INSIGHT: ERISA Defendants Get Potential Gift in Unappealing Wrapping

March 20, 2020, 8:01 AM

The Supreme Court’s unanimous opinion in Intel v. Sulyma has received wide attention for resolving an important ERISA statute of limitations issue. However, Justice Samuel Alito’s opinion could be just as significant for what it did not say: that because of the court’s holding, future plaintiffs trying to represent a class may now face challenges where actual knowledge is at issue.

The court affirmed the Ninth Circuit’s holding that “actual knowledge” under ERISA’s condensed statute of limitation period requires more than an “inference” of knowledge or “constructive knowledge.”

The limitations period for an ERISA breach of fiduciary duty lawsuit changes depending on whether a participant has “actual knowledge” of the alleged breach. If the plaintiff has “actual knowledge,” ERISA §413(2) sets a three-year limitations period. If not, the period doubles under Section 413(1) to six years.

No Actual Knowledge

In this case, plan administrators claimed Christopher Sulyma, a plan participant and former Intel employee, had “actual knowledge” because he undisputedly received certain disclosures and regularly visited a website containing the disclosure information. Since the lawsuit was filed three years after the plan administrators provided these disclosures, they argued, it was filed too late.

Sulyma, by contrast, testified that he did not review any of these disclosures and thus lacked the “actual knowledge” required to invoke the three-year limitations period. Thus, Intel turned on whether receiving the disclosures as required under ERISA’s robust disclosure regime satisfied the “actual knowledge” requirement for the shorter statutes of limitations period.

The Supreme Court concluded it did not. That “all relevant information was disclosed to the plaintiff is no doubt relevant in judging whether he gained knowledge of that information.” But the actual knowledge requirement is only satisfied when the plaintiff “in fact [has] become aware of that information.”

At oral argument, Intel asserted that setting a higher standard for actual knowledge “introduces arbitrariness and intractable proof problems.” And it carries larger consequence, Intel maintained, because it “doubles from three to six years the period in which plaintiffs can exploit hindsight bias to second-guess investments, even when plans have fully disclosed the basis for those investments.”

Intel argued that if the plaintiffs had to have actually comprehended disclosures, it would be difficult to imagine how the three-year limitations period would ever apply. Even the opinion acknowledged that the protection provided ERISA fiduciaries under §413(2) could be “substantially diminishe[d]” after their opinion.

A Silver Lining for Plan Fiduciaries

This case seems detrimental to plan fiduciaries, but there may be a silver lining for them, because it might make bringing class actions more difficult.

In order to represent a class, named plaintiffs must satisfy Federal Rule of Civil Procedure 23(b)’s “predominance” inquiry by showing that there are no individualized issues to be resolved for members of the potential class. If the court must make individualized inquires as to each potential class member, the lawsuit cannot go forward as a class action.

The justices had spotted the issue at oral argument, noting that analysis of whether plaintiffs read and understand disclosures could lead to individualized fact-finding. Alito never discusses the matter in his opinion, but both conservative and liberal justices at oral argument expressed concerns about how a strict actual knowledge standard could affect class certification.

As a notable example, Justice Brett Kavanaugh repeatedly pressed Sulyma’s attorney to respond to Justice Ruth Bader Ginsburg’s question on whether individualized issues of what and when participants had actual knowledge would make it virtually impossible to certify a class. Justice Elena Kagan summed up the point when she asked Sulyma’s attorney: “It is a little bit like, ‘be careful what you wish for,’ isn’t it?”

From now on, defendants can argue that if a plan participant wants to join a class suing plan administrators after the three-year limitations period has run, courts will have to determine whether that participant read and comprehended the relevant information—an individualized inquiry that potentially prevents class certification.

Whether courts agree will become the question. But current and future defendants may consider the Intel decision to be a surprise gift, even if it was bound in an unappealing wrapper.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Lena Kettering is an associate at the Groom Law Group. She assists clients on a wide variety of issues pertaining to employee benefits, including litigation, plan design and taxation, ERISA, health and welfare and fiduciary governance.

Mark Bieter is a principal at the Groom Law Group in Washington, D.C. He represents clients in complex commercial litigation in federal courts throughout the country. His practice focuses on representing financial institutions, retirement plans, and trustees in litigation concerning fiduciary duty, employee stock ownership plans, and 401(k) plan investment options and fees, among other matters.

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