Business Litigation

The Second Circuit Finds ERISA Claim Against Plan Manager Was Not Related to Separate Employment Agreement and Therefore Would Not Require Arbitration of the Dispute

By Leslie Berkoff

In a recent decision, Cooper v. Ruane Cunniff & Goldfarb Inc., 990 F.3d 173 (2d Cir. 2021), the Second Circuit reversed a District Court decision and found that there was no basis upon which to find claims by the Plaintiff related to Defendant’s employment agreement with his employer and therefore did not require compliance with the underlying arbitration provisions contained in the agreement.  The Defendant was a third-party investment manager and plan administrator of a 401(k) and profit-sharing fund (“Fund”) and under ERISA was considered to be a plan fiduciary. Plaintiff, was a member of the plan managed by Defendant, and alleged that the Defendant had mismanaged the Fund and breached its fiduciary duties. Plaintiff sued Defendant as a representative of the plan and its participants. In response, Defendant moved to compel arbitration of the claim under Plaintiff’s employment agreement with his employer which required him to arbitrate “all legal claims arising out of or relating to employment.”    

The District Court determined that the fiduciary claim was related to Plaintiff’s employment because Plaintiff would not have his claim but for his employment, and the stake in the claim was part of Plaintiff’s compensation from his employer. The district court held that the Defendant could compel arbitration even though the Defendant was not a signatory to the agreement, finding Defendant could enforce the arbitration provisions under principles of equitable estoppel.

The Second Circuit reversed, holding that there was no adequate basis on which to hold that Plaintiff’s claims related to his employment. The court found that the examples of claims that should be arbitrated in the agreement were more personal to the Plaintiff such as harassment or discrimination, while the ERISA claim, which Plaintiff brought on behalf of the plan and the plan’s other participants, was not of the same type. Further, the court followed a line of cases from the Fifth, Eleventh, and Ninth Circuits in holding that “but-for” causation is not sufficient to argue that a claim “relates to” employment, rather finding that a claim should be found to “relate to” employment only if the merits of that claim involves facts particular to an individual’s own employment.  Counsel working in this area should be mindful of this decision, and the lines of cases cited therein, when determining whether to attempt to compel arbitration of these kinds of claims.

The Delaware Supreme Court Clarifies “Deliberate” Versus “Reckless” Fraud Distinction 

By Sara Bussiere

In Express Scripts, Inc. v. Bracket Holdings Corp., the Delaware Supreme Court considered the propriety of the Delaware Superior Court’s jury instruction on the state of mind for proof of fraud. Plaintiff argued that defendants were liable for both deliberate fraud and reckless conduct, necessitating instruction on both states of mind.  Defendants objected to an instruction on reckless conduct on the grounds that plaintiff could only recover for deliberate fraud under the terms of the securities purchase agreement (“SPA”) between the parties. The lower court instructed the jury that defendants could be liable for “recklessness,” but the Delaware Supreme Court reversed, holding that the exclusive remedy’s carve-out in the SPA limited plaintiff’s recovery to deliberate fraud and therefore, reckless conduct alone could not give rise to an actionable claim. The Supreme Court’s analysis provides helpful guidance for both drafters and litigators considering and interpreting provisions limiting a party’s liability that, as the Supreme Court stated, a “deliberate state of mind is a different kettle of fish than a reckless one.”  



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