August 21, 2019

Tenth Circuit: Six-Year Statute of Repose for Breach of Fiduciary Duty in ERISA Contains Exception for Fraud or Concealment

The Tenth Circuit Court of Appeals issued its opinion in Fulghum v. Embarq Corporation on Tuesday, February 24, 2015.

A class of retirees (plaintiffs) of Sprint-Nextel Corporation, Embarq Corporation, or a predecessor or successor of those companies (collectively, defendants) brought suit after defendants altered or eliminated health and life insurance benefits for retirees. Plaintiffs asserted defendants violated ERISA by breaching their obligation to provide vested health and life insurance benefits, breached their fiduciary duty by misrepresenting the terms of multiple welfare benefit plans, and violated the ADEA and state laws by reducing or eliminating health and life insurance benefits. The district court granted summary judgment to defendants on the breach of fiduciary duty claims, the ADEA claims, the state-law age discrimination claims, and some of the contractual vesting claims. Plaintiffs obtained a Rule 54(b) certification and appealed.

The Tenth Circuit examined the applicable insurance contracts and summary plan descriptions (SPDs). Defendants organized 32 SPDs into five groups based on language and coverage similarities, and the district court used these groupings in its analysis of plaintiffs’ claims. Because plaintiffs did not object to the groupings, the Tenth Circuit also based its analysis on the defendants’ classifications.

The first group of SPDs contained 16 documents, each including a statement that the retiree’s coverage ends upon death and a reservation of rights clause where the employer reserved the right to modify or terminate benefits at any time. Plaintiffs argued the plan language was ambiguous because it both offered coverage until death and reserved the right to modify or terminate benefits. The Tenth Circuit found the language unambiguously informed plaintiffs of defendants’ right to modify or terminate coverage, and therefore affirmed the district court’s summary judgment as to group 1.

Next, the Tenth Circuit analyzed the three SPDs in group 2, and found none containing “clear and express language” promising vested benefits. Plaintiffs pointed to language in the SPDs, but the Tenth Circuit found the language more pertinent to amount of benefits and not duration. The Tenth Circuit affirmed summary judgment as to group 2, finding the SPDs unambiguously contemplated termination of the plans.

The third group contained 4 SPDs regarding medical benefits. Plaintiffs claimed entitlement to lifetime benefits because the plans contained language that they “will be insured” and benefits “will continue after retirement.” The Tenth Circuit found the language insufficient to confer lifetime benefits, since it did not clearly and expressly promise unaltered lifetime benefits. The Tenth Circuit also noted that each SPD contained reservation of rights language. The district court’s summary judgment was affirmed as to group 3.

As for the benefits for group 4, the Tenth Circuit found the plaintiffs “wholly failed” to point to any language in the plans promising lifetime benefits. The Tenth Circuit found as to all groups that “no reasonable person in the position of a plan participant would have understood any of the language identified by Plaintiffs as a promise of lifetime health or life insurance benefits,” and that the same reasonable person would have understood defendants’ rationale for amending the plans.

The Tenth Circuit similarly rejected plaintiffs’ attempt to incorporate by reference arguments made in district court regarding why the district court’s denial of plaintiffs’ motion for reconsideration was abuse of discretion, commenting “this is not acceptable appellate procedure.” The Tenth Circuit deemed this argument waived. The Tenth Circuit conceded defendants were only entitled to summary judgment on the claims presented to the district court based on SPDs considered by the district court, and reversed the grant of summary judgment to the extent a class member’s claim for benefits arose from an SPD not presented to the court.

Turning to the breach of fiduciary duty claims, the district court had dismissed all claims as untimely, but the Tenth Circuit found that the district court applied the wrong statutory analysis. The Tenth Circuit reversed the district court’s dismissal of the breach of fiduciary duty claims. The Tenth Circuit examined 29 U.S.C. § 1113, finding the six-year statute of repose undisputed by the parties, but discovered a circuit split on whether § 1113’s statute of limitations applies solely to claims where a fiduciary fraudulently conceals the alleged breach of fiduciary duty or if it applies where the underlying breach of fiduciary duty claim involves allegations of fraud. The Tenth Circuit declined to conflate “fraud or concealment” to “fraudulent concealment” and also declined to consider the clause a separate statute of repose. Instead, the Tenth Circuit found the language to create an exception to the six-year statute of repose for instances when the breach of fiduciary duty resulted from fraud or concealment. The Tenth Circuit found support for its construction in the legislative purpose of ERISA.

Applying its framework to the instant case, the Tenth Circuit did not find evidence of concealment by defendants, and instead looked at whether there was fraud. The district court dismissed plaintiffs’ breach of fiduciary duty claims based on defendants’ claim that the argument was not properly briefed. The Tenth Circuit reversed on this point, finding instead that defendants did not move to dismiss plaintiffs claims on the basis on which the district court granted dismissal, resulting in error.

Finally, the Tenth Circuit addressed plaintiffs claims that the reduction or termination of benefits violated the ADEA because it constituted disparate impact discrimination based on age. Defendants produced evidence of effecting the policy changes based on reasonable factors other than age, and the district court granted summary judgment to defendants. The Tenth Circuit affirmed, finding that the narrow scope of ADEA disparate impact claims only required a showing that defendants’ decision was based on reasonable factors other than age and defendants made that showing.

The Tenth Circuit affirmed in part, reversed in part, and remanded for further proceedings.

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  1. […] The Tenth Circuit Court of Appeals issued its revised opinion in Fulghum v. Embarq Corporation on Monday, April 27, 2015. The Tenth Circuit granted panel rehearing to a limited extent and issued a revised opinion. The opinion was circulated to all judges and none requested a poll, so en banc rehearing was denied. The Legal Connection summary of the original opinion is available here. […]

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