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In a 2-1 split decision, the US Court of Appeals for the Second Circuit reversed a lower court’s decision that an arbitration agreement signed by an employee as part of his employment required that he arbitrate any fiduciary breach claims challenging the investment options and fees in his employer’s 401(k) plan.
On March 4, 2021, the Second Circuit issued an opinion in
Cooper v. DST Systems, Inc., et al., reversing a lower court’s decision that the arbitration agreement signed by an employee as part of his employment required arbitration of the employee’s breach of fiduciary duty claims challenging the investment options in his 401(k) plan.
ERISA Fiduciary Claims Not Subject to Arbitration Thursday, March 11, 2021
The Second Circuit has ruled in a significant decision that ERISA breach of fiduciary claims are not subject to arbitration under an employment arbitration agreement with the employer plan sponsor.
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In reversing a New York district court’s order to compel arbitration, the Second Circuit emphasized that the arbitration agreement the employee signed when he was hired only banned him from filing claims in court related to his employment, not ERISA claims alleging breach of fiduciary duty which, according to the Court, are not “related to” his employment. Moreover, the Second Circuit said, Congress explicitly authorized plan beneficiaries and others to sue individual fiduciaries in federal court for breach of their duties under ERISA and seek remedies on behalf of the plan.
In response to the deluge of ERISA class action breach of fiduciary duty claims, plan sponsors and fiduciaries have increasingly sought to compel individual arbitration of such claims.
The Second Circuit concluded that because a plaintiff’s ERISA fiduciary-breach claims against a third-party investment manager did not relate to his employment, they were not subject to a general employment arbitration agreement. Cooper v. Ruane Cunniff & Goldfarb Inc.
Sunday, March 7, 2021
The U.S. Court of Appeals for the Second Circuit recently concluded that investment advisor Ruane Cunniff & Goldfarb must face a proposed class action under ERISA Section 502(a)(2) for breach of fiduciary duty relating to its alleged mismanagement of a profit-sharing plan sponsored by DST Systems, Inc.
Cooper v. Ruane Cunniff & Goldfarb Inc., No. 17-2805 (2d Cir. March 4, 2021). The suit challenges Ruane’s allegedly “catastrophic over-allocation” of plan assets to shares in Valeant Pharmaceuticals, which dramatically declined in value in 2015-2016.
In 2016, Clive Cooper, who had been employed by DST and participated in DST’s profit-sharing plan, filed the lawsuit naming Ruane, DST, and others as Defendants. Then Cooper successfully mediated his claims with DST and others, voluntarily dismissing his claims against all Defendants except Ruane.