SCOTUS 'Actual Knowledge' Ruling Bears 'Fruit'

If you’ve been wondering about the potential impact of the U.S. Supreme Court’s recent “actual knowledge” decision, wonder no more.

That Intel ruling, handed down in a unanimous ruling in February, held that you don’t need more than a dictionary to know the meaning of “actual knowledge” when it comes to participant awareness regarding 401(k) disclosures. Establishing when that knowledge took place is an essential element in setting the time limit to bring an ERISA claim—six years after the breach occurred, or three years following “actual knowledge” of that breach, whichever was shorter.  

Current Case

Enter the case of Bekker v. Neuberger Berman Grp. LLC (S.D.N.Y., No. 7:16-cv-06123), filed in August 2016 in the U.S. District Court for the Southern District of New York. It claims that fiduciaries of the Neuberger Berman Group 401(k) Plan forced the plan into “investments managed by Neuberger or an affiliated entity, which charged excessive fees that benefited Neuberger and the managers of the proprietary funds.”

In 2018, Judge Laura Taylor Swain dismissed the plaintiff’s primary claim—but allowed him to restate that claim in May 2019, finding that “…resolution of the question of Plaintiff's actual knowledge of the basis of his breach of fiduciary duty claim also requires discovery similarly narrowly targeted to that issue.”

‘Actual Knowledge’ Knowledge 

Now, following the Supreme Court’s ruling in the Intel case, plaintiff Bekker (represented by Bailey & Glasser LLP) wrote to Judge Swain, noting that in the defendants’ motion for summary judgment, they claimed Bekker’s claim was brought too late (“time-barred” in legal parlance), arguing that “because information about the fees and performance of the Value Equity Fund, the proprietary fund about which Plaintiff complains, was available to Plaintiff, he had actual knowledge of the contents of such disclosures,” citing the fact that the Supreme Court had agreed to review that very issue in the Intel case cited above. 

In his February 27 letter to Judge Swain (the day after the Inteldecision), plaintiff Bekker noted that that ruling “…unequivocally rejects Defendant’s argument,” and that “just as the Supreme Court found that mailed and online disclosures were insufficient to prove ‘actual knowledge’ in the Intel case, so to this Court must find mailed and online disclosures are insufficient to prove ‘actual knowledge’ of Plaintiff’s claims here.”
 

‘Why’ Knots

Judge Swain then corresponded with the parties, calling on the Neuberger Berman defendants to “…show, by written submission of no more than five (5) double-spaced pages, cause why their pending Summary Judgment Motion (Docket Entry No. 106) should not be denied in light of the factual issues identified in their February 28 letter” to be filed by March 20, 2020, with “plaintiffs’ reply submission, if any, of no more than three (3) double-spaced pages” to be filed by March 27, 2020.

Well, now we have a response—of sorts. In a letter dated March 23, “the Parties write to inform the Court that they have made significant progress toward settlement of this matter and jointly request a stay of all deadlines, including Plaintiff’s Response to Defendant’s memorandum pursuant to the Court’s show-cause order.” More specifically, they parties said they “anticipate filing a motion for preliminary approval of a class settlement pursuant to Fed.R.Civ.P. 23 within 60 days of today.”

We shall see what that settlement entails.

What This Means

At the time of the Intel decision, I noted that the ruling would make it harder for plan fiduciaries to claim that effective notice has been provided by the series of disclosures, mandated and otherwise, that are purportedly designed to not only communicate plan specifics—and to establish a point of reference from which the statute of limitations might objectively be established. 

It seems obvious that plan fiduciaries will, going forward, implement measures that will seek to reset that balance—including the implementation of more specific validation that the disclosures were, in fact, seen and read. And as for those who thought that an opportunity to know would be viewed as actual knowledge… well, now we know better.