Once Again, the Supreme Court Upsets Precedent in Fourth and Eleventh Circuit.
As we reported
in our March 11, 2014 article, the
Eleventh and Fourth Circuit Court of Appeals definitively rejected the
“continuing breach” theory in recent disputes involving statute of limitations
deadlines in ERISA cases alleging fiduciary breach claims. This precedent was short-lived.
As way of background, plan
fiduciaries have been under fire in recent years for their role in the
selection and retention of underperforming or fee-heavy funds offered as investment
options in 401(k) plans. Under ERISA, a
lawsuit premised upon a breach of fiduciary duty must be filed by the earlier
of: (1) three years after the
participant had actual knowledge of the breach; or (2) six years after the
breach occurred. As to the latter, the
trigger date is: “(A) the date of the last action which constituted a part of
the violation; or (B) in the case of an omission, the latest date on which the
fiduciary could have cured the breach or violation.” ERISA § 413.
The focus of these recent cases
has been on the second prong: When participants
of a defined contribution plan allege that plan fiduciaries breached their
duties by failing to remove poor performing funds from 401(k) investment
options, is the date of the breach when the funds were initially selected? Or is there a continuing breach for each day
that the funds remained in the investment lineup, assuming no substantial
change of circumstance has occurred?
In 2013, the Court in David
v. Alphin, 704 F. 3d 327, 341 (4th Cir. 2013), addressed this issue
when plaintiffs alleged, inter alia,
that plan fiduciaries failed to remove underperforming and fee-heavy funds from
their 401(k) investment options. The
Fourth Circuit Court of Appeals affirmed the District Court’s dismissal of the claim
as untimely. Finding that the complaint’s
allegations were “based on attributes of the funds that existed at the time of
their initial selection,” the Court held that, “at its core,” plaintiff’s
complaint was “simply another challenge to the initial selection of the funds
to begin with.” Id. at 341. A year later, in
Fuller
v. SunTrust Banks, Inc., 744 F. 3d 685 (11th Cir. 2014), the Court held, under a similar fact scenario,
that the accrual date for purposes of ERISA § 413 of an alleged breach was the
date of the initial selection, unless there existed circumstances or distinct
conduct separate from the initial fund selection. The Eleventh Circuit Court of Appeals
affirmed the District Court’s dismissal of plaintiffs’ claims as untimely.
In Tibble v. Edison Int’l., 2015 WL 2340845 (May 18, 2015), the United
States Supreme Court came to the opposite conclusion. The Court emphasized that, under trust law,
“a trustee has a continuing duty to monitor trust investments and remove
imprudent ones. This continuing duty
exists separate and apart from the trustees’ duty to exercise prudence in
selecting investments at the outset.”
The Court held that “as long as the alleged breach of the continuing
duty [to monitor] occurred within six years of suit, the claim is timely.” In doing so, the Supreme Court reversed the
Ninth Circuit’s decision, upon which the Court in Fuller had heavily relied.
The Supreme Court did agree with
the Fourth and the Eleventh Circuit on one thing: It explicitly declined to define what a
fiduciary’s continuing duty to monitor was
supposed to look like: “We express no
view on the scope of [defendants’] fiduciary duty.” Id. at. *5 (In both Fuller and David, the Courts were careful to decline to decide “whether a
fiduciary had an ongoing duty to remove imprudent investment options from a
Plan in the absence of a material change in circumstances.” Fuller, 744 F. 3d at 702; see also, David, 704 F. 3d at 341.) Instead, the Tibble Court remanded to the court below to consider whether the
defendants did in fact “conduct the sort of review that a prudent fiduciary
would have conducted absent a significant change in circumstances.” Id. at *5.
