In Dorman v. Charles Schwab Corp.,1 the U.S. Court of Appeals for the Ninth Circuit held on August 20, 2019 that claims under the Employee Retirement Income Security Act of 1974 (“ERISA”) can generally be subject to mandatory arbitration. In doing so, the court overruled its long-standing decision in Amaro v. Continental Can Co.,2 which had generally stood for the proposition that ERISA claims are not arbitrable.
In Dorman, the plaintiff participated in an ERISA-governed defined contribution (individual account) “401(k)” retirement plan (the “Plan”) that included a provision requiring that “[a]ny claim, dispute or breach arising out of or in any way related to the Plan shall be settled by binding arbitration.” The Plan document also required that all claims be brought in individual arbitration.
The plaintiff brought a putative class action under Section 502(a)(2) of ERISA, which generally, among other things, permits participants and beneficiaries to bring an action on behalf of a plan for fiduciary violations.3 The plaintiff alleged breaches of fiduciary duty under ERISA, including violations of ERISA’s prohibited transaction rules, in connection with the operation of the Plan. The defendants moved to compel individual arbitration, as contemplated by the Plan.
In addressing the plaintiff’s assertions, the District Court for the Northern District of California did not reach the question of whether an ERISA claim can be subject to mandatory arbitration. In reversing the District Court’s decision, however, the Court of Appeals directly confronted that question. The Court of Appeals reviewed its earlier decision in Amaro, which had held that ERISA’s protections could not be satisfied in arbitration proceedings because arbitrators “lack[ed] the competence of courts to interpret and apply” ERISA.4
In reconsidering Amaro, the Court of Appeals looked to the U.S. Supreme Court’s more recent decision in American Express Co. v. Italian Colors Restaurant.5 In American Express, reflecting an arguable trending in Congress and the courts in favor of arbitration generally,6 the Supreme Court determined that federal statutory claims may generally be arbitrated and, potentially undercutting the rationale of Amaro, concluded that arbitrators are indeed capable of competently interpreting and applying federal statutes.
Accordingly, in Dorman, the Court of Appeals identified American Express as intervening Supreme Court authority, and, after determining that American Express is “irreconcilable with Amaro,” concluded that Amaro is no longer binding precedent. In a concurrent unpublished opinion, the Court of Appeals then went on to hold that the Plan’s arbitration requirements were enforceable7 and that the parties should be ordered into individual arbitration.8
The Dorman decision is important from a number of perspectives. As to the types of ERISA claims that were at issue in Dorman, a Federal appellate court has now validated an arbitration clause in an employee benefit plan in the context of a fiduciary claim under ERISA. More generally, though, Dorman can be seen as reflecting an ever-expanding tendency in favor of arbitration clauses,9 potentially buoying those who support and favor alternative dispute resolution rather than resolution in the courts. Indeed, the Ninth Circuit, seen by some as being one of the more influential circuit courts, here validated an arbitration provision even in the face of its own prior specific contrary authority.
If you would like to discuss the effect of the Dorman decision on ERISA arbitration, or any other aspect of arbitration generally, please contact any of the Dechert lawyers listed below or any Dechert lawyer with whom you regularly work.