7 F.

3d 1110
62 USLW 2258, 17 Employee Benefits Cas. 1719,
Pens. Plan Guide P 23886Q

Eli PRITZKER; Sol Cooperstein; Jack Levin, as trustees of

Penn Electric Supply Company Profit Sharing Plan; Penn
Electric Supply Company; Coatesville Electric Supply
Company; Northeast Electric Supply Company; M & G
Electric
Supply Company; Doylestown Electric Supply Company,
Appellees,
v.
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC.;
Merrill Lynch
Asset Management, Inc.; Belinda P. Stewart, Appellants.
No. 93-1215.

United States Court of Appeals,

Third Circuit.
Argued June 8, 1993.
Decided Oct. 15, 1993.

David C. Franceski, Jr. (argued), Stradley, Ronon, Stevens & Young,

Philadelphia, PA, for appellants.
David L. Braverman (argued), Fellheimer, Eichen & Braverman,
Philadelphia, PA, for appellees.
Before GREENBERG, NYGAARD and LEWIS, Circuit Judges.
OPINION OF THE COURT
LEWIS, Circuit Judge.

In this appeal, we revisit an issue which has commanded the attention of the
Supreme Court and other courts of appeals since we last addressed it: whether

claims of statutory violations of the Employee Retirement Income Security Act

of 1974, 29 U.S.C. 1001 et seq. ("ERISA"), are subject to arbitration pursuant
to section 2 of the Federal Arbitration Act ("FAA" or "Arbitration Act"), 9
U.S.C. 2. In Barrowclough v. Kidder, Peabody & Co., Inc., 752 F.2d 923 (3d
Cir.1985), we held that statutory ERISA claims are not subject to arbitration.
Since Barrowclough, however, Supreme Court decisions have substantially
revised the rationale we relied upon there. We now hold that such claims are
subject to arbitration under the FAA. We will, therefore, overrule
Barrowclough insofar as it held that arbitration of statutory ERISA claims is
precluded, and reverse the district court's order denying defendant's motion to
compel arbitration of the plaintiffs' claims in this case. We also hold that the
arbitration clauses in the agreements in question here should be read to include
all of the named defendants even though only one defendant signed them.
Accordingly, we will instruct the district court to order arbitration of the claims
against the non-signatory defendants as well.1
I.
A.
2

The plaintiffs in this case are Eli Pritzker, Sol Cooperstein and Jack Levin
(collectively the "Trustees"), as trustees of the Penn Electric Supply Company
Profit Sharing Plan, a pension plan formed on behalf of the Trustees' coplaintiffs Penn Electric Supply Company, Northeast Electric Supply Company,
Coatesville Electric Supply Company, M & G Electric Supply Company and
Doylestown Electric Supply Company. (For ease of reference, we will refer to
all plaintiffs as the Trustees.)

The defendants include the brokerage firm, Merrill Lynch, Pierce, Fenner &
Smith, Inc. ("MLPF & S"), Belinda P. Stewart ("Stewart") and Merrill Lynch
Asset Management, Inc. ("MLAM") (collectively "Merrill Lynch"). Stewart is a
financial consultant who was employed by MLPF & S during the period
relevant to this case. MLAM, like MLPF & S, is a wholly-owned subsidiary of
Merrill Lynch & Co., Inc. It provides advisory services to pension plans and
funds.

In December 1987, the Trustees opened Cash Management Accounts for

Retirement Plans with MLPF & S (the "Accounts"). The Accounts were opened
on behalf of five profit sharing trusts in which the assets of the plaintiffcompanies' pension plan are held. For each trust, the Trustees executed a
Merrill Lynch Cash Management Account for Retirement Plans Agreement (a
"Cash Management Agreement"). Each Cash Management Agreement

contained a clause specifying arbitration as the forum for resolving all

controversies between the Trustees and MLPF & S. The Cash Management
Agreements also stated that MLPF & S would neither exercise discretionary
control or authority over the Trustees' investments nor offer investment advice
to the Trustees on a regular basis. Neither Stewart nor a representative from
MLAM signed any of the Cash Management Agreements.
5

As a financial consultant to the Accounts, Stewart also made investment

purchases for them. Accepting as true the Trustees' allegations, the dispute in
this case flows directly from Stewart's unauthorized purchase of several units of
a limited partnership interest in ML Lee Acquisition Fund II, L.P. ("ML Lee"),
which she deemed an appropriate investment for the Accounts, in October and
November, 1989.

The Trustees alleged that the ML Lee purchases were inappropriate for the
Accounts because the units were illiquid, lacked a secondary market and
involved a high degree of risk. They also claimed that Stewart's purchases were
contrary to the pension plan's stated investment objectives of avoiding high-risk
securities with capital gains potential in favor of low-risk, liquid, conservative
investments with consistent returns, and were adverse to the interests of the
trusts.

B.
7

On November 6, 1992, the Trustees filed an amended complaint against Merrill

Lynch in the United States District Court for the Eastern District of
Pennsylvania. In Count I, the Trustees alleged that the defendants breached
their fiduciary duties under ERISA by purchasing ML Lee fund units on behalf
of the retirement plan without authorization. In Count II, they alleged that
MLAM, as custodian of the Accounts, was liable for its "knowing
participation" in the alleged breaches of statutory duties because it credited
purchase transactions to the Accounts. In Count III, they alleged that the ML
Lee purchases violated section 406 of ERISA, 29 U.S.C. 1106, because
Stewart received a six percent sales commission on the transactions and either
MLPF & F or MLAM sponsored the fund.2

Merrill Lynch moved to compel arbitration of the Trustees' claims pursuant to

the FAA and the arbitration clause contained in the Cash Management
Agreements. The district court denied that motion, stating that stare decisis
compelled it to follow Barrowclough. Believing Barrowclough to be outmoded
in light of recent Supreme Court cases addressing the arbitrability of statutory
claims under the FAA, Merrill Lynch has appealed.

II.
9

The district court had subject matter jurisdiction over this case pursuant to 29
U.S.C. 1132(e)(1). We have appellate jurisdiction under 9 U.S.C. 16(a)(1)
(C), which permits appeal as of right from orders denying motions to compel
arbitration.

10

This appeal requires us to decide the legal question whether the Trustees may
be compelled to arbitrate their claims pursuant to their agreement with MLPF &
S. Our standard of review is plenary. Hays and Co. v. Merrill Lynch, 885 F.2d
1149, 1152 (3d Cir.1989).

III.
11

In addressing the parties' contentions, we must answer three rather

straightforward questions. First, we must decide whether the Trustees agreed to
arbitrate the claims they now raise; if they did, we must then decide whether
their statutory ERISA claims are subject to arbitration despite our holding in
Barrowclough. Finally, we must decide whether the Trustees' claims against
Stewart and MLAM are subject to arbitration even though neither Stewart nor
MLAM signed the arbitration agreements.

A.
Section 2 of the FAA provides:
12

A written provision in ... a contract evidencing a transaction involving

commerce to settle by arbitration a controversy thereafter arising out of such
contract or transaction, or the refusal to perform the whole or any part thereof,
... shall be valid, irrevocable, and unenforceable, save upon such grounds as
exist at law or in equity for the revocation of any contract.

13

9 U.S.C. 2. The FAA was enacted to "revers[e] centuries of judicial hostility

to arbitration agreements" by " 'plac[ing] arbitration agreements "upon the
same footing as other contracts." ' " Shearson/American Express, Inc. v.
McMahon, 482 U.S. 220, 225-26, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185
(1987), quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 510-511, 94 S.Ct.
2449, 2453, 41 L.Ed.2d 270 (1974).3 Clearly, the Cash Management
Agreements are contracts involving commerce and therefore come within the
Act.4

14

15

Section 3 of the FAA provides that federal courts hearing cases concerning
issues which the parties have agreed to arbitrate shall, upon application of one
of the litigants, stay a trial until arbitration has been completed in accordance
with the terms of the agreement. 9 U.S.C. 3. If a party refuses to participate in
arbitration, the FAA requires a district court to order the parties "to proceed to
arbitration in accordance with the terms of the agreement." 9 U.S.C. 4.
The arbitration clauses in the Cash Management Agreements state:

16is understood that the following agreement to arbitrate does not constitute a waiver
It
by the undersigned of the right to seek a judicial forum where such a waiver would
be void under the Federal Securities Laws or the Employment Retirement Income
Securities Act of 1974.
17 undersigned agrees, and by carrying an account for the undersigned you agree,
The
that except as inconsistent with the foregoing sentence, all controversies which may
arise between us, including but not limited to, any transaction or the construction,
performance or breach of this or any other agreement between us, whether entered
into prior, on or subsequent to the date hereof, shall be determined by arbitration and
shall be governed by the laws of the state of New York.
18 dispute hereunder shall be submitted to arbitration conducted under the
Any
provisions of the Constitution and Rules of the Board of Directors of the New York
Stock Exchange, Inc., or pursuant to the Code of Arbitration Procedure of the
National Association of Securities Dealers, Inc. as the undersigned may elect ...
19

"[A]s a matter of contract, no party can be forced to arbitrate unless that party
has entered an agreement to do so." PaineWebber, Inc. v. Hartmann, 921 F.2d
507, 511 (3d Cir.1990). Thus, before it compels arbitration, a court should
determine "that a valid agreement to arbitrate exists between the parties and
that the specific dispute [comes] within the substantive scope of the
agreement." Id. "Federal law applies when construing an arbitration clause
when, as here, the motions pertaining to arbitration are brought pursuant to the
[FAA]." Barrowclough, 752 F.2d at 937.

20

The Trustees cite two reasons in support of their contention that they did not
agree to submit their claims to an arbitrator. First, they claim that the
mismanagement alleged in the amended complaint came about because the
defendants acted outside the scope of their authority under the agreement. In
essence, the Trustees argue that they only agreed to arbitrate claims based on
activities which were within the scope of the defendants' duties under the
agreement and that because the defendants breached the terms of the agreement

by acting outside the scope of their authority, the claims brought before the
district court may not be remitted to arbitration.
21

The arbitration clauses at issue, however, govern "all controversies which may
arise between [the Trustees and MLPF & S]." Courts have broadly construed
similar agreements, interpreting them to apply to all disputes between
signatories. See Moses H. Cone Memorial Hospital v. Mercury Construction
Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941-42, 74 L.Ed.2d 765 (1983) ("The
Arbitration Act establishes that, as a matter of federal law, any doubts
concerning the scope of arbitral issues should be resolved in favor of
arbitration, whether the problem at hand is the construction of the contract
language itself or an allegation of waiver, delay, or a like defense to
arbitrability."); see also Hays, 885 F.2d at 1153-54 (bankruptcy trustee "stands
in the shoes of the debtor" for purposes of arbitration clause and must arbitrate
all claims that are derived from the rights of the debtor). In our view, the
Trustees' contention that they are free to litigate their claims in federal court
because the defendants allegedly acted outside the scope of their authority
under the agreement flatly contradicts the inclusive language contained in the
clauses in question. This language does not distinguish between disputes based
on conduct within or outside the scope of authority granted in the Cash
Management Agreements; indeed, one is left to ponder what purpose an
arbitration clause would serve if it did not encompass claims that the terms of
the parties' agreement had been breached.

22

Nor are we persuaded by the Trustees' argument that their interpretation of the
first two paragraphs of the arbitration clause shows that they did not intend to
subject statutory ERISA claims to arbitration. It is true that the first paragraph
provides that the arbitration agreement will not constitute a waiver of the right
to seek a judicial forum where such a waiver is void under the federal securities
laws or ERISA. The second paragraph provides that "except as inconsistent
with" the first paragraph, all disputes between the Trustees and MLPF & S are
to be submitted to arbitration. Inasmuch as Barrowclough, which clearly
precluded arbitration of statutory ERISA claims, was the law in this circuit at
the time the Trustees signed their agreements, the Trustees contend that they
could not have intended to submit statutory ERISA claims to arbitration.
Despite the apparent logic of this "frozen in time" argument, however, the
Trustees may not pursue it here because they did not raise it before the district
court. Singleton v. Wulff, 428 U.S. 106, 120-21, 96 S.Ct. 2868, 2877, 49
L.Ed.2d 826 (1976). We will review claims not raised in the district court only
when manifest injustice would result from a failure to consider novel issues,
Houghton v. American Guar. Life Ins. Co., 692 F.2d 289, 294 (3d Cir.1982),
and we do not view this case as one which merits inclusion in that extraordinary

category. It can hardly be said that a manifest injustice would result from our
rejection of the Trustees' interpretation of the two clauses, since they are
assured of a forum in any event.
23

In sum, the arbitration clauses at issue contemplate the types of claims the
Trustees have asserted in this litigation.

B.
24

Having determined that the Trustees agreed to arbitrate their ERISA claims, we
now consider whether they may be arbitrated in light of Barrowclough and in
the wake of intervening Supreme Court decisions. We commend the district
court judge for faithfully adhering to this circuit's precedent in applying
Barrowclough despite his understandable inclination to compel arbitration
given the current strong federal policy favoring this method of resolution. We
are likewise mindful that the doctrine of stare decisis counsels reluctance when
we are confronted with a situation calling for the internment of a precedent;
however, we have not hesitated to act when we discover that our decisions have
fallen out of step with current Supreme Court jurisprudence. See Stana v.
School District of City of Pittsburgh, 775 F.2d 122, 129-30 & n. 8 (3d
Cir.1985); Rubin v. Buckman, 727 F.2d 71, 73-74 (3d Cir.1984) (Garth, J.,
concurring) (explaining that our Internal Operating Procedure 8(c) [now 9.1]
does not preclude overruling another panel's holding in light of intervening
Supreme Court precedent). Our decision in Barrowclough has joined that
species insofar as it concerns the issue before us.5 Thus, to conform our
decisions to the clear trend in recent Supreme Court cases, and for the reasons
more fully-developed below, we now conclude that agreements to arbitrate
statutory ERISA claims under the FAA may be upheld. See Rodriguez de
Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104
L.Ed.2d 526 (1989) (enforcing agreement to arbitrate claims arising under the
Securities Act of 1933 and stating that prior decisions holding such clauses
unenforceable had "fallen far out of step with our current strong endorsement of
the federal statutes favoring this method of resolving disputes"); see also
Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332,
96 L.Ed.2d 185 (1987) (claims under antifraud provisions of 1934 Securities
Exchange Act and treble-damage claims under Racketeer Influenced and
Corrupt Organizations Act held arbitrable); Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, 473 U.S. 614, 625, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444
(1985) (nothing in Arbitration Act implies a presumption against arbitration of
statutory claims); see also Olde Discount Corp. v. Tupman, 1 F.3d 202, 208 (3d
Cir.1993) (Greenberg, J., separate opinion); Hays, 885 F.2d 1149, 1153-57
(district court lacks discretion to deny enforcement of arbitration clause in non-

core proceeding brought by bankruptcy trustee); Bird v. Shearson

Lehman/American Express, Inc., 926 F.2d 116 (2d Cir.1991) (enforcing
agreement to arbitrate statutory ERISA claims); see also Arnulfo P. Sulit, Inc.
v. Dean Witter Reynolds, Inc., 847 F.2d 475 (8th Cir.1988).
C.
25

In Barrowclough, a discharged stockbroker sued his former employer for

improperly withholding deferred compensation benefits and for violating
ERISA's reporting and fiduciary provisions. We held that while claims to
establish or enforce rights to benefits under 29 U.S.C. 1132(a) are subject to
arbitration, claims based on violations of the substantive provisions of ERISA
can be asserted in a federal court in spite of an arbitration agreement.
Barrowclough, 752 F.2d at 939. Our reasoning evolved from two cases in
which the Supreme Court decided that statutory claims under Title VII of the
Civil Rights Act, 42 U.S.C. 2000e, and the Fair Labor Standards Act, 29
U.S.C. 201 et seq., could be pursued in court after the employees asserting
them had already proceeded through the labor arbitration process pursuant to
their collective bargaining agreements. See Barrentine v. Arkansas-Best Freight
System, Inc., 450 U.S. 728, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981); Alexander
v. Gardner-Denver Co., 415 U.S. 36, 94 S.Ct. 1011, 39 L.Ed.2d 147 (1974).

26

At that time, we examined the text, structure and purpose of ERISA and
concluded that statutory ERISA claims, over which federal courts have
exclusive jurisdiction pursuant to 29 U.S.C. 1132(e), must be brought in court
rather than pursued in arbitration for three reasons. First, ERISA constituted a
"complex and evolving body of federal law" requiring judicial interpretation to
implement Congress' purpose of enforcing "minimum standards" to protect
employee benefits. Barrowclough, 752 F.2d at 940. Second, we found that the
provisions of ERISA which afforded complainants broad access to the courts,
as well as the absence of procedural barriers to ERISA lawsuits, suggested that
Congress had intended that courts, not arbitrators, handle statutory claims. Id.
Finally, we expressed concern that arbitrators might not be sufficiently trained
to handle the complex legal issues presented by ERISA claims. Id.

27

Merrill Lynch essentially argues that the precedential status of Barrowclough is

relegated to obsolescence by subsequent Supreme Court decisions addressing
the arbitrability of statutory claims under the FAA. In particular, Merrill Lynch
directs our attention to McMahon and Rodriguez, in which the Court enforced
agreements to arbitrate trading loss claims similar to those asserted by the
Trustees in this case. A review of these cases is necessary to understand their
impact on Barrowclough.

28

In McMahon, plaintiffs, individually and as trustees for various pension and

profit-sharing plans, sued a brokerage firm and the financial consultant who
handled their accounts. McMahon, 482 U.S. at 222, 107 S.Ct. at 2335. The
complaint alleged that the consultant, with the brokerage firm's knowledge, had
violated section 10(b) of the Securities Exchange Act of 1934 (the "Exchange
Act"), 15 U.S.C. 78j(b) and Rule 10b-5, 17 CFR 240.10b-5 (1986), by
engaging in fraudulent and excessive trading on the plaintiffs' accounts and by
making false statements and omitting material facts when giving them advice.
Id. The complaint also alleged a violation of the Racketeer Influenced and
Corrupt Organizations Act ("RICO"), 18 U.S.C. 1961 et seq., and state law
claims of fraud and breach of fiduciary duties. Id.

29

The United States Court of Appeals for the Second Circuit affirmed that part of
the district court's order denying the motion to compel arbitration of plaintiffs'
RICO claim, concluding that "public policy" concerns made it inappropriate to
apply provisions of the FAA to RICO claims. It then followed circuit precedent
and held that the claims arising under the Exchange Act and Rule 10(b)-5 were
not subject to compulsory arbitration under the Supreme Court's decision in
Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953).

30

The Supreme Court reversed both holdings. Because the FAA established a
federal policy favoring arbitration, McMahon, 482 U.S. at 226, 107 S.Ct. at
2337, the Court stated that federal courts must enforce arbitration agreements in
a variety of contexts:

31 duty to enforce arbitration agreements is not diminished when a party bound

Th[e]
by an agreement raises a claim founded upon statutory rights. As we observed in
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., [473 U.S. 614, 105 S.Ct.
3346, 87 L.Ed.2d 444 (1985) ], "we are well past the time when judicial suspicion of
the desirability of arbitration and the competence of arbitral tribunals" should inhibit
enforcement of the Act "in controversies based on statutes."
32

Id.

33

After reviewing several other provisions of the FAA, the Court concluded that
the statute required enforcement of arbitration clauses unless either: (1) there
existed "a well-founded claim that the arbitration [clause] resulted from the sort
of fraud or excessive economic power" which could invalidate any contract; or
(2) the party opposing arbitration demonstrated that Congress intended to
prohibit waiver of judicial remedies for the statutory rights in question. Id., 482
U.S. at 226-29, 107 S.Ct. at 2337-39. The Court elaborated on the evidentiary
sources of the second basis for avoiding arbitration, stating that "if Congress

intend[ed] to limit or prohibit waiver of a judicial forum for a particular claim,

such an intent [may be ascertained] from the statute's text, legislative history ...
or from an inherent conflict between arbitration and the statute's underlying
purpose." Id. at 227, 107 S.Ct. at 2337-38 (citations and internal quotations
omitted).
34

The Court in McMahon emphasized that it was rejecting most of the reasons
offered in prior decisions as a basis for refusing to enforce arbitration clauses.
For example, the Court stated that it no longer recognized any justification for
presuming that arbitral tribunals were incapable of handling complex disputes.
Id., 482 U.S. at 232, 107 S.Ct. at 2340. Similarly, the Court concluded that
streamlined arbitration procedures did not necessarily entail any diminution of
substantive rights. Id. Finally, the Court indicated that there was no reason to
believe that arbitrators would not follow the law since judicial review was
sufficient to ensure that arbitrators complied with the commands of federal
statutes. Id.

35

Two years after McMahon, the Court reaffirmed the enforceability of

agreements to arbitrate statutory claims in Rodriguez. Plaintiffs had sued a
brokerage firm and its agent for alleged violations of federal and state law,
including claims under three sections of the Exchange Act and one under
section 12(2) of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C.
771(2). In concluding that all of their claims were subject to compulsory
arbitration, the Court overruled Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, in
which it had ruled that agreements to arbitrate claims arising under the
Securities Act were not enforceable.

36

The Rodriguez Court sharply criticized the decision in Wilko and characterized
it as "pervaded by outmoded presumptions disfavoring arbitration." Rodriguez,
490 U.S. at 481, 109 S.Ct. at 1920. Noting the steady erosion of support for the
view that arbitration somehow weakened the protections afforded in substantive
laws, the Court rejected any suggestion that a party necessarily traded away
statutory rights by agreeing to arbitrate a statutory claim. Id.

37

McMahon's analysis makes it clear that agreements to arbitrate statutory

ERISA claims under the FAA may be enforceable. See generally Shell, ERISA
and Other Federal Employment Statutes: When Is Commercial Arbitration an
"Adequate Substitute" for the Courts?, 68 Tex.L.Rev. 509 (1990) (hereinafter
"Shell"). When we apply McMahon's reasoning to the facts before us, we have
no doubt that the agreement to arbitrate must be upheld.

1.

38

First (and not implicating Barrowclough, of course), under McMahon, if there

is a "well-founded" claim that the agreements resulted from fraud or coercion, a
party may not be compelled to arbitrate its claims. See also 9 U.S.C. 2
(arbitration agreements are enforceable "save upon such grounds as exist at law
or equity for the revocation of any contract"). The Trustees do not seriously
attack the validity of the Cash Management Agreements or their respective
arbitration clauses here. Although they repeatedly refer to the agreements they
signed as "required clause[s] in a preprinted contract," we reject any insinuation
that the clauses represent contracts of adhesion or "resulted from the sort of
fraud or overwhelming economic power that would provide grounds 'for the
revocation of any contract.' " See Mitsubishi Motors Corp., 473 U.S. at 627,
105 S.Ct. at 3354. To the contrary, the record reveals no more than that the
arbitration clauses were indeed part of pre-printed investment agreements and
that the parties may have possessed unequal bargaining power when the
agreements were signed. The Supreme Court has ruled, however, that
agreements between securities dealers and investors are enforceable even
though they may involve unequal bargaining power. Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, ----, 111 S.Ct. 1647, 1655, 114
L.Ed.2d 26 (1991) (citing Rodriguez, 490 U.S. at 484, 109 S.Ct. at 1921);
McMahon, 482 U.S. at 230, 107 S.Ct. at 2339; see also Gilmer, 500 U.S. at ----,
111 S.Ct. at 1661 (Stevens, J., dissenting) ("[a]lthough I remain persuaded that
it erred in doing so, the Court has ... put to one side any concern about the
inequality of bargaining power between an entire industry, on the one hand, and
an individual customer, or employee, on the other.").

2.
39

Similarly, under McMahon, the Trustees might avoid arbitration if they could
demonstrate that Congress intended to prevent a waiver of judicial remedies for
statutory ERISA violations. They are unable to do so, however, because they
have not identified a specific provision in ERISA's text which indicates that
Congress intended to exempt statutory ERISA claims from the FAA.

40

As we have noted, in Barrowclough, we construed provisions in ERISA's

statutory scheme which conferred exclusive jurisdiction on the federal courts to
mean that the legislature intended to preclude arbitration of statutory ERISA
claims. Barrowclough, 752 F.2d at 940. In McMahon and Rodriguez, however,
the Supreme Court twice rejected a similar inference drawn from the
jurisdictional provisions of the federal securities laws.6 Instead, relying on
Mitsubishi Motors, which held that claims under the federal antitrust laws were
arbitrable despite provisions vesting exclusive jurisdiction in the federal courts,
the McMahon Court held that claimants may waive the right to pursue

securities claims exclusively in federal court by executing a valid compulsory

arbitration agreement. McMahon, 482 U.S. at 227-29, 107 S.Ct. at 2337-39. As
the Court has repeatedly stated, such jurisdictional provisions speak only to the
issue of which judicial forum is available, and not to whether an arbitral forum
is unavailable. Rodriguez, 490 U.S. at 482-83, 109 S.Ct. at 1920-21;
McMahon, 482 U.S. at 227-28, 107 S.Ct. at 2337-38; Mitsubishi Motors, 473
U.S. at 628, 105 S.Ct. at 3354. In other words, such provisions do not constitute
Congressional statements that statutory ERISA claims cannot be arbitrated.
41

Barrowclough's reasoning that the absence of procedural barriers to initiating

suit in federal court signals a Congressional intent to preclude waiver of a
judicial forum has also been rejected by the Supreme Court. See Barrowclough,
752 F.2d at 940. In Rodriguez, the Court concluded that the broad venue
provisions of the Securities Act permitting nationwide service of process and
the elimination of the amount-in-controversy requirement formerly applicable
to fraud claims between diverse litigants did not demonstrate a Congressional
intent to preclude arbitration of claims under the Securities Act. In light of this
holding, similar venue and service of process provisions in ERISA's statutory
framework, see 29 U.S.C. 1132(e)(1), (2), can hardly be understood to mean
that Congress intended to bar arbitration of statutory ERISA claims.

42

We also find little support for the proposition that ERISA's legislative history
reflects a Congressional desire to exempt statutory ERISA claims from the
reach of federal arbitration laws. In reaching the opposite conclusion in
Barrowclough, we took comfort in statements indicating that ERISA was
intended to provide a consistent source of law to "help administrators,
fiduciaries and participants to predict the legality of proposed actions."
Barrowclough, 752 F.2d at 941 (quoting S.Rep. No. 127, 93d Cong., 2nd Sess.
29, reprinted in 1974 U.S.Code Cong. & Ad.News 4639, 4865). Since
Barrowclough, however, the Supreme Court has largely rejected the notion that
general statements of legislative purpose indicate that Congress intended to
prohibit enforcement of arbitration agreements. "So long as the prospective
litigant effectively may vindicate his or her statutory cause of action in the
arbitral forum, the statute will continue to serve both its remedial and deterrent
function." Gilmer, 500 U.S. at ----, 111 S.Ct. at 1653 (citations omitted).

3.
43

We, of course, do not lightly overturn circuit precedent. If it were possible to

distinguish Barrowclough from this case, we would do so rather than enunciate
a new rule. One possible ground for distinguishing between this case and
Barrowclough is the fact that Barrowclough involved claims which arose in an

employment context, about which a court may be more concerned because

"contracts of employment" are explicitly exempted from the FAA. The
Trustees, in fact, argue that Barrowclough "remains persuasive" because of its
desire to provide "special protection for workers." Trustees' brief at 14. It
would be disingenuous to attempt to distinguish Barrowclough on that basis,
however. Our decision in Barrowclough in no way hinged upon the facts that
were before us at that time. See supra pages 1116-17. It therefore cannot be
distinguished; nor do additional arguments asserted by the Trustees justify its
remaining the law of this circuit.
44

First, we recognize that the Barrowclough panel was persuaded at least in part
by concerns for the development of ERISA law, but these concerns have since
been deemed insufficient to preclude arbitration. See Gilmer, 500 U.S. at ----,
111 S.Ct. at 1655. As the Court noted in Gilmer in the age discrimination
context, there is no reason to suspect that all ERISA claims will be subject to
arbitration; judges will continue to issue decisions interpreting sections 404 and
406 of ERISA. Therefore, compelling arbitration of the Trustees' statutory
ERISA claims will not stifle judicial development of the law.

45

Second, the Trustees defend Barrowclough based upon a parallel between

contracts of employment and pension plan agreements. They correctly note that
the FAA by its own terms does not apply to employment contracts. See 9
U.S.C. 1 ("nothing contained herein shall apply to contracts of employment of
... any ... class of workers engaged in interstate or foreign commerce[ ]"). Next,
however, they argue that because ERISA was intended to protect the rights of
workers who participate in pension and other employee welfare benefit plans,
the asset management contracts in this case are akin to contracts of
employment.

46

We must reject this analogy between asset management agreements and run-ofthe-mill employment contracts. The arbitration clauses in this case were not
contained within employment contracts; they were contained within asset
management agreements between the Trustees and the brokerage firm which
agreed to manage plan funds. The Cash Management Agreements did not
implicate workplace conditions, terms of employment or other topics ordinarily
covered by employment contracts. Moreover, there was no management-labor
relationship between the defendants and the plan beneficiaries; instead, their
relationship, which had its inception when the plan sought investments, was a
common one between a brokerage firm and its clients. See Gilmer, 500 U.S. at ---, n. 2, 111 S.Ct. at 1651, n. 2 (arbitration clause in securities registration
application was not contained in employment contract). See also McMahon,
482 U.S. at 238, 107 S.Ct. at 2343. Because the record does not support the

assertion that the arbitration clauses in question were contained within

employment agreements, the Trustees cannot avoid compulsory arbitration
based on the exception contained in section 1 of the FAA.
47

Third, the Trustees attempt to salvage Barrowclough by distinguishing both it

and the present case from Gilmer. The Trustees argue that in Gilmer an
individual claimant "contracted away his right to sue in federal court by his
own hand." Trustees' brief at 30. By contrast, the Trustees maintain that both
Barrowclough and the case before us involve situations in which the right to
proceed in federal court was waived by someone other than an individual
worker who had the right to vindicate his or her rights through judicial
proceedings.

48

In Barrowclough, we did recognize certain special concerns that arise when

collective bargaining agreements contain provisions compelling arbitration of
statutory protections directed at providing substantive guarantees to individual
workers. See Barrowclough, 752 F.2d at 940. As noted previously, we cited
and relied heavily upon Barrentine, 450 U.S. 728, 101 S.Ct. 1437, and
Alexander, 415 U.S. 36, 94 S.Ct. 1011, two Supreme Court cases permitting
claimants to pursue statutory claims in federal court despite the completion of
arbitral proceedings in accordance with collective bargaining agreements. The
Trustees argue that Barrowclough remains apposite because it relied upon
Alexander and Barrentine, which the Court has left intact despite intervening
decisions.

49

While it is true that the Court has not overruled Alexander and Barrentine since
deciding McMahon, Rodriguez and Gilmer, it does not follow that
Barrowclough retains its validity. The Court has delineated "several important
distinctions" between Alexander and Barrentine and cases involving whether a
statutory claim may be commercially arbitrated. See Gilmer, 500 U.S. at ----,
111 S.Ct. at 1650 (ruling that ADEA claim may be subject to arbitration).
"First, those cases did not involve the issue of whether an agreement to arbitrate
statutory claims was unenforceable." Id. Instead, those cases centered on the
issue of whether arbitration of claims pursuant to collective bargaining
agreements precluded subsequent judicial resolution of statutory claims.

50

Second, the Court has indicated that in Alexander and Barrentine, it was
concerned with the fact that those cases arose in the collective bargaining
context, where individual claimants were represented by unions and there
existed a possible tension between the goals of collective representation and
vigilant enforcement of individual statutory rights. Id. The Trustees analogize
this case to Alexander and Barrentine, asserting that they, as trustees, represent

many plan beneficiaries when they enter into an asset management agreement
with a brokerage firm to handle a plan's assets. This analogy fails, however,
because unlike the potential conflict between a union's duty to represent
collective interests and its duty to pursue grievances on behalf of an individual,
plan trustees entering into asset management agreements with brokerage firms
safeguard the unitary interests of individual and group beneficiaries with assets
in the plan. Thus, a trustee's duties do not involve an inherent tension which
would give rise to the special concerns addressed in Alexander and Barrentine.
See also Gilmer, 500 U.S. at ----, 111 S.Ct. at 1657 (distinguishing Alexander
and Barrentine because "those cases were not decided under the FAA, which ...
reflects a 'liberal federal policy favoring arbitration agreements' "); Shell, 68
Tex.L.Rev. at 563 (concerns regarding labor arbitration of statutory ERISA
claims remain valid, but a functional analysis of commercial arbitration
supports arbitrability in that context).
51

Finally, in arguing that arbitration is inconsistent with ERISA's statutory

purpose, the Trustees contend that since there is no assurance that arbitrators
will follow court precedents, compulsory arbitration of ERISA claims frustrates
the legislative goal of developing a consistent body of law. This argument has a
familiar ring; it is a reiteration of the traditional distrust of arbitration on the
ground that arbitrators cannot be relied upon to follow the law. The Court has
uniformly rejected this position in its recent arbitration cases, however, and we
will only briefly address the Trustees' contentions in this regard.

52

The Trustees make much of the fact that neither the American nor the New
York Stock Exchanges require that arbitrators give reasons for their decisions.
The lack of such a requirement, the Trustees speculate, results in a stifling of
the law's development, provides poor guidance for plan beneficiaries and
fiduciaries and results in an inability to obtain effective appellate review. In
Gilmer, however, the Court rejected similar claims, observing that the New
York Stock Exchange arbitration rules provided for publication of written
award summaries including the names of the parties, a statement of the issues
and a description of the award. Gilmer, 500 U.S. at ----, 111 S.Ct. at 1655. For
present purposes, we see no reason to distinguish between the ADEA claims at
issue in Gilmer and the ERISA claims before us. Instead, we believe it is
consistent with the Court's analysis in Gilmer to hold that an award summary
need not state a rationale to avoid conflicts with the fundamental purposes of
ERISA.7

D.
53

Although we have determined that the Trustees' agreement to arbitrate alleged

statutory ERISA violations under the FAA is enforceable, there remains the
question of who, exactly, will be bound by its terms. Only one of the
appellants, MLPF & S, was a party to the Cash Management Agreements. The
Trustees argue that their claims against MLAM and Stewart should not proceed
to arbitration because those defendants were not signatories to the arbitration
agreements. For the reasons below, we reject this argument.
54

As to Stewart, the decision is quite straightforward. Under traditional agency

theory, she is subject to contractual provisions to which MLPF & S is bound.
Barrowclough, 752 F.2d at 938. Because a principal is bound under the terms
of a valid arbitration clause, its agents, employees, and representatives are also
covered under the terms of such agreements. See, Arnold v. Arnold Corp., 920
F.2d 1269, 1281-82 (6th Cir.1990); Letizia v. Prudential Bache Securities, 802
F.2d 1185, 1187-88 (9th Cir.1986).

55

In Arnold, for example, a shareholder filed suit against a corporation and its
officers alleging RICO violations and asserting claims under section 10(b) of
the Exchange Act. In holding that the arbitration clause should be enforced, the
court also extended its scope to non-signatory officers who were deemed agents
of the corporation. Arnold, 920 F.2d at 1281-82. Similarly, in Letizia, the court
held that statutory claims against non-signatory brokers were subject to
arbitration agreements. Letizia, 802 F.2d at 1187-88.

56

The Letizia court noted that brokers and employees were integral to, if not
directly responsible for, the alleged statutory violations of the principal
corporation. Indeed, "[a]ll of the individual defendants' allegedly wrongful acts
related to their handling of Letizia's securities account.... We conclude that the
arbitration clause is applicable to [claims against the broker and his
supervisor]." Id. at 1188. See also Trott v. Paciolla, 748 F.Supp. 305, 309
(E.D.Pa.1990) ("Mr. Paciolla was an employee of Merrill Lynch. An entity such
as Merrill Lynch can only act through its employees, and an arbitration
agreement would be of little value if it did not extend to [them]."). In keeping
with the federal policy favoring arbitration, we share the views of the Courts of
Appeals for the Sixth and Ninth Circuits and will extend the scope of the
arbitration clauses to agents of the party who signed the agreements.

57

For analogous reasons, we find that the claims against MLAM, the corporate
sister of MLPF & S, likewise fall within the scope of the arbitration
agreements. Agency logic has been applied to bind non-signatory business
entities to arbitration agreements. Isidor Paiewonsky Associates, Inc. v. Sharp
Properties, Inc., 998 F.2d 145 (3d Cir.1993); Nesslage v. York Securities, Inc.,
823 F.2d 231, 233 (8th Cir.1987); see also Ketchum v. Almahurst Bloodstock

IV, 685 F.Supp. 786, 793-94 (D.Kan.1988). While it is not exactly clear what
role MLAM played in the alleged statutory violations, it is evident from the
record that MLAM was obligated to perform certain services in connection with
the Accounts opened by the Trustees. Moreover, MLAM, like MLPF & S, is a
subsidiary of Merrill Lynch & Co., Inc., and may be an alter-ego of MLPF & S.
58

In our recent decision in Sharp Properties, for example, we enforced an arbitral

award against a non-signatory who did not participate in arbitration proceedings
adjudicating its interests. Relying on Barrowclough, we noted that arbitration
agreements may be upheld against non-parties where the interests of such
parties are directly related to, if not congruent with, those of a signatory. Sharp
Properties, 998 F.2d at 155. Our reasoning in Sharp Properties compels a
similar conclusion in this case. Count II of the amended complaint asserts that
MLAM is liable to the Trustees for its "knowing participation in breaches of
fiduciary duties owed to the plan." The Trustees' own theory of liability
demonstrates that MLAM's interests are directly related to, if not predicated
upon, MLPF & S' conduct. We conclude, therefore, that claims against MLAM
are subject to compulsory arbitration in accordance with the terms found in the
Cash Management Agreements.8

IV.
59

To recapitulate, we hold that statutory ERISA claims are subject to compulsory

arbitration under the FAA and in accordance with the terms of a valid
arbitration agreement. Where the parties to such a clause unmistakably intend
to arbitrate all controversies which might arise between them, their agreement
should be applied to claims against agents or entities related to the signatories.
Because the Trustees executed an agreement which stated that all controversies
between themselves and MLPF & S would be resolved in an arbitral forum, we
will reverse the district court's reluctant refusal to remit the Trustees' claims to
arbitration, while applauding its adherence to stare decisis. We will remand this
case for entry of an order compelling arbitration.

We hold only that statutory ERISA claims are subject to arbitration under the
FAA when the parties have executed a valid arbitration agreement
encompassing the claims at issue. For a number of reasons (and the following
list is not intended to be exhaustive), this opinion should not be read to require
arbitration of statutory ERISA claims in all instances. First, our focus here is
limited to arbitration under the FAA. We do not address, for example, labor or
any other type of arbitration which may arise from the collective bargaining
process or otherwise implicate the concerns we have previously expressed

about a potential for conflict of interest. See Barrowclough, 752 F.2d at 940;
see also Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, ----, 111 S.Ct.
1647, 1650, 114 L.Ed.2d 26 (1991). Second, in contrast to this case, certain
types of statutory ERISA claims may arise in such a fashion or may so
implicate employees' rights that they come within the provision of the FAA
which precludes arbitration of contracts of employment. See 9 U.S.C. 1.
Finally, as explained further infra, the arbitration agreement must be valid and
must encompass the ERISA claims at issue for the claims to be subject to
arbitration rather than the judicial process
2

Section 406(b) provides:

A fiduciary with respect to a plan shall not:
(1) deal with the assets of the plan in his own interest or for his own account,
(2) in his individual or in any other capacity act in any transaction involving the
plan on behalf of a party (or represent a party) whose interests are adverse to
the interests of the plan or the interest of its participants or beneficiaries, or
(3) receive any consideration for his own personal account from any party
dealing with such a plan in connection with a transaction involving the assets of
the plan.
29 U.S.C. 1106(b).

Despite the trustees' arguments to the contrary, the FAA was not enacted to
promote the expeditious resolution of claims. Dean Witter Reynolds, Inc. v.
Byrd, 470 U.S. 213, 219-20, 105 S.Ct. 1238, 1241-42, 84 L.Ed.2d 158 (1985)
(rejecting that suggestion, although noting that Congress recognized that the
FAA would be beneficial because expeditious resolution of claims would be a
byproduct of its passage). The trustees' argument that mandating arbitration in
this case would not further the purposes of the FAA because this litigation has
already been time-consuming and expensive is, therefore, unavailing

The parties do not dispute that the arbitration clauses at issue were executed
during the course of "a transaction involving commerce," within the meaning of
the FAA. See, e.g., Hays, 885 F.2d at 1152-53

We hasten to note that we overrule Barrowclough only with regard to its

holding that statutory claims are not subject to arbitration, and the reasoning we
employed in reaching that conclusion. Barrowclough remains the law of this
circuit in other respects; indeed, we continue to cite portions of the opinion as
authoritative in connection with our disposition of some of the issues presented

in this appeal. See page 1112, footnote 1, supra, and pages 1115, 1122, infra
6

In McMahon, the plaintiffs argued that exclusive federal jurisdiction over

claims under the Exchange Act permitted the inference that Congress intended
to preclude arbitration of Exchange Act claims. In Rodriguez, plaintiffs
attempted to draw a similar inference from the non-exclusive, concurrent
jurisdictional authority granted federal courts under the Securities Act. The
Court declined to draw the inference in either case, implying in Rodriguez that
the distinction between exclusive and non-exclusive jurisdictional provisions
was largely irrelevant for purposes of determining the arbitrability of statutory
claims. Rodriguez, 490 U.S. at 482, 109 S.Ct. at 1920

The Trustees also contend that judicial review of arbitration decisions is "too
limited" to ensure that arbitral awards comply with statutory mandates.
McMahon, however, made clear that "although judicial scrutiny of arbitration
awards is limited, such review is sufficient to ensure that arbitrators comply
with the requirements of the statute" in question. McMahon, 482 U.S. at 232,
107 S.Ct. at 2340

Because the claims against the non-signatories are subject to compulsory

arbitration, we are not presented with a case in which the district court would
have discretion to stay judicial proceedings pending the outcome of arbitration.
See Moses H. Cone, 460 U.S. at 20 n. 23, 103 S.Ct. at 939 n. 23; see also
Barrowclough, 752 F.2d at 938