Intel Corp. Investment Policy Committee v. Sulyma

Issues

Does the three-year limitations period under Section 413(2) of the Employee Retirement Income Security Act of 1974 (“ERISA”) start to run when the plaintiff learns of an alleged breach of fiduciary duty or when the plaintiff has access to relevant information that shows the alleged breach but did not read or understand that information?

Oral argument:

December 4, 2019

Court below:

United States Court of Appeals for the Ninth Circuit

The Supreme Court will decide when Section 1113(2) of the Employee Retirement Income Security Act’s statute of limitations begins to run. Both parties agree that the text of Section 1113(2) establishes that the three-year statute of limitations runs from the date on which the plaintiff had actual knowledge of a violation, but dispute what actual knowledge means. Petitioner Intel Corp. Investment Policy Committee argues that actual knowledge means being in possession of proof of the violation, whether a plaintiff is aware of the violation or not. Respondent Christopher M. Sulyma argues that actual knowledge means when the plaintiff is fully aware and understands that a violation took place. The Court’s decision will affect both employers’ incentives to offer retirement plans and also employees who struggle to comprehend the complex and lengthy plan documents provided to them by their employers.

Questions as Framed for the Court by the Parties

Whether the three-year limitations period in Section 413(2) of the Employee Retirement Income Security Act, which runs from “the earliest date on which the plaintiff had actual knowledge of the breach or violation,” bars suit when all the relevant information was disclosed to the plaintiff by the defendants more than three years before the plaintiff filed the complaint, but the plaintiff chose not to read or could not recall having read the information.

Facts

Petitioners Intel Corp. Investment Policy Committee, et al. (collectively, “Intel Corp.”) employed Respondent Christopher Sulyma from 2010 to 2012. Sulyma v. Intel Corp. at 4. During this time, Sulyma enrolled in two retirement plans—the Intel Retirement Contribution Plan and the Intel 401(k) Savings Plan—both of which are governed by the Employee Retirement Income Security Act of 1974 (“ERISA”). Id. Intel required Sulyma to invest the money in his retirement plans in the Intel Global Diversified Fund and the Intel Target Date 2045 Fund. Id. An Intel investment committee managed these funds and chose their asset allocations. Id. Additionally, an Intel administrative committee disclosed information about the retirement plans to participants. Id. at 5.

After the 2008 financial crisis, Intel began significantly investing the funds in the retirement plans in “alternative investments,” such as hedge funds, to reduce investment risks through greater diversification. Id. However, the increased alternative investments resulted in lower returns during periods of strong returns in the equity market. Id. Because the equity market did improve after the financial crisis, Intel’s Funds performed poorly compared to similar portfolios. Id.

Intel informed plan participants of the investment decisions, including the strategy and rationale for investing in alternative investments, via documents available on two websites. Id. Additionally, Intel notified participants in 2010 that the 2045 Fund was performing worse than comparable portfolios because the Fund invested more in hedge funds. Id. However, Sulyma testified that he was not aware during his employment at Intel that his retirement funds were invested in alternative investments. Id.

In 2015, after Sulyma learned of the funds’ poor performance, he filed several claims against Intel Corp., alleging among other claims, that it breached its fiduciary duties in managing the funds as required by 29 U.S.C. § 1104 of ERISA. Id. Intel moved to dismiss Sulyma’s claims as untimely under 29 U.S.C. § 1113(2) claiming that an action under Section 1104 must be brought within “three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation.” Id. at 6. The U.S. District Court for the Northern District of California (the “District Court”) converted the motion to dismiss to a summary-judgment motion. Id. The District Court granted summary judgment in favor of Intel and held as a matter of law that Sulyma had “actual knowledge” of the alternative investments for more than three years prior to filing his lawsuit because the knowledge was available to him on Intel’s website. Id. Sulyma appealed the decision, stating that the District Court had applied the wrong standard of “actual knowledge.” Id.

The U.S. Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) determined that “actual knowledge” requires that the plaintiff was actually aware of the breach, which is distinct from “constructive notice” that merely requires that the plaintiff could have accessed the information to learn of the breach. Id. at 14. Thus, the Ninth Circuit determined that the statute of limitations begins running for Section 1104 claims when the plaintiff “was actually aware that the defendant acted imprudently.” Id. The Ninth Circuit reversed and remanded the case to the District Court to decide issues of material fact as to whether Sulyma had actual knowledge of the breach. Id. at 18.

Following the Ninth Circuit’s decision, Intel Corp. petitioned the Supreme Court of the United States for a writ of certiorari on the Ninth Circuit’s holding on the statute of limitations issue. Petition for Writ of Certiorari at i. On June 10, 2019, the Supreme Court granted Intel Corp certiorari. Orders and Proceedings, 18-1116.

Analysis

STATUTORY INTERPRETATION OF SECTION 1113(2)’S ACTUAL KNOWLEDGE REQUIREMENT

Intel argues that ERISA’s limitations provision, Section 113(2), should be interpreted to mean that “actual knowledge” is satisfied when a person possesses the required disclosures made by their employer pursuant to other ERISA provisions. Brief for the Petitioners, Intel Corporation Investment Policy Committee et al. at 21–22. Intel explains that Section 1113(2) must be construed in light of ERISA’s enforcement scheme, which mandates that employers disclose the purpose of providing information to plan participants. Id. at 22. According to Intel, because ERISA does not define “actual knowledge,” the Court must apply the fundamental principle of statutory construction that requires looking to the context of a term’s usage to interpret it. Id. at 22. Intel points to ERISA’s extensive mandatory disclosure provisions as providing the relevant context for interpretation. Id. at 22. They assert that the provision’s language supports the argument that a plan participant has “actual knowledge” of all information in his possession because it was disclosed under ERISA’s disclosure scheme. Id. at 22. Intel alleges that it does not matter if the participant has actually read the information or is willfully blind, “actual knowledge” rests in possession of the relevant information that establishes the breach. Id. at 22–23. Intel addresses how courts have interpreted “actual knowledge” differently depending on the context but contends that ERISA’s disclosure provisions support their reading of the standard. Id. at 24–25. Additionally, Intel contends that Section 1113(2)’s phrase “had actual knowledge” implies that possession of the material is sufficient because “to ‘have’ something means to ‘be in possession of (something received, acquired, earned, etc.).’” Id. at 27.

In response, Christopher M. Sulyma (“Sulyma”) counters that Section 1113(2)’s “actual knowledge” provision should be interpreted to mean whether a person actually knew about the breach of fiduciary duty, not just whether ERISA’s disclosure requirements made the information about the breach available. Brief for Respondent, Sulyma at 15. In response to Intel’s argument about using context to interpret the term “actual knowledge,” Sulyma contends that a context-based interpretation is inappropriate when a term is unambiguous, such as with the term “actual knowledge.” Id. at 16. They assert that because ERISA does not define the term “actual knowledge,” the ordinary meaning of the phrase must govern. Id. at 16. Sulyma explains that the ordinary meaning of “actual” is “existing in fact or reality” and the ordinary meaning of “knowledge” is “the state of fact or knowing” or “familiarity, awareness, or understanding gained through experience or study.” Id. Therefore, they contend that the ordinary meaning of “actual knowledge” is to have real awareness. Id. at 16. Sulyma explains that even if a word is to be interpreted based on context, Intel’s argument would render the term “actual” that modifies “knowledge” meaningless, thus violating the tenet that no part of a statute be read in a manner that renders another part inoperative. Id. at 32–34. Additionally, Sulyma asserts that the context, structure, and history support their reading of “actual knowledge” because nothing in the surrounding text of the statute suggests anything besides the ordinary meaning. Id. at 18. Sulyma also points to other limitations provisions within ERISA which commence when the plaintiff “should have acquired actual knowledge.” Id. at 19–20. According to Sulyma, the language used in these provisions confirms that actual knowledge “cannot include knowledge that the plaintiff should have acquired, but did not in fact acquire, for then the words ‘should have acquired’ would be superfluous.” Id. at 19.

CONSTRUCTIVE KNOWLEDGE STANDARD

Intel asserts that Section 1113(2)’s imposition of “actual knowledge” does not mean interpreting that term to require “constructive knowledge.” Brief for the Petitioners at 34. They contend that constructive knowledge is implied when the information a person possesses “triggers” a duty to learn more which would, in turn, reveal information of the breach. Id. at 34. According to Intel, the difference here is that a plan participant would not have to conduct any investigation because the ERISA disclosures already provide plan participants with the necessary information and do not trigger any duty to further inquire about any facts possibly not initially disclosed. Id. at 35–36. Additionally, Intel argues that Section 1113(2)’s prior repeal of a constructive knowledge provision does not have any bearing on interpreting the current “actual knowledge” provision. Id. at 38. Intel explains that the repealed constructive knowledge provision created a “narrowly targeted standard” that only applied to information in reports filed with the Secretary of the Department of Labor. Id. at 38. They assert that this constructive knowledge provision charged plan participants with the knowledge of information held by a third party, not provided to them personally. Id. at 39. According to Intel, this suggests that Congress understood knowledge of information in the direct possession of a plan participant as “actual knowledge.” Id. at 39.

In response, Sulyma agrees that Section 1113(2)’s use of the phrase “actual knowledge” does not impose a constructive standard but argues that this distinction supports the plain-language meaning of “actual knowledge.” Brief for Respondent at 15. Sulyma asserts that Intel’s argument rests on incorrectly reading the word “knowledge” to mean “constructive knowledge.” Id. at 14–16. Sulyma explains that as a term of art, “knowledge” can mean different things including both actual and constructive knowledge. Id. at 16. However, Sulyma continues, there is a key distinction between actual and constructive knowledge. Id. at 17. Actual knowledge is an “express information of fact” and constructive knowledge is a “legal inference.” Id. at 17. According to Sulyma, this distinction validates their interpretation of “actual knowledge” in Section 1113(2) because the provision uses the term unambiguously. Id. at 17–18. Sulyma asserts that because Congress must have been aware of this distinction at the time of drafting, the only appropriate way to read Section 1113(2) is as “actual knowledge” because if Congress meant constructive knowledge, the statute would have said so. Id. at 17–18.

Discussion

BALANCING EMPLOYEE RIGHTS WITH EMPLOYER BURDENS

The National Association of Manufacturers (“NAM”) and others, in support of Intel, argue that interpreting ERISA’s limitations period to run only when a person has actual knowledge—not constructive knowledge—would discourage employers from providing retirement benefits to employees, harming both employers and employees. Brief for Amici Curiae of the National Association of Manufacturers et al. (“NAM”), in Support of Petitioners at 19. NAM explains that the statute and its constructive knowledge standard ensures that employers’ liability is limited in exchange for offering their employees retirement benefits. Id. NAM cites surging ERISA litigation and pressure to settle these lawsuits as a current burden on employers which will be exacerbated if plan participants are allowed to bring claims against employers several years after the contested investment strategy was made available to participants. Id. at 20.

According to NAM, such an interpretation of ERISA may motivate plan participants to “disavow” knowledge and delay bringing a claim until they see how their investments perform. Id. Because only the participants know if they actually read the disclosure, NAM asserts that employers will be left with no way to prove knowledge. Id. at 22. Further, NAM cites the Ninth Circuit’s holding that “actual knowledge” was not established despite evidence that Sulyma visited Intel’s websites and accessed the relevant information as proof of the high burden to establish “actual knowledge,” which makes the three-year limitation period essentially meaningless. Id. at 23–25. NAM argues that because Congress enacted both a three-year statute of limitations period and a six-year statute of repose for ERISA claims, it is clear Congress meant for “actual knowledge” to be established when the requisite knowledge is available to plan participants. Id. at 25.

AARP and the AARP Foundation (collectively, “AARP”), in support of Sulyma, counter that Congress enacted the six-year statute of repose for ERISA claims in 29 U.S.C. § 1113(2) to balance the rights of employees to avoid unduly burdening employers. Brief for Amici Curiae AARP and AARP Foundation (“AARP”), in Support of Respondent at 5. According to AARP, this statute of repose exempts employers from liability after six years, which provides the certainty that ERISA promises employers. Id. However, AARP notes that the six-year period also protects plan participants and allows them to bring valid claims against imprudent fiduciaries. Id. at 6. AARP states that given the complex nature of investment disclosures and the overwhelming abundance of information available online to participants, many participants simply do not have the time, energy, or resources to navigate these hurdles. Id. at 16. Thus, according to AARP, reducing the limitations period would amount to punishing participants for their inability to process complex information which they state would be contrary to the very “foundation” of ERISA that “empower[s] participants to bring suit.” Id. at 16–17.

Furthermore, AARP asserts that there is no evidence to support NAM’s contention that participants will willfully ignore mandated disclosures in the off chance that there may be a breach of fiduciary duty and that they can have a longer limitations period if they do not immediately avail themselves of the disclosed information. Id. at 15. The United States, arguing in support of Sulyma, also disagrees with NAM’s argument that proving “actual knowledge” is extremely burdensome for employers. Brief for Amicus Curiae of the United States, in Support of Respondent at 30. They explain that courts routinely engage in determining “actual knowledge” in other contexts and there is no reason why an inquiry in ERISA cases would be unduly difficult for employers. Id.

PURPOSE OF PLAN DISCLOSURES AND AVOIDANCE OF HINDSIGHT BIAS

NAM, in support of Intel, argues that a narrow reading of “actual knowledge” undermines the value of plan disclosures. Brief of NAM at 21. NAM states that fiduciaries rely on the mandated disclosures to communicate relevant information to plan participants because there is no other way to effectively communicate with the large number of participants. Id. NAM contends that if participants have no incentive to read the plan disclosures, then it leaves employers with no reliable way to establish knowledge. Id. at 22. NAM also argues that the Ninth Circuit decision would introduce hindsight bias into ERISA litigation. Id. at 26. They argue because it is easy to criticize a poorly performing investment strategy after-the-fact and difficult to foresee a strategy’s performance, a three-year statute of limitations forces plan participants to decide whether or not the fiduciary acted imprudently promptly after investment decisions are disclosed to participants, which in turn, reduces hindsight bias. Id. at 28.

The Pension Rights Center (“PRC”), in support of Sulyma, disputes that Sulyma’s argument for a narrow construction of the term “actual knowledge” would erode the value of ERISA-mandated disclosures and draws attention instead to the prolix and complicated nature of these disclosures. Brief for Amicus Curiae of the Pension Rights Center, in Support of Respondent at 12. According to PRC, the mandated disclosures are meant only to provide summary information about plan benefits, such as a summary of their earnings, the benefits included, and the administrator of the plan, and are not intended to shield fiduciaries such as Intel from liability. Id. at 14–15. AARP, in support of Sulyma, reiterates this, while also noting that participants who do know of a fiduciary breach are held to the three-year limitation period to protect employers, even though there is no affirmative duty for plan participants to read and understand mandated disclosures. Brief of AARP at 14.