# Motion — Gilmer v. Interstate/Johnson Lane Corp.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Motion
- **Published:** January 1, 1991
- **Citation:** 500 U.S. 20

## Text

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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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0001%3A14. Public record. Not legal advice.