In Cataldo v. United States Steel Corp., No. 10-3583, the Sixth Circuit Court of Appeals affirmed a district court’s ruling that the claims of 225 current and former employees of U.S. Steel Corporation (“U.S. Steel”) for breach of fiduciary duty were time-barred under ERISA’s applicable statute of limitations. In doing so, the court “clarified” that earlier decisions did not resolve whether active concealment is required to toll the ERISA statute of limitations. In Cataldo it declined to weigh in on this issue. The unresolved state of the law on this issue will likely encourage the filing of more tenuous claims in the Sixth Circuit.
Plaintiffs in Cataldo were current and former employees of steel mills in Lorain, Ohio that underwent ownership changes. Plaintiffs alleged that during an ownership change in 1999, they were led to believe that despite changes to the pension calculation formula, they would receive the same pension benefits as all other U.S. Steel employees. Plaintiffs alleged that when U.S. Steel offered an early retirement program in 2003, they were reassured that they would receive the same benefits as all other U.S. Steel employees with respect to pension benefits, meaning that the prior change in pension calculation formula would not be enforced. Plaintiffs who retired under the early retirement program in 2003 and thereafter, however, received significantly lower pension benefits than they felt they had been promised.
Six years later, in 2009, Plaintiffs filed a lawsuit against numerous entities, including U.S. Steel and their union for breach of ERISA’s fiduciary duties, seeking remedies that included equitable accounting and restitution. The district court dismissed the fiduciary breach claims as untimely under ERISA’s statute of limitations, 29 U.S.C. 1113, which generally provides that a claim for fiduciary breach must be commenced within the earlier of: three years of the date the plaintiff obtained “actual knowledge” of the breach or violation forming the basis for the claim, or six years after the breach or violation. In cases of “fraud or concealment,” an action must be brought within six years of knowledge of the breach (“fraud or concealment exception”). Id.
Courts differ as to whether the fraud or concealment exception requires proof of concealment by the fiduciary or applies in all cases of an allegedly fraudulent breach of fiduciary duty. The majority of circuits interpret Section 413 as incorporating the common law fraudulent concealment doctrine, which postpones the beginning of the limitation period from the date of injury to the date the injury is discovered, but they disagree as to whether active concealment of the breach is required for tolling. See Minnkota Ag. Prods., Inc. v. Norwest Bank N.D., 30 Fed. Appx. 676, 677-78 (8th Cir. 2002); In re Unisys Corp. Retiree Med. Benefit “ERISA” Litig., 242 F. 3d 497 (3d Cir. 2001); J. Geils Band Employee Benefit Plan v. Smith Barney Shearson, Inc., 76 F. 3d 1245, 1253 (1st Cir. 1996); Barker v. American Mobil Power Corp., 64 F. 3d 1397, 1401-1402 (9th Cir. 1995); Larson v. Northrop Corp., 21 F. 3d 1164, 1172 (D.C. Cir. 1994); Radiology Ctr., S.C. v. Stifel, Nicolaus & Co., 919 F. 2d 1216 (7th Cir. 1990). The Second Circuit, however, has rejected the majority approach and applied the fraud or concealment exception upon a showing of fraud OR concealment. See Caputo v. Pfizer, Inc., 267 F. 3d 181, 188-190 (2d Cir. 2001). In Cataldo, the Sixth Circuit declined to take sides on this issue, based on plaintiffs’ failure to sufficiently plead fraud. It did, however, note that the Second Circuit offered a “persuasive” contrary interpretation of Section 413. Ultimately, the Sixth Circuit “assume[d], but [did not] decide, that a claim of fiduciary fraud not involving separate acts of concealment is subject to a six-year statute of limitations period that begins to run when the plaintiff discovered or with due diligence should have discovered the fraud.”
The Sixth Circuit has long been a favored forum for plaintiffs in ERISA cases because of many pro-plaintiff rulings. Cataldo continues that trend by leaving open avenues for plaintiffs to keep claims alive that would be deemed untimely in other circuits and implying that if squarely presented with the issue it might endorse the Second Circuit’s outlier interpretation of Section 413. Employers and plan sponsors with operations in the Sixth Circuit would be well advised to take action to head off a claim there, or at a minimum, ensure that their plan communications are timely, accurate, and comprehensive so as to defeat assertions of fraud or concealment.