Compelling a class action plaintiff to arbitrate in a private forum instead of litigating in federal can be a huge victory for a defendant. And with the prevalence of form documents containing arbitration clauses, fights over arbitrability are common. In Cooper v. Ruane Cunniff, an opinion that was noted as a Decision of Interest on the Southern District web site, Judge Pauley came down strongly in favor arbitration—he enforced an arbitration provision in an employment agreement even though the party seeking to compel arbitration was not a party to the agreement.
Plaintiff Cooper brought a putative class action against his employer’s profit sharing plan, naming the employer, DST, and the plan’s manager, Ruane, as defendants. He claimed that the plan was mismanaged and that Ruane engaged in self-dealing, resulting in losses exceeding $100 million. Cooper, a long-time employee and participant in the plan, signed an Acknowledgment and Agreement Form at the time he started working at DST which contained an arbitration provision covering “all legal claims arising out of or relating to employment….” The Form allowed him to opt-out from the arbitration provision within 30 days, which he did not.
Seeking to maximize his chances of staying in federal court, Cooper dismissed his claims against DST, leaving Ruane, the plan’s manager, as the only defendant. Ruane was not a party to Cooper’s arbitration agreement with DST, and Cooper claimed he therefore could sue Ruane in court. After finding that Cooper’s claims were subject to arbitration, Judge Pauley turned to the question of “whether Ruane, a non-signatory to the Arbitration Agreement, may compel Cooper to arbitrate his claims under the doctrine of equitable estoppel.”
According to Judge Pauley, a non-signatory can compel arbitration where there is a close relationship between the parties and controversies involved, and the signatory’s claims are “founded and intertwined” with the underlying agreement containing an arbitration clause. A close relationship includes an agency, or one where the non-signatory must be associated with the signatory in some significant way. Here, Judge Pauley found that the DST and Ruane “occupied co-extensive positions” as plan fiduciaries, and Cooper was aware of their roles. Thus, the primary issue involving Ruane was the same as with DST: whether their actions breached their fiduciary duty to the plan. Given that overlap, Judge Pauley found that Cooper “may not evade [his] obligation to arbitrate by naming [Ruane] as the sole party in this action.”
Notably, Cooper also argued that arbitration should be denied because under federal law employees cannot be compelled to enter into an arbitration agreement as a condition of employment. Judge Pauley not only questioned that argument on its merits, but found that, in any event, because Cooper “understood that he could opt-out of the arbitration program and voluntarily chose not to,” the arbitration was not a “condition of employment.”
So Cooper’s court claims against a party that did not sign an arbitration agreement were shunted to arbitration, no doubt a distressing result for class action counsel, especially in light of recent criticism the ever-broader use of arbitration provisions to squelch collective action by plaintiffs.