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Charles Schwab Can Arbitrate ERISA Suit; 9th Cir. Changes Course

Aug. 20, 2019, 4:49 PM

Charles Schwab Corp. can force a proposed class action over alleged 401(k) mismanagement into arbitration, the Ninth Circuit ruled.

Schwab can enforce a provision added to its 401(k) plan in 2014 waiving the right to bring a class action and requiring any plan-related disputes to be settled through individual arbitration, the Ninth Circuit held.

The court used its Aug. 20 decision to expressly overrule its 1984 opinion in Amaro v. Cont’l Can Co., which held that claims under the Employee Retirement Income Security Act can’t be arbitrated. Amaro can’t be reconciled with the U.S. Supreme Court’s intervening decision in Am. Express Co. v. Italian Colors Restaurant, which held that federal statutory claims are generally arbitrable, the Ninth Circuit said.

The ruling is a big victory for Schwab, which lost the arbitration issue at the district court level. A federal judge in California said Schwab couldn’t force the case into arbitration, in part because the right to litigate belonged to the plan and couldn’t be waived by an individual plan participant.

Alongside its published opinion overruling Amaro, the Ninth Circuit issued a separate, unpublished order addressing the Schwab case more closely. While the district judge was correct that the right to litigate belongs to the plan, the Schwab plan in question “expressly agreed in the Plan document that all ERISA claims should be arbitrated,” the Ninth Circuit said.

On this point, the court cited its 2018 decision in Munro v. Univ. of S. Calif., which appeared to reach a different result. In that case, the Ninth Circuit said class claims of retirement plan management against USC couldn’t be arbitrated because they fell outside the scope of arbitration agreements signed by USC employees.

Schwab is one of many financial companies sued in recent years over the affiliated investment funds in their 401(k) plans. Workers claim these funds earn high fees for the companies while performing worse than unaffiliated competitors. Several companies have signed multi-million dollar settlements, including BB&T Corp. ($24 million); Deutsche Bank ($21.9 million); Franklin Templeton ($13.85 million); and Allianz ($12 million).

Judge Benita Y. Pearson, sitting by designation from the U.S. District Court for the Northern District of Ohio, wrote both opinions. Judges Ronald M. Gould and Sandra S. Ikuta joined.

The case is Dorman v. Charles Schwab Corp., 9th Cir., No. 18-15281, 8/20/19.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com; Patrick L. Gregory at pgregory@bloomberglaw.com