Back in March of this year, two Intel retirement plans filed a writ of certiorari with the U.S. Supreme Court, asking the high court to step in and reconsider a decision handed down against the company in the 9th U.S. Circuit Court of Appeals late last year.
The Supreme Court granted the review in June, and the oral arguments in the case occurred last week. By way of background, in their writ, the Intel plan fiduciaries suggest a late-2018 decision out of the 9th U.S. Circuit Court of Appeals to revive claims previously dismissed as untimely by a Northern California district court created a division among the appellate courts as to whether the provision of plan documents, in itself, creates for participants “actual knowledge” of an alleged fiduciary breach under the Employee Retirement Income Security Act (ERISA).
In the initial district court decision from 2017, the judge sided with the Intel retirement plans, essentially ruling that the plaintiffs waited too long to file claims because they had gained “actual knowledge” of the alleged breach more than three years before the claims were filed. The main evidence used to show that participants had actual knowledge of the alleged wrongdoing was the fact that the plan had given regular printed and digital disclosures detailing its actions in terms of managing the plans’ investments. Case documents show these disclosures included annual notices, quarterly fund fact sheets, targeted emails, and two separate websites. The plaintiffs, on the other hand, continue to argue that Intel must prove that they had genuine subjective awareness of the alleged breach in order for the three-year limitations period to apply.
According to Willy Jay, a partner in and co-chair of Goodwin Procter’s appellate litigation practice, and Jaime Santos, a partner in the firm’s appellate litigation practice, the oral arguments in this case proved, as expected, to be quite dense and technical. Both in their opening arguments and in response to justices’ questions, the two sides presented very different positions about what it takes to establish “actual knowledge” under ERISA.
“One of the things that came up frequently during the oral arguments was how unique or even strange this specific statute of limitations is,” Santos says. “This actual knowledge requirement is not found in any other statute of limitations in the U.S. Code or in any other state code, I believe. So it’s a very unique provision in ERISA that we are talking about.”
According to the attorneys, one of the defendants’ primary arguments to the Supreme Court was that this is a unique provision for a reason. They argued ERISA creates very detailed and fairly burdensome disclosure requirements for plan fiduciaries that are specifically designed to give plan participants all the information they would need to vindicate their rights under the statute.
“Acknowledging the burden faced by plan fiduciaries, Congress chose to have a specific, shorter three-year limitations period under ERISA in these sorts of cases,” Santos adds. In her view, it would be “problematic” to not acknowledge that plan fiduciaries are making these disclosures and that participants have access to a wealth of information about their plans, investments, etc. It remains to be seen, of course, how the Supreme Court justices will feel about the matter.
Jay and Santos say there seemed to be several matters that received special attention from the justices.
“First, they were clearly trying to test the question of whether simply accepting the plaintiffs’ argument that they lacked sufficient subjective awareness of the type they say is required by the law to prove ‘actual knowledge’ would leave the three-year statute any real work to do,” Jay explains. “Second, there was substantial discussion of Intel’s argument about how the statute of limitations provision read when it was originally written.”
In basic terms, Intel’s counsel argued that “actual knowledge” should mean the same thing in the statute today as it did when it was written and enacted.
“When ERISA was enacted, it was understood that simply filing information directly with the Department of Labor was enough to create actual knowledge for participants, even in cases where those documents or disclosures were never sent directly to participants,” Jay explains. “According to Intel, with this history in mind, it doesn’t make sense to think that actual knowledge means something as robust as the plaintiffs are arguing. During their deliberation, the justices seemed to be quite interested in this statutory history.”
Taking a step back, the attorneys voiced some small confidence that Intel’s arguments may prevail, given the justices’ interest in the relevant statutory history and how the actual knowledge requirement was originally interpreted. But they warn it is at this stage impossible to know how the Supreme Court will rule. There could certainly be a surprising decision issued, or perhaps one which is constructed to be very limited in its implications for ERISA case law.
“What I felt like I saw in this case resembles what we’ve seen in other ERISA cases to come up this term, and what I think we will see in January when the U.S. Bank case is argued,” Santos says. “You have two sides who are very far apart in what they are arguing, and the justices I think don’t fully agree with either party. They may in the end see an opportunity to draw from both sides, both arguments. That makes it difficult to predict how these cases will come out.”
Another particular legal issue at question here which Santos and Jay will be watching closely can be framed as follows: If the court sides with the plaintiffs and requires proof of subjective awareness as a key part of establishing “actual knowledge” under ERISA’s three-year limitations period, what implications will that have on the filing of class action cases in the future?
“Several of the justices said they thought siding fully with the plaintiffs here would make it very difficult, if not impossible, to certify classes in the big ERISA cases we have now become familiar with,” Santos observes. “One thing I feel pretty confident about at this point is that this will not be the last we hear about the three-year statute of limitations. This point about class certification and subjective awareness is ripe for further litigation.”
One question that was not squarely presented by this case was whether a potential plaintiff has to just have actual knowledge of the facts to trigger the three-year period, or if he needs actual knowledge of the legal implications of those facts.
“This is something the justices wanted to talk about, but it wasn’t something that was presented directly in the petitions,” Jay notes.
“If we’re talking about what participants have to know as to the facts, it is important to acknowledge the disclosure requirements that Congress and the DOL have created require that the language of the disclosures be in plain English—which most people should be able to clearly understand,” Santos says. “The disclosures we’re talking about here cannot be made in jargon or in tiny fine print. Disclosure has to be done in a way that can be understood pretty clearly. So that’s important here, I think. When it comes to the relevant facts in these sorts of cases, the DOL has already done a lot of work to ensure the facts are available and understandable.”
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