It may be another bad day for at least some of the law clerks when the Justices convene to discuss Tibble v. Edison International. The big issue in the case, on which the Justices granted review, is whether the fiduciaries of an ERISA plan have a continuing duty of prudence, which requires periodic monitoring of investments, or whether the duty is instead measured at a single point in time – when the investment is made. Now that the briefs are in, both sides (and the federal government for good measure) agree that the duty is continuous.
The case involves suits by participants in the 401(k) plans of respondent Edison International. Specifically, the 401(k) plans own “retail-class” shares of certain firms, despite the allegedly ready availability of “institutional-class” shares that are substantially identical except that they involve lower fees. Those shares have been in the plans for many years; ERISA’s six-year statute of limitations bars any challenge to the original purchase. But does it bar a challenge to the failure, in periodic monitoring, to notice the problem and “trade up” for the better shares? Now that the briefs are in, we know that the answer is no, it doesn’t bar such a challenge – at least that’s the answer we will get from the parties in this case.
Given the importance of “procedural prudence” to trust law, the employees’ argument that ERISA does require periodic monitoring seemed overwhelmingly persuasive to me as I read their brief (authored by David Frederick). I tried to suspend my judgment pending perusal of Edison’s brief, but of course now that I’ve read that brief – which agrees with the employees’ answer to that question – I’m doubly convinced that should be the correct answer.
Although the large-frame legal dispute has for the most part fizzled, the ultimate resolution of the case by the Court remains in considerable doubt. One approach would be simply to dismiss the case as improvidently granted. That seems like the most likely course of action if the employees cannot persuade the Court that the Ninth Circuit in fact applied the rule that the plan declines to defend; now that the Court has granted review, they’ll probably look hard to justify a reason for keeping the case.
As it stands now, the narrow dispute between the parties is whether the ongoing duty of prudence requires a periodic full review of the propriety of all assets in the portfolio (the position of the employees), or whether a more superficial periodic review is adequate until some “change” in the character of an asset occurs that warrants a “full due diligence process” (the position of the plan). Given the narrow difference between those positions, the Court would have to be quite motivated to reach the merits. But they well might be: the big stretch necessary to reach the merits in Dart Cherokee Basin Operating Co. v. Owens last fall provides a good guidepost. If they do move forward to decide the case, the question then will be whether they apply any new standard to the complaint in this case or simply send the case back to the Ninth Circuit. Because the parties disagree so vigorously about the latter point, my bet is that the Court will be inclined to reject the standard that the Ninth Circuit might have applied and will send the case back with instructions for the Ninth Circuit to write another opinion.
The discussion above suggest that much will turn on the argument, because it is probable that the Justices could be swayed definitively toward, or away from, dismissal depending on what develops there.
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