Opinion ID: 201737
Heading Depth: 2
Heading Rank: 3

Heading: Breaches of Fiduciary Duty

Text: 20 Plaintiffs allege that the defendant plan fiduciaries breached their fiduciary duties in violation of ERISA § 404, 29 U.S.C. § 1104, by: (1) misclassifying Plaintiffs as off-payroll employees ineligible to participate in GTE's ERISA plans and (2) creating a structural defect in the design of the plans through the use of arbitrary eligibility criteria to exclude a disproportionate number of employees from plan participation in violation of ERISA's minimum participation standards. 10 The district court held that Plaintiffs' claims were barred by the ERISA statute of limitations applicable to breaches of fiduciary duty. ERISA § 413, 29 U.S.C. § 1113, prohibits commencement of such claims after the earlier of: 21 (1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission, the latest date on which the fiduciary could have cured the breach or violation, or 22 (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation . . . . 23 (emphasis added). 11 Pursuant to § 413, ERISA provides that claims based on a breach of fiduciary duty must be brought within six years of the breach or `the latest date on which the fiduciary could have cured the breach or violation,' and within three years of the date on which the plaintiff had actual knowledge of the breach. Watson v. Deaconess Waltham Hosp., 298 F.3d 102, 118 (1st Cir.2002). The district court found Plaintiffs' claim barred by the three-year statute of limitations because [P]laintiffs did have actual knowledge of their status in 1994, yet failed to commence their case until 2001. Edes, 288 F.Supp.2d 55, 61. 12 24 Plaintiffs argue on appeal that actual knowledge of a breach or violation within the meaning of ERISA § 413 requires a showing that plaintiffs actually knew not only of the events that occurred which constitute the breach or violation but also that those events supported a claim of breach of fiduciary duty or violation under ERISA. Int'l Union of Elec., Elec., Salaried, Mach. & Furniture Workers v. Murata Erie N. Am., Inc., 980 F.2d 889, 900 (3d Cir.1992); see also Maher v. Strachan Shipping Co., 68 F.3d 951, 954 (5th Cir. 1995) (applying Third Circuit test). The issue of defining actual knowledge has vexed the circuits. The briefing purports to divine a clear circuit split. On that view, as noted, the Third and Fifth Circuits follow a rule that for an ERISA § 404 claim to accrue, a plaintiff must know of not only all the facts and events constituting the fiduciary breach, but also that those events supported a claim of breach of fiduciary duty or violation under ERISA. Murata, 980 F.2d at 900; see also Maher, 68 F.3d at 954 (quoting Murata ). By contrast, the Sixth, Seventh, Ninth, and Eleventh Circuits are said to have a hard and fast rule that a plaintiff need only have had knowledge of the facts or transaction that constituted the alleged violation—and not knowledge that those facts support a legal claim—to start the limitation period running. Martin v. Consultants & Adm'rs, Inc., 966 F.2d 1078, 1086 (7th Cir.1992); see also Wright v. Heyne, 349 F.3d 321, 330 (6th Cir.2003); Blanton v. Anzalone, 760 F.2d 989, 992 (9th Cir.1985). Accord Brock v. Nellis, 809 F.2d 753, 755 (11th Cir.1987). The Second and D.C. Circuits, on this scale, have hybrid analyses. See Caputo v. Pfizer, Inc., 267 F.3d 181, 193 (2d Cir.2001) (plaintiff need have knowledge of all material. facts necessary to understand that an ERISA fiduciary has breached his or her duty, but need not have knowledge of the relevant law) (citing Maher, 68 F.3d at 954; Gluck v. Unisys Corp., 960 F.2d 1168, 1177 (3d Cir.1992); and Blanton, 760 F.2d at 992); Fink v. Nat'l Sav. & Trust Co., 772 F.2d 951, 957 (D.C.Cir.1985) (The disclosure of a transaction that is not inherently a statutory breach of fiduciary duty . . . cannot communicate the existence of an underlying breach.). 25 We think the differences are exaggerated, and the positions of the circuits, as evidenced by how they apply the rules to the facts, are much more nuanced. Further, even if the language set forth above were an accurate depiction, we would find ourselves in the middle. 26 Settling on a description of the appropriate standard to apply is a complex venture. Prior to 1987, ERISA § 413 also contained a constructive knowledge provision, stating that the three-year limitations period began when a plaintiff `could reasonably be expected to have obtained knowledge' from certain reports filed with the Secretary of Labor. Martin, 966 F.2d at 1085 n. 6 (citing earlier version and legislative history). Given this explicit statutory alteration, as the Seventh Circuit has recognized, actual knowledge must be distinguished from constructive knowledge in applying ERISA § 413. Id. at 1086. Yet [i]t is difficult to say in the abstract precisely what constitutes `actual knowledge' of a `breach or violation.' Id. Where the alleged breach arises out of a financial transaction involving ERISA plan funds, determining where the distinction between actual and constructive knowledge lies in a particular case may depend on the level of generality employed in characterizing the transaction at issue, which may depend, in turn, on an examination of the complexity of the underlying factual transaction, the complexity of the legal claim and the egregiousness of the alleged violation. Id. We agree with the observation that the primary purpose of a statute of limitations is to prevent[] plaintiffs from sleeping on their rights and [to] prohibit[] the prosecution of stale claims. Wright, 349 F.3d at 330. The amendment to ERISA § 413 means that knowledge of facts cannot be attributed to plaintiffs who have no actual knowledge of them. We also agree that there cannot be actual knowledge of a violation for purposes of the limitation period unless a plaintiff knows the essential facts of the transaction or conduct constituting the violation. Martin, 966 F.2d at 1086. And, like the Martin court, we recognize that determining the meaning of complex transactions may take some time; mere knowledge of facts indicating that `something was awry' does not always mean there is actual knowledge of a violation. Id. (quoting Radiology Ctr., S.C. v. Stifel, Nicolaus & Co., 919 F.2d 1216, 1221 (7th Cir.1990)). On the other hand, we do not think Congress intended the actual knowledge requirement to excuse willful blindness by a plaintiff. See id. at 1086 n. 7. 27 The question of when there is actual knowledge of a violation, as Martin notes, is one which may change with different facts. Here we need not go into the permutations of that question, because it is clear that Plaintiffs had the requisite actual knowledge in April 1994. Plaintiffs' claim of breach of fiduciary duty arises not from an intricate financial transaction, cf., e.g., id. at 1087-88 (analyzing claim against fund trustees for use of improper contract bidding process as violation of duty to eliminate imprudent investments), but from GTE's decision to hire Plaintiffs without rendering them eligible to participate in its ERISA plans. In essence, Plaintiffs allege that Defendants had a fiduciary duty to classify them as eligible for plan participation, and to design their plans accordingly, based on their status as common-law employees, regardless of the plans' actual eligibility criteria. 28 As the facts alleged in their complaint establish, Plaintiffs knew in April 1994 that they were not classified as employees on GTE's direct payroll. At the same time, Plaintiffs received no ERISA benefits from GTE. These facts establish that Plaintiffs had actual knowledge that if Defendants had a fiduciary duty to classify them as eligible for ERISA plan participation and/or to design their plans accordingly, they had breached that duty. Accordingly, Plaintiffs need not have had actual knowledge of the plans' eligibility criteria to start the statute of limitations running, and their claim of breach of fiduciary duty in violation of ERISA § 404, filed more than three years later, is time-barred under ERISA § 413. 29