The U.S. Supreme Court on Wednesday wrestled with whether receiving pension investment disclosures constitutes "actual knowledge" of a fiduciary breach even when many people don't read the detailed disclosures required by federal law.

The case, Intel Corp. Investment Policy Committee v. Sulyma, is one of a trio of challenges this term—and perhaps the most significant—involving the Employee Retirement Income Security Act, ERISA. How the justices interpret the "actual knowledge" requirement in ERISA's three-year limitation period could have major implications for the timing, costs and damages in suits for fiduciary breaches.

Intel's lawyer, Donald Verrilli Jr., partner at Munger, Tolles & Olson, argued the U.S. Court of Appeals for the Ninth Circuit ruling wrongly interpreted "actual knowledge" to mean awareness of the facts of a breach or violation. Instead, he contended, plan participants have actual knowledge when they have received plan disclosure documents.

The Ninth Circuit ruled that the three-year bar did not apply because Intel employee Christopher Sulyma had not read the disclosures that apprised him of the investments that he claimed violated ERISA and thus could not have had actual knowledge of a breach.

"The Ninth Circuit was wrong to read the statute to require proof of subjective awareness," Verrilli told the justices.

"Most people don't read them," Justice Brett Kavanaugh said. "So how do you have actual knowledge if you haven't read it?"

Picking up on Kavanaugh's question, Chief Justice John Roberts Jr. asked, "Is there any reason for us to assume the opposite of what I gather is a common personal experience?" Prompting laughter, he added: "I won't ask for a show of hands, but…"

Verrilli urged the court not to take the words "in isolation and just look them up in the dictionary." Actual knowledge must be interpreted in the context of ERISA's text and emphasis on "robust disclosure by plan fiduciaries and private policing of plans by plan participants," he argued.

To require subjective awareness, he argued "upends that balance" in the statute.

"It effectively doubles from three to six years the period in which plaintiffs can exploit hindsight bias to second-guess investments, even when plans have fully disclosed the basis for those investments, and it introduces arbitrariness and intractable proof problems," he said, referring to ERISA's default six-year limitations period.

But Sulyma's counsel, Matthew Wessler, partner at the Washington litigation boutique Gupta Wessler, and Assistant to the Solicitor General Matthew Guarnieri, countered that the plain meaning of "actual knowledge" is what Congress intended.

"When Congress said that a plaintiff must have actual knowledge, it meant what we all understand that phrase to mean, that the plaintiff himself must have real awareness," Wessler argued.

That interpretation makes sense, Wessler added, because most people don't read complicated disclosures "chock-a-block" full of jargon. And, he said, "Because fiduciaries owe an unyielding duty to act in participants' best interests, most people trust that their fiduciaries are not breaching their obligations."

Given that "real-world understanding," Wessler said, it was "perfectly sensible" that Congress chose not to start the three-year clock as soon as a plan participant receives the disclosures.

Gibson Dunn Gibson Dunn offices. Credit: ALM

Intel's position is supported in an amicus brief filed by Gibson, Dunn & Crutcher on behalf of business organizations, including the Chamber of Commerce and the National Association of Manufacturers.

"The decision breaks with the near-uniform, common-sense rule in numerous federal courts that disclosing information to plan participants gives those participants actual knowledge of the information disclosed," Gibson Dunn partner Mark Perry wrote in his brief for business advocates. "The decision below is wrong, it seriously undermines the important protections provided by the three-year limitations period, and it threatens to exacerbate the growing trend of meritless litigation against ERISA plans and plan fiduciaries."

Sulyma has drawn amicus support from the Pension Rights Center, represented by Kantor & Kantor, and the AARP, represented by a team including Sanford Heisler Sharp. "The decision below properly preserves ERISA's balance between protecting participants' rights and ensuring employers' certainty that claims expire after six years," AARP Foundation lawyer Dara Smith said in the brief.