Eleventh Circuit orders reconsideration of pre-Tibble fiduciary breach cases dismissed as time barred

The U.S. Court of Appeals in Atlanta (CA-11) has vacated and remanded two prior decisions that applied an interpretation of ERISA’s 6-year statute of limitations that was subsequently rejected by the U.S. Supreme Court. The cases were remanded for reconsideration consistent with the continuing duty of care standard validated by the Supreme Court.

Proprietary mutual funds

A bank sponsored a 401(k) plan that provided plan participants with various investment vehicles in which to invest their individual account assets. Among the investment options selected by the bank’s plan committee, beginning in 1997, were proprietary mutual funds of the bank. The funds were offered and managed by subsidiaries of the bank and the subsidiaries received as revenue all of the funds’ management fees. The proprietary funds were the exclusive investment vehicle under the plan until 2005, when it began to offer non-proprietary funds.

An employee who had invested in three of the funds terminated employment at the bank, receiving a full distribution of her account balance in October 2005. However, in March 2011, the employee filed a class action suit alleging ERISA violations by the bank and members of the plan committee. Primarily, the employee alleged that the fiduciaries acted in their own financial interest and not that of the plan participants by: (1) selecting the proprietary funds and (2) then repeatedly failing to remove or replace the funds, despite their poor performance and high fees relative to unaffiliated investment vehicles. The plan committee, the employee charged, knew or should have known that the proprietary funds had not been prudently selected. In addition, the committee members, at each meeting, had cause to remove the funds based on poor performance and high fees, but failed to do. The failure of the fiduciaries to consider and obtain less expensive and better performing unaffiliated funds and services, the employee stressed, worked to the detriment of the plan beneficiaries, while benefitting the bank’s subsidiaries and affiliates. The trial court dismissed the case as time-barred.

Note: In the interim period, before the appellate decision, the district court addressed failure to remove claims that were based on the same facts, but filed by different plaintiffs. The trial court determined that the employee’s claims were barred by the 6-year limitations period, explaining that, while the initial selection of the proprietary funds may have been imprudent, no change occurred during the expired 6-year limitations period that was sufficient to establish a new and independent breach (Stargel v. SunTrust Bank, Inc., DC Ga (2013), 2013 WL 4775918).

Appeals court rejects continuing violation standard. In similarly applying the 6-year limitations period, the appeals court expressly rejected the employee’s argument that the fiduciaries’ continued failure to heed warnings of the funds’ low performance and high fees, or to seek out such information, constituted a “distinct, cognizable” breach separate from the alleged breach that occurred at selection. The failure to remedy an initial breach, absent intervening circumstances (i.e., declining fund performance, increased fees, new conflicts of interest) does not establish a new breach sufficient to trigger a new 6-year limitations period. Recognizing such a continuing violation theory would, the court advised, “thwart” the purposes of ERISA’s 6-year limitations period (Fuller v. SunTrust Banks, Inc., CA-11).

Impact of Tibble

Subsequent to the disposition of the Fuller and Stargel cases, and while appeals were pending, the U.S. Supreme Court unanimously validated the continuing duty standard under which fiduciaries have a continuing duty, separate and apart from their responsibility to exercise prudence in initially selecting plan investments to monitor and remove imprudent plan investments (Tibble v. Edison International). Thus, a suit brought within 6 years of an alleged breach by fiduciaries of their continuing duty to monitor and remove imprudent plan investments will be barred by ERISA’s statute of limitations.

Noting that Tibble “essentially abrogates” and “undermines” the reasoning of the Fuller and Stargel courts with respect to the application of ERISA’s 6-year statute of limitations, the Eleventh Circuit vacated and remanded the cases

Note: The court cautioned that Tibble did not overturn the court’s prior affirmance of the judgment in Fuller. By remanding the case, the court was merely returning jurisdiction to the trial court for consideration of any post-judgment motions the employee wished to make. The Eleventh Circuit offered no opinion on the proper resolution of such motions.

Source: Stargel v. Sun Trust Bank, Inc. (CA-11).

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