The Supreme Court to Decide the Nature of Knowledge

The Supreme Court agreed Monday, June 10, 2019, to resolve a conflict between the Ninth Circuit and the Sixth Circuit on when ERISA’s three-year statute of limitations begins to run.  The statute provides that a fiduciary breach claim may be brought within six years of a breach unless the plaintiff had “actual knowledge” of the breach, in which case a three-year statute of limitations applies. The Ninth Circuit found in Sulyma v. Intel Corporation Investment Policy Committee, 909 F.3d 1069 (9th Cir., 2018), that the actual knowledge requirement that triggers the running of the three-year statute of limitations does not begin until the participant actually knew about the breach, rather than when the participant can be charged with  implied knowledge based on distribution of plan documents or other notices. The Ninth Circuit recognized that its ruling about the actual acknowledgement requirement conflicts with the Sixth Circuit’s decision in Brown v. Owens Corning Investment Review Committee, 622 F.3d 564 (6th Cir. 2010).  The Brown case sets a much lower bar, holding that the statute begins to run once the participants are given instructions on how to access plan documents. The Brown court stated Congress did not intend “the actual knowledge requirement to excuse willful blindness.” The Ninth Circuit said that the Sixth Circuit standard is not good enough.

The Sulyma case stems from allegations the investment committee selected investments for participant accounts that were unduly risky and that Intel acted imprudently by either disregarding the risks or failing to investigate the risks. Specifically, it was alleged the funds were invested heavily in hedge funds and private equity. The Ninth Circuit determines when the three-year statute of limitations begins to run is performed using a two-prong approach. The Court first isolates and defines the alleged breach and then determines when the plaintiff had actual knowledge of the alleged breach. In a lengthy decision the Court analyzed what it means to have actual knowledge.

The Court reasoned that actual knowledge must be something more than simply knowledge of the underlying transaction, at least in cases where such knowledge does not obviously disclose the breach.  Furthermore, the Court concluded that the exact nature and quantum of knowledge required to trigger the limitations period will vary depending on the nature or the claim. Thus, although the Ninth Circuit acknowledged that participants had been given investment information in several different formats, because Sulyma testified and argued he did not know his retirement was so heavily invested in hedge funds or private equity the Court determined that whether plaintiff had actual knowledge was a question of fact and should not have been decided on summary judgment.

The Supreme Court will now reconcile what it means to have actual knowledge. Will the Court decide that it is enough to distribute or make available written material to trigger the running of the statute of limitations? Mere distribution of written communications in many instances may not allow a participant to understand the riskiness of an investment, like that in Sulyma, or to comprehend complicated legal issues such as an amendment to the plan that reduces an accrued benefit. The solution to this question cannot be the Sixth Circuit’s one-size-fits-all rule.  Such a rule is tantamount to a constructive knowledge standard, in contrast to the Ninth Circuit’s more flexible approach, which seeks to gauge whether the plaintiff was actually “aware of the nature of the alleged breach more than three years before the plaintiff’s action was filed.”

We believe the Ninth Circuit’s approach is more in keeping with the language in ERISA, which sets a shorter than usual limitations period only where a plaintiff has “actual knowledge” of a breach.

For any questions you may have about your retirement plan, please contact and attorney for a no-cost consultation. We can be reached at (818) 886-2525 or use our online contact form

 

 

 

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