Supreme Court: Plan Fiduciaries Have a Continuing Obligation to Monitor Investment Prudence

WARNING: Do not read this while operating machinery or driving, if you are pregnant, or might become pregnant.   Yes, it's an ERISA case.  But it will keep your plan administrator up at night.

The Supreme Court considered whether claims against a retirement plan's fiduciaries were time barred. The plaintiffs claimed that the value of their retirement plan accounts decreased because the plan purchased "retail" mutual funds, rather than "institutional" class funds, which have lower expense ratios.

The Ninth Circuit held that the claims were untimely under ERISA's six-year statute of limitations.  The court of appeals believed the statute of limitations ran because the administrator selected the more expensive funds more than six years before the plaintiffs filed the lawsuit.

The Supreme Court, unanimously, reversed.  The high Court found that the claims were timely because they implicated whether the trustees prudently managed the funds during the limitations period, by monitoring whether the investments were adequate, or by failing to do so.  As such, the Court decided that regardless of the timing of the selection of the funds, the failure to adequately monitor the investments could form the basis of a timely claim.  Here's the money quote:

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 pru- dent 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 con- tours 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.

So, employers must ensure that the plan administrators are adequately monitoring investment options to satisfy their fiduciary duties.  Poor management and supervision claims likely will not grow stale over time given this ruling.

The case is Tibble v. Edison International and the opinion is here.

CA Governor Signs Two Wage-Hour Bills

Governor Jerry Brown signed a couple of wage-hour laws, which will take effect 1/1/15.  Neither is earth-shattering, but affected employers take note:

AB 2074, text here, clarifies California law regarding the statute of limitations for "liquidated damages," available for unpaid minimum wage claims.  The statute amends Labor Code section 1194.2 (here) to say that the statute of limitations for liquidated damages will be the same as the statute of limitations applicable to the underlying wage claim.  I'm not sure, but it may be that employers argued the statute of limitations is only 1 year because liquidated damages are a form of penalty.

AB 2743, text here, expands the availability of "waiting time penalties."  Per Labor Code section 203 (here), employers face a penalty of up to 30 days' pay when they do not pay employees correctly and timely at termination of employment.  Section 201.9 of the Labor Code allowed employers in the "live theatrical or concert" industry to pay final wages in accordance with a collective bargaining agreement. AB 2743 expands the availability of waiting time penalties to situations when the employer does not pay on time under that CBA.  So, employers not in the "live theatrical or concert" business:  Nothing to see here.

Court of Appeal: Employers Cannot Shorten Statutes of Limitations in FEHA Discrimination Cases

The employment relationship is contractual (e.g., I'll work for you and you will pay me).  Statutes of limitations generally can be shortened by contract, even in California.  Now forget all of these general rules. An agreement shortening the California Fair Employment and Housing Act's statute of limitations is void, said the Court of Appeal in Ellis v. U.S. Security Associates.

Ashley Ellis sued her employer and manager for sexual harassment, retaliation and failure to prevent discrimination / harassment / retaliation under the Fair Employment and Housing Act.  She agreed in her employment application to bring any claim against the employer within six months, notwithstanding any law to the contrary.

The trial court enforced the provision. The Court of Appeal reversed.  The Court was particularly concerned that the six-month statute would impede the Fair Employment and Housing Act's administrative charge process.  (By statute, the employee has a year from the discriminatory event to file a charge with the Department of Fair Employment and Housing, and then a year from the end of the administrative process to file a lawsuit.  The DFEH itself has a year to investigate.)  The six-month limitation would limit the DFEH's ability to investigate, which the court found troubling.

So, the Court went about distinguishing and casting aside contrary authority in other jurisdictions and other legal contexts to hold that limiting the statute of limitations in FEHA cases to six months is unenforceable as "unreasonable and contrary to public policy."

We do not know what the Court would have done if the employer had limited to six months the time to file the administrative charge with the DFEH (instead of the year employees normally are allowed), or if the employer had limited to six months the time to file a lawsuit from the receipt of the "right-to-sue letter."  Perhaps a court will address a more generous statute of limitations in a later case.  For now, though, employers who shorten limitations periods should carve out FEHA-based claims.

The case is Ellis v. U.S. Security Associates and the opinion is here.

Court of Appeal: Some Wage Claims Tolled; Some Time Barred and More

This case is the poster child for needless litigation over a pretty simple issue, which was a loser for the employer from the jump. (And I say that in the most respectful way).

Harold Bain worked for Tax Reducers, Inc. (TRI) and its predecessor as a tax preparation consultant. He also performed other duties.  It's pretty clear from the facts that he was an employee, not an independent contractor. So, that part of the case is not breaking new ground.  However, the court of appeal allowed the trial court to consider a "presumption" of employee status, because the trial court also underwent the normal analysis of independent contractor. The evidence was overwhelmingly in favor of employee status, presumption or no.

After TRI bought the predecessor, Bain got into a dispute with the new owner of TRI about his compensation.  He worked for TRI for just seven weeks or so, but with the predecessor for several years.  However, because of the dispute, TRI didn't pay Bain at all for his seven weeks of work.

Bain filed a claim with the Labor Commissioner at the DLSE.  TRI argued that Bain was an independent contractor, but even if he wasn't, there was no agreed upon rate. As a result, TRI argued, Bain should recover only minimum wage.  Bain sought the $1100 per week he was earning before the take-over.  And that's what the DLSE awarded him, plus waiting time and interest, for about $15K.

When in a hole, stop digging?  Nah. TRI appealed the DLSE's ruling.  The parties then reached a settlement for the wages and interest, plus some attorney's fees, but no waiting time penalties.  The deal fell through when the parties could not agree on the scope of the release.

The court then re-set the case for trial.  The parties then settled again for $17,700, higher than the DLSE's award.  The settlement was supposed to include releases, but the parties again could not agree on the language, or even who was to prepare them.

Massive amounts of litigation ensued over the breached settlement agreement, including discovery motions, demurrers, summary judgment motions, anti-SLAPP motions, an appeal, too.  Bain even named TRI's president, Griffin, as an individual defendant, which typically is a no-go in a wage claim.
Guess who ended up getting rich here?  (Not Bain's lawyer; stay tuned).

The trial court conducted a four-day bench trial, after which it awarded Bain just over $25,000 plus attorney's fees on the wage claims.  (Bain had a choice of electing recovery on the breach of settlement agreement or recovery on the wage claims. He chose wisely, because the latter includes an award of attorney's fees).  How much attorney's fees did Bain seek?  Bain sought over $400,000 in fees, including a 1.5 multiplier.

Unfortunately for Bain's lawyer, he filed the motion for attorney's fees late and received nothing from the trial court, and nothing from the court of appeal, either.  I believe this clip from Willie Wonka captures the court's holding well.

TRI President Griffin, though, successfully obtained an award of fees for his individual claim, but only for $4225 (the fees for his summary judgment motion).  Continuing his losing streak, the court of appeal reversed Griffin's award, because he sought fees under the wrong statute (Lab. Code Section 218.5).  Because Bain won under the unpaid minimum wage law, the right statute is a one-way law that awards fees to employees only.  See, supra, Willie Wonka clip.  218.5 is becoming a one-way statute next year, so no one will make that mistake again.  Sigh.

Annnywayyyyyy, now that the discussion of litigation excess is over, here's the wage-hour issue that the court decided.

First, the Court set out the relevant statutes of limitations in wage claims:

1. Final pay - 3 years per Labor Code Section 201 and Code of Civil Procedure 338(a).
2. Waiting time - runs with the limitations period of the underlying wages sought - here 3 years, per Labor Code Section 203.
3. Liquidated damages for failing to pay minimum wage per Labor Code 1194.2 - one year per  Code of Civil Procedure 340(a).

Second, the Court had to decide whether Bain's claims were untimely.  He left on February 18, 2005, but did not sue until May of 2008.  That's more than three years and could have time-barred all his claims.

But the Court held that Bain's filing his DLSE claim "tolled" or suspended the statute of limitations. during the period is pursued his DLSE claim until the first DLSE proceeding was final. Once that time was added to the Bain's claims were timely, except for the 1194.2 liquidated damages penalty.  The court held the "equitable tolling" doctrine applied even though Bain was not required to go to the DLSE in the first place.  This decision, therefore, could extend limitations period in wage cases that involve administrative proceedings followed by litigation.

Even the tolled claims did not save the liquidated damages penalty, which was subject to the one-year statute. The court held that claim was barred and deduced those penalties.

So, Bain won about $18,000 bucks plus more interest... his lawyer lost out on at least $200K in fees.  And who knows how much TRI spent to obtain its lousy result.  Just sayin'.

This case is Bain v. Tax Reducers, Inc. and the decision is here.

Court of Appeal: Statute of Limitations Bars Claims Based on Stale Administrative Charges

When an employee files a series of discrimination charges with the Department of Fair Employment and Housing, may she wait to sue until years later, even if she received "right to sue" letters long before she filed her lawsuit? No.

Esperanza Acuna was employed with San Diego Gas and Electric.  Over a course of several years, she claimed harassment and discrimination by a supervisor, and failure to accommodate  a work-related stress disability.   The court of appeal set out this timeline:

On March 16, 2006, Acuna filed her first DFEH complaint, alleging racial discrimination and harassment, and retaliation for having filed a worker's compensation claim. On March 27, 2006, the DFEH issued a right to sue notice on this first DFEH complaint.

On February 23, 2007, Acuna filed her second DFEH complaint, alleging disability discrimination (failure to accommodate her claimed disability). On February 19, 2008, the DFEH filed a right-to-sue notice on this second DFEH complaint.

On July 11, 2008, SDG&E terminated Acuna's employment.

On October 23, 2008, Acuna filed her third DFEH administrative complaint, alleging various wrongful acts, including her alleged retaliatory termination. On November 7, 2008, the DFEH issued a right-to-sue letter based on this third DFEH complaint.

On November 5, 2009, Acuna filed her lawsuit.

The Court of Appeal decided the statute of limitations barred any claims based on the first two DFEH complaints.  She had until March 2007 to file a lawsuit based on the first charge; she did not.  She had until February 19, 2009 to file the lawsuit based on the second "right to sue" notice.  But she did not file until November 5, 2009.

The Court rejected Acuna's attempt to argue that the "continuing violation" doctrine saved her claims based on the first two "right to sue" letters:

As discussed above, in California the continuing violations doctrine applies to toll section 12960's one-year period for filing a DFEH claim during the time the employee and employer are engaged in informal efforts to resolve the employer's claimed wrongful conduct. (Richards, supra, 26 Cal.4th at pp. 822-823.) The California Supreme Court held this tolling period ends when the employer's determination achieves a level of permanence, i.e., when a reasonable employee would understand that "further efforts to end the unlawful conduct will be in vain." (Id. at p. 823.)

Acuna's allegations establish that a reasonable person would have understood that SDG&E had denied her requests for accommodation no later than February 2007. According to Acuna's allegations, beginning in late 2005, SDG&E repeatedly declined to permit Acuna to return to her job and refused to permit her to work for a supervisor other than Valentine. In response to this conduct, Acuna retained counsel and filed a DFEH complaint. After SDG&E continued to refuse to accommodate her claimed disability, Acuna filed her second DFEH complaint in February 2007. In this complaint, Acuna specifically alleged that SDG&E was refusing to accommodate her disability. By retaining counsel and filing a DFEH complaint, Acuna manifested an understanding that further attempts at informal, rather than formal, resolution of the disability accommodation process would not be successful and were futile. Under these circumstances, the continuing violations doctrine is inapplicable.

The Court also held that the doctrine of "equitable tolling" did not save her stale claims either. 

The equitable tolling doctrine generally requires a showing that the plaintiff is seeking an alternate remedy in an established procedural context. (See McDonald, supra, 45 Cal.4th at p. 102-104; Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1082.) Informal negotiations or discussions between an employer and employee do not toll a statute of limitations under the equitable tolling doctrine. (See 65 Butterfield v. Chicago Title Ins. Co. (1999) 70 Cal.App.4th 1047, 1063.) Acuna does not allege any facts showing she was pursuing an alternate remedy that excused her from timely filing her administrative claim and/or from filing her lawsuit.

Moreover, the equitable tolling doctrine is inapplicable once the employee is on notice that his or her rights had been violated and that her alternate remedies will be unsuccessful. (Richards, supra, 26 Cal.4th at p. 814.) As discussed above, Acuna acknowledged that by February 2007 she understood that SDG&E was refusing to accommodate her disability and was not interested in informally resolving her claims.

So, the Court held that Ms. Acuna can proceed on her timely claims for wrongful termination and her FEHA-based retaliation claim concerning her discharge.

The case is Acuna v. San Diego Gas & Elec. and the opinion is here.