While Dorman is a victory for employers, it may also be the death of class litigation as they know it

On Nov. 7, the 9th U.S. Circuit Court of Appeals denied a request for rehearing of its unpublished decision in Dorman v. Charles Schwab Corp., where the court addressed the arbitrability of claims under the Employee Retirement Income Security Act. Dorman v. Charles Schwab Corp., 780 F. App'x 510 (9th Cir. 2019). Dorman involved a putative class action under ERISA filed by a former employee on behalf of participants in the Schwab Retirement Savings and Investment Plan against the plan fiduciaries. Dorman alleged that the defendants breached their fiduciary duties to the participants by investing plan assets in underperforming Charles Schwab-affiliated funds for the purpose of generating fees for Charles Schwab. Dorman brought claims on behalf of the plan pursuant to ERISA Section 502(a)(2) to recover losses resulting from the defendants' fiduciary breaches and prohibited transactions, and pursuant to ERISA Section 502(a)(3) to recover injunctive and other equitable relief.

On Aug. 20, the court issued two decisions in this case. In a published decision, Dorman v. Charles Schwab & Co. Inc., et al., 2019 DJDAR 7932 (9th Cir. 2019), the three-judge panel determined that ERISA claims can be subject to mandatory arbitration and overruled Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984) based on intervening Supreme Court authority. The decision was a surprising move that involved overruling 35-year-old precedent by a court known for its hostility to arbitration.

In a concurrently filed non-precedential memorandum, the court determined that the ERISA claims were subject to arbitration under the plan document's arbitration provision, that the arbitration provision was enforceable, and the arbitration provision did not allow classwide or collective arbitration of the ERISA claims. Dorman sought rehearing of just the unpublished opinion since the published opinion did not resolve the dispute between the parties, did not provide rationale for reversing the district court, and dealt only with an issue not really briefed or argued by the parties.

To give some context to the court's decision, in Amaro, the court held that exhaustion of arbitration procedures for contractual grievances is not required prior to bringing a statutory claim under ERISA Section 510 (ERISA's anti-discrimination provision). The court reversed and remanded the district court's decision that the arbitration award on a contractual grievance that was adverse to former employees of the company barred their ERISA claims.

In last year's decision in Munro v. Univ. of S. California, the court found that the ERISA claims in dispute were outside of the scope of arbitration agreements in found in the employees' employment contracts. Munro v. Univ. of S. California, 896 F.3d 1088 (9th Cir. 2018), cert. denied, 139 S. Ct. 1239 (2019). The court did not address whether a class action waiver in an arbitration agreement is enforceable to prevent a class claim brought on behalf of a plan under ERISA Section 502(a)(2). However, the court noted that there was "considerable force" to USC's position that Amaro, standing for the proposition that ERISA claims are inarbitrable as a matter of law, is "clearly irreconcilable" with intervening Supreme Court case law. In American Express Co. v. Italian Colors Restaurant, the Supreme Court held that federal statutory claims are generally arbitrable and arbitrators can competently interpret and apply federal statutes. American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 417 (2013) The Munro court took a pass on the question of Amaro's viability since the court rested its decision on the fact that the asserted claims fell outside of the arbitration clauses in the employee agreements.

But the rain check was cashed in Dorman when the court was presented squarely with the question of whether Amaro was still good law. Considering intervening Supreme Court case law, including American Express, the court determined that Amaro has been effectively overruled and is no longer binding precedent. In the separately penned unpublished decision, the court held that the district court erred by refusing to compel arbitration of the ERISA breach of fiduciary duty claims since they fall squarely within the ambit of the plan. The court 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. As it stands now, unless Dorman acts to stay the mandate, the parties are back in the district court which must compel arbitration.

The denial of rehearing en banc has some commentators questioning whether this is the beginning of the end of ERISA class actions. Unless the Supreme Court weighs in otherwise, which seems unlikely, the tea leaves show an ominous future for class actions of ERISA breach of fiduciary duty claims. The 9th Circuit's decision certainly dealt a significant blow to plaintiffs fighting to keep their breach of fiduciary duty claims out of individual arbitration. But, ERISA class actions aren't dead ... yet. Those who are interested in preserving ERISA class actions are hoping Dorman's counsel will file a writ of certiorari with the Supreme Court. I have little optimism that a majority of this Supreme Court will save ERISA class actions given its 5-4 decision in Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018). In Epic Systems, the Supreme Court held that claims under the Fair Labor Standards Act can be subject to individualized arbitration proceedings under the Federal Arbitration Act. If the Supreme Court denies certiorari, it is likely that other circuit courts that are presented with this issue will follow the 9th Circuit's reasoning. If not, there is little doubt the Supreme Court will soon be presented with another opportunity to resolve this issue.

While Dorman was focused on ERISA breach of fiduciary duty claims in the retirement plan context, plaintiffs' attorneys like me are hoping that this battle does not extend to health and disability claims. The ERISA claims regulations promulgated by the U.S. Department of Labor prohibit binding arbitration during the claim review process and prohibit mandatory arbitration after a claimant exhausts the claims and appeals process. But after Epic Systems, where the Supreme Court declined to follow the National Labor Relations Board regulations limiting arbitration of certain claims, what is to prevent the high court from doing the same with respect to the DOL's ERISA regulations?

The Dorman decision comes at a time when plan sponsors are unhappy about the spate of ERISA class actions that they believe are lawyer, not client, driven. Plan attorneys are no doubt busy advising their clients about adding arbitration clauses and class action waivers to their plan documents. But employers and plan sponsors should tread carefully when it comes to adding such provisions as doing so may bring a different sort of headache. An adverse arbitration award will be subject to very limited appellate review and are rarely vacated. Arbitrators are not bound by case law and may decide a case based upon perceptions of fairness or equity. In other words, they may "split the baby" in a way that a district court would not. Requiring individual arbitration could result in multiple arbitrations regarding the same issues which may end up costing more to litigate than a class action, especially in California, where employers are required to cover most of the cost of arbitration. While Dorman is a victory for employers, they should not be so quick to cheer, the death of class litigation as they know it may just be a Frankenstein. 