In a case of first impression, the Ninth Circuit overturned 35 years of precedent and ruled that ERISA class action claims brought on behalf of an ERISA plan are subject to individual arbitration. The Court also enforced the arbitration agreement’s class action waiver and sent plaintiff’s putative ERISA class action to individual arbitration with relief limited to plaintiff’s individual plan losses. Plaintiff—a former Charles Schwab employee and participant in the Charles Schwab 401(k) sponsored plan—brought a putative ERISA class action lawsuit against the fiduciaries of the Charles Schwab 401(k) plan. Despite the plan’s arbitration provision and class action waiver and several other similar employment-related arbitration agreements, plaintiff brought his lawsuit on behalf of the entire 401(k) plan and a putative class of more than 25,000 participants. Plaintiff alleged that the company included proprietary Charles Schwab investment funds in the plan for self-gain in violation of ERISA’s prohibited transaction rules and breached its fiduciary duties of prudence and loyalty by allowing participants to invest in proprietary investment options that were more expensive and underperformed comparable non-proprietary options available in the market.

Proskauer moved to compel individual arbitration of plaintiff’s claims arguing that claims under ERISA, like any other federal statute, are subject to individual arbitration (class action waiver) under the Federal Arbitration Act. The district court denied Charles Schwab’s motion to compel arbitration for multiple reasons, including that the arbitration provision was inserted into the plan document after plaintiff ceased being a plan participant and because plaintiff’s claims were brought on behalf of the plan and the plan had not consented to arbitration. The district court also stated that even if the plan did consent to arbitration, the consent would not be valid under ERISA because it would inappropriately limit the plan fiduciaries’ liability. Arguing for Charles Schwab before the Ninth Circuit, Howard Shapiro contended that the district court’s order was incorrect both factually and legally on each point.

The Ninth Circuit reversed, adopting all of Defendants’ arguments and becoming the first federal court of appeal to hold that class action ERISA claims brought on behalf of an entire ERISA plan are subject to individual arbitration with relief limited to the individual plaintiff’s claims. First, in light of intervening Supreme Court case law, the Court overruled its longstanding precedent set forth in Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), which held that ERISA claims were not arbitrable. Second, the Court ruled that the district court incorrectly found that plaintiff was not bound by the plan’s arbitration provision as he was a participant in the plan for nearly a year after the provision was inserted. The Court noted that by participating in the plan plaintiff “agree[d] to be bound by” the arbitration provision. Third, the Court found that the plan had consented to individual arbitration by including the arbitration provision in the plan document. Fourth, the Court rejected the district court’s conclusion that the arbitration provision/class action waiver limited the fiduciaries’ liability as the arbitration provision merely provided for a different forum that “offered quicker, more informal, and [] cheaper resolutions for everyone involved.” Lastly, the Court held that nothing in ERISA precludes limiting plaintiff’s relief to his individual losses as the Supreme Court has recognized that claims brought on behalf of a plan “are inherently individualized when brought in the context of a defined contribution plan like that at issue.” Therefore, the Court reversed and remanded with instructions for the district court to order arbitration of individual claims limited to seeking relief for the impaired value of the plan assets in the individual’s own account.

The decision resulted in two separate opinions: Dorman v. Charles Schwab Corp., No. 18-15281, 2019 WL 3926990, __F.3d__ (9th Cir. Aug. 20, 2019); Dorman v. Charles Schwab Corp., No. 18-15281, 2019 WL 3939644, __F. App’x__ (9th Cir. Aug. 20, 2019). The Proskauer team representing Charles Schwab includes partners Howard Shapiro, Myron Rumeld, and Stacey Cerrone, senior counsel John Roberts , associates Tulio D. Chirinos and Lindsey Chopin, and senior paralegal Blair Jones.

Posted in Arbitration
Tags: 401(k), Fiduciary, ninth circuit
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Photo of Myron Rumeld Myron Rumeld

Myron D. Rumeld has over thirty-five years of experience handling all aspects of ERISA litigation at both the trial and appellate level. His broad experience includes numerous representations of 401(k) plan fiduciaries defending class action employer stock and excessive fee claims, and representations…

Myron D. Rumeld has over thirty-five years of experience handling all aspects of ERISA litigation at both the trial and appellate level. His broad experience includes numerous representations of 401(k) plan fiduciaries defending class action employer stock and excessive fee claims, and representations of large multiemployer pension and health fund trustees in the defense of a large assortment of fiduciary breach lawsuits. He has defended class action suits against Charles Schwab, Barnabas Health, Inc., Neuberger Berman, and the American Federation of Musicians Pension Fund, among many other clients; and he has tried cases for The Renco Group and Foot Locker, Inc., among others.

Chambers USA cites Myron as a “brilliant” and “sensational litigator,” who is “sharp, articulate, clever, and deeply committed to the work he does.” Similarly, The Legal 500 United States has called Myron an “outstanding ERISA lawyer.”

Myron is presently co-chair of Proskauer’s ERISA Litigation Group.  He previously served as co-chair of Proskauer’s nationally renowned Employee Benefits & Executive Compensation Group. He also served as the past co-chairman of the Board of Editors for the American Bar Association publication, Employee Benefits Law (BBNA).

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Photo of John E. Roberts John E. Roberts

John E. Roberts is a partner in the Litigation Department and co-chair of the firm’s Appellate Practice Group, which was named to the National Law Journal’s 2020 Appellate Hot List. He litigates cutting-edge appellate matters in state and federal appellate courts across the…

John E. Roberts is a partner in the Litigation Department and co-chair of the firm’s Appellate Practice Group, which was named to the National Law Journal’s 2020 Appellate Hot List. He litigates cutting-edge appellate matters in state and federal appellate courts across the country, including the United States Supreme Court.

John’s advocacy led to a favorable decision by the Supreme Court in the landmark patent case, Nautilus Inc. v. Biosig Instruments, Inc., and ultimately victory on remand at the United States Court of Appeals for the Federal Circuit. John has represented the Financial Oversight and Management Board for Puerto Rico—the entity created by Congress to oversee the restructuring of Puerto Rico’s massive public debt—in dozens of appeals at the United States Court of Appeals for the First Circuit. He has also prevailed in some of the most important ERISA appeals in recent years.

John maintains a robust pro bono practice and is a member of the firm’s Pro Bono Initiative Committee. For more than five years, he has provided pro bono representation to a criminal defendant in a death penalty case. He has also provided pro bono representation to various advocacy organizations in high-impact litigations, including the Brady Center to Prevent Gun Violence, Citizens for Juvenile Justice, the Bronx Defenders, and the National Immigration Litigation Alliance.

John graduated magna cum laude from the New York University School of Law, where he was an articles editor for the New York University Law Review. He received his B.A. from Harvard University, where he graduated cum laude. He served as a clerk to the Honorable Bruce M. Selya, the most prolific opinion-writer in the history of the United States Court of Appeals for the First Circuit. He is an Adjunct Professor at the Roger Williams School of Law in Bristol, Rhode Island, where he teaches appellate advocacy, and he is a co-author of the treatise Principles of Appellate Litigation: A Guide to Modern Practice.

Before John attended law school, he worked as a journalist for National Public Radio for many years, where he was a co-creator of the national news program, On Point, and won several awards for his reporting. He lives in Providence, Rhode Island, with his husband, Michael.

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