As the 2017-2018 term of the US Supreme Court came to a close, a key tool relied on by the Department of Labor (DOL) in enforcement cases under the Employee Retirement Income Security Act of 1974, as amended (ERISA) was preserved. The Court declined to review a holding of the US Court of Appeals for the Eleventh Circuit dealing with how much time the DOL has to initiate a civil action under ERISA. In denying a petition for certiorari, the Court left intact a holding that the statutory limit on DOL’s window of time to initiate ERISA claims can be waived by the party under investigation.
Earlier this year, DOL asked the Eleventh Circuit to review dismissal of the DOL’s lawsuit against TPP Holdings Inc., its former owner and its employee stock ownership plan (the Plan Parties). DOL had been investigating the Plan Parties in connection with the plan’s purchase of TPP stock from the former owner and other issues. During the course of DOL’s investigation, DOL and the Plan Parties entered into a series of “tolling agreements,” under which DOL committed to not commencing litigation until a specified date in exchange for the Plan Parties’ pledge not to raise a time bar defense under the ERISA statute of limitations if DOL eventually sued the Plan Parties. Tolling agreements in civil matters give the parties more time to exchange information and possibly to settle disagreements, without forcing the matter to litigation to preserve the right to adjudication.
As a result of the investigation, DOL concluded that the Plan Parties had violated ERISA, the Plan Parties disagreed on a mutually agreeable resolution, and ultimately DOL sued the Plan Parties in 2014, one day before the expiration of the tolling period. Notwithstanding its pledge in the tolling agreements, the Plan Parties moved to dismiss the DOL’s complaint, arguing that any claims arising from events occurring more than six years before the filing of the complaint were time-barred by ERISA’s six-year limitations period. Their main argument was that the tolling agreement was “invalid and unenforceable” because ERISA’s time limit on actions is a jurisdictional “statute of repose” that cannot be waived, even by a party’s express agreement.
The Eleventh Circuit disagreed, reversing the lower court, and reasoning that ERISA’s statute of repose is presumptively waivable. Robert N. Preston et al. v. R. Alexander Acosta, Case: 17-10833 (11th Cir. Oct. 12, 2017). By entering into a tolling agreement with DOL, the defendant expressly waived the right to assert a timeliness defense under ERISA until after (i) the tolling period ends and (ii) the limitations period has run in its entirety.
The Supreme Court denied the Plan Parties’ petition for certiorari without comment. Robert N. Preston et al. v. R. Alexander Acosta, case number 17-1328 (June 25, 2018).
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Eversheds Sutherland Observations
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DOL requests to toll limitations periods are commonplace in investigations. Had the Eleventh Circuit concluded otherwise (as at least two district courts had done), the administration of ERISA investigations would have become materially more challenging for both DOL and plan parties.
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Extending DOL’s time limit for commencing litigation may allow pre-litigation resolution of investigations, possibly without any finding of a violation, which is often helpful.
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As always, however, plans, plan sponsors and plan providers should weigh this potential benefit against the potential implications of allowing DOL more time to conduct its investigation.
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