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Sulyma v. Intel Corporation Investment Policy Committee

United States District Court, N.D. California

March 31, 2017

CHRISTOPHER M. SULYMA, et al., Plaintiffs,
v.
INTEL CORPORATION INVESTMENT POLICY COMMITTEE, et al., Defendants.

          ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT RE: DKT. NO. 122

          NATHANAEL M. COUSINS United States Magistrate Judge

         In this putative class action, former Intel employee Christopher Sulyma sues various fiduciaries of his Intel retirement accounts. While he worked for Intel, Sulyma participated in two retirement plans that invested in conventional investments, such as stocks and bonds, but also invested substantially in alternative investments, such as hedge funds and private equity. Sulyma sues plan fiduciaries for what he alleges were imprudent investments and inadequate disclosures.

         Defendants move for summary judgment on all of Sulyma's claims, arguing that the claims are time-barred under the statute of limitations. The key issue is whether Sulyma had actual knowledge of the underlying facts constituting his claim within 3 years of filing his lawsuit. If Sulyma had such knowledge, under federal law his claims are time-barred. Because there is no genuine dispute of material fact that Sulyma had actual knowledge of the facts comprising claims I and III, as well as knowledge of the disclosures he alleges were unlawfully inadequate in claims II and IV, the Court GRANTS defendants' motion for summary judgment on those claims, finding them time-barred.

         Without live primary claims, the Court also GRANTS summary judgment on Sulyma's derivative duty to monitor and co-fiduciary liability claims (claims V and VI).

         I. BACKGROUND

         A. Procedural History

         In this putative class action seeking relief under the Employee Retirement Income Security Act (ERISA), Sulyma seeks to represent two classes of plaintiffs: (1) participants in the 401(k) Plan and the Retirement Plan whose accounts were invested in the Target Date Fund 2045 (TDF);[1] and (2) participants in the 401(k) Plan and the Retirement Plan whose accounts were invested in the Global Diversified Fund (GDF). Dkt. No. 93 at 4. Defendants include the members of the Investment Committee, [2] the Administrative Committee, [3] and the Finance Committee of the Intel Board of Directors, [4] as well as the committee entities. Sulyma also names the Intel Corporation 401(k) Savings Plan and the Intel Retirement Contribution Plan as nominal defendants. Id. at 15-16.

         The gravamen of Sulyma's complaint is that the defendant fiduciaries of the Retirement Plan and 401(k) Plan imprudently over-allocated to hedge funds and private equity investments. Dkt. No. 93 at 4. Defendants allegedly breached their fiduciary duties by investing in such funds, which “presented unconventional, significant and undue risk of unduly high fees and costs.” Id. These allocations “departed dramatically” from prevailing industry standards. Id. According to Sulyma, these investment decisions caused “massive losses and enormous excess fees” to the plans and their participants. Id.

         Sulyma brings six claims: claims I and III allege the Investment Committee Defendants breached their fiduciary duties by over-allocating the assets of the 401(k) Plan and Retirement Plan to hedge fund, private equity, and other alternative investments. Id. at 64-66, 68-70. Claims II and IV allege the Administrative Committee Defendants breached their fiduciary duties by failing to disclose required information about the funds. Dkt. No. 93 at 67-68, 70-72. Claim V alleges that the Finance Committee Defendants breached their fiduciary duties by failing to monitor the Investment Committee and Administrative Committee. Id. at 72-73. Claim VI alleges that each defendant has derivative liability for the actions of the other defendants. Id. at 73-75.

         Defendants move for summary judgment on all claims. Dkt. No. 122 at 7. According to defendants, Sulyma had actual knowledge of the facts constituting the alleged violations of ERISA more than three years before he sued, through “annual notices, quarterly Fund Fact Sheets, targeted emails, and two separate websites.” Id. at 7-8. The Court held a hearing on defendants' motion on December 14, 2016. Dkt. No. 140. All parties consented to the jurisdiction of a magistrate judge under 28 U.S.C. § 636(c). Dkt. Nos. 30, 50.

         B. Findings of Fact

         Sulyma worked for Intel between 2010 and 2012, and participated in two ERISA-governed retirement plans. Dkt. No. 93 at 9. The first was the Intel Retirement Contribution Plan, where Sulyma's retirement assets were invested in the GDF. Id. The second was the Intel 401(k) Savings Plan, where Sulyma's retirement assets were invested in the TDF. Id.

         According to Sulyma, while he worked at Intel, he had little experience with financial issues, and didn't know what “hedge funds, ” “alternative investments, ” and “private equity” were. Dkt. No. 134 at 13. While an Intel employee, as Intel's exhibits demonstrate, [5] Sulyma had access to a number of financial documents pertaining to the GDF and TDF. Many of these documents, such as Fund Facts Sheets, Qualified Default Investment Alternatives Notices, and Summary Plan Descriptions, were made available by Fidelity Workplace Services LLC, “which is the service provider for . . . Intel Retirement Contribution Plan and Intel 401(k) Savings Plan.” Dkt. No. 122-1 at 1-2 (Vogel Decl.). Fidelity made these documents available on the NetBenefits website. Id. at 2. Sulyma never saw the Fund Facts Sheets or Morningstar reports, and cannot recall receiving or review the Intel plans' Summary Plan Descriptions. Dkt. No. 134 at 13.[6] Sulyma acknowledged it was possible he accessed the NetBenefits website 68 times during his employment at Intel. Dkt. No. 135-3 (Sulyma Dep.) at 27. Sulyma asserts the financial documents Intel uses to attribute actual knowledge on his part were not easily accessible, and often misleading or inconsistent, though he admits he never looked at those documents to begin with. Dkt. No. 134 at 27 (“Mr. Sulyma repeatedly testified that he had not seen the purported “disclosures” on Intel's website.”). The documents Sulyma acknowledges receiving and reviewing are the Intel 401(k) and Intel Retirement Contribution Retirement Savings Statements, which “consistently advised him from 2010 to 2013 that he was invested in ‘stock 63 percent, bonds 16%, short-term 21 percent.'” Id. at 14; see Dkt. Nos. 128-3 (Defs. Ex. 29), 128-4 (Defs. Ex. 30). The Savings Statements say nothing about investments in private equity or hedge funds.

         II. LEGAL STANDARD

         Summary judgment may be granted only when, drawing all inferences and resolving all doubts in favor of the nonmoving party, there is no genuine dispute as to any material fact. Fed.R.Civ.P. 56(a); Tolan v. Cotton, 134 S.Ct. 1861, 1863 (2014); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is material when, under governing substantive law, it could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute about a material fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. Bald assertions that genuine issues of material fact exist are insufficient. Galen v. Cnty. of L.A., 477 F.3d 652, 658 (9th Cir. 2007).

         The moving party bears the burden of identifying those portions of the pleadings, discovery, and affidavits that demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. Once the moving party meets its initial burden, the nonmoving party must go beyond the pleadings, and, by its own affidavits or discovery, set forth specific facts showing that a genuine issue of fact exists for trial. Fed.R.Civ.P. 56(c); Barthelemy v. Air Lines Pilots Ass'n, 897 F.2d 999, 1004 (9th Cir. 1990) (citing Steckl v. Motorola, Inc., 703 F.2d 392, 393 (9th Cir. 1983)). All justifiable inferences, however, must be drawn in the light most favorable to the nonmoving party. Tolan, 134 S.Ct. at 1863 (citing Liberty Lobby, 477 U.S. at 255).

         III. DISCUSSION

         The issues presented are (1) whether claims I-IV (primary breach of fiduciary duty claims) are time-barred; and (2) if so, whether Sulyma's derivative liability claims (V and VI) are also time-barred.

         A. Claims I and III Are Time-Barred.

         Claims I and III allege the Investment Committee Defendants breached their fiduciary duties by over-allocating the assets of the 401(k) Plan and Retirement Plan to hedge fund, private equity, and other “alternative investments.” Dkt. No. 93 at 64-66, 68-70.

         1. Standard For Fiduciary Duties and Statute of Limitations Under ERISA.

         The prudent man standard of care, 29 U.S.C. § 1104(a)(1) (ERISA § 404), provides that the plan fiduciary must discharge his plan duties “solely in the interest of the participants and beneficiaries” and:

(A) for the exclusive purpose of:
(i) providing benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering the plan;
(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims[.]

ERISA's statute of limitations for breaches of fiduciary duties bars actions commenced “after the earlier of” either 6 years after the act or omission constituting the breach, or 3 years “after the earliest date on which the plaintiff had actual knowledge of the breach.” 29 U.S.C. § 1113 (ERISA § 413). The three-year limitations period begins on “the date on which the person bringing the suit acquires actual knowledge.” Landwher v. DuPree, 72 F.3d 726, 733 (9th Cir. 1996). Constructive knowledge, or “knowledge of facts sufficient to prompt an inquiry which would have uncovered the breach, ” does not suffice. Martin v. Pac. Lumber Co, 1993 WL 832744, at *2 (N.D. Cal. Jan. 15, 1993); but see Brown v. Owens Corning Inv. Review Comm., 622 F.3d 564, 571 (6th Cir. 2010) (finding that where participants were provided access to Summary Plan Descriptions, but there existed no proof the plaintiffs “actually saw or read the documents that disclosed the allegedly harmful investments, ” actual knowledge existed) (internal quotations marks omitted).

         To apply the statute of limitations requiring “actual knowledge, ” the court “must first isolate and define the underlying violation.” Ziegler v. Conn. Gen. Life Ins. Co.,916 F.2d 548, 550-51 (9th Cir. 1990). Second, the Court must inquire when the plaintiff had “actual knowledge” of the alleged breach or violation. Id. at 552. “This inquiry into plaintiffs' actual knowledge is entirely factual, requiring examination of the record.” Id. Therefore, as to claims I and III, the Court must look to the evidence presented to see if the financial disclosures presented notice sufficient to “isolate and define the underlying violation” and provide “actual ...


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