Tibble v. Edison Int'l - 575 U.S. 523, 135 S. Ct. 1823 (2015)

Rule:

Under trust law, a fiduciary normally has a continuing duty of some kind to monitor investments and remove imprudent ones. A plaintiff may allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones. In such a case, so long as the alleged breach of the continuing duty occurred within six years of suit, the claim is timely, under 29 U.S.C.S. § 1113. The duty of prudence involves a continuing duty to monitor investments and remove imprudent ones under trust law.

Facts:

In 2007, petitioners, beneficiaries of the Edison 401(k) Savings Plan (Plan), sued Plan fiduciaries, respondents Edison International and others, to recover damages for alleged losses suffered by the Plan from alleged breaches of respondents' fiduciary duties. Petitioners argued that respondents violated their fiduciary duties with respect to three mutual funds added to the Plan in 1999 and three mutual funds added to the Plan in 2002. Petitioners argued that respondents acted imprudently by offering six higher priced retail-class mutual funds as Plan investments when materially identical lower priced institutional-class mutual funds were available. Because the Employee Retirement Income Security Act of 1974 (ERISA) required a breach of fiduciary duty complaint to be filed no more than six years after “the date of the last action which constituted a part of the breach or violation” or “in the case of an omission the latest date on which the fiduciary could have cured the breach or violation,” 29 U.S.C. §1113, the District Court held that petitioners' complaint as to the 1999 funds was untimely because they were included in the Plan more than six years before the complaint was filed, and the circumstances had not changed enough within the 6-year statutory period to place respondents under an obligation to review the mutual funds and to convert them to lower priced institutional-class funds. The Ninth Circuit affirmed, concluding that petitioners had not established a change in circumstances that might trigger an obligation to conduct a full due-diligence review of the 1999 funds within the 6-year statutory period.

Issue:

Was the petitioners’ complaint untimely, given the 6-year statutory bar under §1113? 

Answer:

No.

Conclusion:

The court held that the Ninth Circuit erred by applying §1113's statutory bar to a breach of fiduciary duty claim based on the initial selection of the investments without considering the contours of the alleged breach of fiduciary duty. ERISA's fiduciary duty was “derived from the common law of trusts,” which provided that a trustee has a continuing duty--separate and apart from the duty to exercise prudence in selecting investments at the outset--to monitor, and remove imprudent, trust investments. So long as a plaintiff's claim alleging breach of the continuing duty of prudence occurred within six years of suit, the claim was timely. The case was remanded for the Ninth Circuit to consider petitioners' claims that respondents breached their duties within the relevant 6-year statutory period under §1113, recognizing the importance of analogous trust law.