Tibble Gets Another Shot, But Comes Up Short

The U.S. Supreme Court may have acknowledged an ongoing fiduciary duty to monitor plan investments, but you have to raise the issue if you want to win in court.

That was the ruling in the most recent case of Tibble v. Edison International, remanded to the 9th U.S. Circuit Court of Appeals in San Francisco by the high court last year.

In its most recent ruling in the high-profile case, the 9th Circuit noted that the plaintiffs never asserted that the plan fiduciaries violated their duty by failing to monitor the retail-class mutual funds – “they asserted only that we ought to read ERISA as excusing an otherwise time-barred lawsuit where the effects of a past breach continue into the future.” And since the court was not presented with an argument about the ongoing duty to monitor, it is “elementary” that beneficiaries should not be allowed a second bite at the apple on remand.”

The 9th Circuit ruling said that the plaintiffs admitted during trial they did not argue that Edison violated its duty of prudence by failing to monitor retail-class mutual funds added to its 401(k) plan in 1999, but rather pursued a theory that “significant changes” in these funds ought to have triggered a due diligence review. Furthermore, the court said that plaintiffs were now arguing that their failure to present a continuing-duty-to-monitor argument ought to be excused, because the district court’s summary judgment order precluded “any claim” of this type.

That, however, is not how the 9th Circuit saw things. While it acknowledged that the district court’s order “certainly precluded beneficiaries from arguing that Edison breached its duty by selecting retail-class mutual funds in 1999” (by placing that decision beyond the reach of the 6-year statute of limitations). However, the 9th Circuit said that nothing in that decision precluded plaintiffs from making the argument that the duty to monitor applied after that initial decision – and that, the 9th Circuit said – they did not choose to do, despite what it saw as opportunities to do so. “Beneficiaries’ trial strategy was their own choice, not one mandated by the court.”

The 9th Circuit, perhaps airing a bit of frustration at having its original judgment questioned, went on to say there had been no “change in the law” that could justify beneficiaries’ failure to raise a duty-to-monitor argument about the mutual funds, since no law actually forbade them from bringing it, nor in its opinion was this “the exceptional case” that warranted a special consideration to make allowances.

Rather, the court said that the beneficiaries “did not present their duty-to-monitor argument sufficiently for the trial court to rule on it – indeed, they failed to present this argument in relation to the contested mutual funds at all, despite the clear opportunity to do so.”

And just in case there was any doubt, the 9th Circuit went on to note that, “Even setting aside beneficiaries’ failure to raise their continuing-duty-to-monitor argument to the trial court, there is little doubt they forfeited the argument by failing to present it to us in their initial appeal. Thus, the claim is doubly forfeit.”

Case History

In considering the case a year ago, the Supreme Court only looked at the application of ERISA’s 6-year statute of limitations, specifically whether the initial decision to place certain retail class mutual funds on the plan menu in 1999 precluded a suit that challenged the prudence of that selection. Both the district court and the 9th U.S. Circuit Court of Appeals had rejected that challenge, holding that the complaint was untimely since they had been put on the menu more than 6 years before the lawsuit, and that circumstances had not changed sufficiently since then to compel the plan fiduciaries to revisit that decision and replace them with institutional class funds.

The Supreme Court, invoking principles of a continuing duty of review found in the common law of trusts, rejected the conclusions of the lower courts, and sent the case back to the 9th Circuit for reconsideration – which has now done so, not that it has done the plaintiffs in this case much good.

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