The U.S. Supreme Court on Feb. 26 clarified the deadlines to file breach of fiduciary duty claims under the Employee Retirement Income Security Act of 1974. Its Intel v. Sulyma decision also highlights the important role that technology plays as an evidentiary tool to establish that a claimant possessed the requisite, actual knowledge to fast track the deadline for filing a claim.
The case involved a former Intel engineer who sued the company’s investment retirement committee, which handled Intel’s retirement plans, on behalf of a proposed class of current employees, ex-employees, and retirees. The former employee, Christopher Sulyma, claimed that the committee over-invested the class’s retirement funds in certain alternative assets, such as hedge funds and commodities, which carried higher administrative fees and lagged in performance behind basic index funds following the stock market decline in 2008. See Intel Corp. Inv. Policy Comm. v. Sulyma.
Breach of Fiduciary Duties
The Supreme Court examined whether Sulyma’s lawsuit, claiming that the committee breached its fiduciary duties under ERISA, was filed too late. A breach of fiduciary duty claim under ERISA, similar to the one filed by Sulyma, is subject to three potential statutory deadlines depending on the nature of the underlying triggering event:
- The default rule is that such claims must be filed within six years of the breach of duty, regardless of knowledge of the breach.
- If the breach is concealed through fraud or other cover-up tactics, the claim must be filed within six years of discovery of the wrongful conduct, which could toll the limitations period for a significant period of time.
- Third, and at issue in the Intel case, when an injured party has “actual knowledge” of the breach, a much shorter, three-year deadline applies.
Sulyma claimed that although employees received various disclosures from the committee, including periodic information related to the nature of the retirement investments, he could not recall actually reading, let alone understanding or appreciating, the disclosures. In other words, Sulyma disclaimed any “actual knowledge” of the committee’s wrongs, which would save his case from the three-year filing deadline under ERISA.
Supreme Court Confronts What ‘Actual Knowledge’ Actually Means
The Supreme Court decided that “actual knowledge” means exactly what it sounds like—real, actual awareness of information. The court said that ERISA “requires more than evidence of disclosure alone,” adding that the “plaintiff must in fact have become aware of that information.”
The Supreme Court’s Intel decision has a number of key takeaways.
The Electronic Paper Trail Is Paramount. Technology will remain an important evidentiary tool in the wake of the Intel ruling. With fiduciaries pressed to find methods to establish the other side’s state of mind, objective electronic evidence that an individual opened a plan disclosure, information regarding time spent with the information in view, log-in activity for the plan’s websites, and other related electronic tracking evidence will remain important.
When fiduciaries can establish that a claimant often utilized a web portal housing relevant information, or frequently opened and spent time with other electronic disclosures, the ability to establish actual knowledge takes major steps closer to a reality.
Expanded Fiduciary Liability and Exposure. The Intel ruling likely expands the liability of fiduciaries, or at least how long fiduciaries could be forced to remain in a proceeding. The Supreme Court’s strict interpretation of “actual knowledge” permits plaintiffs to subjectively disclaim knowledge by stating that they did not read, understand, or digest the information they received (or, at the very least, do not remember doing the same).
This provides plaintiffs with a potential means to create an issue of material fact to avoid summary judgment, and put the case on-track for a trial even if the fiduciaries have an argument that the case was filed too late from the outset.
Circumstantial Evidence Remains Relevant, But Not Dispositive. The Supreme Court was careful to reinforce that actual knowledge can be proven through circumstantial evidence (and, practically, absent an express admission, often the only way to prove the state of mind is circumstantially).
“Nothing in this opinion forecloses any of the ‘usual ways’ to prove actual knowledge at any stage in the litigation,” the court said. Subjective states of mind are notoriously and inherently difficult to establish, and building a circumstantial case becomes all the more important after the Intel decision. A court will no longer infer actual knowledge from the circumstances, at least on summary judgment.
The Ostrich Defense Remains Invalid. Although the Supreme Court recognized that its opinion in Intel could expand fiduciary liability and create ready-made excuses for late-filing plaintiffs, it further noted that willful blindness is still not a valid defense.
In other words, the Supreme Court recognized that plaintiffs cannot bury their heads in the sand and ignore readily available information related to a potential breach, which keeps some burden on plaintiffs to remain vigilant for potential ERISA violations.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Michael J. Joyce, a partner in Saul Ewing Arnstein & Lehr LLP’s Pittsburgh office, assists clients with litigation, including a wide variety of commercial disputes and insurance matters. His work includes defending fiduciaries against claims asserted under ERISA, and further defending clients against ERISA benefit claim appeals.