EB Flash: 'Actual Knowledge' Requires Awareness of 'Relevant Facts' To Trigger ERISA's Three-Year Statute of Limitations, High Court Rules

Employee Benefits Alert
02.27.2020

Writing for a unanimous Supreme Court, Justice Samuel Alito examined the statutory language of ERISA § 413(2), which requires that fiduciary claims under the Employee Retirement Income Security Act of 1974 (ERISA) be filed within "three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation." 

The opinion affirmed the Ninth Circuit's decision and held that in order to satisfy the actual knowledge requirement, "the plaintiff must in fact have become aware of that information." Mere receipt of plan investment documents and disclosures was insufficient to establish "actual knowledge" as a matter of law and raised questions of fact. Justice Alito, however, pointed out that the opinion did not foreclose the "usual ways" of establishing actual knowledge, including through "inference from circumstantial evidence," evidence of "willful blindness," or other relevant evidence. In addition, the opinion referred to the six-year period in § 413(1) as a statute of repose, which acts to "protect defendants from suit filed more than six years after the alleged breach." The Court did not address the question of whether the plaintiff must also have actual knowledge that the conduct violated ERISA.

In Intel Corporation Investment Committee et al. v. Sulyma, (decided Feb. 26, 2020), Sulyma, an Intel employee who participated in two of the company's defined contribution plans, alleged that, after the 2008 stock market crisis, the plan fiduciaries mismanaged two funds in the plans by increasing the funds' assets invested in alternative investments, which carried relatively high fees. Thereafter, according to the suit, as the stock market recovered, the funds' performance lagged behind that of equity-based index funds, resulting in lower returns. 

Sulyma worked for Intel from 2010 to 2012. During his employment, Sulyma received "numerous disclosures…explaining the extent to which his retirement plans were invested in alternative investments," including the percentages in stocks, bonds, and alternative investments. He also received information directing him to disclosures showing the funds' return rates.  

In October 2015, Sulyma filed the complaint on behalf of a putative class. Intel countered that the suit was filed too late under § 413(2), moving to dismiss the complaint on the grounds that Sulyma had actual knowledge of the composition of the funds at issue and their performance more than three years before filing the complaint. The district court converted the motion to a motion for summary judgment and permitted limited discovery on the knowledge issue. At his deposition, Sulyma testified that he "did not remember reviewing the relevant disclosures and that he had been unaware of the allegedly imprudent investments while working at Intel." The District Court granted summary judgment for Intel, but the Ninth Circuit reversed, holding that whether Sulyma had actual knowledge raised a dispute of material fact that precluded summary judgment. In addition, the Ninth Circuit ruled that § 413 requires not only actual knowledge of the funds' alternative investments, but also knowledge that the alternative investments were imprudent. 

Granting Intel's petition for certiorari, the question presented to the Supreme Court was "whether the three-year statute of limitations period in [ERISA], which runs 'from the earliest date on which the plaintiff had actual knowledge of the breach or violation,' bars suit where all of 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 unanimous Court reasoned that ERISA's "'plain and unambiguous language' must be enforced 'according to its terms,'" which, after surveying both regular usage and legal dictionaries, meant that "to have 'actual knowledge' of a piece of information [requires a plaintiff to] in fact, be aware of it." Further, § 413's requirement of "actual knowledge" was in notable contrast to other sections within ERISA in which Congress drew a "'linguistic distinction' between what an ERISA plaintiff actually knows and what he should actually know." Although Sulyma received disclosures about the investments, he could not "remember reviewing" or was "unaware" of the disclosures, and the evidence was insufficient to show that he "in fact [became] aware of that information," as § 413(2) requires. An issue that the Court did not reach was the Ninth Circuit's holding that § 413(2) requires actual knowledge not only of the facts of the specific transaction or investment, but also that the facts demonstrate an ERISA violation. The second question was not before the Court and it expressly declined to address it.

Acknowledging Intel's policy concern that adopting the Court's meaning of "actual knowledge" lessens the protections of § 413(2) for plan fiduciaries, Justice Alito stated that policy considerations must be dealt with by Congress.  The opinion did, however, highlight the role of § 413(1), which generally requires that suit must be filed within six years after the date of the breach or violation, or six years after the latest date on which the fiduciary can cure if the alleged breach is one of omission. While the Court's prior opinions have not addressed the issue directly, Justice Alito drew attention to the fact that the Court has referred to § 413(1) as a "statute of repose, which 'effects a legislative judgment that a defendant should be free from lability after the legislatively determined period of time.'" The Intel opinion also observed that the "repose period will still protect defendants from suits filed more than six years after the alleged breach."

In the opinion's concluding paragraphs, Justice Alito provided an instructive guide for the litigation to come, stating that the opinion does not "foreclose[] any of the 'usual ways' to prove actual knowledge at any stage in the litigation."  Listing specific examples of how actual knowledge can be established, Justice Alito referred to evidence obtained through sworn testimony, "inference from circumstantial evidence," and evidence of "willful blindness." He also pointed to evidence of disclosure and "electronic records showing that a plaintiff viewed the relevant disclosures and evidence suggesting that the plaintiff took action in response to the information contained in them" all as being relevant to the inquiry.  Significantly, the opinion contains a blunt observation that "[if] a plaintiff's denial of knowledge is 'blatantly contradicted by the record,' 'a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment.'"

The Supreme Court's 14-page ruling is posted here.


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