United States: The Supreme Court Indirectly Stiffens A Fiduciary Breach Time Limit And Helps ERISA Fiduciaries In The Process

Seyfarth Synopsis: The Supreme Court appears to have barred equitable tolling under ERISA Section 413's six-year statute of repose for fiduciary breach claims, subject only to well-pled allegations and proof of fraud or concealment.

Statutes of repose begin to run after a defendant's last culpable act or omission–regardless of when a plaintiff is injured—and give defendants a complete defense to any lawsuit commenced after the repose limitations period. ERISA Section 413 provides a six-year statute of repose for fiduciary breach claims, with a narrow exception, "in the case of fraud or concealment." If the exception applies, the claim may be brought within six years of discovery of the breach.

The Supreme Court recently shut down the argument that the tolling doctrine in American Pipe & Construction Company v. Utah, 414 U.S. 538 (1974) applies to an unconditional statute of repose.  The American Pipe rule allows the equitable tolling of individual claims during the pendency of a class action until class certification is denied or the individual is no longer part of the class.  So the equitable tolling doctrine allows courts to extend limitations periods beyond the limitations period set forth by Congress, and creates substantial uncertainty for defendants.

In California Public Employees Retirement Sys. (CALPERS) v. ANZ Securities, Inc., No. 16-373 (June 26, 2017), the Court dismissed as untimely a securities case filed by CALPERS after the statute of repose expired.  CALPERS argued that the lawsuit was timely because the same claim was timely asserted in another securities class action that CALPERS opted out of after filing its own case.  The Court rejected the CALPERS argument that the timely filing of the class action equitably tolled statute of repose for its individual case.

The Supreme Court said that unconditional statutes of repose may not be tolled under any circumstances. The Court said that statutes of repose reflect a legislative intent to protect defendants from an "interminable threat of liability," which displaces the traditional power of courts to modify statutory time limits based on equitable doctrines, including the one applied in American Pipe. Statutes of repose, the Court stated, offer "full and final security after" the repose period expires.

By direct analogy, the CALPERS decision should apply to the ERISA Section 413 statute of repose, with one caveat.

Section 413, unlike the securities limitation statute at issue in CALPERS, is not unconditional.  Its "fraud or concealment" exception, as the Supreme Court noted in CALPERS, "demonstrates the requisite intent to alter the operation of the statutory period."

ERISA fiduciaries therefore still face indeterminate liability in cases of alleged fraud or concealment. But it is difficult for plaintiffs to allege, let alone prove, fiduciary fraud or concealment.  Strict pleading standards dictated under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), may provide fiduciaries with a strong motion to dismiss argument that, if successful, could provide a quick win, and obviate the need to expend substantial time and money associated with the rigors of discovery.

The CALPERS decision is good for fiduciaries sued on claims accruing more than six years before a suit is filed. CALPERS removes equitable tolling from the arsenal of plaintiff arguments, leaving only the much harder "fraud or concealment" argument to revive what otherwise would appear to be a stale case.

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