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WBK Industry News - Litigation Developments

9th Circuit Rules ERISA Case Can Be Arbitrated, Reversing Decades-Old Precedent

A three-judge panel of the Ninth Circuit ruled last week that an ERISA benefits class action can be arbitrated.  The decision struck down a 35-year old circuit precedent that the court found no longer operable because of intervening Supreme Court rulings regarding whether ERISA claims can be arbitrated.

The plaintiff, a former employee of an investment firm, brought a class action suit for breach of fiduciary duty against his former employer.  He claimed the company included investment funds in the employee retirement plan he participated in, and had a financial interest in those funds in the form of generating fees for itself and its affiliates, despite the fact that those funds performed poorly.  The defendant moved to compel arbitration pursuant to an agreement in the plaintiff’s retirement plan.

The Ninth Circuit opinion reversed the district court’s ruling denying the motion to compel arbitration and remanded the case for further proceedings.  The panel addressed the enforceability of the arbitration agreement in a separate memorandum; in its opinion, it reviewed as a threshold matter whether ERISA claims can be subject to mandatory arbitration.

The court recognized that its holding in Amaro v. Continental Can Co. (Ninth Cir. 1984), which prohibited ERISA claims from being arbitrated, was no longer good law in light of more recent Supreme Court rulings, including American Express Co. v. Italian Colors Restaurant (2013).  Since Amaro, the Ninth Circuit view was that arbitrators, some of whom were non-lawyers, might lack competence to interpret and apply federal statutes.  In American Express, the Supreme Court held there is nothing unfair about arbitration as long as individuals can vindicate their statutory rights.  In the instant case, the Ninth Circuit recognized that American Express undercuts the underlying theory or reasoning of Amaro, such that the cases are irreconcilable, and requiring reversal of the long-standing precedent.