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SUPREME COURT OF THE UNITED STATES
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No. 13–550
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GLENN TIBBLE, et al., PETITIONERS
v.EDISON INTERNATIONAL et al.
on writ of certiorari to the united states
court of appeals for the ninth circuit
[May 18, 2015]
Justice Breyer delivered the opinion of the
Court.
Under the Employee Retirement Income Security
Act of 1974 (ERISA), 88Stat. 829 et seq., as amended, a
breach of fiduciary duty complaint is timely if filed no more than
six years after “the date of the last action which constituted a
part of the breach or violation” or “in the case of an omission the
latest date on which the fiduciary could have cured the breach or
violation.” 29 U. S. C. §1113. The question before us
concerns application of this provision to the timeliness of a
fiduciary duty complaint. It requires us to consider whether a
fiduciary’s allegedly imprudent retention of an investment is an
“action” or “omission” that triggers the running of the 6-year
limitations period.
In 2007, several individual beneficiaries of the
Edison 401(k) Savings Plan (Plan) filed a lawsuit on behalf of the
Plan and all similarly situated beneficiaries (collectively,
petitioners) against Edison International and others (collectively,
respondents). Petitioners sought to recover damages for alleged
losses suffered by the Plan, in addition to injunctive and other
equitable relief based on al-leged breaches of respondents’
fiduciary duties.
The Plan is a defined-contribution plan, meaning
that participants’ retirement benefits are limited to the value of
their own individual investment accounts, which is determined by
the market performance of employee and employer contributions, less
expenses. Expenses, such as management or administrative fees, can
sometimes significantly reduce the value of an account in a
defined-contribution plan.
As relevant here, petitioners argued that
respondents violated their fiduciary duties with respect to three
mu-tual funds added to the Plan in 1999 and three mutual funds
added to the Plan in 2002. Petitioners argued that respondents
acted imprudently by offering six higher priced retail-class mutual
funds as Plan investments when materially identical lower priced
institutional-class mutual funds were available (the lower price
reflects lower administrative costs). Specifically, petitioners
claimed that a large institutional investor with billions of
dollars, like the Plan, can obtain materially identical lower
priced institutional-class mutual funds that are not available to a
retail investor. Petitioners asked, how could respondents have
acted prudently in offering the six higher priced retail-class
mutual funds when respondents could have offered them effectively
the same six mutual funds at the lower price offered to
institutional investors like the Plan?
As to the three funds added to the Plan in 2002,
the District Court agreed. It wrote that respondents had “not
offered any credible explanation” for offering retail-class,
i.e., higher priced mutual funds that “cost the Plan
participants wholly unnecessary [administrative] fees,” and it
concluded that, with respect to those mutual funds, respondents had
failed to exercise “the care, skill, prudence and diligence under
the circumstances” that ERISA demands of fiduciaries. No. CV
07–5359 (CD Cal., July 8, 2010), App. to Pet. for Cert. 65, 130,
142, 109.
As to the three funds added to the Plan in 1999,
how-ever, the District Court held that petitioners’ claims were
untimely because, unlike the other contested mutual funds, these
mutual funds were included in the Plan more than six years before
the complaint was filed in 2007. 639 F. Supp. 2d 1074,
1119–1120 (CD Cal. 2009). As a result, the 6-year statutory period
had run.
The District Court allowed petitioners to argue
that, despite the 1999 selection of the three mutual funds, their
complaint was nevertheless timely because these funds underwent
significant changes within the 6-year statutory period that
should have prompted respondents to undertake a full due-diligence
review and convert the higher priced retail-class mutual funds to
lower priced institutional-class mutual funds. App. to Pet. for
Cert. 142–150.
The District Court concluded, however, that
petitioners had not met their burden of showing that a prudent
fiduciary would have undertaken a full due-diligence review of
these funds as a result of the alleged changed circumstances.
According to the District Court, the circumstances had not changed
enough to place respondents under an obligation to review the
mutual funds and to convert them to lower priced
institutional-class mutual funds. Ibid.
The Ninth Circuit affirmed the District Court as
to the six mutual funds. 729 F. 3d 1110 (2013). With respect
to the three mutual funds added in 1999, the Ninth Circuit held
that petitioners’ claims were untimely because petitioners had not
established a change in circumstances that might trigger an
obligation to review and to change investments within the 6-year
statutory period. Petitioners filed a petition for certiorari
asking us to review this latter holding. We agreed to do so.
Section 1113 reads, in relevant part, that “[n]o
action may be commenced with respect to a fiduciary’s breach of any
responsibility, duty, or obligation” after the earlier of “six
years after (A) the date of the last action which constituted a
part of the breach or violation, or (B) in the case of an omission
the latest date on which the fiduciary could have cured the breach
or violation.” Both clauses of that provision require only a
“breach or violation” to start the 6-year period. Petitioners
contend that respondents breached the duty of prudence by offering
higher priced retail-class mutual funds when the same investments
were available as lower priced institutional-class mutual
funds.
The Ninth Circuit, without considering the role
of the fiduciary’s duty of prudence under trust law, rejected
petitioners’ claims as untimely under §1113 on the basis that
respondents had selected the three mutual funds more than six years
before petitioners brought this action. The Ninth Circuit correctly
asked whether the “last action which constituted a part of the
breach or violation” of respondents’ duty of prudence occurred
within the relevant 6-year period. It focused, however, upon
the act of “designating an investment for inclusion” to start the
6-year period. 729 F. 3d, at 1119. The Ninth Circuit stated
that “[c]haracterizing the mere continued offering of a plan
option, without more, as a subsequent breach would render” the
statute meaningless and could even expose present fiduciaries to
liability for decisions made decades ago. Id., at 1120. But
the Ninth Circuit jumped from this observation to the conclusion
that only a significant change in circumstances could
engender a new breach of a fiduciary duty, stating that the
District Court was “entirely correct” to have entertained the
“possibility” that “sig-nificant changes” occurring “within the
limitations period” might require “ ‘a full due diligence
review of the funds,’ ” equivalent to the diligence review
that respondents conduct when adding new funds to the Plan.
Ibid.
We believe the Ninth Circuit erred by applying a
statu-tory bar to a claim of a “breach or violation” of a fiduciary
duty without considering the nature of the fiduciary duty. The
Ninth Circuit did not recognize that under trust law a fiduciary is
required to conduct a regular review of its investment with the
nature and timing of the review contingent on the circumstances. Of
course, after the Ninth Circuit considers trust-law principles, it
is possible that it will conclude that respondents did indeed
conduct the sort of review that a prudent fiduciary would have
conducted absent a significant change in circumstances.
An ERISA fiduciary must discharge his
responsibility “with the care, skill, prudence, and diligence” that
a prudent person “acting in a like capacity and familiar with such
matters” would use. §1104(a)(1); see also Fifth Third
Bancorp v. Dudenhoeffer, 573 U. S. ___ (2014). We
have often noted that an ERISA fiduciary’s duty is “derived from
the common law of trusts.” Central States, Southeast &
Southwest Areas Pension Fund v. Central Transport, Inc.,
472 U. S. 559, 570 (1985) . In determining the contours of an
ERISA fiduciary’s duty, courts often must look to the law of
trusts. We are aware of no reason why the Ninth Circuit should not
do so here.
Under trust law, a trustee has a continuing duty
to monitor trust investments and remove imprudent ones. This
continuing duty exists separate and apart from the trustee’s duty
to exercise prudence in selecting investments at the outset. The
Bogert treatise states that “[t]he trustee cannot assume that if
investments are legal and proper for retention at the beginning of
the trust, or when purchased, they will remain so indefinitely.” A.
Hess, G. Bogert, & G. Bogert, Law of Trusts and Trustees §684,
pp. 145–146 (3d ed. 2009) (Bogert 3d). Rather, the trustee must
“systematic[ally] conside[r] all the investments of the trust at
regular intervals” to ensure that they are appropriate. Bogert 3d
§684, at 147–148; see also In re Stark’s Estate, 15
N. Y. S. 729, 731 (Surr. Ct. 1891) (stating that a
trustee must “exercis[e] a reasonable degree of diligence in
looking after the security after the investment had been made”);
Johns v. Herbert, 2 App. D. C. 485, 499 (1894)
(holding trustee liable for failure to discharge his “duty to watch
the investment with reasonable care and diligence”). The
Restatement (Third) of Trusts states the following:
“[A] trustee’s duties apply not only in
making investments but also in monitoring and reviewing
investments, which is to be done in a manner that isreasonable and
appropriate to the particular investments, courses of action, and
strategies involved.” §90, Comment b, p. 295 (2007).
The Uniform Prudent Investor Act confirms that
“[m]anaging embraces monitoring” and that a trustee has “continuing
responsibility for oversight of the suitability of the investments
already made.” §2, Comment, 7B U. L. A. 21 (1995) (internal
quotation marks omitted). Scott on Trusts implies as much by
stating that, “[w]hen the trust estate includes assets that are
inappropriate as trust investments, the trustee is ordinarily under
a duty to dispose of them within a reasonable time.” 4 A. Scott, W.
Fratcher, & M. Ascher, Scott and Ascher on Trusts §19.3.1, p.
1439 (5th ed. 2007). Bogert says the same. Bogert 3d §685, at
156–157 (explaining that if an investment is determined to be
imprudent, the trustee “must dispose of it within a reasonable
time”); see, e.g., State Street Trust Co. v. DeKalb,
259 Mass. 578, 583, 157 N. E. 334, 336 (1927) (trustee was
required to take action to “protect the rights of the
beneficiaries” when the value of trust assets declined).
In short, under trust law, a fiduciary normally
has a continuing duty of some kind to monitor investments and
remove imprudent ones. A plaintiff may allege that a fiduciary
breached the duty of prudence by failing to properly monitor
investments and remove imprudent ones. In such a case, so long as
the alleged breach of the continuing duty occurred within six years
of suit, the claim is timely. The Ninth Circuit erred by applying a
6-year statutory bar based solely on the initial selection of the
three funds without considering the contours of the alleged breach
of fiduciary duty.
The parties now agree that the duty of prudence
involves a continuing duty to monitor investments and remove
imprudent ones under trust law. Brief for Petitioners 24 (“Trust
law imposes a duty to examine the prudence of existing investments
periodically and to remove imprudent investments”); Brief for
Respondents 3 (“All agree that a fiduciary has an ongoing duty to
monitor trust investments to ensure that they remain prudent”);
Brief for United States as Amicus Curiae 7 (“The duty of
prudence under ERISA, as under trust law, requires plan fiduciaries
with investment responsibility to examine periodically the prudence
of existing investments and to remove imprudent investments within
a reasonable period of time”). The parties disagree, however, with
respect to the scope of that responsibility. Did it require a
review of the contested mutual funds here, and if so, just what
kind of review did it require? A fiduciary must discharge his
responsibilities “with the care, skill, prudence, and diligence”
that a prudent person “acting in a like capacity and familiar with
such matters” would use. §1104(a)(1). We express no view on the
scope of respondents’ fiduciary duty in this case. We remand for
the Ninth Circuit to consider petitioners’ claims that respondents
breached their duties within the relevant 6-year period under
§1113, recognizing the importance of analogous trust law.
A final point: Respondents argue that
petitioners did not raise the claim below that respondents
committed new breaches of the duty of prudence by failing to
monitor their investments and remove imprudent ones absent a
significant change in circumstances. We leave any questions of
forfeiture for the Ninth Circuit on remand. The Ninth Circuit’s
judgment is vacated, and the case isremanded for further
proceedings consistent with this opinion.
It is so ordered.
