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Under ERISA, Ignorance Is Bliss in the Ninth Circuit

In Sulyma v. Intel Corporation Investment Policy Committee, the Ninth Circuit Court of Appeals recently held that having access to documents disclosing an alleged breach of fiduciary duty is not sufficient to trigger the three-year statute of limitations under the Employee Retirement Income Security Act (ERISA) if the plaintiff does not have actual knowledge of the alleged breach.

Background

The plaintiff was a former employee of Intel Corporation and participant in two of Intel’s retirement plans. The value of the plaintiff’s account depended in part on investment in accounts that Intel controlled through different Intel “funds.” The Intel committee that controlled the funds increased holdings in alternative investments to reduce risk through greater diversification. But this increase in alternative investments also resulted in higher fees as well as lower performance when equity markets later began to perform well. Intel disclosed these investments and the rationale behind them in documents available on Intel’s website.

Although the plaintiff accessed some of this information, he testified that he was unaware of the investments and of the documents disclosing them. After the plaintiff learned about his accounts’ poor performance, he filed suit alleging imprudent investments, failure to disclose, failure to monitor, and failure to remedy other defendants’ ERISA violations despite knowing about them.

Under ERISA, a breach of fiduciary duty claim must be brought within “three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation.” Intel argued that the suit was untimely because the plaintiff had actual knowledge of this alleged breach through the disclosures Intel made available on its website more than three years before the plaintiff filed suit. The district court granted summary judgment in favor of Intel and the plaintiff appealed, arguing that the district court applied the wrong standard of actual knowledge.

The Ninth Circuit’s Decision

ERISA does not define “knowledge” or “actual knowledge.” Relying on the statutory text and its case law, the Ninth Circuit concluded that the statute of limitations was not triggered when the documents were made available to the plaintiff. The limitations period in breach of fiduciary duty cases begins to run once a plaintiff is actually aware of the defendant’s actions and that the actions were imprudent. Thus, the plaintiff was required to have actual knowledge that Intel increased the retirement funds’ alternative investments and that those investments were imprudent. His testimony that he was unware of the investments and unaware of documents disclosing the investments precluded summary judgment. 

The Ninth Circuit rejected the position taken by the Sixth Circuit Court of Appeals that a participant’s failure to read plan documents to which he or she has access will not protect that participant from having actual knowledge of the information in the documents. The Ninth Circuit also rejected Intel’s policy arguments, noting that there are strong policy arguments to interpret actual knowledge narrowly, such as to promote fiduciary accountability. Additionally, it held that it was not up to the court to make policy decisions, but rather to interpret the statute as enacted.

Key Takeaway

The takeaway is that the Ninth Circuit’s decision will make it more difficult for defendants to prove that a participant had actual knowledge of an alleged breach of fiduciary duty sufficient to trigger the three-year statute of limitations. Participants in effect can simply deny that they read or understood disclosures that were sent to them, regardless of the nature or substance of those disclosures. For purposes of ERISA’s statute of limitations, ignorance truly appears to be bliss, at least in the Ninth Circuit.

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About this Author

Mark Schmidtke ERISA Lawyer Ogletree
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Mark E. Schmidtke has represented clients in ERISA and non-ERISA employee benefits matters in state and federal courts throughout the United States for over 30 years. He has been lead or co-lead counsel in ERISA litigation matters pending in the courts of 49 states. He has argued appeals in the United States Courts of Appeals for the Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits, as well as the Massachusetts Supreme Judicial Court, the Minnesota Supreme Court, the Minnesota Court of Appeals, the Indiana Court of Appeals, and...

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Madeline Rea, Ogletree Deakins Law Firm, Atlanta
Marketing Counsel

As Marketing Counsel, Madeline is a member of Ogletree Deakins’ Client Services department and is involved in the firm’s Request for Proposal (RFP) process.  In addition, she works with certain practice and industry groups within the firm to develop and implement business development and marketing strategies and to grow their practices.

Before joining Ogletree, Madeline was a litigator and represented employers in all aspects of labor and employment litigation, with a focus on employee benefit class actions.  Madeline defended organizations including healthcare entities, financial institutions, and insurance companies, and has extensive experience in handling large scale discovery.  Madeline also defended employers against wage and hour and discrimination class/collective actions and counseled clients on compliance with federal and state employment laws. She regularly drafted articles and blog entries related to employee benefit law.

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