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Posts Tagged ‘Ninth Circuit Court of Appeals’

Arbitration and Class Action Waivers Upheld in ERISA Plans, but an Industry Shift Toward Arbitration Remains to be Seen

Posted on: September 26th, 2019

By: Justin Boron

The judicial trend in favor of arbitration and class action waivers continues—this time in employee benefit plans.

Last month, a Ninth Circuit Court of Appeals panel validated an arbitration and class action waiver agreement contained in an employee retirement plan, and in doing so, it overturned a 1984 precedent holding that fiduciary claims under the Employee Retirement Income Security Act (“ERISA”) could not be arbitrated.

In a pair of opinions issued in Dorman v. Charles Schwab Corp.,[1] the panel found that the reasoning in Amaro v. Continental Can Company,[2] was irreconcilable with recent opinions from the U.S. Supreme Court, including American Express Co. v. Italian Colors Rest., which had endorsed an arbitrator’s competence to interpret and apply federal statutes.[3]

The Dorman decision arose from a plan participant’s class action alleging a breach of fiduciary duty that resulted from the inclusion of Schwab affiliated investment funds in the 401k plan.  As yet another affirmation of arbitration and class action waiver agreements, it is sure to attract the attention of plan sponsors and plan fiduciaries.

But it might not necessarily be the game changer that previous class action waiver decisions have proven to be in the consumer and employment context, where companies have rushed to fold class action waivers into sales and employment agreements.

For one, several other circuit courts of appeal had already upheld arbitration agreements in plan documents.[4]  So at least in these circuits, plan sponsors have already been free to include arbitration agreements in employee benefit and retirement plans like the 401k plan at issue in Dorman.  Plaintiff also requested en banc rehearing earlier this month, so Amaro could still be revived.

Other reasons are more practical.  Including class action waivers in arbitration agreements might stave off a class action asserted in federal court.  But in contrast to their effect on wage-and-hour and consumer-protection class actions, class action waivers might not necessarily limit exposure on fiduciary claims under ERISA, which are themselves a kind of representative action brought on behalf of the plan for monetary relief.[5]  The Dorman and other appellate decisions have not expressly addressed whether a plan’s arbitration agreement could confine the action to individual monetary relief as opposed to plan-wide relief.  As a result, any judgment might benefit the plan and plan participants as a whole regardless of whether the action is styled as a class action.

Additionally, the cost savings attributed to arbitration of employment and consumer claims might not be present in ERISA claims, which are often decided on the papers in federal court. In contrast, arbitration likely requires the same amount of attorney time as in federal court, with the added costs of the arbitrator(s) and an arbitration hearing.  Combine the added costs with a limited standard of review, and it might not net a more favorable result than proceeding in federal court in a class action.

If you have any questions or would like more information, please contact Justin Boron at [email protected].

[1] Dorman v. Charles Schwab Corp., No. 18-cv-15281, 2019 U.S. App. LEXIS 24735 (9th Cir. Aug. 20, 2019), No. 18-cv-15281, 2019 U.S. App. LEXIS 24791 (9th Cir. Aug. 20, 2019).
[2] 724 F.2d 747 (9th Cir. 1984).
[3] 570 U.S. 228, 233 (2013).
[4] See, e.g., Williams v. Imhoff, 203 F.3d 758 (10th Cir. 2000); Kramer v. Smith Barney, 80 F.3d 1080 (5th Cir. 1996); Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, 7 F.3d 1110 (3d Cir. 1993); Bird v. Shearson Lehman/American Express, 926 F.2d 116 (2d Cir. 1991); Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, Inc., 847 F.2d 475 (8th Cir. 1988).
[5] 29 U.S.C. § 1132(a)(2); 29 U.S.C. § 1109.

Discrimination Without A Difference: Supreme Court To Decide Whether Section 1981 Requires “But For” Causation Or Whether Same-Decision Defense Applies

Posted on: June 24th, 2019

By: Michael Hill

The U.S. Supreme Court is poised to answer the question of where to draw the line when a decision is motivated in part by race discrimination. Must the plaintiff show the decision would not have been made but for his or her race, or is it sufficient to show that race was one factor behind the decision, even if the same decision would have been made for other, race-neutral reasons?

The case at issue, Comcast Corp. v. National Assoc. of African American-Owned Media, is not actually an employment discrimination case, but the Supreme Court’s decision will impact the realm of employment law because of the statute at issue, 42 U.S.C. § 1981 (“Section 1981”), prohibits race discrimination in making and enforcing contracts (which includes employment contracts).

The issue is whether Section 1981 requires “but for” causation, or whether a “mixed motive” analysis can be used. In Comcast, an African American-owned television network operator sued the cable company, alleging Comcast’s refusal to contract with the networks was racially motivated. The federal district court in California dismissed the case three times at the pleading stage, holding the complaints failed to allege facts to show Comcast had no legitimate business reasons for its decision not to contract with the networks. On appeal, a three-judge panel at the Ninth Circuit Court of Appeals unanimously reversed, holding a Section 1981 claim can proceed as long as race is alleged to have been one factor in the contract decision, even if there were other, race-neutral factors that would have led to the same decision.

The Supreme Court’s decision in Comcast will have a significant impact on the amount of damages available in cases alleges race discrimination in employment. Race discrimination claims under Section 1981 frequently are pled in tandem with Title VII of the Civil Rights Act. Title VII was amended in 1991 expressly to allow for “mixed motive” claims, but the only forms of relief available under a Title VII “mixed motive” claim are declaratory relief and attorney’s fees – no damages, back pay, or right to reinstatement. The language of Section 1981, however, contains no such limitation. Also, unlike Title VII, damages under Section 1981 are not capped; the statute of limitations is longer; and there is no requirement to submit the claim to the EEOC before suing in court. Thus, if the Supreme Court rules that Section 1981 covers “mixed motive” claims (and not just claims of “but for” discrimination), then claims alleging “mixed motive” race discrimination could become more valuable (and thus more costly to defend).

If you have questions or would like more information, please contact Michael Hill at [email protected].