Opinion ID: 580875
Heading Depth: 1
Heading Rank: 2

Heading: The Fiduciary Claims

Text: 48 ERISA bars actions for breach of fiduciary duty after the earlier of (1) six years after ... the date of the last action which constituted a part of the breach or violation, ... or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation.... 29 U.S.C. § 1113 (emphasis added). 4 49 Because the employees filed their first complaint over five years after the 1984 amendment to BERIP, we must decide when, for purposes of section 1113, a plaintiff has actual knowledge of the breach or violation. The defendants argue, and the district court apparently assumed, that a plaintiff acquires actual knowledge of the breach or violation when he has gained actual knowledge of the actions constituting the breach or violation. The district court thought the 1984 amendment itself constituted the breach or violation and barred the claim based on the employees' knowledge of that amendment and its terms. As we describe below, however, ERISA requires actual knowledge of all of the elements of the violation alleged here, failure to vest accrued benefits after a partial termination. These elements include the creation of a potential reversion of funds to the plan sponsor. Although the employees might have discovered all the elements of a partial termination claim, the district court must determine, as a factual matter, the date on which each employee had actual knowledge of the breach or violation. 50 Section 1113 sets a high standard for barring claims against fiduciaries prior to the expiration of the section's six-year limitations period. Although the statute specifically measures the longer six-year period from the last action which constituted the breach or violation, the statute measures the earlier three-year bar only by reference to the plaintiff's knowledge of the breach. 51 Of course, a plaintiff may have constructive knowledge of a breach before he actually knows of the breach, but section 1113 calls for actual knowledge. Other ERISA limitations periods do not demand as much. For example, section 1303, which limits actions brought by the Pension Benefit Guarantee Corporation, measures a three-year period from the earliest date on which the corporation acquired or should have acquired actual knowledge of the existence of such cause of action. 29 U.S.C. § 1303(e) (emphasis added); see also 29 U.S.C. § 1370(f)(2)(A) (same language). Congress knew how to require constructive knowledge; it required it in sections 1303 and 1370. We do not think that Congress' failure to call for it in section 1113 was accidental. 52 Our sister courts of appeals have recognized the stringent requirement imposed by section 1113. In Radiology Center, S.C. v. Stifel, Nicolaus & Co., 919 F.2d 1216 (7th Cir.1990), an investor sued his former stockbroker for breach of fiduciary duty with respect to the broker's churning of a Keogh account. The investor had instructed the broker to invest in low-risk securities. He had received a confirmation of each trade and reviewed monthly statements that summarized account activity, but he was unable to find in newspaper stock tables the name of any stock traded. Suspecting the stocks were not low-risk securities, he instructed the broker to buy a particular stock, only to discover later that the broker sold it within two weeks. After all this, the investor finally removed the account to another broker at a different firm, and brought suit more than three years after the broker's last disputed trade. He claimed actual knowledge only as of the time--within the three-year period--when the subsequent broker reviewed and denounced the trades the defendant broker had executed. Despite the investor's admissions of actual knowledge of all the transactions constituting the broker's breach, the Court of Appeals for the Seventh Circuit remanded for a determination of whether the investor had actual knowledge of [his] ERISA claim by the relevant date. Id. at 1223. 53 The Court of Appeals for the Ninth Circuit has also recognized the rigorous actual knowledge requirement of section 1113. In Ziegler v. Connecticut General Life Ins. Co., 916 F.2d 548 (9th Cir.1990), the court located the ERISA breach in an investment agreement that gave the plan's brokers an unconscionably high rate of return. Although the plan's administrators, who were plaintiffs, had themselves executed the contract, they did not acquire actual knowledge of the ERISA breach when they signed the contract. Rather, they acquired it sometime later, after the broker had informed them of the violative provision's effect. The court wrote: We stress that an ERISA plaintiff's cause of action cannot accrue and the statute of limitations cannot begin to run until the plaintiff has actual knowledge of the breach regardless of when the breach actually occurred. Id. at 552. The Court of Appeals for the Eleventh Circuit has adopted a similar approach, writing: To charge the Secretary [of Labor] with actual knowledge of an ERISA violation, it is not enough that he had notice that something was awry; he must have had specific knowledge of the actual breach of duty upon which he sues. Brock v. Nellis, 809 F.2d 753, 755 (11th Cir.1987). 54 Although we have not addressed the application of section 1113 directly, we have noted that the statute recognizes that when a transaction does not affect employees' day-to-day working conditions, it is less likely that employees will immediately become aware of a grievance. Adams v. Gould, Inc., 739 F.2d 858, 867 (3d Cir.1984). Thus, actual knowledge of all material facts constituting a breach of fiduciary duty or violation of ERISA is the sine qua non for application of section 1113's three-year limitation. A plaintiff must have, in the plain words of the statute, actual knowledge of the breach or violation. A defendant is protected both by the statute's absolute six-year bar, and by the three-year limit, which prevents plaintiffs who know their rights from pausing too long in pressing their claims. 5 55 We hold that, under 29 U.S.C. § 1113(2), actual knowledge of a breach or violation requires that a plaintiff have actual knowledge of all material facts necessary to understand that some claim exists, which facts could include necessary opinions of experts, see Radiology Center, 919 F.2d at 1218, knowledge of a transaction's harmful consequences, see Ziegler, 916 F.2d at 552, or even actual harm, see Meagher v. IAM Pension Plan, 856 F.2d 1418, 1422-23 (9th Cir.1988) (receipt of each impermissibly reduced benefit check constituted actual knowledge and commenced a separate three-year period; the earlier impermissible reduction in plan did not). We emphasize, however, that our holding does not mean that the statute of limitations can never begin to run until a plaintiff first consults with a lawyer. 56 In so holding, we differ somewhat from the rigid formulation that [t]he statute of limitations is triggered by ... knowledge of the transaction that constituted the alleged violation, not by their knowledge of the law, Blanton v. Anzalone, 760 F.2d 989, 992 (9th Cir.1985), because that formulation developed under circumstances quite different from those presented here. In Blanton, the defendants tried to use their own ERISA violation as a shield to liability; the plaintiff had asserted an interest in real property that the defendants had placed in her deceased husband's individual plan account, and the defendants attempted to void, as prohibited by ERISA, the transaction that put the property in the account. They argued that the statute of limitations did not prevent them from voiding their own actions because they did not discover that they had violated ERISA until they consulted with an attorney in connection with their defense. The court rejected their argument with the broad statement that their knowledge of the transaction, not of the law, triggered the statute of limitations. Id. at 992. 6 We disagree that mere knowledge of a transaction is always enough. Actual knowledge of a breach or violation requires knowledge of all relevant facts at least sufficient to give the plaintiff knowledge that a fiduciary duty has been breached or ERISA provision violated. 57 Application of section 113 first requires identification and definition of the underlying ERISA violation upon which the fiduciary breach claim is founded. See Meagher, 856 F.2d at 1422. Two temporal determinations must then be made: the date of the last action which formed a part of the breach and the date of the plaintiff's actual knowledge of the breach. 58 The employees' complaint identifies, in essence, four types of violations underlying their allegations of breach of fiduciary duty: (1) discontinuance of the contributory program and of the residual in violation of 26 U.S.C. § 411(d)(3), which requires that accrued benefits be fully vested upon partial termination of a plan; (2) reduction of accrued early retirement benefits in violation of 29 U.S.C. § 1054(g); (3) transfer of assets to a new plan in violation of 26 U.S.C. §§ 401(a)(12), 414(l ), which require that a participant receive a benefit under the new plan equal to or greater than the benefit he would have received under the old; and (4) use of the overfunding in violation of 29 U.S.C. § 1104(a)(1)(A), which requires a fiduciary to discharge his duties for the exclusive purpose of providing benefits to participants. The employees have not appealed the district court's dismissal of their claims under 26 U.S.C. § 401, 414, and for reasons set forth below, their claim under 29 U.S.C. § 1054 is also not viable. Moreover, the employees do not allege a separate violation of 29 U.S.C. § 1104(a)(1)(A) but appear to make that provision part and parcel of the partial termination claim. Thus, the partial termination claim is the sole remaining basis for a fiduciary claim and we address the statute of limitations question accordingly. 59 The 1984 failure to vest fully the accrued benefits upon partial termination of a plan could constitute a violation of 26 U.S.C. § 411(d)(3), and fiduciaries responsible for that amendment might be responsible for the violation under a breach of fiduciary duty theory. Section 1113(1)'s six-year limitations period would run from the date of the amendment's adoption. 7 A participant's actual knowledge of the amendment and its effect, however, cannot be deemed actual knowledge of each of the elements of a violation of a technical provision of ERISA, especially when the amendment disguises a failure to vest by preserving the benefit at issue, in this case the residual. 60 This is particularly true where, as in this case, the company literature distributed to employees at the time of the amendments described them as improving participants' benefit packages. It is not disputed that employees were informed that the residual would be retained for those who transferred to the BEST and that the amendments were a major addition to benefits. See supra part I (quoting company literature). For a participant to have discerned a cause of action for partial termination at that time and under these circumstances, may have required a review of the plan document and of the plan's balance sheet--in short, a level of research and scrutiny inconsistent with section 1113's actual knowledge standard. 61 If the 1984 transfer of assets to a new plan did impermissibly decrease benefits, and if the 1984 amendment did wrongfully channel funds from the plan to the company, then, absent fraud or concealment, the six-year limitations period would have begun to run at the time the 1984 amendment was adopted. The three-year limitations period would run only from the time an employee actually knew of the violation. That actual knowledge cannot always be implied from mere knowledge of the changes to the plan. 62 Because the district court located both the possible violations of ERISA and the employees' actual knowledge of them in the 1984 amendments alone, we will reverse the dismissal of the employees' fiduciary claims and remand for a finding of the date when each employee had actual knowledge of all material facts relevant to a partial termination claim. 63 Additionally, we note that in 1984 the limitations period in section 1113 contained a constructive knowledge clause. See 29 U.S.C. § 1113(a)(2)(B) (repealed). On remand the parties should address this section and its possible application, and whether its application has been waived for the defendants' failure to assert it.