9th Circuit moves Schwab class action to arbitration, reversing district court

A federal appeals court ruled Charles Schwab Corp. can move a proposed class action over alleged mismanagement of retirement funds into arbitration.

In an unpublished opinion released Tuesday, the 9th U.S. Circuit Court of Appeals said U.S. District Judge Claudia Wilken of Oakland erred by refusing to compel arbitration of claims brought in a class action alleging violations of the Employee Retirement Income Security Act of 1974.

Judge Benita Y. Pearson wrote in a published opinion named that plaintiff Michael Dorman, a former employee and participant in the Schwab retirement plan, should have been bound by the company's arbitration agreement despite filing the class action a year after opting out of the fund. Dorman v. Charles Schwab Corp., 18-15281 (9th Cir., filed Aug. 20, 2019).

The panel also ruled the agreement covers all ERISA claims, overruling a precedent set by the 9th Circuit in its 1984 Amaro v. Continental Can Co. decision. Citing the U. . Supreme Court's decision in American Express Co. v. Italian Colors Restaurant as well as its own 2018 decision in Munro v. University of Southern California, Pearson wrote, "Since Amaro, the Supreme Court has ruled that arbitrators are competent to interpret and apply federal statutes."

Normally, panels don't overrule prior decisions, but the decision in American Express Co. "undermines an existing precedent ... and both cases are closely on point," Pearson wrote. "The three-judge panel may then overrule prior circuit authority."

Dorman filed the class action in 2017 alleging participants were kept in Schwab-affiliated investment funds that charged higher fees and performed poorly but generated fees for the company.

-- Glenn Jeffers