Court Opinion

ID: 8986837
Source: CourtListenerOpinion
Date Created: 2022-11-27 11:57:25.10651+00
Date Added: 2024-06-11T17:10:49.989183
License: Public Domain

KEARSE, Circuit Judge,
dissenting:
I respectfully dissent from the majority’s conclusion that an agreement to arbitrate future claims of breach of fiduciary responsibility under ERISA, 29 U.S.C. § 1101 et seq. (1988), is enforceable. Despite the general federal policy favoring arbitration, see, e.g., Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), arbitration should not be ordered where there is “an inherent conflict between arbitration and the statute’s underlying purposes,” Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 227, 107 S.Ct. 2332, 2338, 96 L.Ed.2d 185 (1987). I believe there is such a conflict between arbitration and ERISA.
The underlying purpose of ERISA is “to protect ... the interests of participants in employee benefit plans and their beneficiaries” by, inter alia, “establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for ... ready access to Federal courts.” 29 U.S.C. *123§ 1001(b) (1988). In an effort to achieve this purpose, Congress declined to adopt the traditional “reasonably prudent man dealing with his own property” standard for defining the scope of a fiduciary’s duties. Rather, it intended that there be developed carefully tailored standards that (1) would vary depending on the capacity in which the fiduciary was acting and the expertise normally associated with that capacity, see 29 U.S.C. § 1104(a)(1)(B) (“a fiduciary shall discharge his duties with respect to a plan ... with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity ... would use in the conduct of an enterprise of a like character and with like aims”), and (2) would reflect a particular sensitivity to the need to protect pension rights, see 29 U.S.C. § 1001(b) (goal of ERISA is “to protect ... the interests of participants in employee benefit plans and their beneficiaries”). Congress intended that the courts, in fashioning the appropriate principles, would develop a new body of federal common law.
The legislative history of ERISA makes plain that Congress intended this new federal common law to be uniform and predictable. The congressional reports, in explaining why Congress chose to codify such a fiduciary responsibility requirement rather than relying on traditional principles of trust law, repeatedly noted the importance of creating a consistent source of law to help fiduciaries, administrators, and plan participants predict the legality of the fiduciaries’ actions. Thus, the House of Representatives report stated as follows:
[W]ithout ... access to the courts, and without standards by which a participant can measure the fiduciary’s conduct he is not equipped to safeguard either his own rights or the plan assets. Furthermore, a fiduciary standard embodied in Federal legislation is considered desirable because it will bring a measure of uniformity in an area where decisions under the same set of facts may differ from state to state. It is expected that courts will interpret the prudent man rule and other fiduciary standards bearing in mind the special nature and purposes of employee benefit plans intended to be effectuated by the Act.
.... The uniformity of decision which the Act is designed to foster will help administrators, fiduciaries and participants to predict the legality of proposed actions....
H.R.Rep. No. 533, 93d Cong., 1st Sess. 12 (1973), reprinted, in 1974 U.S.Code Cong. & Admin.News (“USCCAN”) 4639, 4650. The Senate report was virtually identical. See S.Rep. No. 127, 93d Cong., 1st Sess. 29 (1973), reprinted in 1974 USCCAN 4838, 4865. The conference report on ERISA also noted that “[t]he conferees expect that the courts will interpret th[e] prudent man rule (and the other fiduciary standards) bearing in mind the special nature and purpose of employee benefit plans.” H.R. Conf.Rep. No. 1280, 93d Cong., 2d Sess. 302 (1974), reprinted in 1974 USCCAN 5038, 5083.
Congress’s effort to promote the development of a uniform federal common law is reflected principally in ERISA’s provision that only federal courts, and not state courts, have jurisdiction over fiduciary-duty claims under ERISA. See 29 U.S.C. § 1132(e)(1). In addition, Congress included a provision (a) requiring that in every ERISA action for breach of fiduciary responsibilities, a copy of the complaint must be served on the Secretary of Labor, and (b) allowing the Secretary to intervene in any such action. See 29 U.S.C. § 1132(h). Both of these provisions further the goal of developing a uniform, consistent, and predictable body of ERISA fiduciary-responsibility law. This goal may well be frustrated with respect to fiduciary-duty claims against brokerage houses, however, if such claims are decided in arbitration. There are at least two reasons why this is so. First, a clear set of principles is unlikely to emerge since an arbitrator need not state any reasons for his decision. Second, judicial review of arbitration decisions is limited.
There is no general requirement that arbitrators of commercial disputes explain the reasons for an arbitration decision. See American Arbitration Association Com*124mercial Arbitration Rule 42, reprinted in Alternative Dispute Resolution Techniques 2.042, 2.048 (1989) (requiring only that award itself be in writing). Nor do the American and New York Stock Exchanges require that arbitrators in securities disputes involving member firms give reasons for their decisions. See American Stock Exchange Rule 618(e) (requiring only that the award summarize the demands, the issues, and the results); New York Stock Exchange Rule 627(e) (same). Though public interest groups have urged that arbitration decisions resolving securities disputes be required to include written statements of the arbitrators’ reasons for their decisions, the SEC has refused to require any such statement of reasons. See 54 Fed.Reg. 21,144, 21,151 (May 16, 1989) (SEC Order approving other proposed rule changes relating to securities arbitration). A decision without a stated rationale does little to develop the law, or to provide guidance for plan beneficiaries and fiduciaries, or to provide predictability as to the outcome of disputes. The SEC itself noted that in the absence of such statements “awards rendered by arbitrators in prior cases will not predict the vote or outcome of future cases.” Id. at 21,152.
Further, in the absence of such statements, there will be no assurance that the arbitrators have followed whatever precedent there may be. And apparently, in the securities industry, they often do not. In 1988 congressional hearings on arbitration reform, a securities industry spokesman noted that arbitrators in the industry are regarded as being free to grant or deny awards without complying with applicable legal standards. See, e.g., Arbitration Reform: Hearings on H.R. 4960 Before the Subcomm. on Telecommunications and Finance of the Comm, on Energy and Finance, 100th Cong., 2d Sess. 85-86 (statement of Theodore Krebsbach, vice president and associate general counsel of Shearson Lehman Brothers). The spokesman stated that arbitrators frequently made decisions that did not reflect legal standards but rather sought to do rough justice: “A lot of times ... you don't say one person is 100 percent wrong or 100 percent right and you do what makes sense under the circumstances." Id. at 138. A member of the plaintiffs’ bar concurred. See id. (statement of Theodore G. Eppen-stein, Esq.) (“many times arbitration panels will split the baby[;] ... the way they split it, they will try to figure out how much the claimant has to pay his attorney and that will be the size of the award ... ”).
Finally, though judicial review of arbitration decisions is available, its scope is severely limited. The standard of review is highly relaxed, for such decisions may be set aside only for “manifest disregard” of “clearly governing legal principle^],” not merely because of “an arguable difference regarding the meaning or applicability of laws.” Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933-34 (2d Cir.1986). And this standard is made even more difficult for the disappointed disputant to meet when the arbitrators have stated no reasons for their decision. Indeed, the SEC, in support of its decision not to require written opinions explaining arbitration awards, stated that such opinions would generally serve no purpose, since “[ejven if awards contained errors of law, ... a mistake of law is not currently grounds for vacating an arbitration award.” See 54 Fed.Reg. 21,144, 21,151 n. 45. Given the widespread use of arbitration clauses in brokerage firms’ standard customer contracts, together with the lack of any requirement of a stated rationale in the arbitrators’ decision and the very limited scope of judicial review, there is no likelihood that enforcement of such agreements will permit development of a carefully tailored, or uniform, or predictable body of law as to the fiduciary duties of brokers in dealing with ERISA pension plans.
In sum, I would conclude that broad-scale arbitration of ERISA fiduciary-responsibility claims would conflict with ERISA’s goal of providing carefully tailored fiduciary duty principles and be antithetical to the goals of uniformity and predictability. Our prior ruling in the present case, holding the arbitration agreement unenforceable, was vacated by the Supreme Court and remanded for consideration in *125light of Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989), see Shearson Lehman/American Express, Inc. v. Bird, — U.S. -, 110 S.Ct. 225, 107 L.Ed.2d 177 (1989), vacating and remanding 871 F.2d 292 (2d Cir.1989). Rodriguez did not alter the principle that arbitration agreements should not be enforced when there is an inherent conflict between arbitration and the statute’s underlying purposes. I would uphold the district court’s refusal to enforce the arbitration agreement here on the ground that there is an inherent conflict between arbitration and Congress’s intention not to permit the resolution of ERISA fiduciary-duty disputes by the application of rough justice, ad hoc and sub silentio.