Supreme Court Says You Can Keep Ignoring Financial Disclosures

(Bloomberg Opinion) -- You know all those reports you get in the mail from investment funds and toss in a drawer or the shredder? Not your balances, but the detailed notices about investment strategies and the like? The U.S. Supreme Court just gave you another reason not to read them.


In Intel Corporation Investment Policy Committee v. Sulyma, handed down Wednesday morning, the justices agreed unanimously to allow a lawsuit challenging the investment decisions by the administrators of Intel’s retirement plan. No big deal, right? Lawsuits happen all the time, and most of us don’t work for Intel.

Here’s why the case matters: Under the Employee Retirement Income Security Act of 1974, known as ERISA, a lawsuit for breach of fiduciary duty has to be filed within six years of "the last action which constituted a part of the breach," unless the beneficiary has actual knowledge of the actions in question, in which case the suit must be filed within three years.  The Intel administrators argued that Christopher Sulyma's suit came too late because for more than three years before he went to court, they’d been sending emails disclosing their investment decisions and directing beneficiaries to sites where they could learn more. Sulyma responded that as far as he could remember, he hadn’t read any of the disclosures.

Intel’s position was that Sulyma’s failure to read the documents was no excuse; Sulyma argued that the statute’s requirement of “actual knowledge” was’t met until he’d done the reading. The federal courts had split on the issue, and on Tuesday the Supreme Court resolved the dispute in favor of... providing an incentive not to find out how your retirement funds are being invested.

OK, fine — as a technical matter, Justice Samuel Alito’s opinion for the court merely applied ordinary canons of statutory interpretation. (I won’t bore you with the details.) And maybe the justices got the statute right. But, if so, then the incentives Congress created in enacting ERISA turn out to be downright peculiar.

To see why, let’s consider what Sulyma’s lawsuit is actually about.  After the 2008 financial crisis, the retirement plan’s administrators reduced holdings in stocks and bonds and increased investment in such alternative investments as commodities and hedge funds. The rest of the story everybody knows. The markets came roaring back. Suddenly, those alternative investments didn’t look so good; their results lagged the market. In Sulyma’s view, the plan administrators breached their fiduciary duty to beneficiaries such as himself.

Maybe the administrators breached their duty, maybe they didn’t; that argument we can save for another day. All the Supreme Court decided is that the case can go forward.

During December’s oral argument, Justice Brett Kavanaugh pointed out, in apparent sympathy with Sulyma, that most people don’t read the disclosures they receive. “How do you have actual knowledge if you haven’t read it?” he asked.

But that’s the point. Sure, few people bother to peruse the various disclosures they receive from investment managers, banks and other financial institutions. Most people don’t read detailed contracts before signing them either, but the court usually rejects the defense “I didn’t know what I was signing.” The judges justify the rule because it creates an incentive to read. In other words, the law tries to change rather than yield to the common behavior that Kavanaugh accurately described. We try to nudge people toward acquiring more information, rather than less.

And the same is true across many areas of law. For instance, a tort plaintiff who is trying to prove that warning labels on a product were inadequate will lose the case if the real problem turns out to be that the labels were available but she didn’t bother to read them. A plaintiff who claims to have been injured by a vaccine cannot invalidate her waiver on the ground that she just glanced at it before signing. And a long line of cases agree that a borrower seeking to escape his obligations under a credit life insurance policy will not prevail if it turns out that he received regular disclosure statements but didn’t look at them.

We could go on and on. The point is clear: As a general matter, the law prefers to provide incentives for people to read important documents.  But not here.

If the justices are right that this is the way Congress wanted things under the relevant provisions of ERISA, then Congress made a choice that makes no sense. The administrators did everything they could to provide Sulyma with notice of their investment decisions. And now he’s better off for ignoring their disclosures.

Had Sulyma actually read the disclosures when the administrators made them — had he taken the time to peruse all those emails or study the documents on the recommended sites — his legal situation today would be worse. He’d have had actual knowledge of the investment decisions more than three years before filing his suit, so the statute of limitations would have expired. 

In short, a plaintiff who actually kept up with what was happening to his own money would be been penalized. That’s why the Sulyma decision, whether we blame the Supreme Court or Congress, gets the incentives inside-out. The court’s message is simple, but weird:

If you’re worried about your retirement funds, don’t read all that stuff they send you. After all, you might want to sue one day.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Stephen L. Carter is a Bloomberg Opinion columnist. He is a professor of law at Yale University and was a clerk to U.S. Supreme Court Justice Thurgood Marshall. His novels include “The Emperor of Ocean Park,” and his latest nonfiction book is “Invisible: The Forgotten Story of the Black Woman Lawyer Who Took Down America's Most Powerful Mobster.”

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