Cooper v. Ruane Cunniff & Goldfarb Inc., 990 F.3d 173 (2d Cir. 2021) [click for opinion]

Defendant Ruane Cunniff & Goldfarb Inc. is a third party investment manager and plan administrator that managed the assets of an employer's 401(k) and profit-sharing fund. Defendant was given "full authority and sole discretion" over the investments, making it a Plan fiduciary under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1132(a)(2). Plaintiff, a member of the plan managed by Defendant, alleged that Defendant had mismanaged the profit-sharing fund and breached its fiduciary duties by vastly over-allocating Plan assets to shares in a company whose stocks were in steep decline. Plaintiff sued Defendant under Section 502(a)(2) of ERISA, acting as a representative of an ERISA Plan and its participants.

Defendant moved to compel arbitration of the claim under an agreement Plaintiff signed with his employer to arbitrate "all legal claims arising out of or relating to employment." Defendant argued that the fiduciary claim was related to Plaintiff's employment because (i) Plaintiff would not have his claim but for his employment, and (ii) Plaintiff's stake in the claim was part of his compensation from his employer. The district court agreed with this characterization of the claim and held that Defendant could compel Plaintiff to arbitrate. Though Defendant was not a signatory to the arbitration agreement, the court held that Defendant was entitled to enforce the agreement under principles of equitable estoppel.

The Second Circuit reversed, holding that there was no adequate basis on which to hold that Plaintiff's claims related to his employment. As argued by Plaintiff, the court found the arbitration agreement's listed examples of claims which should be arbitrated were more personal to Plaintiff—e.g., wrongful discharge, harassment, and leave disputes—and thus Plaintiff's ERISA claim, which Plaintiff brought on behalf of the Plan and the Plan's other participants, was not of the same type as those enumerated in the arbitration agreement.

Moreover, the court followed a line of cases from the Fifth, Eleventh, and Ninth Circuits in holding that "but-for" causation is not sufficient to argue that a claim "relates to" employment; instead, a claim should "relate to" employment "only if the merits of that claim involve facts particular to an individual's own employment." Though the court found that Plaintiff's claim was more related to his employment than these cases, in that it related to Plaintiff's compensation, it found that the claim "[hinged] entirely on the investment decisions made by" Defendant, and had "no connection to [Plaintiff's] work performance, his evaluations, his treatment by supervisors, the amount of his compensation, the condition of his workplace, or any other fact particular to [Plaintiff's] individual experience at [his employer.]" Because the merits of the claim were thus divorced from facts particular to Plaintiff's employment, the court held that the claim did not "relate to" his employment under the arbitration agreement.

Further, the court found that Defendant's reading of the arbitration agreement would make it impossible for a plaintiff to bring an ERISA fiduciary action that satisfied both the agreement and the representative adequacy requirement in Coan v. Kaufman. In that case, the Second Circuit had held that parties suing on behalf of a plan must demonstrate their suitability to represent the interests of other plan stakeholders. By contrast, the arbitration agreement required that all claims be brought on a single associate basis. This conflict would potentially render the agreement at least partially unenforceable. The court therefore declined to "adopt an unnecessary reading that [would cast the Agreement's] enforceability into doubt, in derogation of ERISA's protective purposes."

Erin Shields of the Los Angeles office contributed to this summary.​