Second Circuit Dismisses Appeal and Rejects Mandamus in Dispute Over Arbitration of ERISA Claims Against Morgan Stanley

In a closely watched dispute between former financial advisors and Morgan Stanley, the Second Circuit issued a procedural ruling that may leave both sides disappointed. In Shafer v. Morgan Stanley, et al., No. 24-3141(L), 2025 WL 1890535 (2d Cir. July 9, 2025), the court dismissed both the appeal and cross-appeal for lack of jurisdiction and denied Morgan Stanley’s petition for a writ of mandamus. The case arises from a challenge to the forfeiture of deferred compensation under plans the plaintiffs claim are governed by ERISA.

While the plaintiffs allege that Morgan Stanley wrongfully withheld compensation after they voluntarily left the company, the real battle was procedural—centered on whether their claims must be arbitrated and whether the deferred compensation plans fall within ERISA’s protections.

Background: Class Claims Over Cancelled Deferred Compensation

The plaintiffs, former Morgan Stanley financial advisors, allege that their rights under deferred compensation plans were violated when those plans were cancelled upon their voluntary departure. They filed suit under various provisions of ERISA (29 U.S.C. § 1132(a)(1)-(3)), claiming they were improperly denied vested benefits.

Morgan Stanley moved to compel arbitration pursuant to individual arbitration agreements, arguing the claims were not properly subject to litigation. The Southern District of New York agreed and compelled arbitration. However, before doing so, the court concluded that the deferred compensation plans at issue were in fact governed by ERISA—an important legal determination that had implications for whether the arbitration agreements could be enforced and what remedies were available.

That ruling prompted both sides to appeal. Morgan Stanley challenged the court’s conclusion that ERISA applied, while the plaintiffs contested the decision compelling arbitration. Morgan Stanley also filed a petition for a writ of mandamus, asking the appellate court to strike the district court’s ERISA finding.

Jurisdictional Roadblock: Appeals Dismissed

The Second Circuit began by analyzing whether it had jurisdiction to hear the appeals. The Federal Arbitration Act (FAA) permits interlocutory appeals when a court denies a motion to compel arbitration, but not when it grants such a motion. Because the district court compelled arbitration, the appellate court held it lacked jurisdiction under 9 U.S.C. § 16.

Morgan Stanley argued that the district court’s commentary on the merits of the underlying ERISA claims rendered its order effectively a “denial” of arbitration, and therefore appealable. The Second Circuit rejected this novel theory, citing the statute’s plain language and declining to interpret a granted motion as a constructive denial. The court noted that statutes authorizing appeals must be strictly construed and declined to stretch the FAA to accommodate Morgan Stanley’s position.

Consequently, the court dismissed both the appeal and cross-appeal. The plaintiffs conceded their cross-appeal was contingent on the appeal being properly before the court, so its dismissal naturally followed.

Mandamus Denied: No Clear Right to Overturn ERISA Finding

Morgan Stanley separately sought a writ of mandamus—a rare and extraordinary remedy—to erase the district court’s conclusion that the compensation plans were governed by ERISA. But the Second Circuit made clear that such relief is only available in extreme circumstances.

To obtain a writ, a party must demonstrate:

1. No other adequate remedy exists;
2. A clear and indisputable right to relief; and
3. That issuance of the writ is appropriate under the circumstances.

Here, the court found none of these elements satisfied. Morgan Stanley remained free to argue before arbitrators that the district court’s ERISA ruling was dicta and legally incorrect—a remedy it had already successfully pursued in other arbitrations.

Moreover, the court reasoned that even if the district court’s legal analysis was imperfect, it did not preclude meaningful arbitration or deprive Morgan Stanley of its contractual rights. Unlike cases where a district court directly contravened binding precedent or denied arbitration outright, this case involved a procedural ruling with limited practical effect.

Court Reaffirms Deference to Arbitration Process

The decision in Shafer underscores the judiciary’s strong deference to arbitration and its reluctance to interfere with the process once ordered. Even when a district court issues potentially consequential legal findings, appellate courts are loath to step in unless statutory criteria for appeal or mandamus are clearly met.

Importantly, the ruling suggests that companies compelled to arbitrate cannot seek appellate review merely because they are dissatisfied with accompanying legal conclusions. Instead, those arguments must play out within the arbitration forum itself.