Tom Clark, who writes the excellent Fiduciary Matters Blog, gave me either a late Christmas or an early New Year’s present when he forwarded me, last week, the district court’s December 30th decision in Spano v. Boeing, which addressed numerous issues related to excessive fee litigation but, in particular, discussed the relationship of ERISA’s six year statute of limitations to those types of claims. Tom has now done both you and me an additional favor in this regard, writing up an excellent post summarizing the decision, sparing me the ordeal of writing my own synopsis and you the time consuming – but rewarding – act of reading the opinion itself. You can find Tom’s summary and analysis here.
From my perspective, the most interesting aspects of the decision relate to the impact on the theory of liability and on the defendants’ theories of the plaintiffs’ precision, at this point, in presenting their case. Tom references the same idea in his post, but I will discuss it in more detail here. For years, one thing that has jumped out from many of the district court and appeals court decisions that have run in favor of defendant fiduciaries and plan vendors has been the extent to which the plaintiffs’ allegations and theories were of the blunderbuss variety, in which they broadly alleged conflicts of interest and the existence of both high fees and undisclosed revenue sharing. In many of those cases, the plaintiffs essentially never boiled their claims down to narrow, specific allegations (at the motion to dismiss stage) or evidence backed theories (at the summary judgment stage) supporting the existence of a particular fiduciary breach. As a result, the plaintiffs’ theories often had holes large enough to drive a truck through, or, at a minimum, the statute of limitations or failure to prove imprudent conduct or whatever other theory was being pressed by the defendants. In many of those decisions, it was clear that a more narrowly and precisely tailored theory of fiduciary breach could have avoided the defenses raised by the plan fiduciaries, sponsors and vendors, forcing, at a minimum, a trial to resolve the claims (and thus likely a settlement of some nature, given the amounts at stake in many of the cases and corporate America’s risk adverse nature and resulting preference for avoiding trials). I could walk you through many of those decisions and show you exactly how a more properly and precisely pled theory of fiduciary breach could have survived the motion to dismiss or for summary judgment that instead sunk the case.
Here, though, in Spano, you see a much more focused theory, which is not based simply on the premise that the fiduciaries had broadly erred by retaining and never dispensing with high cost funds, and did not essentially allege simply that certain types of investment or operational decisions are essentially wrong per se. Instead, what you see is a narrow focus on specific decisions and activities by which the fiduciary duty was breached, forcing the defendants – and in turn the Court – to address not whether the type of conduct in general violates fiduciary norms, but instead whether the particular fiduciaries acted imprudently under the specific circumstances that confronted them; that is a much harder claim to get tossed out by means of motion practice, and the Spano decision reflects that.
This is telling, in many ways, for the future, as the plaintiffs’ bar gets better and better at framing fiduciary breach claims. As they get better at identifying, isolating and targeting specific alleged misconduct, their win rate is going to go up, and it won’t be as common as it has been for prominent appellate rulings or major trial court rulings to go against them.
One other aspect of Spano that is worth highlighting is the Court’s detailed treatment of ERISA’s six year statute of limitations, given that some of the funds at issue where first selected more than six years before suit was filed, leading the defendants to seek to bar many of the claims related to those funds on the basis that they were time barred. This is, of course, essentially the issue pending before the Supreme Court in Tibble at the moment, and the Spano Court addressed Tibble and the Supreme Court history of that case in reaching its own determination on the statute of limitations issues. Essentially, the Court concluded that it was not enough to defeat the fiduciary breach claims that the original decisions to offer the funds in question occurred more than six years before suit was filed, so long as the plaintiffs could set forth an actionable fiduciary breach that took place within the six years before suit was filed that concerned the funds, above and beyond simply the preceding, and time barred, decision to offer the funds in the first place. Consistent with the theme of this post, the Court found that the plaintiffs had done so by showing, on the law and the facts, how the defendants had committed fiduciary breaches that post-dated the decision to offer the funds in question and within the relevant six year period; once again, the plaintiffs avoided barriers to recovery that had sunk earlier plaintiffs by focusing on the precise facts needed to keep their claims alive, rather than simply making broad and often un-nuanced allegations that could more easily be found to be time barred. And that, incidentally, is exactly what I think the Supreme Court will do in Tibble, finding that, first, the six year statute of limitations does not forever bar claims if the initial offering of the investment option, or selection of it, occurred more than six years before suit was filed, and, second, that instead the six year period is satisfied in those instances where the plaintiff can show a legally actionable breach within the six year period that is independent of the original decision to offer the investment option.