The U.S. Court of Appeals for the Second Circuit recently concluded that investment advisor Ruane Cunniff & Goldfarb must face a proposed class action under ERISA Section 502(a)(2) for breach of fiduciary duty relating to its alleged mismanagement of a profit-sharing plan sponsored by DST Systems, Inc.  Cooper v. Ruane Cunniff & Goldfarb Inc., No. 17-2805 (2d Cir. March 4, 2021).  The suit challenges Ruane’s allegedly “catastrophic over-allocation” of plan assets to shares in Valeant Pharmaceuticals, which dramatically declined in value in 2015-2016.

In 2016, Clive Cooper, who had been employed by DST and participated in DST’s profit-sharing plan, filed the lawsuit naming Ruane, DST, and others as Defendants.  Then Cooper successfully mediated his claims with DST and others, voluntarily dismissing his claims against all Defendants except Ruane.

In November 2016, Ruane moved for an order compelling Cooper to arbitrate his claims.  In 2017, the Southern District of New York granted Ruane’s motion to compel arbitration, based on Cooper’s agreement with DST to arbitrate all legal claims “relating to” his employment. The district court concluded that the fiduciary breach claims against Ruane related to Cooper’s employment with DST and that Ruane — a non-signatory to the arbitration agreement — was entitled under equitable estoppel to enforce the agreement against Cooper.

The Second Circuit reversed, holding that the breach of fiduciary duty claims did not “relate to” Cooper’s employment with DST under the terms of the arbitration agreement.  The opinion, by Judge Susan L. Carney and joined by Judge Raymond Lohier, explained that in an employment arbitration agreement a claim will “relate to” employment “only if the merits of that claim involve facts particular to an individual plaintiff’s own employment.” Here, the merits of Cooper’s claims did not involve such facts.  Cooper’s claims turned “entirely” on Ruane’s investment decisions and had “no connection” to Cooper’s work performance, evaluations, treatment by supervisors, his compensation, or the condition of his workplace.  The opinion further observed that Cooper’s claims could have been brought by other individuals and entities that were never employed by DST, including the Secretary of Labor or DST itself.

Judge Richard J. Sullivan filed a dissenting opinion, noting that the arbitration agreement did not clearly and unambiguously exclude Cooper’s breach of fiduciary duty claims from arbitration and that any ambiguity must be resolved in favor of arbitration.  Also, he would have affirmed the district court’s equitable estoppel holding, because of Cooper’s knowledge of Ruane’s role in managing the profit-sharing account and Cooper’s characterization of Ruane and DST as closely intertwined throughout the litigation.