By: Amanda Sonneborn, John Duke and Sam Schwartz-Fenwick
In David v. Alphin (Case No. 3:07-cv-00011-MOC), the U.S. District Court for the Western District of North Carolina dismissed as time barred a putative class action, which alleged that Bank of America and various plan fiduciaries breached their ERISA fiduciary duties by selecting Bank of America-affiliated mutual funds as investment options in the Bank of America 401(k) plan that allegedly charged improper and excessive fees. The participants claimed that the defendants engaged in prohibited transactions and breached their fiduciary duties of loyalty and prudence by selecting these mutual funds as investment options because the fees associated with the funds were unreasonable. The defendants moved for summary judgment on the grounds that the participants’ claims were barred by ERISA’s six-year statute of limitations. The court agreed.
In reaching this conclusion, the court first dismissed the plaintiffs’ claims that the defendants engaged in prohibited transactions. The court found that, with the exception of one bank-affiliated fund, all of the challenged funds were added to the plan’s lineup of investment options more than six years before the lawsuit was filed. To avoid the statutory bar, however, the plaintiffs argued that plan fiduciaries had a continuing obligation to remove the bank-affiliated plans from the plan. The court rejected this argument because “ERISA does not make actionable a fiduciary’s failure to undo what has been done,” but rather “makes actionable a plan fiduciary’s decision to engage in a prohibited transaction.” As the plaintiffs’ claims rested on the initial decision to invest in bank-affiliated funds, which occurred more than six years before the participants filed suit, the court found the claimed prohibited transactions were barred by ERISA’s six-year limitations period.
The court also dismissed the claims asserting breaches of the duty of prudence and loyalty. Although the plaintiffs conceded that all but one of the challenged investment options were added more than six years before they filed suit, they nevertheless maintained that the statute of limitations was tolled by ERISA’s “fraud or concealment” exception. The court rebuffed this argument because there was no evidence that the corporate benefits committee engaged in any conduct that prevented the participants from realizing they might have had a claim. Indeed, the court pointed out that several documents, including summary plan descriptions, disclosed the bank-affiliated funds and their related fees. Moreover, the court continued, even if some statements in the documents were false, there was no evidence that the documents were generated with an intent to defraud or mislead the participants.
Finally, as to the one fund that was added to the plan’s investment lineup during the six-year statute of limitations period, the court dismissed the plaintiffs’ claim finding that they lacked standing to assert an ERISA breach of fiduciary duty claim as to this fund because none of the plaintiffs invested in the fund.
The court’s decision in David v. Alphin is important victory for plan sponsors because it holds that ERISA’s six-year statute of limitations runs from the initial selection of an allegedly imprudent fund as an option under a plan, rather than years later as plaintiffs’ counsel often suggest.