Cooper v. Ruane Cunniff & Goldfarb Inc.

• Decision Date: 04 March 2021
• Docket Number: August Term, 2018,Docket No. 17-2805
• Citation: 990 F.3d 173
• Parties: Clive V. COOPER, individually and as a representative of a class of similarly situated plan participants, on behalf of the DST Systems, Inc. 401(K) Profit Sharing Plan, Plaintiff-Appellant, v. RUANE CUNNIFF & GOLDFARB INC., Defendant-Appellee, DST Systems, Inc., The Advisory Committee of the DST Systems, Inc. 401(K) Profit Sharing Plan, The Compensation Committee of the Board of Directors of DST Systems, Inc., Jerome H. Bailey, Lynn Dorsey Bleil, Gary D. Forsee, Charles E. Haldeman, Jr., Samuel G. Liss, John Does, 1-20, Lowell L. Bryan, Gregg Wm. Givens, Defendants.
• Court: U.S. Court of Appeals — Second Circuit

990 F.3d 173

Clive V. COOPER, individually and as a representative of a class of similarly situated plan participants, on behalf of the DST Systems, Inc. 401(K) Profit Sharing Plan, Plaintiff-Appellant,

v. RUANE CUNNIFF & GOLDFARB INC., Defendant-Appellee,DST Systems, Inc., The Advisory Committee of the DST Systems, Inc. 401(K) Profit Sharing Plan, The Compensation Committee of the Board of Directors of DST Systems, Inc., Jerome H. Bailey, Lynn Dorsey Bleil, Gary D. Forsee, Charles E. Haldeman, Jr., Samuel G. Liss, John Does, 1-20, Lowell L. Bryan, Gregg Wm. Givens, Defendants.

Docket No. 17-2805

August Term, 2018

United States Court of Appeals, Second Circuit.

Argued: February 5, 2019

Decided: March 4, 2021

Monique Olivier, Olivier Schreiber & Chao LLP, San Francisco, CA (James E. Miller, Laurie Rubinow, Shepherd, Finkelman, Miller & Shah, LLP, Chester, CT, on the brief), for Plaintiff-Appellant.

Robert J. Ward (Frank W. Olander, Minji Reem, on the brief), Schulte Roth & Zabel LLP, New York, NY, for Defendant-Appellee.

Before: Lohier, Carney, and Sullivan, Circuit Judges.

Judge Sullivan dissents in a separate opinion.

Carney, Circuit Judge:

Plaintiff-Appellant Clive V. Cooper appeals from an August 17, 2017 order of the U.S. District Court for the Southern District of New York (Pauley, J. ), granting the motion of Defendant-Appellee Ruane Cunniff & Goldfarb Inc. ("Ruane") to compel arbitration of Cooper's claims against it. Acting on behalf of a putative class of plan participants and an employee benefit plan, Cooper sued Ruane under § 502(a)(2) of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1132(a)(2), claiming damages arising from Ruane's alleged breach of fiduciary duty and mismanagement of a profit-sharing fund sponsored by Cooper's employer, DST Systems, Inc. ("DST").

When he joined DST as a software development manager, Cooper agreed with DST to arbitrate "all legal claims arising out of or relating to employment" (the "Arbitration Agreement" or "Agreement"). App'x 159. Although Ruane is not a signatory to the Arbitration Agreement, the district court concluded that Ruane can compel Cooper to arbitrate his ERISA fiduciary claims against Ruane because the claims "relat[e] to" Cooper's employment with DST and are therefore covered by the Agreement's operative clause.

On de novo review, we conclude that the district court erred. Cooper's claims for breach of fiduciary duty in Ruane's management of the fund are not properly understood to be "related to" his employment: the record provides an inadequate basis for finding that the parties intended the Agreement to reach profit-sharing fund related claims under ERISA. None of the facts Cooper would have to prove to prevail on his breach of fiduciary duty claims pertain to his own employment with DST; and other individuals and entities that were never employed by DST—including the Secretary of Labor and DST itself—could have brought identical claims. See ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2). Moreover, in § 409 of ERISA, Congress imposed liability on individual fiduciaries for breach of their duties under ERISA: to interpret the generic employment related language of the Agreement as mandating arbitration of these claims would unacceptably undercut the viability and public purpose of such actions. See Coan v. Kaufman , 457 F.3d 250 (2d Cir. 2006). Such a result is not required by the Agreement's terms and, in the absence of any such terms, we decline to construe it to conflict with ERISA's protective purposes.

We therefore REVERSE the order of the district court compelling arbitration and remand the cause for further proceedings consistent with this Opinion.

BACKGROUND

The following account is drawn from the record before the district court when it adjudicated Ruane's motion. The facts as described here are largely undisputed by the parties; any disagreements are noted.

I. Factual Background

A. Cooper, the DST 401(k) Plan, and Ruane's role

In 1999, Cooper, an engineer and former business owner, left early retirement and began working as a software development manager at DST, an information processing and software company headquartered in Kansas City, Missouri. As a DST employee, Cooper participated in a profit-sharing plan provided by DST (the "Plan") and covered by ERISA. The Plan had two elements: a participant-directed 401(k) component, in which DST matched employee contributions; and a profit-sharing account ("PSA") component, to which only DST contributed, doing so based on a percentage of its employees’ eligible wages. Plan participants (that is, all DST employees) were enrolled in the PSA when they began working for DST; they were not allowed to decline participation. Employees were also bound to keep their PSA assets in the fund throughout their employment with DST; they could withdraw from their account only at the end of their employment.

Ruane, a third-party investment advisor, was engaged by DST in 1973 to manage the investment of the PSA funds. DST maintained an Advisory Committee to monitor Ruane's performance. Ruane reported periodically to the Committee. Ruane was still managing the PSA funds over two decades later, in 1999, when DST hired Cooper.

The Plan entered into a series of investment management agreements ("IMAs") with Ruane, establishing its relationship with Ruane and defining Ruane's duties and responsibilities. Subject to some limitations (that is, any investment guidelines that DST or the Plan chose to set forth in the IMAs), the IMAs provided that Ruane exercised "full authority and sole discretion" over PSA investments. See, e.g. , Conf. App'x 10. The discretion accorded Ruane in the IMAs made Ruane a Plan fiduciary under ERISA—a conclusion that Ruane does not dispute.¹ The IMAs contained no arbitration clause.²

Section 102(a) of ERISA requires covered employee benefit plans to furnish summary plan descriptions ("SPDs") of a plan's terms to participants. 29 U.S.C. § 1022(a). SPDs must be "sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan." Id. Throughout Cooper's employment at DST, the Plan duly provided SPDs to its participants, including Cooper. Those SPDs, which from year to year during his employment were generally identical in relevant part, state:

The people who operate your Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. ... If it should happen that Plan fiduciaries misuse the Plan's money ... you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court.

E.g. , App'x 569-70. The SPDs do not mention arbitration.

As a Plan participant, Cooper received notices and communications from or on behalf of the Plan. Those documents identified Ruane as the manager of the PSA assets. Among the notices he received were annual reports of DST's contributions on behalf of Plan participants and on Ruane's latest investment performance with Plan assets. Account statements updated Cooper on the performance of stocks selected by Ruane for inclusion in the PSA portfolio and disclosed Ruane's quarterly investment management fee for managing the PSA.

Cooper alleges that DST did not subject Ruane to any investment limitations from the inception of its relationship in 1973 until November 2015, when the huge losses that eventually gave rise to Cooper's complaint had already substantially occurred. As of year-end 2014, under Ruane's management, shares in Valeant Pharmaceuticals represented almost 30% of the Plan's total assets of more than $1.4 billion. By November 2015, when DST first imposed any guidance on Ruane, Valeant's stock was already in the midst of its steep decline. And by March 4, 2016, Valeant's share price had dropped dramatically, purportedly causing the value of the PSA's overall holdings to decline from a preceding 52-week high of $414.7 million to $97 million.³ Cooper alleges that Ruane's catastrophic over-allocation of Plan assets to Valeant shares breached its fiduciary duty to Plan participants and to the Plan generally. Accordingly, Cooper charges that Ruane is liable under ERISA for the PSA participants’ losses.

B. The Arbitration Agreement

In 2008, after he became a DST employee, Cooper received a copy of the company's "Associates’ Handbook," which explains DST's employment-related policies, benefits, standards of conduct, and programs. As required, he signed an acknowledgment that he had received the Handbook. App'x 503.

The Handbook contains a section on arbitration. In relevant part, it states:

For employment-related legal disputes that are not resolved through our Open Door Policy or Equal Employment Opportunity (EEO) Policy, the Company has implemented an arbitration program under the DST Output Arbitration Program and Agreement that is set forth in the Addendum to this Handbook.

Id. at 99. The Arbitration Program and Agreement, in turn, mandates arbitration of "all legal claims arising out of or relating to employment, application for employment, or termination of employment, except for claims specifically excluded under the terms" of the Agreement. Id. at 159. As claims "specifically excluded," it names four subject areas: "[1] workers’ compensation benefits, [2] unemployment compensation benefits, [3] ERISA-related benefits provided under a Company sponsored benefit plan, [and,] [4] claims filed with the National Labor Relations Board." Id. The Agreement provides further that any arbitration under the Arbitration Program will be "administered by the American Arbitration Association (AAA) and conducted under the AAA's Employment Arbitration Rules." Id. at 156.

Cooper duly signed the Acknowledgment and Agreement Form, which cautioned that if he did not "opt out in writing within 30 days after [he] receive[d] the [Arbitration Agreement]," then he and DST "shall be considered to...