Plan fiduciaries have asked the nation’s highest court to weigh in on when ERISA’s three-year statute of limitations begins – and if disclosure alone is enough to start that clock.
In asking the U.S. Supreme Court to take up the case, plan fiduciaries at Intel said the question presented was “whether this provision bars suit where all of the information relevant to an alleged violation was disclosed to the plaintiff more than three years before the plaintiff filed the complaint, but the plaintiff chose not to read or does not recall whether he read the materials provided to him.”
The original lawsuit was filed in November 2015 in the U.S. District Court for the Northern District of California by former Intel employee Christopher Sulyma (who turns out to be an engineer with a doctorate in experimental physics). It charged that Intel’s investment committee boosted the $6.66 billion profit-sharing plan’s allocation for hedge funds in the firm’s target-date portfolios from $50 million to $680 million, while at the same time the allocation for hedge funds in the diversified global fund rose from $582 million to $1.665 billion, and to private equity investments from $83 million to $810 million, between 2009 and 2014.
The suit claimed that participants were not made fully aware of the risks, fees and expenses associated with the hedge fund and private equity investments, or of the underperformance of the company’s target-date and global diversified funds compared to their peers, and that as a result participants “suffered hundreds of millions of dollars in losses during the six years preceding the filing of this Complaint as compared to what they would have earned if invested in asset allocation models consistent with prevailing standards for investment experts and prudent fiduciaries.”
The district court noted that while the plaintiff was an Intel employee he had access to a number of financial documents, including plan documents, fund facts sheets and summary plan descriptions, which included information about plan asset allocations and an overview of the logic behind the investment strategy. This access gave Sulyma “actual knowledge” of the alleged violations three years before he sued.
Actual, Actual Knowledge Standard?
However, on appeal the U.S. Court of Appeals for the 9th Circuit rejected that conclusion – or at least that conclusion without the benefit of a hearing. As part of that determination, the court said that “…‘actual knowledge’ must therefore mean something between bare knowledge of the underlying transaction, which would trigger the limitations period before a plaintiff was aware he or she had reason to sue, and actual legal knowledge, which only a lawyer would normally possess.”
And then, in light of the statutory text and case law, the court concluded that the defendant must show that the plaintiff was actually aware of the nature of the alleged breach more than three years before the plaintiff’s action is filed, though they acknowledged that the exact knowledge required will “vary depending on the plaintiff’s claim.” The court went on to explain that, “the key is that, whatever the underlying ERISA claim, the limitations period begins to run once the plaintiff has sufficient knowledge to be alerted to the particular claim. In reaching this holding, we emphasize that for a plaintiff to have sufficient knowledge to be alerted to his or her claim, the plaintiff must have actual knowledge, rather than constructive knowledge.”
The court went on to acknowledge that their view of actual knowledge conflicted with the 6th Circuit’s reasoning in Brown v. Owens Corning Investment Review Committee, where the court held that, “[w]hen a plan participant is given specific instructions on how to access plan documents, their failure to read the documents will not shield them from having actual knowledge of the documents’ terms” – but “respectfully” disagreed with that analysis. “As we have previously recognized, ‘plan participants who have been provided with [summary plan descriptions] are charged with constructive knowledge of the contents of the document,’ not actual knowledge,” and that “under our interpretation of ERISA, such knowledge is insufficient.”
As for the petition to the Supreme Court (Intel Corp. Investment Policy Committee et al. v. Christopher M. Sulyma, case number 18-1116, at the U.S. Supreme Court), the Intel fiduciaries said that they had provided the plan participants (including the plaintiff with “extensive disclosures,” including “targeted emails alerting him that important documents were available online and providing links to the plans’ website, which hosted the documents and which respondent repeatedly visited.” These documents, in turn, “laid out the percentage allocation of the plans’ investments and explained that a significant portion of the investments was allocated to alternative investments such as hedge funds and private equity,” according to Intel. They said that those materials “spelled out in detail the risks and disadvantages of the allocation, including higher fees and lower returns than equity-heavy funds during periods when equity markets were rapidly rising,” and “explained the investment committee’s judgment that the allocation was prudent because it dampened the volatility of the funds’ performance and protected investors against significant losses when equity markets declined.”
In their petition to the Supreme Court, Intel notes that “during his brief tenure with Intel, respondent regularly accessed the website for those materials, clicking on more than a thousand webpages within that site; it was undisputed that respondent “accessed some of th[e] information” that disclosed the disputed investment decisions “on the websites.”
“But,” Intel argues, despite the fact that the 9th Circuit judges held that the limitations defense was unavailable “unless the defendant could establish that the plaintiff had in fact read the information he received,” and because the plaintiff-participant “testified in his deposition that he did not recall whether he read the relevant information and denied that he was subjectively aware of it, the court held that a fact issue existed as to whether respondent had the ‘actual knowledge’ required to trigger the three-year limitations period…”
This, Intel points out, has “subjected multistate employers to conflicting legal regimes for claims concerning their company-wide retirement plans, and provided plaintiffs with an easy-to-execute and difficult-to-refute tactic for evading Section 1113(2)’s statute of limitations in a category of cases that arise with great frequency.” This, they note, “is the definition of an intolerable conflict,” and the case here they claim “is an optimal vehicle for resolving it and setting forth a uniform nationwide rule.”
Bringing us to the petition before the Supreme Court to hear the case and resolve the issue. Will they take up the case? Will they conclude that a new standard for “actual knowledge” is appropriate?