09/17/2021 | News release | Archived content
This week, the Court revives an ERISA claim and compels arbitration of a dispute over tribal internet payday loans.
WARMENHOVEN v. NETAPP, INC.
The Court holds that PowerPoint presentations did not constitute plan documents and thus any representations in them could not override ERISA's default rule that welfare plans can be amended at any time, and that an equitable claim for breach of fiduciary duties under Section 1132(a)(3) of ERISA does not require proof of intent to deceive.
The Panel: Judges Christen, Bade, and Feinerman (N.D. Ill.), with Judge Feinerman writing the opinion.
Key Highlight: "[T]he default rule under ERISA provides that welfare plans do not vest and can be amended at any time . . . A plan may override this default rule, but only if it does so expressly in a plan document."
Background: After NetApp implemented a phased termination of its NetApp Executive Medical Retirement Plan, seven retired executives sued NetApp alleging that terminating the Plan violated the Employee Retirement Income Security Act of 1974 ("ERISA") because they had been promised lifetime benefits. They asserted both a direct claim for benefits under Section 1132(a)(1)(B) of ERISA, and an alternate claim for equitable relief under Section 1132(a)(3) on the ground that NetApp allegedly misrepresenting that the Plan would provide lifetime benefits. The district court granted summary judgment to NetApp on both claims and one retired executive maintained an appeal.
Result: The Ninth Circuit affirmed in part, vacated in part, and remanded.The Court affirmed the district court's grant of summary judgment to NetApp on 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 may freely terminate welfare benefit plans like the Plan at issue. The PowerPoint presentations shown to the retired executive by Human Resources suggesting that NetApp would maintain the health insurance benefit for the participants' lifetimes did not override the default rule because they were not plan documents since they did not claimed to meet the requirements of a written instrument under Section 1102(b) of ERISA. Cases finding de facto ERISA plans based on informal commitments to provide benefits are inapplicable in situations where the plan sponsor has prepared a written instrument.
The Court vacated the district court's grant of summary judgment to NetApp on the retired executive's claim to equitable relief under Section 1132(a)(3). The Court explained that fiduciaries breach their duties if they mislead plan participants 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 a showing of intent to deceive. As there was a genuine dispute of material fact as to whether NetApp incorrectly represented to plan participants that its Plan provided lifetime health insurance benefits, the retired executive's fiduciary duty claim survived summary judgment. The Court did not address whether the retired executive would be entitled to appropriate equitable relief to redress the alleged wrong-another requirement of an equitable claim under Section 1132(a)(3)-but instead left that issue for the district court to consider on remand. The retired executive did not forfeit that issue by not briefing it in his opening brief as the issue had not been decided by the district court.
BRICE v. HAYNES INVESTMENTS
The Court holds that an agreement delegating to an arbitrator the gateway question of whether the underlying arbitration agreement with a choice-of-law provision selecting Tribal law was unenforceable was not itself unenforceable because its plain language did not bar the plaintiffs from pursuing their contention that the arbitration agreement invalidly prospectively waived their rights to pursue federal statutory claims before the arbitrator.
The Panel: Judges W. Fletcher, Forrest, and VanDyke, with Judge Forrest writing the opinion, and Judge W. Fletcher dissenting.
Key Highlight: "We do not dispute that Borrowers have a reasonable argument that the arbitration agreement as written precludes them from asserting their RICO claims or other federal claims in arbitration. . . . And if that is true, the arbitration agreement is likely unenforceable as a prospective waiver. . . . But, when there is a clear delegation provision, that question is not for us-or anyone else wearing a black robe-to decide."
Background: Plaintiffs ("Borrowers") obtained short-term, high-interest loans from lenders owned by Indian Tribes ("Tribal Lenders"). The Tribal Lenders' standard loan contracts contain an agreement to arbitrate any dispute arising under the contract. Each arbitration agreement includes a delegation provision requiring an arbitrator-not a court-to decide "any issue concerning the validity, enforceability, or scope of [the loan] agreement or [arbitration agreement]." The loan contracts also state that the contracts "shall be governed by the laws of the tribe," or "Tribal Law," and that an arbitrator must "apply Tribal Law and the terms of this Agreement." The Borrowers claimed that the payday loans they took out from the Tribal Lenders were illegal under the Racketeer Influenced and Corrupt Organizations Act and California law and brought class-action complaints against defendants, including the Tribal Lenders and certain investors ("Investors"). The Investors moved to compel arbitration, but the district court denied the motions, concluding that each contract is unenforceable because it prospectively waived the Borrowers' right to pursue federal statutory claims by requiring arbitrator to apply tribal law. The district court held that each delegation provision was unenforceable for the same reason. Several Investors appealed.
Result: The Ninth Circuit reversed. The court held that its focus first must be on the enforceability of the delegation provision specifically, not the arbitration agreement as a whole. The Borrowers argued that the arbitration agreement and delegation provision were unenforceable under the prospective-waiver doctrine because they waived the Borrowers' rights to pursue federal statutory remedies. But considering the plain language of the delegation provision, the court concluded that it does not foreclose the arbitrator from considering enforceability disputes based on federal law. The court did not dispute that the loan contract's selection of tribal law as the governing authority may mean the arbitrator will ultimately decide she cannot consider an enforceability challenge to the arbitration agreement as a whole based on prospective waiver if tribal law does not recognize this doctrine. But, the court explained, that possibility does not prevent the Borrowers from pursuing their prospective-waiver enforcement challenge in arbitration, which is the key in determining whether the delegation provision is itself a prospective waiver. The court recognized that its conclusion diverged from the conclusions of some of its sister circuits, but disagreed with them because they considered prospective waiver in the context of the arbitration agreement as a whole, not as applied to the delegation provision. The court noted that if the arbitrator concludes she cannot consider a prospective-waiver challenge to enforceability of the arbitration agreement, the Borrowers can return to court and argue the arbitrator exceeded her powers.
Judge W. Fletcher dissented. Judge Fletcher concluded that the court's decision misunderstood the effect of the choice-of-law provisions in the agreements. Under those provisions, the arbitrator may apply only tribal law and a small and irrelevant subset of federal law and that will prevent the arbitrator from applying the law necessary to determine whether the delegation provisions and the arbitration agreement are valid. This, Judge Fletcher concluded, renders both the delegation provisions and the arbitration agreements invalid.