“Confirmed Judges, Confirmed Fears” is a blog series documenting the harmful impact of President Trump’s judges on Americans’ rights and liberties. Cases in the series can be found by issue and by judge at this link.
Trump Second Circuit judge Richard Sullivan tried to affirm a lower court decision dismissing a class action filed by an employee on behalf of all employees, which contended that mismanagement of a benefit plan cost the employees some $300 million, and forcing the employee to arbitrate his claim individually. The majority rejected that view, reversed the order requiring arbitration, and allowed the class action to go forward on behalf of all employees in its March 2021 decision in Cooper v Ruane Cunniff & Goldfarb Inc.
Clive Cooper began working in 1999 as a software development manager for DST Systems Inc., an information processing and software company. Like all employees, he was signed up for an employee benefit plan financed by DST based on individual employees’ salaries. The plan is governed by the federal Employment Retirement Income Security Act (ERISA), and managed by outside investment company Ruane Cunniff & Goldfarb (“Ruane”), which exercised “full authority and sole discretion” over plan investments. Under ERISA and the plan, Ruane had a duty to manage the plan’s assets “prudently” and “in the interest” of employees and not to “misuse the Plan’s money.”
At some point, Ruane decided to put a large portion of the plan’s assets, around 30%, into a single drug company. In 2014-16, the value of that company’s stock “dropped dramatically,” so that the value of the plan’s holdings fell more than 75 percent, from almost $415 million to only $97 million, significantly harming DST employees who were plan participants.
Cooper filed suit in federal district court on behalf of himself and a class of other DST employees, contending that Ruane had breached its fiduciary duties under ERISA through its “catastrophic over-allocation” of plan assets to the drug company, and that Ruane is thus liable for the losses suffered by the plan participants. The court ruled, however, that the class action could not be pursued and that Cooper had to arbitrate his individual claims, pursuant to an arbitration agreement concerning “employment-related” disputes that he signed with DST.
In an opinion by Judge Susan Carney, the Second Circuit reversed in a 2-1 decision. Putting aside the question of whether Ruane could take advantage of an arbitration agreement that it was not a party to between Cooper and DST, Judge Carney explained that the agreement to arbitrate all claims “arising out of or relating to employment” simply did “not encompass the claims for breach of fiduciary duty” by Ruane under ERISA.
Trump judge Sullivan dissented. In accord with the district court, he argued that the “broad language” in the arbitration agreement should be interpreted “in favor of arbitration,” in accordance with the general “presumption in favor of arbitrability.” He also maintained that even though Ruane was not a party to the agreement, Cooper should be prevented from contesting that the claim should be arbitrated in accordance with the principle of “equitable estoppel” – that it would be unfair for him not to arbitrate the claim.
Judge Carney’s opinion explained what was wrong with these arguments. Despite the presumption in favor of arbitration, she noted, “the law is undisputed” that a court can order that a specific dispute be arbitrated “only where the court is satisfied that the parties agreed to arbitrate that dispute.” Based on prior precedent, she continued, since “none of the facts relevant to the merits of Cooper’s claims against Ruane relates to his employment” at DST, the district court was wrong to conclude that Cooper’s claims fall under the arbitration clause as “relating to employment.”
Although this ruling meant that the majority need not consider the “equitable estoppel” argument, Judge Carney nevertheless expressed great “concern” over the dissent’s assertion that it would somehow be “inequitable” for Cooper to decline to arbitrate his claim with Ruane. A ruling to that effect, the majority explained, “would mark an ill-advised step away from looking to consent as the foundation of arbitration” and “could have broadly restrictive effects on the rights of employees” who seek to pursue legal claims concerning misconduct against “contracting partners of their employers” like Ruane.
Fortunately, the majority rejected the dangerous view promoted by Trump judge Sullivan concerning employee rights. Instead, Cooper will have the opportunity, on behalf of himself and other DST employees, to pursue claims of mismanagement and breach of fiduciary duty by Ruane leading to losses of hundreds of millions of dollars.