ERISA-9th Circuit Revives Employee Suit Against Fiduciaries Of A 401(k) Plan, Holding That The Statute Of Limitations For Bringing The Suit Has Not Expired

In Tribble v. Edison International, No. 10-56406, No. 10-56415 (9th Cir. 2016), on remand from the Supreme Court, the en banc court of the 9th Circuit Court of Appeals vacated the district court’s judgment in the case, which had been in favor of an employer and its benefits plan administrator on claims of breach of fiduciary duty in the selection and retention of certain mutual funds for a benefit plan governed by ERISA.

The 9th Circuit Court of Appeals (the “Court”) had previously affirmed the district court’s holding that the plan beneficiaries’ claims regarding the selection of mutual funds in 1999 were time-barred under the six-year limit of section 413(1) of ERISA.  The Supreme Court vacated the Court’s decision, observing that federal law imposes on fiduciaries an ongoing duty to monitor investments even absent a change in circumstances, and remanded the case back to the Court. Rejecting defendants’ contention that the beneficiaries waived the ongoing-duty-to-monitor argument, the en banc court held that the beneficiaries did not forfeit the argument either in the district court or on appeal.  Rather, defendants themselves failed to raise the waiver argument in their initial appeal, and thus forfeited this argument.

Section 413 of ERISA states that (absent a case of fraud or concealment) no action may be commenced under ERISA, with respect to a fiduciary’s breach of any responsibility, duty, or obligation under ERISA, or with respect to a violation of ERISA, after the earlier of—

(1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation, or

(2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation.

In applying section 413 to this case, the en banc court distinguished Phillips v. Alaska Hotel & Rest. Emps. Pension Fund, 944 F.2d 509 (9th Cir. 1991), which held that when a fiduciary violated a continuing duty over time, the three-year limitations period set forth in section 413(2) of ERISA began when the plaintiff had actual knowledge of a breach in a series of discrete but related breaches.  The panel held that Phillips did not apply to the continuing duty claims at issue under section 413(1).  The Court found that there was a continuing duty claims here.  Thus, only a “breach or violation,” such as a fiduciary’s failure to conduct its regular review of plan investments, need occur within the six-year statutory period of section 413(1); the initial investment need not be made within the statutory period.  That is, each breach or violation starts the six-year period running anew.  Under this interpretation, the Court found that the statute of limitations had not run here.

Looking to the law of trusts to determine the scope of defendants’ fiduciary duty to monitor investments here, the en banc court held that the duty of prudence required defendants to reevaluate investments periodically and to take into account their power to obtain favorable investment products, particularly when those products were substantially identical—other than their lower cost—to products they had already selected.

The en banc court vacated the district court’s decisions concerning the funds added to the ERISA plan before 2001 and remanded the case back to the district court on an open record for trial on the claim that, regardless of whether there was a significant change in circumstances, defendants should have switched from retail-class fund shares to institutional-class fund shares to fulfill their continuing duty to monitor the appropriateness of the trust investments.  The en banc court also directed the district court to reevaluate its award of costs and attorneys’ fees in light of the Supreme Court’s decision and the en banc court’s decision.

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