The Ninth Circuit Questions the Sixth Circuit's Understanding of "Actual Knowledge" in ERISA Statute of Limitations Decision
January 2019 Business & Tax Law News
December 13, 2018
On November 28, 2018, the Court of Appeals for the Ninth Circuit issued an opinion in the matter of Sulyma v. Intel Corporation Investment Policy Committee, 2016 U.S. Dist. Lexis 186834 (2018) ("Intel"). In its opinion, the Court examines the question of what it means to have "actual knowledge" for purposes of applying Section 413 of the Employee Retirement and Income Security Act of 1974 ("ERISA").
The statute of limitations period contained in Section 413 provides that a plaintiff generally has six years in which to file suit for a breach or violation of a fiduciary duty. This period may be shortened to three years if the plaintiff had "actual knowledge" of the breach or violation. ERISA does not define what it means to have actual knowledge under Section 413. The Intel Court held that “actual knowledge” means that a plaintiff is actually aware of the facts constituting a breach, not merely that those facts were available to the plaintiff. The Ninth Circuit opinion is of interest because it is in conflict with the position held by the Court of Appeals for the Sixth Circuit.
Plaintiff, Sulyma, worked for the Intel Corporation from 2009 to 2012. Intel had multiple retirement plans in which Sulyma was a participant. Intel's plan trustees and investment committee were in charge of monitoring investments within Intel's retirement plans. Intel invested plan funds in alternative investments after 2008 to reduce market risk. Intel's choice of investments resulted in higher fees and lackluster performance. Intel disclosed its investment activities in various notices to participants and through postings on its website.
Sulyma filed suit in 2015 after discovering that his plan account had suffered losses as a result of Intel's investment choices. Sulyma's claims were that Intel was imprudent in its choice of investments, that Intel failed to monitor investment activities and that it failed to correct its poor investment decisions. Intel's defense was that Sulyma's lawsuit was barred by Section 413 of ERISA because Sulyma knew about Intel's investments more than three years before he filed suit. The District Court for the Northern District of California agreed with Intel and granted summary disposition to Defendants.
Actual Knowledge in the Ninth Circuit
On appeal, the Court of Appeals for the Ninth Circuit considered whether there was a potential question of fact that Sulyma actually knew about Intel's investment activities more than three years before filing suit.
The Court began its analysis by examining its prior cases applying Section 413. The Court focused on the fact that the original Section 413 contained a constructive knowledge standard but that the language was removed by the Omnibus Reconciliation Act of 1987. The Court determined that based on current law and precedent, "actual knowledge" is something more than knowledge that a transaction has occurred.
‘Actual knowledge' must therefore mean something between bare knowledge of the underlying transaction, which would trigger the limitations period before a plaintiff was aware he or she had reason to sue, and actual legal knowledge, which only a lawyer would normally possess… This leads us to the question of what this extra 'something' must entail.
The Court noted that the required level of knowledge will vary depending on the nature of the claim. A claim based on a prohibited transaction (a transaction that is illegal on its face) is deemed to be known at the time the plaintiff becomes aware of the transaction. A claim based on an imprudent investment will require something more than knowledge that the investment was made, e.g. knowledge of a trustee's lack of diligence in choosing an investment. "The key is that, whatever the underlying ERISA claim, the limitations period begins to run once the plaintiff has sufficient knowledge to be alerted to the particular claim."
The Court rejects the Defendants' position and the District Court's ruling that Plaintiff was made aware of Defendants' investment activities as a result of the notices and postings on Defendants' website.
Thus…we hold that the phrase 'actual knowledge' means the plaintiff is actually aware of the facts constituting the breach, not merely that those facts were available to the plaintiff.
The court determined that there was a question of fact as to Plaintiff's knowledge of Defendant's breach, making summary disposition as a matter of law improper.
A Difference of Opinion
The Ninth Circuit opinion is in conflict with the position held by the Sixth Circuit in Brown v. Owens Corning Investment Review Committee, 622 F.3d 564 (2010). The Court in Brown affirmed summary judgment to defendants on the basis that plaintiffs had actual knowledge after receiving written notice and having electronic access to plan documents.
The Court in Brown states:
[t]he Plaintiffs argue that even if the Plan participants were provided with access to the SPDs, this, at most, would amount to constructive knowledge of the terms contained therein, not actual knowledge. We disagree. Actual knowledge does not require proof that the individual Plaintiffs actually saw or read the documents that disclosed the allegedly harmful investments.
The Intel Court states "we would…characterize the plaintiff described in Brown as having constructive knowledge only. Under our interpretation of ERISA, such knowledge is insufficient."
There are differences among the Circuit Courts as to what amounts to actual knowledge with the Sixth and the Ninth Circuits perhaps representing the outliers. The Supreme Court examined the ERISA statute of limitations period in Tibble v. Edison, 134 S. Ct. 1823 (2015). The Court will need to revisit Section 413 to resolve the radically different views of the Sixth and Ninth Circuits.