ERISA-Eleventh Circuit Court Of Appeals Holds That An ERISA Statute Of Limitations Provision, Found In ERISA Section 413(1), May Be Waived

In Secretary, U.S. Department of Labor v. Preston, No. 17-10833 (11th Cir. 2017), the Eleventh Circuit Court of Appeals (the “Court”) faced the issue of whether a defendant may expressly waive the six-year statute of limitations contained in ERISA Section 413(1), or whether instead, the protection provided by Section 413(1), being so essential and fundamental, that is inherently indefeasible and unwaivable.

Section 413 of ERISA provides that:

No action may be commenced under this subchapter with respect to a fiduciary’s breach of any responsibility, duty, or obligation under this part, or with respect to a violation of this part, 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;

except that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation.

It is clause (1) above that is the provision in question in this case.

In this case, Robert Preston (“Preston”) was the owner and CEO of TPP Holdings, Inc., which established the TPP Employee Stock Ownership Plan (the “Plan”) in 2004 to provide retirement income for TPP’s employees.  The Secretary of Labor brought this ERISA action alleging that Preston, who also served as the Plan’s trustee, breached his fiduciary duties and engaged in prohibited self-dealing when, in 2006 and then again in 2008, he knowingly caused the Plan to purchase his own TPP stock at an inflated price.  The Secretary separately alleged that Preston, TPP, and the Plan engaged in assorted other misdeeds (terminating plan participants, failing to pay required distributions, and others) in 2008.

Prior to filing suit, the Secretary notified Preston, TPP, and the Plan (together, “the defendants”) of his claims, and the parties attempted to negotiate a settlement.  While the negotiations were ongoing, the parties entered into a series of “tolling agreements”, which extended the Secretary’s filing deadline until December 31, 2014.  In these agreement, the Secretary offered to delay filing any action until a specified date in exchange for the defendants’ pledge not to raise a timeliness defense in the event the Secretary later sued.

The parties ultimately failed to reach a settlement, and the Secretary filed this action on December 30, 2014, one day before the expiration of the agreed-upon tolling period.  Despite their agreements not to assert a time bar, the defendants moved to dismiss the Secretary’s complaint on the ground that all claims arising from alleged violations that occurred before December 30, 2008— six years prior to the complaint’s filing—were foreclosed by ERISA’s statute of limitations provision, namely Section 413(1).  The issue-did the defendants waive their right to rely on the statute of limitations?  The district court held that because Section 413(1) constitutes a statute of repose, rather than an ordinary statute of limitations, it is not subject to waiver—even express waiver. Accordingly, the court dismissed all of the Secretary’s claims arising from events that occurred before December 30, 2008.  The Secretary appeals this dismissal.

Upon reviewing the case, the Court agreed that Section 413(1) is a statute of repose, since the limit is based on the last time that the defendants acted, as opposed to when the claim accrued. However, the Court ruled that the statute of limitations provided by Section 413(1) may be waived, as a statute of repose is not nonwaivable.

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