Motion — Gilmer v. Interstate/Johnson Lane Corp.

y VD ieee

PANT Tp enan

JAi\ 44 is4U

awd

No. 90-18

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1990

ROBERT D. GILMER,

Petitioner,

V.

INTERSTATE/JOHNSON LANE

CORPORATION,

Respondent.

On Writ of Certiorari To The

United States Court Of Appeals For The

Fourth Circuit

RESPONDENT’S MOTION FOR LEAVE

TO SUBMIT SUBSEQUENT AUTHORITY

James B. Spears, Jr.*

Robert S. Phifer

HAYNSWORTH, BALDWIN,

JOHNSON AND GREAVES

Gateway Center, Suite

1050

901 West Trade Street

Charlotte, NC 28202

ATTORNEYS FOR RESPONDENT

*Counsel of Record

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM. 1990

No. 90-18

ROBERT D. GILMER,

Petitioner,

Vv.

INTERSTATE/JOHNSON LANE

CORPORATION,

Respondent.

RESPONDENT'S MOTION FOR LEAVE

TO SUBMIT SUBSEQUENT AUTHORITY

In accordance with Rule 21,

Respondent, Interstate/Johnson Lane

Corporation, moves for leave to

Submit the Second Circuit Court of

2

Appeal's decision in Bird vy,

Shearson Lehman/American Express.

Inc.,. No. 90-7688 (2d Cir.,. January

17, 1991) (Bird II) (reprinted in

appendix to this motion) as

subsequent authority. Respondent

presents the following grounds

supporting this motion:

l. On January 15, 1991, oral

argument was heard in this case.

During Respondent's argument.

counsel relied upon the Supreme

Court's order vacating and

remanding the Second Circuit Court

of Appeals' decision in Bird I.

Shearson Lehman/American Express.

Inc. v. Bird. 100 S.Ct. 225 (1989).

vacating and remanding 871 F.2d 292

(2d Cir. 1989) (Bird I). # This

matter was also noted in

. 3

Respondert's Brief on the Merits.

pages 41-42 n.21.

2. In Bird [. the Second

Circuit had denied enforcement of

an arbitration agreement as to

claims for breach of fiduciary

duty under the Employee Retirement

Income Security Act of 1974 (ERISA).

This Court vacated and remanded

that ruling for reconsideration in

light of this Court's decision in

Shearson/American Express. Inc...

490 U.S. 477 (1989).

3. On January 17. 1991 the

Second Circuit issued its decision

in Bird II. The court reversed

the district court 4Ge-ision on

remand that had refuse’ to enforce

an arbitration agreement as to the

plaintiffs' ERISA claims and

+

overruled its prior decision in

Bird I. In doing so. the appeals

court enforced the securities

firm's arbitration agreement with

the plaintiffs. even as to the

plaintiffs' claims under the

remedial provisions of ERISA. It

relied upon this Court's recent

decisions in Rodriguez de Oulijas

and in Shearson/American Express.

Inc. v,. McMahon. 482 U.S. 220

(1987). The appeals court held

that arbitration was not foreclosed

by the text or legislative history

of ERISA and was consistent with

the remedial purposes of that

statute. The court also

distinguished this Court's

decisions in Alexander v.

sardner-Denver Co.. 415 U.S. 36

5

(1974); Barrentine v. Arkansas-Best

Freight Sys... Inc... 450 U.S. 728

(1981): and MeDonald y. City of

West Branch. 466 U.S. 284 (1984),

based on the collective bargaining

context in which those cases arose.

This decision therefore Supports

Respondent's argument for

affirmance of the Fourth Circuit's

decision in the present matter.

4. The January 17, 199]

decision from the Second Circuit

'

time

was not available at the

Respondent filed its Brief on the

Merits or during oral argument on

this case. However, Respondent's

counsel noted the significance of

Bird I during oral argument. This

most recent decision fully supports

Respondent's arguments before the

Court and, therefore. should be

6 CERTIFICATE OF SERVICE

brought to the Court's attention as

9 I, James B. Spears, Jr., do hereby

expeditiously as possible. certify that I have this day served a

copy of the within and foregoing

Dated this 22nd day of Respondent's Motion for Leave to Submit

Subsequent Authority by placing copies

, 1991. of same in the United States Mail,

pets properly addressed and with the correct

amount of postage affixed thereto. to

Respectfully submitted, the following persons:

John T. Allred. Esquire

HAYNSWORTH. BALDWIN. Petree, Stockton & Robinson

3500 First Union Center

301 S. College Street

Charlotte. NC 28202-6001

JOHNSON AND GREAVES, P.A.

Cathy Ventrell-Monsees. Esq.

Manager, Advocacy Section

Worker Equity Department

American Association of Retired

Persons

1909 K Street. N.W.

Washington. D.C. 20049

By:

By:

bért S. Phife

Alan E. Kraus. Esq.

Gateway Center, Suite 1050 Riker, Danzig. Scherer. Hyland &

901 West Trade Street Perretti

Charlotte, NC 28202 Headquarter Plaza

(704) 342-2588 One Speedwell Avenue

Attorneys for Respondent Morristown, NJ 07962-1981

* Laurence Gold, Esq.

Counsel of Record ee

815 16th Street. Northwest

Washington, D.C. 20006

Dixie L. Atwater. Esq.

Ogletree, Deakins. Nash, Smoak &

Stewart

Fifth Floor

2400 N Street. N.W.

Washington, D.C. 20037

Jay W. Waks. Esq.

Kaye. Scholer, Fierman

Hays & Handler

425 Park Avenue

New York, NY 10022 APPENDIX

A. Robert Pietrzak, Esq.

Brown & Wood

One World Trade Center

58th Floor

New York, NY 10048

Douglas S. McDowell, Esq.

McGuiness & Williams

1015 15th Street, N.W.

Suite 1200

Washington, D.C. 20005

Donald L. Goldman, Esq.

Vice President and General Counsel

Management Recruiters

International, Inc.

1127 Euclid Avenue

Suite 1400

Cleveland, Ohio 44115-1638

Dated this 22nd day of January,

1991.

SWORTH. BAL N,

SON AN GREAVES, P.

B dpe

s B. Spears Jr.*

Gateway Center. Suite 1050

901 West Trade Street

Charlotte, North Carolina 28202

(704) 342-2588

*Counsel of Record

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

No. 721 August Term 1990

(Argued December 13, 1990

Decided January 17. 1991)

Docket No. 90-7688

FRANK L. BIRD, Trustee of the Frank L.

Bird Profit Sharing Trust, FRANK L.

BIRD, Individually, and JOAN SHEA

Appellees.

Vv.

SHEARSON LEHMAN/AMERICAN EXPRESS, INC.,

and RAYMOND R. CLEMENTS.

Appellants.

Before:

TIMBERS. KEARSE and MINER. Circuit

Judges.

Appeal from an order entered July

16, 1990 in the District of Connecticut,

Jose A. Cabranes. District Judge.

denying appellants' motion to compel

arbitration of appellees' ERISA claim

App. 2

and to stay proceedings in the district

court pending arbitration.

Reversed and remanded.

Judge Kearse filed a dissenting

opinion.

Jeffrey L. Friedman, New York, N.Y.

(Theodore A. Krebsbach. New York, N.Y...

on the brief) for appe lants Shearson

Lehman/American Express. Inc. and

Raymond R. Clements.

Donald R. Holtman, Hartford, Conn.

(Katz & Seligman. Hartford. Conn., on

the brief) for appellees Frank L. Bird.

: ,~ si - ¥

Sharing Trust. Frank LL. Bird.

Individually. and Joan Shea j .

TIMBERS, Circuit Judge:

Appellants Shearson Lehman/American

Express. Inc. (Shearson) and Raymond R.

Clements appeal from an order entered

July 16. 1990 in the District of

Connecticut, Jose A. Cabranes. District

Judge. denying their motion to compel

arbitration of a claim brought by

App. 3

appellees Frank L. Bird. Individually

and as Trustee of the Frank L. Bird

Profit Sharing Trust. and John Shea for

breach of fiduciary duty pursuant to the

Employee Retirement Income Security Act

(ERISA). 29 U.S.C. § 1001 et seq,

(1988).

On appeal, appellants contend that

the Federal Arbitration Act (FAA), 9

U.S.C. § 1 et seg, (1988). requires that

“9Oreements to arbitrate statutory ERISA

claims are enforceable.

For the reasons that follow. we

reverse the judgment of the district

court and remand for proceedings

consistent with this opinion, including

arbitration forthwith.

App. 4

We shall summarize only those facts

and prior proceedings believed necessary

to an understanding of the issues raised

on appeal.

Frank L. Bird is the Trustee and a

participant and beneficiary in the Frank

L. Bird Profit Sharing Trust (the

Trust). Joan Shea is a participant and

beneficiary in the Trust. The Trust was

established to provide for the

retirement of its participants and

beneficiaries and is governed by the

terms of ERISA.

Raymond Clements. a broker and vice

president of ‘Shearson, solicited Bird as

a client. Bird was interested in

investing the assets of the Trust. At

their first meeting. Bird alleges that

he explained to Clements that the

investment objectives for the Trust were

App. 5

long term growth and safety of the

Trust's assets. In his capacity as

Trustee, Bird invested all the assets of

the Trust in a securities account with

Shearson.

Bird signed Shearson's standard

"Customer's Agreement" prior to opening

the account. That agreement contained

an arbitration clause which provided

that

"Unless unenforceable due to

federal or state law, any

controversy arising out of or

relating to my accounts, to

transactions with you for me or to

this agreement or the breach

thereof. shall be settled by

arbitration in accordance with the

rules then in effect, of the

National Association of Securities

Dealers, Inc. or the Boards of

Directors of the New York Stock

Exchange. Inc. and/or the American

Stock Exchange. Inc. as I may

elect.”

All of the Trust's assets. a total

of $62,205.56. were deposited in the

App. 6

account. Fifty-five transactions were

made in the account between July 24,

1984 and May 28, 1986. At the end of

that period. $13,427.53 remained in the

account. Appellees allege that the

assets of the Trust were diminished due

to mishandling by appellants. who

allegedly made high risk investments on

behalf of the Trust in disregard of the

stated investment objectives of the

Trust.

On July 21, 1987, appellees

commenced this action and filed the

complaint in the District of Connecticut.

Count one of the complaint alleged a

breach of fiduciary duties under ERISA.

29 U.S.C. § 1104 (1988). Count two

alleged the that account had been

churned in violation of the Securities

Exchange Act of 1934, 15 U.S.C. § 78(3)

App. 7

(1988). and Rule 10b-5 promulgated

thereunder, 17 C.F.R. § 240.10b-5 (1990).

The complaint also set forth various

State law claims: these subsequently

were dismissed.

On August 18, 1987, appellants

filed a motion invoking the arbitration

clause in the Customer's Agreement and

seeking a stay of proceedings in the

district court. The district court

granted the motion as to the securities

law claim, but denied the motion as to

the ERISA claim. We affirmed the

district court's decision. Bird vy.

Shearson Lehman/American Express. Inc..

871 F.2d 292 (2 Cir. 1989) (Bird I). We

held that Congress intended to preclude

a waiver of judicial remedies for

statutory ERISA claims. but not for

App. 8

contractual claims involving

ERISA-covered plans. [Id, at 298.

Appellants filed a petition for a

writ of certiorari in the Supreme Court.

In the meantime, the Supreme Court filed

its opinion in Rodriquez de OQuijas v.

Shearson/American Express. Inc,. 109 S.

Ct. 1917 (1989). In Rodriguez. the

court held that agreements to arbitrate

Statutory claims arising under the

Securities Act of 1933 were enforceable.

Subsequently. the Court granted

certiorari in Bird I. vacated our

judgment, and remanded the case for

reconsideration in light of Rodriguez.

Shearson Lehman/American Express. Inc,

Ve. Bird. 110 S. Ct. 225 (1989).

On January 19, 1990, we entered an

order remanding the case to the district

court for reconsideration in light of

App. 9

Rodriguez. On July 16. 1990, the

district court. in a thoughtful opinion,

affirmed its original decision. The

district court reasoned that "Rodriguez

[was}) consistent with the Supreme

Court's other recent rulings on

arbitration and therefore [did] not

significantly change the legal landscape

in which this issue was originally

considered." The district court held

that statutory ERISA claims were not

subject to compulsory arbitration. The

court denied appellants’ motion to

compel arbitration and for a stay of

the district court proceedings pending

arbitration.

The appeal followed.

App. 10

Ir.

Initially. we set forth our

standard of review. "[A] court asked to

stay proceedings pending arbitration in

a case covered by the [FAA] has

essentially four tasks: first. it must

determine whether the parties agreed to

arbitrate: second. it must determine the

scope of that agreement: third. if

federal statutory claims are asserted,

it must consider whether Congress

intended those claims to be

nonarbitrable: and fourth, if the court

concludes that some, but not all, of the

claims in the case are arbitrable. it

must then determine whether to stay the

balance of the proceedings pending

arbitration.” Genesco. Inc. vy. TT.

Kakiuchi 4 Co... Ltd,.. 815 F.2d 840. 844

(2 Cir. 1987) (citations omitted). we

review the district court's

App. ll

determinations on those issues de novo.

Id. at 846.

In Bird I. we affirmed the district

court's holding that Bird and Shearson

entered into a valid arbitration

agreement that encompassed the ERISA

claim. Bird I. supra. 871 F.2d at 295.

We see no reason to disturb that holding.

Accordingly. the only issue before us on

that instant appeal concerns the third

element. i.e.. whether Congress intended

Statutory claims created by ERISA to be

nonarbitrable.

III.

We turn first to appellants’

contention that the FAA requires that

their agreement to arbitrate be enforced

notwithstanding the fact that appellees’

App. 12

claim is for a breach of fiduciary

duties under ERISA. We agree.

In Bird I. we held that the text of

ERISA--particularly the provisions for

exclusive federal jurisdiction of

statutory claims, the remedial nature of

the statute, and the underlying purposes

of ERISA--compelled the conclusion that

"Congress intended the federal courts to

be the exclusive forum for resolving

disputes of substantive rights." Bird

l- supra. 871 F.2d at 295. We are told

that Bird I was motivated. in part. by

an "outmoded presumption of disfavoring

Rodriguez.

Rodriguez

makes it clear that that is no longer

arbitration proceedings”.

Supra. 109 S. Ct. at 1920.

tenable. Accordingly. we now reach a

contrary result.

—

App. 13

The FAA, “reversing centuries of

judicial hostility to arbitration

agreements, was designed to allow

parties to avoid ‘the costliness and

delays of, litigation.' and to place

contracts . . . »** Scherk yv,

Alberto-Culver Co,. 417 U.S. 506, 510-11

(1974) (footnote and citation omitted).

Section 2 of the FAA Provides that "an

agreement in writing to submit to

arbitration an existing

controversy shall be valid,

irrevocable, and enforceable, save upon

such grounds as exist at law or in

equity for the revocation of any

contract." 9 U.S.C. § 2 (19868).

"Section 2 [of the FAA] is a

congressional declaration of a liberal

federal policy favoring arbitration

Moses H,. Cone Memorial

agreements.”

App. 14

Hosp. v. Mercury Constr, Corp,. 460 U.S.

1, 24 (1983): see also Dean Witter

Reynolds, Inc. v. Byrd. 470 U.S. 213,

221 (1985) (the FAA “requires that we

rigorously enforce agreements to

arbitrate").

The "duty to enforce arbitration

agreements is not diminished when a

party bound by an agreement raises

a claim founded on statutory rights."

Shearson/American Express. Inc, vs

McMahon. 482 U.S. 220, 226 (1987).

Congress. however. may override the

presumption favoring arbitration

agreements by a contrary provision in

another statute. Id. The burden of

demonstrating such congressional intent

rests with the party opposing

arbitration. Rodriguez. supra. 109 S.

Ct. at 1921: McMahon. supra. 482 U.S. at

App. 15

227. The party contending that an

agreement to arbitrate a statutory claim

in not enforceable must show that

"Congress intended in a separate statute

to preclude a waiver of judicial

remedies ... ." Rodriguez. supra. 109

S. Ct. at 1921. "[{S]Juch an intent ‘will

be deducible from [the statute's] text

or legislative history.' or from an

inherent conflict between arbitration

and the statute's underlying purposes."

McMahon. supra. 482 U.S. at 227

(citations omitted).

Applying these standards in a

series of recent cases, the Supreme

Court has upheld arbitration agreements

involving various statutory claims.

E.g.- McMahon. supra. 482 U.S. at 227-38

(claim under § 10(b) of the Securities

Exchange Act of 1934): jd, at 238-42

App. 16

(claim under civil provisions of

Racketeer Influenced and Corrupt

Organizations Act): Mitsubishi Motors

Corp, v,. Soler Chrysler-Plymouth, Inc,.

473 U.S. 614, 628-40 (1985) (claim under

Sherman Antitrust Act). Most recently.

the Court held that agreements to

arbitrate claims brought pursuant to the

Securities Act of 1933 are enforceable.

Rodriguez. supra. 109 S. Ct. at 1919-21.

In so holding, the Court (unfortunately)

overruled its holding in Wilko vy. Swan.

346 U.S. 427 (1953) (a 1933 Act

decision), which it stated "rested on

suspicion of arbitration as a method of

weakening the protections afforded in

the substantive law" and had "fallen far

out of step with our current strong

endorsement of the federal statutes

favoring this method of resolving

|

App. 17

disputes." Rodriguez. supra. 109 S. Ct.

at 1920. In so doing, the Court ignored

the command of Congress that waiver of

any provisions of the 1933 Act would not

be countenanced. Wilko. supra. 346 U.S.

at 434-35; 15 U.S.C. § 77m (1988).

Prior to Rodriguez, courts of

appeals that considered the

enforceability of agreements to

arbitrate claims derived from ERISA

reached varying conclusions. Compare

Bird I. supra. 871 F.2d at 298

(agreement to arbitrate statutory ERISA

claims is not enforceable) and

Barrowclough v. Kidder, Peabody & Co...

Inc. 752 F.2d 923, 941 (3 Cir. 1985)

(same) with Arnulfo Pp, Sulit. Inc, vs

Dean Witter Ryenolds. Inc., 847 F.2d

475, 477-79 (8 Cir. 1988) (agreement to

arbitrate statutory ERISA claim is

App. 18

enforceable). No court of appeals has

considered this issue since Rodriguez.

This case is one of first impression.

(A)

We consider next the text and

legislative history of ERISA. We find

nothing in the text or legislative

history explicitly addressing the issue

of whether Congress intended to preclude >

a waiver of a judicial forum for claims

arising from the. substantive guarantees

of ERISA. We also find nothing in the

text or legislative history that compels

us to reach that conclusion by

implication.

We are aware that one of the means

by which Congress sought "to

protect . . . participants in employee

benefit plans and their beneficiaries"

;

)

App. 19

was “by providing . . . ready access to

the Federal courts.” 29 U.S.C. §

1001(b) (1988). This provision,

however, does not speak to whether

Congress intended to require that

parties avail themselves of that forum.

Sulit. Supra. 847 F.2d at 478. It does

not follow that "by permitting a federal

judicial forum Congress also intended to

override the Arbitration Act's aim of

ensuring the enforcement of privately

made agreements in which parties .. .

have chosen to forego an available

judicial forum in favor of arbitration."

Id. at 479.

Similarly. the fact that Congress

provided for exclusive federal

jurisdiction of claims brought to

enforce ERISA's substantive provisions,

29 U.S.C. § 1132(e) (1988). speaks only

App. 20

to which judicial forum is available,

not to whether an arbitral forum is

available. Moreover, the Supreme Court

has upheld an arbitration agreement

which was involved in a dispute grounded

in a statute that similarly provides for

exclusive federal jurisdiction. E.g.-

McMahon. supra. 482 U.S. at 227

(Securities Exchange Act of 1934, 15

U.S.C. § 78aa (1988)). In short, "any

claim that the jurisdictional language

of ERISA evidences a congressional

intent to foreclose arbitrability would

appear to be untenable in light of

McMahon and [Rodriguez)." Southside

Internists Group vy. Janus Capital Corp..

741 F. Supp. 1536. 1541 (N.D. Ala.

1990).

Liberal procedural provisions that

facilitate bringing ERISA claims in

:

:

{

‘

|

App. 21

federal court pursuant to § 1132 also do

not compel a conclusion that Congress

intended such claims to be nonarbitrable.

The Supreme Court rejected that

reasoning in Rodriguez. It declined to

imply such an intent based on similar

provisions that govern claims brought in

the federal courts pursuant to the

Securities Act of 1933. Rodriguez.

Supra. 109 S. Ct. at 1920.

We hold that ERISA's test and

legislative history do not support a

conclusion that Congress intended to

preclude arbitration of claims brought

pursuant to it.

(B)

We turn next to whether arbitration

is inconsistent with ERISA's underlying

purposes. We hold that it is not.

App. 22

In its statement of findings and

declaration of policy. Congress

explained the circumstances leading to

the passage of ERISA and the purpose of

the legislation:

"that despite the enormous growth

in [pension] plans many employees

with long years of employment are

losing anticipated retirement

benefits owing to the lack of

vesting provisions in such plans;

that owing to the inadequacy of

current minimum standards. the

soundness and stability of plans

with respect to adequate funds to

pay promised benefits may be

endangered: that owing to the

termination of plans before

requisite funds have been

accumulated. employees and their

beneficiaries have been deprived of

anticipated benefits: and that is

therefore desirable . . . that

minimum standards be provided

assuring the equitable character of

such plans and their financial

soundness."

29 U.S.C. § 100l(a) (1988). "A reading

of the statute's legislative history

compels the conclusion that ERISA's

purpose is to secure guaranteed pension

7

7

4

App. 23

payments to participants by insuring the

honest administration of financially

Pompano v. Michael

Schiavone & Sons. Inc,. 680 F.2d 91l,.

914 (2 Cir.). cert. denied. 459 U.S.

1039 (1982): see also Firestone Tire 4&

Rubber Co, v. Bruch. 489 U.S. 101. 113

(1989) ("ERISA was enacted ‘to promote

sound plans."

the interests of employees and their

beneficiaries in employee benefits

plans.' and ‘to protect contractually

defined benefits'" (citations omitted)).

Allowing parties to provide by agreement

that their disputes will be resolved in

arbitration is not inconsistent with

those purposes.

"By agreeing to arbitrate a

statutory claim, a party does not forego

the substantive rights afforded by the

Statute: it only submits to their

App. 24

resolution in an arbitral, rather than a

judicial. forum." Mitsubishi. supra.

473 U.S. at 628. Thus. arbitration is

inconsistent with the underlying

purposes of a statute “where arbitration

is inadequate to protect the substantive

rights at issue.” McMahon. supra. 482

U.S. at 229.

A presumption that arbitration is

an inadequate forum in which to resolve

disputes based on complex federal

statutes is untenable in light of recent

Supreme Court decisions. McMahon.

Supra. 482 U.S. at 232: Mitsubishi.

Supra. 473 U.S. at 633-34. Rodriguez

put to rest "'the old judicial hostility

to arbitration.'" Rodriguez. supra. 109

S. Ct. at 1920 (citation omitted).

Appellees suggest no reason why the

substantive rights guaranteed by ERISA

App. 25

will be jeopardized if the arbitration

agreement is enforced. We are aware of

no such reasons. As in Rodriguez.

"'(t)jhere is nothing in the record

before us nor in the facts of which we

can take judicial notice. to indicate

that the arbitral system .. . would not

afford the plaintiff[({s} the rights to

which [they] are entitled.'" Id, at

1921 (citation omitted). Accordingly.

we disagree with those courts that have

expressed the fear that substantive

rights guaranteed by ERISA may be

foreclosed by an arbitration agreement.

E.g.- Barrowclough. supra. 752 F.2d at

941: Amaro vy, Continental Can Co,, 724

F.2d 747, 752 (9 Cir. 1984).

Similarly. ERISA's remedial nature,

Firestone. supra. 489 U.S. at 108. is

not compromised "so long as the

App. 26

prospective litigant effectively may

vindicate its statutory cause of action

in the arbitral forum, [since] the

statute will continue to serve... its

remedial . . . function." Mitsubishi.

Supra. 473 U.S. at 614. The Supreme

Court has upheld agreements to arbitrate

claims arising under other remedial

statutes. E.g.- McMahon. supra. U.S. at

240 (considering remedial role of RICO):

Mitsubishi. supra. 473 U.S. at 636-37

(considering remedial role of antitrust

legislation). ~-

Appellees contend that their view

is supported by a line of cases that

held that arbitrations of claims under

Title VII of the Civil Rights Act of

1964, Alexander vy, Gardner-Denver Co..

415 U.S. 36 (1974), the Pair Labor

Stindards Act, Barrentine vy.

:

App. 27

Arkansas-Best Freight Sys.. iInc,. 450

U.S. 728 (1981). and 42 U.S.C. § 1983

(1988). McDonald vy, City of West Branch.

466 U.S. 284 (1984) were not preclusive

in subsequent litigation to vindicate

rights under those statutes. ne

disagree.

In those three cases, the

arbitrations were commenced pursuant to

a clause in a collective bargaining

agreement negotiated by the union,

rather than the employee. They rely

partially on the reasoning that an

employee should not be bound by an

arbitration clause he did not negotiate

"where the employee's claim is based on

rights arising out of a statute designed

to provide minimum substantive

guarantees to individual workers.”

Barrentine. supra. 450 U.S. at 737. The

App. 28

Court was concerned with the fact that

the union's interest might not coincide

with the employee's and, therefore. the

union's representation at arbitration

might not be adequate. McDonald. supra.

466 U.S. at 291; Barrentine. supra. 450

U.S. at 742; Gardner-Denver. supra. 415

U.S. at 58 n.19.

The instant case does not raise

such concerns. Bird signed the

agreement that contained the arbitration

clause. He cannot complain that his

rights were bargained away by a third

party. Although Shea did not sign the

agreement. her interest and claims are

essentially identical to Bird's. Under

such circumstances, requiring Shea to

arbitrate does not work an injustice.

Cf. Barrowclough. supra. 752 F.2d at

938-39 (beneficiaries are bound by

.

App. 29

principal's agreement to arbitrate when

they "claim no present entitlement to

the [benefits] and press ne claims

separate from his").

We also do not find arbitration

inconsistent with the enforcement and

oversight responsibilities granted to

the Secretary of Labor. The Secretary

is involved in reporting requirements,

29 U.S.C. § 1021 (1988). is authorized

to commence an action for a plan

fiduciary's breach of duty. 29 U.S.C. §

1132(a)(2) (1988). and is authorized to

participate in litigation commenced by

plan participants. 29 U.S.C. § 1132(h)

(1988). Moreover, the Secretary is

vested with broad investigatory powers

to determine compliance with ERISA's

provisions. 29 U.S.C. § 1134 (1988).

"We are reluctant to conclude that the

App. 30

mere fact of administrative involvement

in a statutory scheme of enforcement

operates as an implicit exception to the

presumption of arbitral availability

under the FAA," Gilmer vy,

Interstate/Johnson Lane Corp,. 895 F.2d

195. 198 (4 Cir.). cert. granted. lll S.

Ct. 41 (1990). Arbitration of ERISA

claims will not impede the Secretary's

supervisory and enforcement

responsibilities. "[I]mplementation of

the statutory purpose is [not] dependent

upon the [Secretary's] involvement in

each and every allegation [under ERISA]."

Id.

Finally. one of the purposes

of ERISA is to "bring a measure of

uniformity in an area where decisions

under the same set of facts may differ

from state to state.” H.R. Rep. No.

App. 31

533, 93rd Cong. lst sess. 12 (1973),

reprinted in 1874 U.S. Code Cong. &

Admin. News 4639, 4650. This desire has

led the Supreme Court to conclude that

Congress intended that "courts

develop a ‘federal common law of rights

and obligations under ERISA-regulated

plans.'" Ejirestone. supra. 489 U.S. at

110 (citation omitted). We are not

persuaded that the fact that federal

common law is to be created and applied

to ERISA disputes alleging breaches of

fiduciary duties creates an inherent

conflict with arbitration.

First, we do not believe that our

holding will prevent the development of

federal common law in this area. Our

holding does not prohibit plaintiffs

from bringing ERISA claims alleging a

breach of fiduciary duty in federal

App. 32

courts. We merely hold that parties may

provide by agreement that such claims

will be arbitrated. If such agreements

are the result of unequal bargaining

power between the parties, general

principles of contract law will bar

enforcement. Second, the import of

recent Supreme Court decisions is that

arbitration is not be be distrusted no

matter what the source of law to be

applied is. Third, an arbitration

determination is subject to review by

the federal courts through a motion to

enforce or to vacate the award.

Arbitration is not inconsistent

with the underlying purposes of ERISA.

Appellees have not sustained their

burden of demonstrating that the text,

legislative history. or underlying

purposes or ERISA indicate that Congress

App. 33

intended to preclude a waiver of a

judicial forum for claims arising under

it. Accordingly. we hold that statutory

claims arising under ERISA may be the

subject of compulsory arbitration.

IV.

To summarize:

We hold that Congress did not

intend to preclude a waiver of a

judicial forum for statutory ERISA

claims. We further hold that the FAA

requires courts to enforce agreements to

arbitrate such claims. The district

court, therefore. erred in denying

appellants' motion to compel arbitration

of appellees’ ERISA claim and for a stay

of the district court proceedings

pending arbitration.

App. 34

Reversed and remanded

with

instructions that arbitration proceed

promptly.

forthwith.

The mandate shall

issue

|

?

;

;

:

|

App. 35

KEARSE. Circuit Judge. dissenting:

I respectfully dissent from the

majority's conclusion that an agreement

to arbitrate future claims of breach of

fiduciary responsibility under ERISA. 29

U.S.C. § 1101 et geg, (1988). is

enforceable. Despite the general

federal policy favoring arbitration,

460 U.S. 1 (1983). arbitration should

not be ordered where there is "an

inherent conflict between arbitration

and the statute's underlying purposes."

Shearson/American Express. Inc, v.

McMahon. 482 U.S. 220. 227 (1987). I

believe there is such a conflict between

arbitration and ERISA.

The underlying purpose of ERISA is

"to protect . . . the interests of

App. 36

participants in employee benefit plans

and their beneficiaries: by. inter alia.

"establishing standards of conduct.

responsibility. and obligation for

fiduciaries of employee benefit plans.

and by providing for . . . ready access

to Federal courts." 29 U.S.C. § 1001

(b) (1988). In an effort to achieve

this purpose. Congress declined to adopt

the traditional "reasonably prudent man

dealing with his own property” standard

for defining the scope of a fiduciary's

duties. Rather. it intended that there

be developed carefully tailored

standards that (1) would vary depending

on the capacity in which the fiduciary

was acting and the expertise normally

associated with that capacity. see 29

U.S.C. § 1104 (1)(B) ("a fiduciary shall

discharge his duties with respect to 4

App. 37

Plan . . . with the care, skill.

prudence and diligence under the

circumstances then prevailing that a

prudent man acting in a like capacity

- + «+ would use in the conduct of an

enterprise of a like character and with

like aims"), and (2) would reflect a

particular sensitivity to the need to

protect pension rights. see 29 U.S.C. §

1001(b) (goal of ERISA is "to protect

- + + the interests of participants in

employee benefit plans and their

beneficiaries"). Congress intended that

the courts. in fashioning the

appropriate principles. would develop a

new body of federal common law.

The legislative history of ERISA

makes plain that Congress intended this

new federal common law to be uniform and

predictable. The congressional reports.

App. 38

in explaining why Congress chose to

codify such a fiduciary responsibility

requirement rather than relying on

traditional principles of trust law,

repeatedly noted the importance of

creating a consistent source of law

to help fiduciaries, administrators, and

plan participants predict the legality

of the fiduciaries' actions. Thus, the

House of Representatives report stated

as follows:

([WJ)ithout . . . access to the

courts and without standards by

which a participant can measure the

fiduciary's conduct he is not

equipped to safeguard either his

own rights or the plan assets.

Furthermore, a fiduciary standard

embodied in Federal legislation is

considered desirable because it

will being a measure or uniformity

in an area where decisions under

the same set of facts may differ

from state to state. It is expected

that courts will interpret the

prudent man rule and other

fiduciary standards bearing in mind

the special nature and purposes of

App. 39

employee benefit plans intends to

be effectuated by the Act.

The uniformity of

decision which the Act is designed

to foster will help administrators,

fiduciaries and participants to

predict the legality of proposed

actions . ;

H.R. Rep. No. 533, 93d Cong.. lst Sess.

12 (1973). xeprinted in 1974 U.S. Code

Cong. & Admin. News ("USCCAN") 4639,

4650. The Senate report was virtually

identical. See S. Rep. Nw. 127. 93d

Cong. lst Sess. 29 (1973). reprinted in

1974 USCCAN 4838 4865. The conference

report on ERISA also noted that "[t]he

conferees expect that the courts will

interpret th[{e] prudent man rule (and

the other fiduciary standards) bearing

in mind the special nature and purpose

of employee benefit plans." H.R. Conf.

Rep. No. 1280, 93d Cong.. 2d Sess. 302

App. 40

(1974). KFeprinted in 1974 USCCAN 5038,

5083.

Congress's effort to promote the

development of a uniform federal common

law is reflected principally in ERISA's

provision that only federal courts, and

not state courts, have jurisdiction over

fiduciary-duty claims under ERISA. See

29 U.S.C. § 1132(e)(1). In addition,

Congress included a provision (a)

requiring that in every ERISA action for

breach of fiduciary responsibilities, a

copy of the complaint must be served on

the Secretary of Labor. and (b) allowing

the Secretary to interven? in any such

action. See 29 U.S.C. § 1132(h). Both

of these provisions further the goal of

developing a uniform, consistent, and

predictable body of ERISA fiduciary-

responsibility law. This goal may well

App. 41

be frustrated with respect to fiduciary-

duty claims against brokerage houses,

however, if such claims are decided in

arbitration. There are at least two

reasons why this is so. First, a clear

set of principles is unlikely to emerge

Since an arbitrator need not state any

reasons for his decision. Second,

judicial review of arbitration decisions

is limited.

There is no general requirement

that arbitrators of commercial disputes

explain the reasons for an arbitration

decision. See American Arbitration

Association Commercial Arbitration Rule

42, xeprinted in Alternative Dispute

Resolution Techniques 2.042, 2.048

(1989) (requiring only that award itself

be in writing). Nor do the American and

New York Stock Exchanges require that

App. 42

arbitrators in securities disputes

involving member firms give reasons for

their decisions. See American Stock

Exchange Rule 618(3) (requiring only

that the award summarize the demands,

the issues, the results): New York Stock

Exchange Rule 627(e) (same). Though

public interest groups have urged that

arbitration decisions resolving

securities disputes be required to

include written statements of the

arbitrators' reasons for their

decisions, the SEC has refused to

require any such statement of reasons.

See 54 Fed. Reg. 21,144, 21,151 (May 16,

1989) (SEC Order approving other

proposed rule changes relating to

securities arbitration). A decision

without a stated rationale does little

to develop the law. or to provide

App. 43

guidance for plan beneficiaries and

fiduciaries, or to provide

predictability as to the outcome of

disputes. The SEC itself noted that in

the absence of such statements "awards

rendered by arbitrators in prior cases

will not predict the vote or outcome of

future cases." Id. at 21,152.

Further, in the absence of such

statements, there will be no assurance

that the arbitrators have followed

whatever precedent there may be. And

apparently. in the securities industry,

they often do not. In 1988 congressional

hearings on arbitration reform, a

securities industry spokesman noted that

arbitrators in the industry are regarded

as being free to grant or deny awards

without complying with applicable legal

standards. See, e.g. Arbitration

Finance. l00th Cong.. 2d Sess. 85-86

(statement of Theodore Krebsbach. vice

president and associate general counsel

of Shearson Lehman Brothers). The

spokesman stated that arbitrators

frequently made decisions that did not

reflect legal standards but rather

sought to do seush justice: "A lot of

times . . . you don't say one person is

100 percent wrong or 100 percent right

and you do what makes sense under the

circumstances." Id. at 138. A member

of the plaintiffs' bar concurred. See

ad. (statement of Theodore G.

Eppenstein. Esq.) ("many times

arbitration panels will split the

baby([:] . . . the way they split it.

App. 45

they will try to figure out how much the

claimant has to pay his attorney and

that will be the size of the award

> eae

Finally. though judicial review of

arbitration decisions is available. its

scope is severely limited. The standard

of review is highly relaxed, for such

decisions may be set aside only for

"manifest disregard" of "clearly

governing legal principle[(s]." not

merely because of "an arguable

difference regarding the meaning or

applicability of laws." Merrill Lynch.

808 F.2d 930, 933-34 (2d Cir. 1986).

And this standard is made even more

difficult for the disappointed disputant

to meet when the arbitrators have stated

no reasons for their decision. Indeed,

App. 46

the SEC in support of its decision not

to require written opinions explaining

arbitration awards, stated that such

Opinions would generally serve no

purpose. since "[e]ven if awards

contained errors of law. ... a mistake

of law is not currently grounds for

vacating an arbitration award." See 54

Fed. Reg. 21,144, 21,152 n.45. Given

the widespread use of arbitration

clauses in brokerage firms' standard

customer contracts, together with the

lack of any requirement of a stated

rationale in the arbitrators' decision

and the very limited scope of judicial

review, there is no likelihood that

enforcement of such agreements will

permit development of a carefully

tailored, or uniform, or predictable

body of law as to the fiduciary duties

App. 47

of brokers in dealing with ERISA pension

plans.

In sum, I would conclude that

broad-scale arbitration of ERISA

fiduciary-responsibility claims would

conflict with ERISA's goal of providing

carefully tailored fiduciary duty

principles and be antithetical to the

goals of uniformity and predictability.

Our prior ruling in the present case,

holding the arbitration agreement

unenforceable. was vacated by the

Supreme Court and remanded for

consideration in light of Rodriguez de

Te 7 / .

Inc... 490 U. S. 477 (1989). gee

vy. Bird. 110 S. Ct. 225 (1989). vacating

and remanding 871 F.2d 292 (2d Cir.

1989). Rodriguez did not alter the

App. 48

Principle that arbitration agreements

Should not be enforced when there is an

inherent conflict between arbitration

and the -statute's underlying purposes.

I would uphold the district court's

refusal to enforce the arbitration

agreement here on the ground that there

is an inherent conflict between

arbitration and Congress's intention not

to permit the resolution of ERISA

fiduciary-duty disputes by the

application of rough justice, ad hoc and

sub silentio.

ee

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