008)). 

In applying “the ‘fundamental principle that arbitration is a matter of contract,’” the key question before the court was “whether the [arbitration] agreement encompasse[d] the dispute at issue.”  Munro, 2018 WL 3542996 at *2 (quoting AT&T Mobility LLC v. Concepion, 563 U.S. 333, 339 (2011) and Cox, 533 F.3d at 1119).

B.     The Reasoning of Munro

Central to the Munro court’s analysis was the nature of a claim under ERISA section 502(a)(2), which is brought on behalf of the benefit plan, and the remedies sought, which run to the plan and not the individual participants per se.  Munro, 2018 WL 3542996 at *2, 4.

In light of the inherently representative nature of a 502(a)(2) claim, the Ninth Circuit analogized extensively to a recent qui tam case, noting that “[t]here is no shortage of similarities between qui tam suits under the FCA and suits for breach of fiduciary duty under ERISA.”  Munro, 2018 WL 3542996 at *3 (referencing United States ex rel. Welch v. My Left Foot Children’s Therapy, LLC, 871 F.3d 791 (9th Cir. 2017)).  In both types of suits, “plaintiffs are not seeking relief for themselves.  A party filing a qui tam suit under the FCA seeks recovery only for injury done to the government, … and a plaintiff bringing a suit for breach of fiduciary duty similarly seeks recovery only for injury done to the plan.”  Id.  The Munro court went on to note that “neither the qui tam relator nor the ERISA § 502(a)(2) plaintiff may alone settle a claim because that claim does not exist for the individual relator or plaintiff’s primary benefit.”  Id.  As to the qui tam action, the government has a right to be heard on the validity of the settlement but not “an absolute right to block the settlement.”  Id.  As to the ERISA claim, the plaintiff’s hands are even more tied: the action may only be settled if the plan approves the settlement.  Id.

The Munro court restated its holding in the Welch case that the qui tam suit was outside the scope the of the arbitration agreement because “the government, rather than the relator, stands to benefit most from the litigation…. even though the relator is entitled to more than a nominal share of the government’s recovery.”  Munro, 2018 WL 3542996 at *3.

The Munro court highlighted the fact that the nature of the relief sought by the plaintiffs illustrated that they were “bringing their claims to benefit their respective Plans across the board, not just to benefit their own accounts….”  Munro, 2018 WL 3542996 at *4.  Although the court noted that the cause of action under ERISA section 502(a)(2) technically belongs to the individual plaintiff, it went on to say that in a qui tam action where the government elects not to intervene, the same is also true.  That point did not tip the scales for the court.  The court’s analysis leaned more heavily on the nature of the remedies sought and to whom they predominantly flowed rather than the technicality of ownership over the cause of action.

C.     The Effect of the Munro Holding

Thus, it is now settled within the Ninth Circuit that ERISA Section 502(a)(2) actions are not subject to mandatory arbitration on the basis of arbitration agreements signed by the plan participants because the individual participants cannot bind the plan as a whole, and therefore there is no enforceable arbitration agreement as to the plan. 

II.              Questions After Munro

A.     What if the Plan Itself Contains an Arbitration Provision?

This distinction raises an interesting question:  is the result different where the plan document itself contains a binding arbitration agreement?  The Northern District of California recently said no, that even where the arbitration agreement was contained in the plan document itself, the plan sponsor lacked the power to waive the plan’s rights and thus the claims were still not subject to mandatory arbitration.  Dorman v. Charles Schwab Co., 2018 WL 467357 (N.D. Cal. Jan. 1, 2018).  That case is pending review at the Ninth Circuit. 

B.     Is Amaro v. Continental Can Co. Open to Debate After Munro?

Perhaps the most provocative aspect of the Munro decision is a footnote in which the court left the door open to later revisit the previously settled question of whether claims for breach of fiduciary duty brought under ERISA section 409(a) are inarbitrable as a matter of law.  A prior Ninth Circuit decision, Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), had held that “ERISA’s mandated ‘minimum standards [for] assuring the equitable character of [ERISA] plans’ count not be satisfied in an arbitral proceeding.”  Munro, 2018 WL 3542996 at *4 n.1.  The defendant in Munro had urged the court to overrule Amaro on the grounds that it was “‘clearly irreconcilable’ with intervening Supreme Court case law.”  Id.  The Munro court did not have cause to reach this question since it found that the arbitration agreement in question did not apply to the instant claims.  Interestingly, the court opined, in dicta, “Although the Supreme Court has never expressly held that ERISA claims are arbitrable, there is considerable force to [defendant’s] position.”  Id. 

This footnote in Munro is perhaps a foreshadowing that should the Ninth Circuit face a case where the arbitration agreement in question did encompass the dispute at issue, the court may be willing to roll back its prior holding that breach of fiduciary duty claims are inarbitrable as a matter of law.  Five other circuits have previously concluded that many ERISA claims could be subjected to binding arbitration; for example the Second Circuit has held that breach of fiduciary duty claims under ERISA are arbitrable where the plan’s trustee formed an arbitration agreement with a fiduciary service provider that contained an agreement to submit any claims to arbitration.  Bird v. Shearson Lehman/American Express, Inc., 926 F.2d 116, 122 (2d Cir. 1991).  The Bird court concluded that “Congress did not intend to preclude a waiver of a judicial forum for statutory ERISA claims,” and that “the FAA requires courts to enforce agreements to arbitrate such claims.”  Id.

III.           Conclusion

The Ninth Circuit remains much more restrictive than most other circuits regarding enforcement of binding arbitration provisions in ERISA cases, and Munro evidences the court’s willingness to carefully parse each scenario to determine whether arbitration must be compelled.  However, the Ninth Circuit may be prepared to rescind its earlier pronouncements that ERISA claims may be inarbitrable as a matter of law.  Or, indeed, the Supreme Court may settle that issue first, and the High Court has yet to reveal a willingness to staunch the flow of claims being funneled to binding arbitration and out of the halls of justice.