Benefits & Executive Compensation News

USC Can’t Force Arbitration of Retirement Fee Lawsuit: 9th Cir. (1) (Corrected)

July 24, 2018, 5:39 PMUpdated: July 26, 2018, 10:38 AM

The University of Southern California can’t force its retirement plan investors to take their fiduciary breach claims to arbitration, a federal appeals court ruled.

The decision could be a blow to litigants such as Charles Schwab Corp. and Franklin Templeton, which are trying to use employment agreements to force their workers’ fiduciary breach claims under the Employee Retirement Income Security Act to arbitration and bar them from seeking class status, respectively.

The ruling is a clear victory for the workers who sued the university two years ago in federal court in California. They have repeatedly opposed the university’s attempt to move the dispute to private arbitration. In their lawsuit, the workers challenged how the university managed its retirement plans.

The investors’ claims against the university fall outside the scope of the arbitration agreements because the parties consented to arbitrate claims brought on their own behalf, and these claims were brought on behalf of the plans, the U.S. Court of Appeals for the Ninth Circuit held July 24.

Among the nearly two dozen lawsuits that targeted prominent U.S. colleges and how they manage their workers’ retirement plans, the case against USC was the only one in which arbitration agreements became a significant issue.

The three-judge ruling is the first time the Ninth Circuit addressed whether arbitration clauses in employment agreements extend to ERISA claims.

Individual Recovery

The closely watched case also drew the industry’s attention, with groups filing briefs in support of each party. The U.S. Chamber of Commerce sided with USC and asked the court to give employers the power to force disputes over employee benefits into arbitration. AARP urged the court to affirm the district court decision barring arbitration.

The judges rejected USC’s argument that under a 2008 U.S. Supreme Court ruling investors may seek an individual recovery in the context of defined contribution plans, such as 401(k) plans, because those plans are made up of individual accounts.

In that case the Supreme Court recognized that individual investors could bring an ERISA fiduciary breach claim pertaining to their own account and seek relief for losses limited to that account, the Ninth Circuit judges said. That ruling, however, didn’t disturb the fact that it is the plan, and not the individual participants, that benefits from a winning claim for breach of fiduciary duty, the judges said.

The relief sought by the USC workers here shows that they’re bringing their claims to benefit their respective plans across the board, not just to benefit their own accounts, the judges said.

Judge Sidney R. Thomas issued the opinion, which was joined by Judge Michelle T. Friedland and Judge Thomas S. Zilly of the U.S. District Court for the Western District of Washington, sitting by designation.

Schlichter Bogard & Denton LLP represents the workers. Gibson Dunn & Crutcher LLP represents USC.

The case is Munro v. Univ. of Calif., 2018 BL 261639, 9th Cir., No. 17-55550, order affirming district court order 7/24/18.

(Second paragraph corrected to reflect that Franklin Templeton is seeking to bar class treatment, not require arbitration.)

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com

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