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High Court Seeks Government View in Tibble; Limitations Period, Deference Level at Issue

Tuesday, March 25, 2014

By Jacklyn Wille  

March 24 --Signaling its potential interest in plan fee litigation, the U.S. Supreme Court invited the U.S. Solicitor General to file a brief expressing the government's views in a widely publicized plan fee case involving the statute of limitations applicable to claims challenging fiduciaries' selection of plan investment options.

In 2013, the U.S. Court of Appeals for the Ninth Circuit issued a lengthy ruling in a challenge by participants in Edison International's Section 401(k) plan to certain plan fees and revenue-sharing arrangements. The Ninth Circuit ruled in favor of the participants on their challenge to the plan's inclusion of retail-class mutual funds, but it dismissed other claims as time-barred and found that plan fiduciaries' interpretation of plan terms was entitled to deference.

The Ninth Circuit's ruling was one of three recent circuit court cases to reject the “continuing violation” theory of claim accrual for purposes of challenges to plan investments. Both the U.S. Courts of Appeals for the Fourth and Eleventh Circuits have recently rejected challenges to plan investments that were selected outside of the Employee Retirement Income Security Act's six-year window for bringing fiduciary breach claims.

In each of these cases, the courts have focused on the absence of any allegations that the complained-of funds became imprudent after their initial selection for inclusion in the plan.

The high court issued its invitation in the Tibble case on March 24. Such an invitation can indicate that the high court is considering granting review.

The court issued a similar invitation in another ERISA case involving equitable tracing last October. The court hasn't announced whether it will hear the Thurber case.

Case 'Important to ERISA Litigators.'

Gretchen S. Obrist, an attorney with Keller Rohrback's complex litigation group in Seattle, said the case presented two important issues for ERISA litigators.

“Both issues for which the plaintiffs requested review are important to ERISA litigators, particularly the question of whether to afford Firestone deference to fiduciaries defending fiduciary breach claims,” Obrist, who isn't involved in this case, told Bloomberg BNA in a March 24 e-mail.

“If it takes the case, the Supreme Court may decide not only whether Firestone deference ever applies outside the claim-for-benefits context for which that standard developed, but also how far outside that context and into ERISA Section 502(a)(2) fiduciary breach claims it could reach,” Obrist said. “In Tibble, the Ninth Circuit's Firestone deference holding was amended to limit its reach and to clarify that it was tied closely to the fact that the cause of action in question was a prudence challenge under ERISA Section 404(a)(1)(D)--which only requires action 'in accordance with' plan documents and instruments. Other courts--such as the Eighth Circuit just last week in Tussey v. ABB--have applied Firestone deference more broadly.”

Obrist, who represents plan participants, said she didn't think that the level of fiduciary deference articulated by the Supreme Court in Firestone Tire & Rubber Co. v. Bruch, 498 U.S. 101 (1989) should be applied to any fiduciary breach analysis.

However, she added that “a Supreme Court holding limited along the lines of the Ninth Circuit's amended Tibble opinion would at least spare statutory prudence and loyalty challenges under ERISA Sections 404(a)(1)(A), (B) and (C) from this framework and preserve the prudent person standard in a broad range of claims.”

Moreover, Obrist said that the Supreme Court's invitation to the solicitor general demonstrated that the court was “seriously considering” accepting the case.

“A brief from the government would lend a welcome perspective to the questions presented, given the U.S. Department of Labor's ongoing interest in protecting participants and plan savings from waste and keeping a spotlight on the corrosive impact of high fees and conflicts of interest on retirement savings,” Obrist said. “Participants would benefit from a robust statement by the government that chipping away at ERISA's statutory duties, even if limited to ERISA Section 404(a)(1)(D) claims, should be rejected.”

No Continuing Violation Theory

In March 2013, the Ninth Circuit held that the fiduciaries of Edison's 401(k) plan breached their fiduciary duty of prudence by including retail-class mutual funds in the plan's investment lineup without investigating the availability of institutional-class funds.

However, in dismissing other claims as time-barred by ERISA's six-year limitations period, the Ninth Circuit declined to adopt a “continuing violation” theory of claim accrual in challenges to plan investments. Both the plan participants and the Department of Labor as amici urged the Ninth Circuit to find that claims against plan investments are timely as long as those investments remain in the plan.

Abuse of Discretion Review

The Ninth Circuit also used the Tibble case to side with the U.S. Courts of Appeals for the Third and Sixth Circuits on the appropriate standard of judicial deference to be afforded to plan fiduciaries defending claims of breach.

Joining the Third and Sixth Circuits--and rejecting the approach taken by the Second Circuit--the Ninth Circuit held that abuse-of discretion review applied in situations in which the relevant plan document conferred interpretive authority on the plan administrator.

Last August, the Ninth Circuit revised this portion of the Tibble ruling to clarify that it didn't explicitly reject the standard of judicial review adopted by the Second Circuit in John Blair Commc'ns Inc. Profit Sharing Plan v. Telemundo Grp. Inc. Profit Sharing Plan, 26 F.3d 360 (2d Cir. 1994).

In the amended ruling, the Ninth Circuit said that John Blair “was an attempt by a fiduciary to escape from otherwise applicable duties on the basis of a plan interpretation.”

Conversely, the Ninth Circuit found that the Edison fiduciary hadn't made such an argument, and that the participants' claim “rises or falls exclusively on what [the plan] allows,” rather than on a potential violation of the fiduciary duty of prudence.

Petition for Review

In the employees' petition for review, they focused on the portions of the Ninth Circuit's ruling related to the statute of limitations and to the appropriate level of fiduciary deference.

Specifically, they asked the high court: (1) notwithstanding the ongoing nature of ERISA's fiduciary duties, does the statute of limitations under ERISA Section 413(1) immunize Section 401(k) plan fiduciaries for retaining imprudent investments that continue to cause the plan losses if the funds were first included in the plan more than six years ago? and (2) does the standard of deference articulated in Firestone Tire & Rubber Co. v. Bruch, 498 U.S. 101 (1989), apply to fiduciary breach decisions under ERISA Section 502(a)(2), where the fiduciary allegedly violated the terms of the governing plan document in a manner that favors the financial interests of the plan sponsor at the expense of plan participants?

The petition for review was filed by Schlichter, Bogard & Denton LLP.

 

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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