Compliance

Attorneys Move to Send Schwab Self-Dealing Suit to Arbitration

“The court should compel individual arbitration of [the plaintiff's] claims and, on that basis, dismiss the lawsuit, or stay the litigation pending the outcome of individual arbitration,” the attorneys conclude.

By Rebecca Moore editors@strategic-i.com | April 11, 2017

Attorneys have asked a court to compel arbitration of a class action Employee Retirement Income Security Act (ERISA) lawsuit filed against Charles Schwab Corporation and its retirement plan fiduciaries alleging fiduciary breaches and prohibited transactions.

The lawsuit, filed in the U.S. District Court for the Northern District of California, claims plan fiduciaries engaged in the imprudent and disloyal exercise of their discretionary fiduciary authority over the plan to include Schwab’s own affiliated investment products as investment options within the plan and sale of their own services to the plan. The complaint alleges that defendants “reaped significant fees and profits at the expense of the plan and its participants.”

In their motion, the attorneys note that the arbitration provisions in Schwab’s retirement plan document and severance agreement clearly fall within the scope of the Federal Arbitration Act (FAA). The plan document’s arbitration provision broadly encompasses “[a]ny claim, dispute, or breach arising out of or in any way related to the Plan,” and extends to the ERISA claims asserted, they say. The attorneys contend the arbitration provision of the plaintiff’s severance of employment agreement likewise embraces the ERISA claims, insofar as it requires arbitration of “any dispute or breach arising out of or in any way related to [Severson’s] employment . . . .”

According to the motion, the fact that Christopher W. Severson’s claims are brought pursuant to ERISA’s civil enforcement provisions does not in any way impede or limit the application of the arbitration provisions contained in the plan document or severance agreement. “The mere fact that ERISA provides a federal court cause of action for alleged ERISA violations does not prevent parties from agreeing to adjudicate such claims in arbitration,” the attorneys argue.

In addition, the attorneys say the fact that Severson purports to bring his claims “on behalf of the Plan” under ERISA Section 502(a) does not alter the conclusion that his claims are arbitrable. Although Section 502(a)(2) of ERISA provides a cause of action for claims “on behalf of the plan,” the plaintiff bringing the claim is the plan participant—not the plan, they note.

The attorneys says the court should likewise conclude that the claims asserted by Severson must be arbitrated on an individual basis because neither the plan document nor the severance agreement evinces an intent to engage in class or representative arbitration. To the contrary, the plan document expressly waives a participant’s “right to commence, be a party to, or be an actual or putative class member of any class, collective or representative action arising out of or relating to the Plan.”

“The Supreme Court, the Ninth Circuit, and this Court have repeatedly upheld this type of class waiver,” they say.

The motion says, based on a finding that the arbitration clauses should be enforced, the court would have two alternative forms of relief at its disposal: it “may either stay the action or dismiss it outright.” “The court should compel individual arbitration of Severson’s claims and, on that basis, dismiss the lawsuit, or stay the litigation pending the outcome of individual arbitration,” the attorneys conclude.