This week the court reanimated an ERISA lawsuit, enforcing arbitration in a dispute over tribal internet payday loans.
WARMENHOVEN v NETAPP, INC.
The court found that PowerPoint presentations were not planning documents and therefore any representations in them cannot override ERISA’s standard rule that social plans may be changed at any time and that a fair fiduciary breach claim under Section 1132 (a) (3) ERISA does not require proof of intent to deceive.
The panel: Judges Christen, Bade and Feinerman (ND Fig.), With Judge Feinerman drafting the report.
Most important highlight: “[T]The ERISA default rule stipulates that social plans are not vested and can be changed at any time. . . A plan can override this standard rule, but only if this is explicitly done in a plan document. “
Background: After NetApp implemented a gradual termination of its NetApp Executive Medical Retirement Plan, seven retired executives sued NetApp, alleging that the termination of the plan violated the Employee Retirement Income Security Act of 1974 (âERISAâ) for being promised lifelong benefits be. They made both a direct right to Section 1132 (a) (1) (B) benefits of ERISA and an alternative right to fair legal protection under Section 1132 (a) (3) on the grounds that NetApp had allegedly misrepresented that the plan will provide lifelong benefits. The district court gave NetApp a summary judgment in both cases and a retired executive appealed.
Result: The ninth circle was partially confirmed, partially evacuated and taken into custody. The court upheld the District Court’s ruling against NetApp regarding the retired executive’s eligibility for direct benefits under Section 1132 (a) (1) (B) or ERISA. The panel stated that the standard rule under ERISA is that employers are free to terminate benefit plans such as the plan in question. The PowerPoint presentations shown to the retired Human Resources executive, suggesting that NetApp would maintain health insurance benefits for the life of the attendees, did not override the default rule because they were not planning documents as they were did not claim to meet the requirements of a written document under Section 1102 (b) of ERISA. Cases in which de facto ERISA plans are determined on the basis of informal commitments to provide services are not applicable in situations in which the plan promoter has drawn up a written document.
The court overturned the district court’s decision to give NetApp a summary judgment on the retired executive’s right to fair discharge under Section 1132 (a) (3). The court stated that trustees are in breach of their duties by misleading plan participants or misrepresenting the terms or administration of a plan. Unlike the District Court and the Seventh District, the court ruled that evidence of a breach of fiduciary duty under ERISA does not require evidence of fraudulent intent. Because there was a real factual dispute over whether NetApp falsely demonstrated to plan participants that its plan provided lifelong health benefits, the retired manager’s fiduciary claim survived summary judgment. The court did not address whether the retired executive would be entitled to adequate legal protection to redress the alleged wrong – another requirement for a fair claim under Section 1132 (a) (3) – but instead left the matter to the District Court on remand. The retired manager did not forfeit this question by not raising it in his opening letter, as the question had not been decided by the district court.
BRICE vs. HAYNES INVESTMENT
The Court finds that an agreement delegating to an arbitrator the preliminary question of whether the underlying arbitration agreement with a choice of law provision choosing tribal law was unenforceable because its plain language did not prevent plaintiffs from pursuing their allegation that The arbitration agreement invalidly waived their rights to assert federal claims before the arbitrator.
The panel: Judges W. Fletcher, Forrest and VanDyke, with Judge Forrest drafting the opinion and Judge W. Fletcher disagreeing.
Most important highlight: âWe do not deny that borrowers have a reasonable argument that the written arbitration agreement prevents them from bringing their RICO or other federal claims into arbitration. . . . And if it does, the arbitration agreement is likely to be unenforceable as a prospective waiver. . . . But if there is a clear definition of the delegation, this question is not up to us – or someone else who wears a black robe – to decide. “
Background: Plaintiffs (“Borrowers”) received short-term, high-interest loans from lenders owned by Indian Tribes (“Tribal Lenders”). The Tribal Lenders standard loan agreements contain an agreement to arbitrate disputes arising from the contract. Every arbitration agreement contains a delegation provision whereby an arbitrator – not a court – shall rule on “any matter relating to the validity, enforceability or scope of” [the loan] Agreement or [arbitration agreement]. âThe loan agreements also state that the contracts are subject toâ the laws of the tribe âorâ tribal law âand that an arbitratorâ must apply tribal law and the terms of this agreement â. The borrowers alleged that the payday loans taken out by the tribal lenders were illegal under the Racketeer Influenced and Corrupt Organizations Act and California law and brought class action lawsuits against defendants, including the tribal lenders and certain investors (“Investors”). The investors filed for arbitration to be enforced, but the district court denied the motions, concluding that any contract is unenforceable as it is likely to waive borrowers’ right to bring federal claims by engaging the arbitrator To apply tribal law. The district court ruled that any delegation provision was unenforceable for the same reason. Several investors appealed.
Result: The ninth circle in reverse. The court found that its focus must initially be on the enforceability of the delegation provision in detail, not on the arbitration agreement as a whole. The borrowers argued that the arbitration agreement and delegation provision were unenforceable under prospective waiver doctrine because they waived the borrowers’ right to seek federal remedies. However, given the plain language of the delegation provision, the court concluded that this did not exclude the arbitrator from examining enforceability disputes under federal law. The court has not denied that the choice of tribal law in the loan agreement as the competent authority may result in the arbitrator ultimately deciding that she cannot contest the enforceability of the arbitration agreement as a whole on the basis of a prospective waiver if tribal law does not recognize this doctrine. However, the court stated that this option does not prevent borrowers from follow their prospective arbitration waiver, which is key to determining whether the delegation provision itself is a prospective waiver. The court acknowledged that its conclusion differed from the conclusions of some of its sister circles, but disagreed with them, considering a possible waiver in the context of the arbitration agreement as a whole and not in terms of the delegation provision. The court found that if the arbitrator determines that it cannot contemplate challenging the enforceability of the arbitration agreement, the borrowers can go back to court and argue that the arbitrator has exceeded their authority.
Judge W. Fletcher disagreed. Judge Fletcher concluded that the court’s decision misunderstood the effect of the choice of law provisions in the agreements. Under these provisions, the arbitrator may only use tribal law and a small and irrelevant portion of federal law, which prevents the arbitrator from applying the law necessary to determine whether the delegation provisions and the arbitration agreement are valid. Judge Fletcher concluded that both the delegation provisions and the arbitration agreements were invalid.