Michael Dorman v. the Charles Schwab Corporation ( 2019 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS AUG 20 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
MICHAEL F. DORMAN, individually as a No. 18-15281
participant in the SCHWAB PLAN
RETIREMENT SAVINGS AND D.C. No. 4:17-cv-00285-CW
INVESTMENT PLAN and on behalf of a
class of all those similarly situated,
MEMORANDUM*
Plaintiff-Appellee,
v.
THE CHARLES SCHWAB
CORPORATION; et al.,
Defendants-Appellants.
Appeal from the United States District Court
for the Northern District of California
Claudia Wilken, District Judge, Presiding
Argued and Submitted June 14, 2019
San Francisco, California
Before: GOULD and IKUTA, Circuit Judges, and PEARSON,** District Judge.
The district court erred by refusing to compel arbitration of the ERISA
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Benita Y. Pearson, United States District Judge for the
Northern District of Ohio, sitting by designation.
breach of fiduciary duty claims asserted in the First Amended Class Action
Complaint even though those claims fall squarely within the ambit of at least the
Schwab Retirement Savings and Investment Plan (the “Plan”).1
1. The district court incorrectly found that Michael Dorman was not bound
by the Plan document’s arbitration provision (the “Provision”). Contrary to the
district court’s ruling, the record reflects that Dorman participated in the Plan for
nearly a year while the Provision was in effect. A plan participant agrees to be
bound by a provision in the plan document when he participates in the plan while
the provision is in effect. See, e.g., Chappel v. Lab. Corp. of Am., 232 F.3d 719,
723–24 (9th Cir. 2000).
The district court reasoned Dorman was not bound by the Provision and,
therefore, he did not agree to arbitrate his ERISA § 502(a) claims. We recently
held, however, that such claims belong to a plan—not an individual. Munro v.
Univ. of S. Cal., 896 F.3d 1088, 1092 (9th Cir. 2018). The relevant question is
whether the Plan agreed to arbitrate the § 502(a)(2) claims. Here, the Plan
expressly agreed in the Plan document that all ERISA claims should be arbitrated.
The Provision selects an arbitral forum for resolving fiduciary breach claims
and requires the arbitration to be conducted on an individual rather than collective
1
In a published opinion filed concurrently with this memorandum, we
overrule Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), and reverse
and remand.
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basis. These claims “arise out of” and “relate to” the Plan because the claims are
asserted under ERISA and allege that Plan fiduciaries breached their duties to the
Plan. Therefore, the claims fall within the scope of the Provision.
The district court’s reliance on Johnson v. Couturier, 572 F.3d 1067 (9th
Cir. 2009), is misplaced because, in this case, the amendment was not an effort to
insulate fiduciaries from ERISA liability. Instead of obstructing liability, a forum
was selected for litigating fiduciary breach claims that offered “quicker, more
informal, and often cheaper resolutions for everyone involved.” Epic Sys. Corp. v.
Lewis, 138 S. Ct. 1612, 1621 (2018).
The Provision is not invalid under ERISA § 410(a), 29 U.S.C. § 1110(a).
An agreement to conduct arbitration on an individual basis, as in this case, does not
“relieve a fiduciary from responsibility or liability.”
2. Once it is established that a dispute falls within the scope of an arbitration
agreement, a court must order arbitration unless the agreement is unenforceable
“upon such grounds as exist at law or in equity for the revocation of any contract.”
9 U.S.C. § 2. The Federal Arbitration Act’s (“FAA”) savings clause recognizes
only “generally applicable contract defenses, such as fraud, duress, or
unconscionability.” Epic, 138 S. Ct. at 1622. The FAA’s savings clause is
inapplicable because Dorman does not assert any generally applicable contract
defenses.
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The district court held that the Provision was unenforceable on two
alternative grounds. One ground, however, was later expressly rejected by the
Supreme Court in Epic, and the other turned on the court’s finding that arbitration
places plan participants at a “disadvantage.” To the extent the district court
believed that an arbitrator would be less equipped than a court to resolve ERISA
claims or less willing to find against Plan fiduciaries, the court was expressing
precisely the type of “judicial hostility” towards arbitration that the FAA was
designed to eliminate. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,
24 (1991).
The district court’s holding that the Provision is unenforceable because it
violates the National Labor Relations Act (“NLRA”) is foreclosed by Epic, which
held that an arbitration agreement in which an employee agrees to arbitrate claims
against an employer on an individual basis, is enforceable and does not violate the
NLRA. 138 S. Ct. at 1624–25.
Claims alleging a violation of a federal statute such as ERISA are generally
arbitrable absent a “contrary congressional command.” Am. Express Co. v. Italian
Colors Rest., 570 U.S. 228, 233 (2013). As every circuit to consider the question
has held, ERISA contains no congressional command against arbitration, therefore
an agreement to arbitrate ERISA claims is generally enforceable. See, e.g.,
Williams v. Imhoff, 203 F.3d 758, 767 (10th Cir. 2000); Kramer v. Smith Barney,
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80 F.3d 1080, 1084 (5th Cir. 1996).
In its second ground, the district court incorrectly held that the Provision is
unenforceable under Bowles v. Reade, 198 F.3d 752 (9th Cir. 1999), because a plan
participant cannot agree to arbitrate a § 502(a)(2) claim without the plan’s consent.
Here, the Plan did consent in the Plan document to arbitrate all ERISA claims.
Dorman also did not waive any rights that belong to the Plan. When an individual
participant agrees to arbitrate, he does not give up any substantive rights that
belong to other Plan participants.
3. No party can be compelled under the FAA to arbitrate on a class-wide or
collective basis unless it agrees to do so by contract. Stolt-Nielsen S.A. v.
AnimalFeeds Int’l Corp., 559 U.S. 662, 684 (2010). The Supreme Court’s recent
decision in Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019), confirms that the
parties here should be ordered into individual arbitration, as they did not agree to
class-wide or collective arbitration. Because “arbitration is a matter of contract,”
the Provision’s waiver of class-wide and collective arbitration must be enforced
according to its terms, and the arbitration must be conducted on an individualized
basis. See Am. Express Co., 570 U.S. at 233.
Although § 502(a)(2) claims seek relief on behalf of a plan, the Supreme
Court has recognized that such claims are inherently individualized when brought
in the context of a defined contribution plan like that at issue. LaRue v. DeWolff,
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Boberg & Assocs., Inc., 552 U.S. 248 (2008). LaRue stands for the proposition
that a defined contribution plan participant can bring a § 502(a)(2) claim for the
plan losses in her own individual account. Id. at 256; see also Munro, 896 F.3d at
1093. The Plan and Dorman both agreed to arbitration on an individualized basis.
This is consistent with LaRue.
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 resulting from the alleged
fiduciary breaches.
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