In a putative class action lawsuit involving an alleged breach of ERISA fiduciary duties, the 9th Circuit Court of Appeals upheld the district court's denial of a motion to compel arbitration. The individual plaintiffs had all signed arbitration agreements as part of their employment contracts. However, the court held that those individual agreements cannot compel arbitration when the benefit plan itself did not consent to arbitration.
In Munro v. University of Southern California, Allen Munro and eight other former and current employees of USC filed a lawsuit against the university and USC retirement plan fiduciaries for breaches of fiduciary duty in administering two benefit plans.
The plaintiffs participated in both the USC Retirement Savings Program and the USC Tax-Deferred Annuity Plan. The plaintiffs allege the defendants breached their fiduciary duties under ERISA. The plaintiffs are seeking financial losses, reformation of the plan, and removal of the breaching fiduciaries.
Each of the employees entered into some version of an arbitration agreement as part of the employment contract. These arbitration agreements provided that the employees would agree to arbitrate all claims between the employee and USC, including violations of federal law (such as ERISA violations).
The defendants filed a motion to compel arbitration, based on the employee agreements. However, the district court denied the motion because the individual agreements do not bind the retirement plans where the plans did not consent to arbitration. The 9th Circuit Court of Appeals upheld the lower court's motion in denying arbitration.
The appeals court found that the employees were presenting claims brought on behalf of the two retirement plans rather than claims brought on their own behalf.
The court cited the treatment of qui tam claims brought under the False Claims Act (FCA). A catch-all arbitration clause does not cover “claims belonging to other entities.” The court found that under both ERISA and the FCA, “plaintiffs are not seeking relief for themselves.”
According to the opinion, “[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.”
This ruling may come as a surprise to many employers who understand their employment agreements and mandatory arbitration provisions cover all disputes between the employer and employee. However, individual arbitration agreements may not apply to ERISA disputes where the benefit plan does not provide for arbitration. Employers should review their arbitration agreements to understand what types of claims are covered and where they may still be vulnerable to litigation.
If you have any questions about whether your arbitration agreements apply to benefits disputes, the law firm of Butterfield Schechter LLP is here to help. We are San Diego County's largest law firm focusing its law practice on employee benefits law. Contact our office today with any questions on how we can help you and your business succeed.
