This week, the Court revives an ERISA claim and forces arbitration of a dispute over tribal Internet payday loans.
WARMENHOVEN v NETAPP, INC.
The Court finds that the PowerPoint presentations were not plan documents and therefore no representation could override ERISA’s default rule that welfare plans can be changed at any time and that a Equitable claim for breach of fiduciary duty under ERISA Section 1132(a)(3) does not require proof of intent to deceive.
The panel: Justices Christen, Bade and Feinerman (ND Ill.), Justice Feinerman writing the opinion.
Climax : “[T]he default rule under ERISA is that social protection plans are not vested and can be changed at any time. . . A plan can override this default rule, but only if it does so expressly in a plan document.
Context: After NetApp implemented a phased termination of its NetApp Executive Medical Retirement Plan, seven retired executives sued NetApp alleging that the termination of the plan violated the Employees Retirement Income Security Act of 1974 (“ERISA “) because they were promised lifetime benefits. They asserted both a direct claim for benefits under ERISA Section 1132(a)(1)(B) and another claim for equitable relief under Section 1132(a) (3) on the basis that NetApp incorrectly stated that the plan offered lifetime benefits. The district court granted summary judgment to NetApp on both claims and a retired executive maintained an appeal.
Results: The Ninth Circuit confirmed in part, canceled in part and returned. The Court upheld the District Court’s granting of summary judgment to NetApp regarding the retired executive’s claim for direct benefits under Section 1132(a)(1)(B) or ERISA. The panel explained that the default rule under ERISA is that employers can freely terminate benefit plans like the plan at issue. PowerPoint presentations shown to the retired executive by Human Resources suggesting that NetApp would maintain the Medicare benefit for life for participants did not override the default rule as they were not plan documents since they did not did not purport to meet the requirements for a written instrument under section 1102(b) of ERISA. Cases finding that de facto ERISA plans are based on informal commitments to provide benefits are inapplicable in situations where the plan sponsor has prepared a written instrument.
The court reversed the district court’s granting of summary judgment to NetApp regarding the retired executive’s claim for equitable relief under section 1132(a)(3). The Court explained that trustees are in breach of their duties if they mislead plan members or misrepresent the terms or administration of a plan. Disagreeing with the District Court and the Seventh Circuit, the Court held that proving a breach of fiduciary duties under ERISA does not require demonstrating intent to deceive. Because there was a genuine dispute over a material fact as to whether NetApp had wrongly told plan participants that its plan provided health benefits for life, the retired executive’s fiduciary duty claim survived. summary judgment. The Court did not consider whether the retired executive would be entitled to appropriate equitable relief to repair the alleged wrong – another requirement of an equitable claim under Section 1132(a)(3) – but did rather left that matter to the district court for consideration on remand. The retired executive did not lose this issue by not informing him in his opening brief because the issue had not been decided by the district court.
BRICE c. HAYNES INVESTMENTS
The Court held that an agreement delegating to an arbitrator whether the underlying arbitration agreement with a choice of law provision choosing tribal law was unenforceable was not itself unenforceable because its language clear did not preclude plaintiffs from pursuing their contention that the arbitration agreement invalidated and prospectively waived their rights to pursue federal statutory claims before the arbitrator.
The panel: Justices W. Fletcher, Forrest and VanDyke, Justice Forrest writing the opinion and Justice W. Fletcher dissenting.
Climax : “We do not dispute that the Borrowers have a reasonable argument that the Arbitration Agreement as written precludes them from asserting their RICO or other Federal claims in arbitration. . . . And if that is true, the arbitration agreement is likely unenforceable as a prospective waiver. . . . But, where there is a clear delegation provision, that question is not for us – or anyone in a black robe – to decide.
Context: The applicants (“Borrowers”) obtained short-term, high-interest loans from Indian tribe-owned lenders (“Tribal Lenders”). Tribal lenders’ standard loan agreements contain an agreement to arbitrate for any disputes arising from the contract. Each arbitration agreement includes a delegation provision requiring an arbitrator – not a court – to decide “any question concerning the validity, applicability or scope of [the loan] agreement or [arbitration agreement].” The loan agreements also state that the contracts “shall be governed by the laws of the tribe” or “tribal law” and that an arbitrator shall “apply tribal law and the terms of this agreement.” The borrowers claimed the payday loans they took from the tribal lenders were illegal under the Racketeer Influenced and Corrupt Organizations Act and California law and filed class action lawsuits against the defendants, including including tribal lenders and certain investors (“Investors”). The investors sought forced arbitration, but the district court denied the motions, finding that each contract was unenforceable because it prospectively waived the borrowers’ right to pursue federal legal claims by requiring the arbitrator to apply tribal law. The district court held that each delegation provision was unenforceable for the same reason. Several investors have appealed.
Results: The ninth circuit reversed. The court felt that it should first focus on the applicability of the delegation provision specifically, not the arbitration agreement as a whole. The borrowers argued that the arbitration agreement and delegation clause were unenforceable under the doctrine of prospective waiver because they waived the borrowers’ rights to pursue federal legal remedies. But given the clear language of the delegation provision, the court concluded that it does not preclude the arbitrator from reviewing enforceability disputes based on federal law. The court did not dispute that choosing the Tribal Law Loan Agreement as the governing authority may mean that the arbitrator will ultimately decide that she cannot consider a challenge to the enforceability of the arbitration agreement in her together on the basis of a prospective waiver if tribal law does not recognize this doctrine. But, explained the court, this possibility does not prevent the Borrowers from to chase their challenge to the application of the prospective waiver in the arbitration, which is key to determining whether the delegation provision is itself a prospective waiver. The court acknowledged that its conclusion diverged from the conclusions of some of its sister circuits, but disagreed with them because they considered the prospective waiver in the context of the arbitration agreement as a whole, and not as applied to the delegation provision. The court noted that if the arbitrator concludes that it cannot consider a prospective waiver challenge to the enforceability of the arbitration agreement, borrowers can return to court and argue that the arbitrator exceeded its powers.
Justice W. Fletcher dissented. Justice Fletcher found that the court’s decision misunderstood the effect of choice of law provisions in the agreements. Under these provisions, the arbitrator can only apply tribal law and a small, irrelevant subset of federal law, which will prevent the arbitrator from applying the law necessary to determine whether the delegation provisions and the arbitration agreement are valid. This, Justice Fletcher concluded, renders both the delegation provisions and the arbitration agreements invalid.