Once Again, The Supreme Court Upsets Precedent In Fourth And Eleventh Circuit

As we reported in our March 11, 2014 article, the Eleventh and Fourth Circuit Court of Appeals definitively rejected the "continuing breach" theory in recent disputes involving statute of limitations deadlines in ERISA cases alleging fiduciary breach claims. This precedent was short-lived.

As way of background, plan fiduciaries have been under fire in recent years for their role in the selection and retention of underperforming or fee-heavy funds offered as investment options in 401(k) plans. Under ERISA, a lawsuit premised upon a breach of fiduciary duty must be filed by the earlier of: (1) three years after the participant had actual knowledge of the breach; or (2) six years after the breach occurred. As to the latter, the trigger date is: "(A) the date of the last action which constituted a part of the violation; or (B) in the case of an omission, the latest date on which the fiduciary could have cured the breach or violation." ERISA § 413.

The focus of these recent cases has been on the second prong: When participants of a defined contribution plan allege that plan fiduciaries breached their duties by failing to remove poor performing funds from 401(k) investment options, is the date of the breach when the funds were initially selected? Or is there a continuing breach for each day that the funds remained in the investment lineup, assuming no substantial change of circumstance has occurred?

In 2013, the Court in David v. Alphin, 704 F. 3d 327, 341 (4th Cir. 2013), addressed this issue when plaintiffs alleged, inter alia, that plan fiduciaries failed to remove underperforming and fee-heavy funds from their 401(k) investment options. The Fourth Circuit Court of Appeals affirmed the District Court's dismissal of the claim as untimely. Finding that the complaint's allegations were "based on attributes of the funds that existed at the time of their initial selection," the Court held that, "at its core," plaintiff's complaint was "simply another challenge to the initial selection of the funds to begin with." Id. at 341. A year later, in Fuller v. SunTrust Banks, Inc, 744 F. 3d 685 (11 th Cir. 2014), the Court held, under a similar fact scenario, that the accrual date for purposes of ERISA § 413 of an alleged breach was the date of...