Thursday, April 14, 2016

Edison 401(k) beneficiaries waived duty-to-monitor argument

By Anne Sherry, J.D.

Despite an apparent victory in the Supreme Court, Edison International employees lost on their ERISA breach-of-duty claims on remand to the Ninth Circuit. The Supreme Court held that because trust law requires retirement plan administrators to continue to monitor plan investments, breach-of-duty claims are not necessarily time-barred just because the statute of limitations has run on the initial fund selection. On remand, however, the Ninth Circuit held that the employees forfeited the duty-to-monitor argument by not raising it before the appellate court (Tibble v. Edison International, April 13, 2016, O'Scannlain, D.).

Continuing duty to monitor investments. Several individual beneficiaries of Edison International’s 401(k) plan filed suit in 2007 over six retail-class mutual funds added to the plan in 1999 and 2002. The lawsuit questioned how the fiduciaries could have acted prudently in offering these funds when materially identical institutional-class funds were available. On appeal from the district court, the Ninth Circuit held that the claims as to the funds added in 1999 were untimely because the beneficiaries had not established a change in circumstances that might trigger an obligation to review and change investments within ERISA’s six-year statute of limitations.

The Supreme Court reversed and remanded. Trust law imposes a continuing duty to monitor trust investments, the Court wrote, and as long as the alleged breach of that duty occurred within six years of suit, the claim is timely. The Ninth Circuit went too far in taking the statute of limitations as an absolute bar based solely on the initial fund selection, without considering the contours of the alleged breach of duty. But the Court left it for the Ninth Circuit to decide whether the employees forfeited their claim of a new breach by not raising it below.

Forfeiture of argument. On remand, the appeals court concluded that the argument had been forfeited. The beneficiaries had not argued that Edison violated its duty of prudence by failing to monitor the funds added to the plan in 1999. Instead, they had argued that significant changes in those funds should have triggered a due-diligence review.

Furthermore, the district court did not forbid the beneficiaries from raising the duty-to-monitor argument. The court merely held that a time-barred claim could not be made timely by styling a past breach as a continuing violation. In fact, the district court had asked the beneficiaries' expert whether Edison should have removed the funds even if they had not undergone any changes. The court also permitted the beneficiaries to raise a duty-to-monitor argument with respect to another fund in the plan.

Setting aside the failure to raise the duty-to-monitor argument before the district court, the beneficiaries also failed to raise it before the Ninth Circuit. The claim was "doubly forfeit," the court concluded.

The case is No. 10-56406.

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