The nation’s highest court has just agreed to consider another ERISA case – this one involving a set of target-date fund investments – more precisely when the clock starts on the statute of limitations to file an ERISA lawsuit.
It’s the second ERISA case the Supreme Court will consider this term, with another in the wings. Just a week ago, the Court agreed to consider (in Ret. Plans Comm. of IBM v. Jander, U.S., No. 18-1165, certiorari granted 6/3/19) “[w]hether Fifth Third Bancorp v. Dudenhoeffer’s ‘more harm than good’ pleading standard can be satisfied by generalized allegations that the harm of an inevitable disclosure of an alleged fraud generally increases over time.”
In April, the Court asked for input from the Solicitor General on a potential review of Brotherston v. Putnam Investments, LLC, a case with significant implications for the burden of proof in ERISA lawsuits.
Now the Court has opted to take on a review (Intel Corp. Inv. Policy Comm. v. Sulyma, U.S., No. 18-1116, cert. granted 6/10/19) of a decision by the U.S. Court of Appeals for the 9th Circuit that said that “…‘actual knowledge’ means 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.” More precisely, the issue under consideration is “[w]hether the three-year limitations period in Section 413(2) of the Employee Retirement Income Security Act, which runs from “the earliest date on which the plaintiff had actual knowledge of the breach or violation,” bars suit when all the relevant information was disclosed to the plaintiff by the defendants more than three years before the plaintiff filed the complaint, but the plaintiff chose not to read or could not recall having read the information.”
The lower court had ruled in favor of the Intel fiduciaries, noting 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, the court ruled, before being overruled by the appellate court.
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.”
Conflicting Legal Regimes
In their petition to the Supreme Court, Intel noted that “during his brief tenure with Intel, respondent regularly accessed the website for those materials,” clicking on more than 1,000 web pages within that site; it was undisputed that respondent “accessed some of th[e] information” that disclosed the disputed investment decisions “on the websites.”
On the other hand, the Intel defendants argued that 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.” This, Intel pointed 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.”
And now it would seem that the U.S. Supreme Court agrees.