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United States District Court

Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

MICHAEL F. DORMAN, individually 

as a participant in the SCHWAB 

PLAN RETIREMENT SAVINGS AND

INVESTMENT PLAN and on behalf 

of a class of all those 

similarly situated,

Plaintiff,

v.

CHARLES SCHWAB & CO. INC.; 

CHARLES SCHWAB & CO INC.; 

SCHWAB RETIREMENT PLAN 

SERVICES INC.; CHARLES SCHWAB 

BANK; CHARLES SCHWAB 

INVESTMENT MANAGEMENT, INC.; 

JOHN DOES 1-50; and XYZ 

CORPORATIONS 1-5,

Defendants.

Case No. 17-cv-00285-CW 

ORDER ON DEFENDANTS’ MOTION 

TO COMPEL ARBITRATION, 

DISMISS, AND TO STAY CLAIMS

AND DEFENDANTS’ 

ADMINISTRATIVE MOTION TO SEAL 

(Dkt. Nos. 70, 71)

In this putative class action ERISA case, Defendants Charles 

Schwab Corporation, Charles Schwab & Co Inc., Schwab Retirement 

Plan Services Inc., Charles Schwab Bank, Charles Schwab 

Investment Management, Inc., Walter W. Bettinger III, Charles R.

Schwab, Joseph R. Martinetto, Martha Tuma, Jay Allen, Dave 

Callahan, John C. Clark, John Does 1-50, and XYZ Corporations 1-5 

move to compel individual arbitration of Plaintiff Michael F. 

Dorman’s claims against Defendants and to stay or dismiss this 

action while the arbitration is pending. Alternatively, 

Defendants move to stay this action pending a ruling by the 

Supreme Court in Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th 

Cir. 2016), cert. granted, 137 S. Ct. 809 (2017). Plaintiff 

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filed an opposition to this motion and Defendants filed a reply. 

On November 14, 2017, the Court held a hearing on Defendants’ 

motion. Upon considering the papers and the arguments of 

counsel, the Court DENIES Defendants’ motion. 

FACTUAL BACKGROUND

Unless otherwise noted, the factual background is from the 

allegations of the First Amended Complaint. See Docket No. 56. 

The Charles Schwab Corporation (Charles Schwab) and its 

subsidiaries, Charles Schwab & Co. Inc. and Charles Schwab Bank

(the Schwab entities), provide a wide range of financial 

services, including wealth management, securities brokerage, 

banking, money management, custody, and financial advisory 

services. Schwab News Release July 2017, available at

https://aboutschwab.com/images/uploads/inline/schwab_q2_2017_earn

ings_release.pdf. Walter W. Bettinger III, Charles R. Schwab, 

and Joseph R. Martinetto are members of the Board of Directors of 

Charles Schwab. Martha Tuma, Jay Allen, Dave Callahan and John 

C. Clark are members of the Employee Benefits Administrative 

Committee at Charles Schwab. 

The SchwabPlan Retirement Savings and Investment Plan

(SchwabPlan or the Plan) is a defined contribution, individual 

account plan sponsored and administered by Charles Schwab. 

Eligible employees of the Schwab entities may participate by 

contributing a portion of their wages to their account and 

receive matching employer contributions, as well as any 

investment returns, less any applicable fees. Participants in 

the Plan may choose to invest their contributions (and the 

matching employer contributions) in one or more investment 

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options made available by the Plan. Declaration of Holly Morgan 

(Morgan Decl.) ¶¶ 3-5, Ex. 1. 

Since 2009, the Plan has offered several investment options 

that were managed by Charles Schwab, including the Schwab S&P 500 

Index Fund, seven Schwab mutual funds, ten Schwab “target date” 

funds, a Schwab money market fund, and a deposit account in the 

Schwab Bank. Dorman alleges that these Schwab-affiliated funds 

charged higher fees and performed more poorly than other 

investment options on the market. Dorman contends that the 

Schwab entities violated their fiduciary duties to the Plan in 

offering these Schwab-affiliated funds without “meaningful 

investigation” into whether they were prudent investments and 

whether there were better options available. 

Dorman was employed at Charles Schwab & Co., Inc. for six 

years, until he left the company on October 8, 2015. Id. ¶ 7. 

On February 23, 2009, shortly after starting his employment, he 

completed a Uniform Application for Securities Industry 

Registration or Transfer (Form U-4), which is required for all 

registered representatives under the Financial Industry 

Regulatory Authority (FINRA) rules. Id. ¶ 8, Ex. 3. Form U-4 

contains a provision stating:

I agree to arbitrate any dispute, claim or controversy 

that may arise between me and my firm, or a customer, 

or any other person, that is required to be arbitrated 

under the rules, constitutions, or by-laws of the SROs 

indicated in Section 4 (SRO REGISTRATION) as may be 

amended from time to time and that any arbitration 

award rendered against me may be entered as a judgment 

in any court of competent jurisdiction.

On December 19, 2014, Dorman electronically signed an 

Acknowledgment of the Schwab Investor Financial Consultant 

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Compensation Plan (Compensation Plan Acknowledgment). Id. ¶ 9, 

Ex. 4. The Compensation Plan describes the compensation 

structure of a financial consultant (FC) like Dorman. The 

Acknowledgment contains a section entitled “11.0 Arbitration of 

Disputes.” This section states:

11.1 Any controversy, dispute, or claim arising out of 

or relating to the FC’s employment or the termination 

of employment shall be resolved by binding 

arbitration . . .

[ . . . ]

11.3 This Agreement does not apply to . . . claims for

benefits under any ERISA-governed benefit plan(s), 

which shall be resolved pursuant to the claims 

procedures under such benefit plans. 

[ . . . ]

11.5 Any claims or disputes between the FC and the 

Company shall be brought solely on an individual basis. 

The FC and the Company agree to waive the 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 

FC employment or termination of employment. If this

waiver is found to be unenforceable by a civil court of 

competent jurisdiction, then any claim on a class, 

collective, or representative basis shall be filed and 

adjudicated in a court of competent jurisdiction, and 

not in arbitration. 

Id. at 9. 

While Dorman was employed at Charles Schwab, he participated 

in the Plan. Id. ¶¶ 9-10. On December 18, 2015, after Dorman 

left his employment with Schwab, he received a full distribution 

of his account balance and ceased his participation in the Plan. 

Id. ¶ 12. 

A version of the Plan Document that was restated and amended 

as of January 1, 2016 and executed on June 13, 2016 provides:

15.11 Arbitration of Disputes

(a) Any claim, dispute or breach arising out of or 

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in any way related to the Plan shall be settled by 

binding arbitration . . .

Id., Ex. 1 at 56. 

On January 19, 2017, Dorman filed the present litigation. 

He brings claims on behalf of the Plan pursuant to ERISA 

§ 502(a)(2) to recover losses resulting from Defendants’ 

fiduciary breaches and prohibited transactions and pursuant to 

ERISA § 502(a)(3) to recover injunctive and other equitable 

relief. 

LEGAL STANDARD

The Federal Arbitration Act (FAA) provides that any 

agreement within its scope “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. The FAA 

represents a “liberal federal policy favoring arbitration 

agreement, notwithstanding any state substantive or procedural 

policies to the contrary.” Moses H. Cone Mem’l Hosp. v. Mercury 

Constr. Corp., 460 U.S. 1, 24 (1983). A party to a valid 

arbitration agreement may petition a federal district court “for 

an order directing that such arbitration proceed in the manner 

provided for in such agreement.” 9 U.S.C. § 4. In considering a 

motion to compel arbitration, a court should consider “whether a 

valid arbitration agreement exists” and “whether the agreement 

encompasses the dispute at issue.” Lifescan, Inc. v. Premier 

Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir. 2004). If 

so, the court should enforce the agreement. Id. 

A court has the power to stay proceedings, which arises from 

its inherent power “to control the disposition of the causes on 

its docket with economy of time and effort for itself, for 

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counsel, and for litigants.” Landis v. North Am. Co., 299 U.S. 

248, 254 (1936). "A stay is not a matter of right, even if 

irreparable injury might otherwise result." Nken v. Holder, 556 

U.S. 418, 433 (2009).

Instead, a stay is "an exercise of judicial discretion," and 

"the propriety of its issue is dependent upon the circumstances 

of the particular case." Id. (citation and internal quotation 

and alteration marks omitted). The party seeking a stay bears 

the burden of justifying the exercise of that discretion. Id. 

In determining whether to grant a stay, courts generally consider 

the following competing interests: “the possible damage which may 

result from the granting of a stay, the hardship or inequity 

which a party may suffer in being required to go forward, and the 

orderly course of justice measured in terms of the simplifying or 

complicating of issues, proof, and questions of law which could 

be expected to result from a stay.” Lockyer v. Mirant Corp., 398 

F.3d 1098, 1110 (9th Cir. 2005) (citation omitted).

DISCUSSION

I. Motion to Compel Arbitration

A. Applicability of various arbitration agreements to 

Dorman’s claims 

Defendants contend that the Plan Document, Form U-4, and the 

Compensation Plan Acknowledgment are valid agreements that

require arbitration under the FAA. 

1. Plan Document

Defendants argue that the Plan Document binds Dorman. But 

the Plan Document provided by Defendants was dated January 1, 

2016 and executed on June 13, 2016, over a year after Dorman 

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terminated his participation in the Plan on December 18, 2015.

1 

See Morgan Decl., Ex. 1 at 2, 90. The Plan Document issued a 

year after Dorman ceased participation in the Plan cannot apply 

to his claims. To hold otherwise would be inequitable because it 

would allow a plan defendant to amend the plan documents 

unilaterally at any time, even after a participant has brought 

suit against the defendant, and put the participant at a

disadvantage.

Defendants provide no authority supporting their contention 

that a plan document executed after the participant has ceased 

participation in the plan can bind the participant to 

arbitration. For example, in Chappel v. Lab. Corp. of Am., the

Ninth Circuit enforced the plan’s mandatory arbitration clause 

even though the plaintiff “had not previously known about the 

clause.” 232 F.3d 719, 723 (9th Cir. 2000). But there is no 

indication that the plan’s mandatory arbitration clause was 

enacted after the plaintiff ceased all participation in the plan. 

See id. The remaining cases cited by Defendants are similarly 

unavailing because, in each case, the plan document was in effect 

while the plaintiff participated in the plan. See Smith v. Aegon 

Companies Pension Plan, 769 F.3d 922, 931 (6th Cir. 2014) (venue 

selection amendment enacted in 2007 applied to plaintiff’s claim 

because plaintiff continued to receive plan payments through 

2011); Marin v. Xerox Corp., 935 F. Supp. 2d 943, 945 (N.D. Cal. 

2013) (plan document in effect at the time defendant denied 

 

1 Defendants did not provide any other version of the Plan 

Document. 

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plaintiff’s claim controlled); Laasko v. Xerox Corp., 566 F. 

Supp. 2d 1018, 1022 (C.D. Cal. 2008) (same). The Plan Document 

therefore does not bind Dorman. 

2. Form U-4

Defendants argue that Form U-4’s arbitration provision 

encompasses Dorman’s claims because the provision covers “any 

dispute, claim or controversy” between Dorman and Schwab. 

Defendants read this provision out of context. The provision 

actually states:

I agree to arbitrate any dispute, claim or controversy 

that may arise between me and my firm, or a customer, 

or any other person, that is required to be arbitrated 

under the rules, constitutions, or by-laws of the SROs 

indicated in Section 4 (SRO REGISTRATION) . . . 

Morgan Decl., Ex. 3 at 12 ¶ 5. The arbitration provision does 

not apply to any dispute between Dorman and Schwab, but only 

those that are “required to be arbitrated under the rules, 

constitutions, or by-laws of the SROS indicated in Section 4.” 

Id. Section 4 of Form U-4 lists a number of SROs, or selfregulatory organizations such as FINRA, but mentions nothing

whatsoever about the Plan. Id. at 2-4. Defendants fail to

explain adequately why the language of this provision encompasses 

Dorman’s claims. 

3. Compensation Plan Acknowledgment 

The Compensation Plan Acknowledgment arbitration and class 

action provisions are limited to claims “arising out of or 

relating to the [financial consultant’s] employment or the 

termination of employment.” Morgan Decl., Ex. 4 §§ 11.1, 11.5. 

While Defendants contend that Dorman’s breach of fiduciary duty 

claims are ones “arising out of or relating to [his] employment 

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or termination of employment,” it is not clear that Defendants 

are correct. Defendants themselves contend elsewhere that ERISA 

claims are not ordinarily viewed as “work-related legal claims.” 

Motion at 18. Moreover, the arbitration provision contains an 

exception for “claims for benefits under any ERISA-governed 

employee benefit plan(s),” which are to be resolved according to 

the “claims procedures under such benefit plans.” Id. § 11.3. 

Dorman’s claims, which arise not under the Compensation Plan but 

under the SchwabPlan, are therefore governed by the claims 

procedures of the SchwabPlan.

Because the arbitration provisions cited by Defendants do 

not encompass Dorman’s claims, they do not require him to submit 

his claims to arbitration. 

B. Bowles v. Reade

Even if the arbitration provisions cited by Defendants 

encompassed Dorman’s claims, the provisions could not be 

enforced. Dorman brings his claims pursuant to §§ 502(a)(2) and 

502(a)(3) “on behalf of the plan.” He cannot waive rights that 

belong to the Plan, such as the right to file this action in 

court. 

The Court recently resolved this question in a similar case, 

Cryer v. Franklin Templeton Res., Inc., 2017 WL 4410103 (N.D. 

Cal. Oct. 4, 2017). There, a release and class action waiver 

signed by the plaintiff could not be enforced against the 

plaintiff’s § 502(a)(2) claims brought on behalf of the plan. 

Id. at *3. Relying on Bowles v. Reade, 198 F.3d 752 (9th Cir. 

1999), the Court explained that “a plan participant cannot 

settle, without the plan's consent, a § 502(a)(2) breach of 

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fiduciary duty claim seeking ‘a return to [the plan] and all 

participants of all losses incurred and any profits gained from 

the alleged breach of fiduciary duty.’” Id. (quoting Bowles, 198

F.3d at 760). See also In re Schering Plough Corp. ERISA Litig., 

589 F.3d 585, 594 (3d Cir. 2009) (“The vast majority of courts 

have concluded that an individual release has no effect on an 

individual's ability to bring a claim on behalf of an ERISA plan 

under § 502(a)(2).”). By the same token, a participant bringing 

a § 502(a)(2) claim also cannot release the right to file in 

court or the right to file a class action on behalf of a plan, 

which also belong to the plan. Cryer, 2017 WL 4410103, at *4

(quoting Munro v. Univ. of S. California, 2017 WL 1654075, at *5 

(C.D. Cal. Mar. 23, 2017)) (“Just as a participant suing on

behalf of a plan under § 502(a)(2) cannot waive a plan's right to 

pursue claims, a participant cannot waive a plan's right to file 

its claims in court.”). The Court therefore concluded that the 

release and class action waiver could not be enforced against the 

plaintiff’s claims brought in a representative capacity on behalf 

of the plan. Id.

Here, too, enforcement of the arbitration and class action 

provisions would violate the principles set forth in Bowles v. 

Reade. Dorman brings §§ 502(a)(2) and 502(a)(3) claims seeking

to restore losses incurred by the Plan. See Docket No. 56 at 35 

(Amended Complaint). As a result, he cannot release the right to 

file a claim in court or the right to file a class action, both 

of which belong to the Plan. 

Defendants argue that the Court’s reasoning in Cryer does 

not apply to this case because the Plan agreed to arbitration by 

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virtue of its Plan Document’s arbitration provision. See Plan 

Document § 18.1 (board of directors of the Plan Sponsor reserves 

the right to . . . adopt any amendment or modification thereto”). 

But the Court has already concluded that the Plan Document does 

not bind Dorman because it was executed after he ceased all 

participation in the Plan. 

Additionally, the Plan Document was executed unilaterally by 

the plan sponsor, Charles Schwab. See Reply at 8; Morgan Decl., 

Ex. 1 at § 18.1(a). A plan document drafted by fiduciaries--the 

very people whose actions have been called into question by the 

lawsuit--should not prevent plan participants and beneficiaries 

from vindicating their rights in court. See Johnson v. 

Couturier, 572 F.3d 1067, 1080 (9th Cir. 2009) (citing ERISA 

§ 410(a) and holding that “if an ERISA fiduciary writes words in 

an instrument exonerating itself of fiduciary responsibility, the 

words, even if agreed upon, are generally without effect”). 

Otherwise, “fiduciaries would essentially never be held to 

account for their potential wrongdoing in court” and they would 

receive “many procedural advantages at the outset of any 

§ 502(a)(2) action that they would not be entitled to in a court 

proceeding.” Munro, 2017 WL 1654075, at *6. “Indeed[,] allowing 

such arbitration agreements to control participants’ § 502(a)(2) 

claims would, in a sense, be allowing the fox to guard the 

henhouse.” Id.

C. Morris v. Ernst & Young, LLP

Because the Court has already found that the arbitration 

provisions either do not apply to Dorman’s claims or are 

unenforceable against them pursuant to Bowles, the Court need not 

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consider the parties’ arguments on whether Morris applies to 

Dorman’s claims. Nevertheless, in the interest of completeness, 

the Court briefly addresses the parties’ arguments. 

Morris holds that class action waivers are unenforceable 

under the NLRA when they are required by the employer as a 

condition of employment. Morris, 834 F.3d at 980-83. Thus, 

Morris would appear to bar any provisions requiring individual 

arbitration of Dorman’s claims that Dorman signed as a condition 

of his employment. Although Defendants contend that the Court 

should not apply Morris in this case because the Supreme Court 

has granted certiorari, Morris remains good law and must be 

applied until the Supreme Court decides otherwise. See, e.g.,

United States v. Joey, 974 F.2d 1344 (9th Cir. 1992) (“Although 

the Supreme Court has granted certiorari in [the case forming the 

basis for affirmance], we are bound by our prior decision until 

the Court decides otherwise.”). 

In sum, the arbitration provisions cited by Defendants (Plan 

Document, Form U-4, and Compensation Plan Acknowledgment) are not 

enforceable against Dorman’s claims for three independent 

reasons: (1) they do not bind Dorman or their scope does not 

encompass Dorman’s claims, (2) Bowles v. Reade bars their 

enforcement, and (3) Morris v. Ernst & Young, LLP and the NLRA 

bar their enforcement. Accordingly, Defendants’ motion to compel 

arbitration must be denied. 

II. Motion to Stay Pending Decision in Morris

Because the Court’s denial of Defendants’ motion to compel 

arbitration does not rely on Morris, Defendants have not 

established the need for a stay pending the Supreme Court’s 

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decision in the same case. Defendants have not shown that they 

will suffer any harm absent a stay, nor have they shown that any 

issues of law or proof will be simplified if the case is stayed 

pending a decision in Morris. On the other hand, Dorman has a 

right to timely adjudication of his claims. Defendants’ request 

to stay the case is denied. 

III. Administrative Motion to Seal

Defendants seek to seal redacted portions of the 

Compensation Plan Acknowledgment filed in support of their motion 

to compel arbitration or stay the case. In considering sealing 

requests, “a strong presumption in favor of access is the 

starting point.” Kamakana v. City & Cty. of Honolulu, 447 F.3d 

1172, 1178 (9th Cir. 2006)(internal quotation marks omitted). 

Parties seeking to seal documents relating to dispositive motions 

bear the burden of articulating “compelling reasons supported by 

specific factual findings that outweigh the general history of 

access and the public policies favoring disclosure, such as the 

public interest in understanding the judicial process.” Id. at 

1178-79 (internal quotation marks and citation omitted). 

Defendants filed a declaration pursuant to Civil Local Rule 79-

5(d) stating that the redacted portions of the Compensation Plan 

Acknowledgment contain Charles Schwab’s proprietary compensation 

formulas and strategic business goals. Disclosure of 

compensation information might cause Defendants competitive harm. 

Because Defendants have narrowly tailored their request to 

include only sealable information, this request is granted. 

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CONCLUSION

The Court DENIES Defendants’ motion to compel arbitration, 

to dismiss, and to stay claims (Docket No. 70). The Court GRANTS 

Defendants’ administrative motion to seal (Docket No. 71). 

IT IS SO ORDERED.

Dated: January 18, 2018

CLAUDIA WILKEN

United States District Judge

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