The Supreme Court just vacated a judgment that enforced a six-year statute of limitations against beneficiaries of a employer savings plan.
The ruling reinforces the view that this Court feels little love for limitations defenses. It suggests the Court prefers getting to legal substance.
Claims under ERISA
The Employee Retirement Income Security Act of 1974 governs savings, pension, and other plans that companies set up to benefit employees and their families. The statute protects plan beneficiaries partly by giving them the right to sue the plan sponsor (the employer) and other plan fiduciaries (often officers of the sponsor) for breaching their fiduciary duties to the plan and plan beneficiaries.
One kind of ERISA claim challenges the prudence of plan investment options on the ground that the plan and its fiduciaries should have periodically reviewed those options and substituted lower-cost alternatives.
The plaintiffs in Tibble v. Edison Int'l, No. 13-550 (U.S. May 18, 2015), made just such a claim. They alleged that the Edison 401(k) Savings Plan's sponsor (the power generator Edison International) and the Plan's fiduciaries violated their duty of care by not monitoring the mutual funds that the Plan offered and swapping less expensive choices for the existing ones.
The district court granted the motion of Edison and the other defendants for summary judgment on the ground that the six-year statute of limitations expired before plaintiffs sued. It allowed the Tibble plaintiffs to argue that the Plan's fiduciaries should have conducted a review of investment options within the limitations period but rejected their argument, holding that Tibble and the others "had not met their burden of showing that a prudent fiduciary would have undertaken a full due-diligence review of these funds as a result of the alleged changed circumstances." Tibble, slip op. at 3. The Ninth Circuit affirmed. Tibble v. Edison Int'l, 729 F.3d 1110 (9th Cir. 2013).
The Supreme Court unanimously disagreed with the courts below. Per Justice Stephen Breyer, the Court concluded that the district court and court of appeals had applied too stringent a test for when a change in circumstances triggers a fiduciary's duty to review the investment options of plan participants.
Justice Breyer noted that, "under trust law, a fiduciary normally has a continuing duty of some kind to monitor investments and remove imprudent ones." Id. at 6. The Ninth Circuit erred by not "considering the nature of the fiduciary duty" and by failing to "recognize that under trust law a fiduciary is required to conduct a regular review of its investment with the nature and timing of the review contingent on the circumstances." Id. at 5.
Because the Ninth Circuit required proof of a "significant" change in circumstances before a duty to reevaluate investment choices arose, the Court vacated the decision and remanded to the Ninth Circuit "to consider petitioners' claims that respondents breached their duties within the relevant 6-year period under 1113, recognizing the importance of analogous trust law." Id. at 7.
Last May, the Court ruled against another defendant who complained about the tardiness of a lawsuit. In Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014) (post here), the Court held that a laches defense cannot override Congress's judgment to allow suits under copyright law to collect damages for a three year "look-back" period.
The outcomes in Tibble and Petrella support the view that the Court gives narrow play to procedural defenses like limitations.
Limitations defenses present especially thorny issues for plaintiffs. The plaintiff may take the case all the way to verdict before she learns that limitations bars her claim. Plaintiffs should prefer to get that over soon, before they've spent a lot of time and resources on the case. Delaying judgment day on limitations thus may end up doing more harm to the plaintiffs — and their contingent-fee counsel — than good.