By Kathleen Cahill Slaught and Michelle Scannell
In the latest chapter in a long-running battle about retiree health and life insurance benefits, the Tenth Circuit recently brought retiree Plaintiffs’ fiduciary breach claims back to life. In doing so, the Tenth Circuit sided with the Second Circuit in a circuit split on the applicable statute of limitations for ERISA fiduciary breach claims. Fulghum v. Embarq Corp, No. 13-3230 (10th Cir. 2/24/15).
Our sole focus today is the Tenth Circuit’s interpretation of ERISA Section 413, which provides that a fiduciary breach claim must be brought within 6 years of the last alleged breach, or the latest date the fiduciary could have cured the breach, whichever occurs first. In cases of “fraud or concealment,” however, a claim may be brought within 6 years of discovery of the breach. Here, Plaintiffs argued that their claims were timely because they were filed within 6 years of plan amendments that led to discovery of the alleged fraudulent breaches. The core dispute was whether the “fraud or concealment” exception to the general limitations period requires proof of concealment by the fiduciary, or applies in all cases of alleged fraudulent breach.
The district court ruled that the “fraud or concealment” exception requires proof of the fiduciary’s affirmative concealment of the alleged breach and was thus inapplicable. On appeal, the Tenth Circuit acknowledged the circuit split on the issue. The majority view, shared by several circuits including the First, Seventh, and Ninth, is that the “fraud or concealment” exception requires concealment of an alleged breach.
On the other hand, the Second Circuit has refused to “fus[e] the phrase ‘fraud or concealment’ into the single term ‘fraudulent concealment.’” It therefore applies the exception when a breach claim is based on fraud or there is proof of fiduciary concealment. Here, the Tenth Circuit adopted the Second Circuit’s interpretation of the scope of the exception. The Tenth Circuit reasoned that its interpretation remedies “what would otherwise be a harsh result in situations where a fiduciary has engaged in prohibited conduct that cannot readily be discovered.” According to the court, this is consistent with ERISA’s goal of ensuring adequate disclosures to plan participants. The court noted that because Plaintiffs did not allege concealment of the breach, on remand Plaintiffs’ fiduciary breach claims would be found timely only if the alleged breach was based on a theory of fraud.
Now that the Tenth Circuit has driven a further wedge into this circuit split, it would be nice to get some clarity from the Supreme Court on the issue. For now, the Second and Tenth Circuits will remain plaintiff-friendly venues for more tenuous fiduciary breach claims that would be untimely in most other jurisdictions.