The federal appeals court in San Francisco that recently said the Charles Schwab Corp.'s 401(k) plan could compel arbitration in an ERISA dispute also ruled against another defined contribution plan sponsor's attempt to enforce arbitration in an ERISA complaint.
The difference between the two cases is clear, attorneys said.
In Dorman et al. vs. The Charles Schwab Corp. et al., the arbitration provision was part of the 401(k) plan. A three-judge panel of the 9th U.S. Circuit Court of Appeals on Aug. 20 reversed a U.S. District Court ruling that rejected arbitration, and remanded the case to the lower court.
In the other case, Munro et al. vs. the University of Southern California et al., another three-judge panel said arbitration provisions were part of individuals' employment agreements rather than the plan documents of the university's two 403(b) plans.
"Employees signed an arbitration agreement," said Jerome Schlichter, founding and managing partner of Schlichter Bogard & Denton LLP, St. Louis, who represents plaintiffs in their claims that the university's 403(b) plans violated their fiduciary duties. "This was not a finding for the plan."
The Munro case remains before a Los Angeles U.S. District Court, in which legal discovery is taking place on the fiduciary breach complaints, Mr. Schlicter said.
A spokesman for the university declined to comment.
The Munro case was filed in August 2016 alleging breaches of fiduciary duty by the plans' executives, including having too many record keepers and offering investment products having excessive fees. The university filed a petition in December 2016 to dismiss the lawsuit because the university employees had signed arbitration agreements as a condition of employment.
A District Court judge in March 2017 ruled against the university. The appeals court supported the District Court judge's ruling. The university's arguments "fall outside the scope of the arbitration clauses in individual employees' general employment contracts," the appeals court wrote in July 2018.
The university petitioned the U.S. Supreme Court in November 2018, on the sole issue of whether arbitration could be compelled, but the court in February 2019 declined to review the case.
Several ERISA attorneys not affiliated with these cases said the next step might be an attempt by the 9th Circuit to reconcile its opinions in the Munro and Dorman rulings, because both were issued by three- judge panels. "I expect there will be an en banc review," said Nancy Ross, Chicago based partner of Mayer Brown LLP, referring to a hearing by all judges in the 9th Circuit.
Jordan Mamorsky, a New York-based associate with The Wagner Law Group, agreed with the possibility of an en banc review. There are enough differences in some legal arguments between the two decisions that might prompt an appeal to the full court, he said.
The University of Southern California Defined Contribution Retirement Plan had assets of $2.92 billion and the University of Southern California Tax-Deferred Annuity Plan had assets of $2.88 billion as of Dec. 31, 2017, according to the latest Form 5500 filings.
The Schwab 401(k) plan had assets of $3.59 billion as of Dec. 31, 2018, according to the latest 11-K statement.