- U.S. Supreme Court unanimously affirmed the U.S. Court of Appeals for the Ninth Circuit's holding that the Employee Retirement Income Security Act of 1974's (ERISA) statutory three-year limitations period requires a demonstration of "actual knowledge" of an alleged fiduciary breach to establish a claim as time-barred.
- The opinion in Intel Corp. Investment Policy Committee v. Sulyma invalidated a district court holding that proof of actual knowledge of facts forming the basis of a breach of fiduciary duty was unnecessary if all facts necessary to put a participant on notice of a fiduciary breach were otherwise disclosed.
- The ruling rejects a standard of "constructive knowledge" and aligns with the majority of federal appellate courts that have addressed the issue.
The U.S. Supreme Court unanimously affirmed the U.S. Court of Appeals for the Ninth Circuit's holding that the Employee Retirement Income Security Act of 1974's (ERISA) statutory three-year limitations period requires a demonstration of "actual knowledge" of an alleged fiduciary breach to establish a claim as time-barred. The Feb. 26, 2020, opinion in Intel Corp. Investment Policy Committee v. Sulyma invalidated a district court holding that proof of actual knowledge of facts forming the basis of a breach of fiduciary duty was unnecessary if all facts necessary to put a participant on notice of a fiduciary breach were otherwise disclosed. Rejecting a standard of "constructive knowledge," the Supreme Court aligned with the majority of federal appellate courts that have addressed the issue, holding that the plain meaning of the three-year limitations period expressly requires "actual knowledge" of a breach.
The plaintiff in Sulyma was a participant in two employer 401(k) plans. He alleged that the plans' administrators imprudently invested assets in two of the 401(k) retirement plan investment options. The plan administrators countered that they had disclosed to participants in numerous communications and locations information about the plans' investments, and further established that the plaintiff had accessed on several occasions the websites that contained these disclosures. The plaintiff countered that he "did not remember" reading the disclosures.
The district court granted summary judgment to the plan administrators based on ERISA's three-year actual knowledge statute of limitations, holding that the disclosures were sufficient to have put the participants on notice of a breach of fiduciary duty more than three years prior to the filing of the lawsuit. The Ninth Circuit reversed the district court's grant of summary judgment, holding that constructive knowledge did not satisfy the statute's requirement of actual knowledge and the lower court was required to assess whether the participant possessed actual knowledge of the breach.
The Supreme Court held that the meaning of the statute's requirement of actual knowledge was "plain" and that "[d]ictionaries are hardly necessary to confirm the point, but they do." The high court, therefore, concluded that to have "'actual knowledge' of a piece of information, one must in fact be aware of it," and that "imputed knowledge" (constructive knowledge) did not meet the standard. The Supreme Court further reasoned that while the plain meaning of the statute was clear on its face, the conclusion was further supported by the context of other ERISA statute of limitations provisions that expressly lower the bar to a "constructive knowledge" standard.
As a result of the holding, the Supreme Court confirmed that defendants will need to establish that participants read plan disclosures to bar a claim under the three-year limitation period, something it notes can be established through "inference from circumstantial evidence." Accordingly, the Supreme Court confirmed that "[e]vidence of disclosure would no doubt be relevant, as would electronic records showing that a plaintiff viewed the relevant disclosures ... ." Interestingly, the Supreme Court also wrote that nothing in its opinion would preclude an argument that evidence of "willful blindness" (which generally would require a showing that the plaintiff subjectively believed that there is a high probability a fact exists and takes deliberate actions to avoid learning of that fact) could support a finding of actual knowledge.
The Supreme Court left for another day the question that has vexed (and split) the federal appellate courts for many years – what demonstration of actual knowledge is required to satisfy that prong of the three-year statute of limitations: 1) the lenient approach that plaintiff knew of the facts or transaction that formed the basis of the alleged breach, 2) a middle-ground approach requiring a showing of actual knowledge of the underlying facts of the breach plus something additional (which can vary depending on the court and circumstances) or 3) a strict interpretation requiring a showing that plaintiff knew of the underlying conduct of the breach and knew that it supported a cause of action under ERISA.
The Sulyma holding heightens the importance of developing evidence of disclosures and participant access to such disclosures (e.g., electronic evidence of site visits) that defendants can use to establish an inference of actual knowledge. Because of the standard applied at summary judgment, this holding is also likely to have the effect of a greater reliance on ERISA's fallback six-year statute of repose, which extinguishes fiduciary breach claims that are not brought within six years of the fiduciary breach.
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