Appeals Court Green Lights ERISA Fiduciary Breach Suit

December 2, 2002 ( - A Pennsylvania company can proceed with its ERISA lawsuit against a financial services provider for not transferring its profit-sharing plan's assets into separate investment accounts in a timely manner, a federal appeals court ruled.

The US 3 rd Circuit Court of Appeals ruled that the lawsuit by Richard Roush Inc. was not barred by ERISA’s three-year statute of limitations for claims of breach of fiduciary duty and reversed a contrary ruling by a lower court jurist, Washington-based legal publisher BNA reported.

Although company officials knew the asset transfer by New England Mutual Life Insurance Co. had not taken place, they didn’t know that that failure represented an ERISA fiduciary breach. That’s why the three-year clock hadn’t expired, the appeals judges ruled.

The BNA story presented this case background:

In 1994, a year after Roush established a profit-sharing plan, an individual representing himself as an insurance agent for New England Mutual Life Insurance Co. approached the company about transferring its profit-sharing plan to New England Mutual.

Roush decided to transfer its plan account to New England Mutual and executed plan documents setting up various investment accounts that plan participants could select to invest their funds. In May 1995, the participants completed forms selecting their investment funds and the plan transferred almost $1 million to New England Mutual.

However, New England did not immediately allocate the plan’s assets to the designated investment accounts. While the transfer of assets took place in May 1995, it was not until six months later that New England Mutual actually transferred the plan’s assets into the accounts designated by the participants.

In December 1995, a New England Mutual lawyer sent a letter to Roush admitting New England Mutual’s failure to invest properly Roush’s funds.

After the assets were transferred to the designated accounts, Roush asked New England Mutual to make an adjustment to compensate the participants for the interest and earnings that would have been earned during the six months that New England Mutual delayed in transferring the assets.

New England Mutual refused and Roush filed the ERISA fiduciary breach lawsuit in March 1999.

Lower Court Throws Out Roush Suit

A federal judge in the US District Court for the Middle District of Pennsylvania dismissed the lawsuit as time-barred, ruling that Roush had “actual knowledge” in December 1995 of New England’s breach but that Roush waited until 1999 to bring a lawsuit.

The appeals court disagreed. The appeals judges said that a plaintiff must have knowledge of the events that occurred that constitute a breach and actual knowledge that the events support a claim of breach of fiduciary duty under ERISA.

The court said Roush had no reason in December 1995 to believe it had a cause of action under ERISA because New England’s attorney had promised that the violations would be fixed. “It would be ludicrous to require a claimant who had been informed that his claims would be favorably resolved or that ‘the check is in the mail’ to institute immediately a legal action seeking to rectify the violations of which he complained and which were now to be cured,” the court said.

The case is Richard B. Roush Inc. Profit Sharing Plan v. New England Mutual Life Insurance Co., 3d Cir., No. 01-4156, 11/27/02).