The U.S. Supreme Court ruled on February 26, 2020 that ERISA plaintiffs do not gain “actual knowledge” of fiduciary misconduct merely by receiving financial disclosures from the plan. The unanimous opinion in Intel Corp. Investment Policy Comm. v. Sulyma, which affirmed a Ninth Circuit decision, held that a plaintiff must actually read or otherwise be aware of the relevant information in order to trigger the accelerated three-year statute of limitations for such claims. The ruling resolved a circuit split over the proper standard.
The case centers around ERISA’s statute of limitations for fiduciary breach claims. The normal limitations period is six years, regardless of whether the plaintiff is aware of the breach (with an exception for fraud or concealment). However, the limitations period is shortened to three years from the date that the plaintiff has “actual knowledge” of the underlying fiduciary breach.
The plaintiff in the Intel case alleged that the fiduciary of the Intel plans breached its duties by including various alternative investment strategies with higher fees and lagging performance, such as hedge funds and private equity, within several of the plans’ investment options. Intel responded that the claim was time-barred by ERISA’s three-year statute of limitations, because the plaintiff was provided investment disclosures that described the alternative investments.
The plaintiff countered that although he may have received the disclosures, he did not read them or could not recall reading them. For this reason, he argued, he did not have actual knowledge of the alleged breach, meaning that the three-year statute of limitations was not applicable.
The Supreme Court agreed with the plaintiff, noting that actual knowledge requires more than disclosure of information – the plaintiff must in fact become aware of that information. The Court rejected Intel’s concern that a finding for the plaintiff would undermine the statutory purpose of protecting plan administrators from lawsuits over “bygone investment decisions.” Although it was true that the plaintiff had been provided with sufficient information regarding the allegedly imprudent investments, finding actual knowledge on that basis alone would render the word “actual” nearly meaningless.
In response to Intel’s protests that such a holding would make the three-year statute of limitations irrelevant, the Court noted that actual knowledge can still be demonstrated in a variety of ways, including circumstantial evidence that the plaintiff understood the information or the plaintiff’s own statements under oath.
Eversheds Sutherland Observations: The Court also hinted that a plaintiff cannot be willfully blind to disclosures that are provided, and such willful blindness could create a basis for a finding of actual knowledge. It remains to be seen whether defendants and lower courts will focus on this statement to recreate a form of constructive knowledge, at least in situations where the presence of relevant information is clear from the face of the disclosure.
In addition, class certification may prove challenging for claims arising between years three and six. Under the Court’s standard, which recognizes the importance of circumstantial evidence and the truthfulness of the plaintiff(s), the extent of actual knowledge will necessarily vary between individuals. |
The case may result in renewed efforts by fiduciaries not only to make disclosures about plan investments easily accessible but also to ensure that the disclosures are actually read and understood. Fiduciaries may want to consider methods to assist in demonstrating actual knowledge through circumstantial evidence. Examples might include electronic disclosure in which participants acknowledge their receipt and review of key sections of the documents, electronic systems that track which documents are viewed or requirements that employees participate in meetings or interactive websites.
[View source.]
