The U.S. Solicitor General has filed a brief to the Supreme Court in support of plaintiffs' claims in Tibble vs. Edison International.
The case, which the Supreme Court is scheduled to hear and rule on by the beginning of next summer, hinges on the timeliness of claims relative to ERISA's statue of limitations.
Plaintiffs originally claimed Edison breached its fiduciary obligation to 401(k) participants by offering more expensive retail-class shares of six mutual funds, when cheaper institutional shares were available.
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The 9th Circuit Court of Appeals affirmed a lower court's ruling that the claim against three of the six mutual funds was not timely, because they were introduced in 1999, and the original suit was filed in U.S. District Court for the Central District of California in 2007.
Under ERISA, a claim for breach of fiduciary duty must be brought within six years of "the date of the last action which constituted a part of the breach or violation," according to the Solicitor General's amicus brief.
But the law goes on to state that in the case of an omission, a fiduciary claim can be made within six years of "the latest date on which the fiduciary could have cured the breach or violation."
The lower courts, in dismissing the claims concerning the three mutual funds introduced in 1999, relied on the first component of ERISA's statue of limitation to interpret the law.
Plaintiffs are asking the Supreme Court to consider the second component.
In its brief, the Solicitor General argues claims against all of the funds are timely because "they are claims for breaches of the duty of prudence within the limitations period."
While Edison's Investment Committee took steps to monitor plan investments, as ERISA requires, they failed to consider whether the retail shares of the funds offered were available as lower-cost institutional shares.
In fact, the Investment Committee was not aware of the cheaper shares, according to the Solicitor General's brief. That fact establishes a breach of the their ongoing fiduciary duty of prudence because a prudent fiduciary would have done due diligence on institutional shares, and "would have offered those funds to save money for plan participants."
Because they failed their duty of prudence into 2002, the claims against all six of the mutual funds are timely, wrote the Solicitor General.
"It is clear that petitioners' challenge concerns events that occurred within the limitations period, so whether viewed as breaches of the ongoing duty of prudence by actions or by omissions, their claims are timely."
In the brief, the Solicitor General argues that the 9th Circuit ruled incorrectly because the court "misunderstood the nature of petitioners' claims."
The plaintiffs never sought to recover damages from excessive fees going back to 1999, but rather they seek recovery of damages from those fees charged from 2001 to 2007.
"The judgment of the court of appeals should be reversed, and the case should be remanded for appropriate proceedings," concluded the brief.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
