In a case with huge implications for the impact of plan disclosures on starting the clock on the timing of filing suit in ERISA cases, the federal government says that “actual knowledge” means just that.
In an amicus brief filed with U.S. Supreme Court, U.S. Solicitor General Noel J. Francisco and lawyers from the Labor Department have thrown their support (Intel Corp. Investment Policy Comm. v. Sulyma, U.S., No. 18-1116, amicus briefs 10/28/19) behind Christopher Sulyma, a former participant in the Intel plan.
In June, the nation’s highest court opted to take on a review (Intel Corp. Inv. Policy Comm. v. Sulyma, U.S., No. 18-1116, cert. granted 6/10/19) of a decision[1] by the U.S. Court of Appeals for the 9th Circuit which said that “…‘actual knowledge’ means 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.”
More precisely, the issue under consideration is “[w]hether the three-year limitations period in Section 413(2) of the Employee Retirement Income Security Act, which runs from 'the earliest date on which the plaintiff had actual knowledge of the breach or violation,' bars suit when all the relevant information was disclosed to the plaintiff by the defendants more than three years before the plaintiff filed the complaint, but the plaintiff chose not to read or could not recall having read the information.”
Case History
The friend of the court (amicus) brief notes that while the plaintiff accessed the NetBenefits website numerous times, he testified that he did not review the fund fact sheets referred to in the summary plan description and posted on the NetBenefits website, that he did not recall receiving or reviewing the summary plan descriptions and that he “was unaware that the monies that [he] had invested through the Intel retirement plans had been invested in hedge funds or private equity” until consulting with counsel before filing suit. Moreover, that while he “recalled reviewing certain periodic account statements," but those statements said “nothing about investments in private equity or hedge funds,” and that “while he worked at Intel, he had little experience with financial issues, and didn’t know what ‘hedge funds,’ ‘alternative investments,’ and ‘private equity’ were.”
In support of Sulyma’s position, the brief explains that “the court of appeals was correct that the statute ‘means what it says.’” More specifically, the Solicitor General notes that in order to trigger Section 1113(2), “the plaintiff must have actual knowledge of the breach or violation, not constructive knowledge. That is the plain meaning of the term ‘actual’ in this context: existing in fact, rather than imputed by law.”
With regard to the argument that actual knowledge should be deemed based on the contents of the disclosures that ERISA requires be provided to the plaintiff, even if the plaintiff does not read those disclosures, the Intel defendants had equated that with the doctrine of “willful blindness.” But the Solicitor General said that “willful blindness is not a form of actual knowledge, and it applies only when a person takes deliberate steps to avoid acquiring knowledge.” The brief noted that Intel sought “a conclusive legal presumption that plan participants actually know all the information in the mandatory disclosures made available to them, no matter what,” but that that was “at best a form of constructive knowledge, and constructive knowledge is not enough.
“If other fiduciaries or the Secretary were deemed to have actual knowledge of all the mandatory ERISA disclosures they receive or possess, they could regularly have only three years, rather than six years, to investigate potential misconduct and decide whether to bring a civil action,” the government said.
The Supreme Court will hear arguments in the case Dec. 4. It’s just one of three ERISA cases on the Supreme Court’s docket this term.
Footnote
[1]The lower court had ruled in favor of the Intel fiduciaries, noting that while the plaintiff was an Intel employee he had access to a number of financial documents, including plan documents, fund facts sheets and summary plan descriptions, which included information about plan asset allocations and an overview of the logic behind the investment strategy. This access gave Sulyma “actual knowledge” of the alleged violations three years before he sued, the court ruled, before being overruled by the appellate court.
The original lawsuit, filed in November 2015 in the U.S. District Court for the Northern District of California by former Intel employee Sulyma (who turns out to be an engineer with a doctorate in experimental physics), claimed that participants were not made fully aware of the risks, fees and expenses associated with the hedge fund and private equity investments, or of the underperformance of the company’s target-date and global diversified funds compared to their peers, and that as a result participants “suffered hundreds of millions of dollars in losses during the six years preceding the filing of this Complaint as compared to what they would have earned if invested in asset allocation models consistent with prevailing standards for investment experts and prudent fiduciaries.”
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