Supreme Court Makes It Easier to Sue for Fiduciary Breach
A unanimous U.S. Supreme Court has just ruled in Intel Corp. Investment Policy Committee v. Sulyma that fulfilling ERISA’s disclosure obligations is not sufficient to start the clock ticking to determine how long participants have to sue. The issue in this closely watched case was what constitutes “actual knowledge” of a fiduciary breach. The decision has the potential to expand participant protections at the expense of limiting those available to fiduciaries.
The Facts
Sulyma challenged his plan’s investments in hedge funds and alternative investments. The plan administrators posted documents containing information about the plan’s investments on its Net Benefit website and provided evidence that Sulyma accessed the site repeatedly during his employment. However, Sulyma claimed he had no recollection of looking at the information and was not aware of the plan’s investments for some time.
Why It Matters
One of the statutes of limitation that applies to fiduciary breach claims shortens the period to sue to three years from the time plaintiff had actual knowledge of the breach. Intel claimed that this period began to run from time it distributed the investment disclosures and therefore the lawsuit was filed too late. The Supreme Court per Justice Alito, citing dictionaries and legislative history, didn’t buy it.
What the Supreme Court Ruled
According to the Supreme Court, a participant must be aware of the information to have actual knowledge of it. Although a constructive knowledge standard wasn’t adopted by Congress here, even a reasonable plaintiff would not know the facts that formed the basis for a fiduciary breach claim immediately on getting a disclosure.
How Can Defendants Prove Actual Knowledge?
If the plaintiff doesn’t admit to having awareness of the relevant information so as to start the statute of limitations running, how can defendants prove actual knowledge? The Supreme Court indicated that actual knowledge could be proved “through inference from circumstantial evidence,” such as showing the participant received the disclosure, an electronic record showing that the participant reviewed the disclosure, and evidence that the participant took some action in response to the information. Courts needn’t accept a denial “blatantly contradicted by the record.” In addition, defendants can provide evidence of “willful blindness” that supports a finding of actual knowledge.
This standard gives plan sponsors and administrators an incentive to track when participants open documents that are distributed electronically and to keep records of participant questions and requests for additional information. However, even the Department of Labor’s most recent electronic disclosure rules permit a participant to opt out and receive mailings. Even if disclosures are sent by certified mail to confirm delivery, it will be more of an uphill battle to prove actual knowledge of the information in mailed disclosures.