Karen CETEL; Morton Schneider; Marvin Cetel; Marvin Cetel, M.D., P.A.; Barbara Schneider; Barbara Schneider, M.D., F.A.C.S., P.A. v. KIRWAN FINANCIAL GROUP, INC.; Barry Cohen; Michael Kirwan; Neil Prupis; Lampf, Lipkind, Prupis, Petigrow & laBue; Raymond G. Ankner; CJA Associates; Beaven Companies, Inc.; Medical Society of New Jersey; Inter-American Insurance Co. of Illinois; Commonwealth Life Insurance Co.; Peoples Security Life Insurance Co.; Monumental Life Insurance Co.; Capital Holding Company; Aegon Insurance Group; Indianapolis Life Insurance Co.
Nos. 00-cv-5799, 01-cv-04781, 04-3408, 05-1329, 05-1503, 05-1504
United States Court of Appeals, Third Circuit
August 28, 2006
460 F.3d 494
NYGAARD, Circuit Judge.
C. Dismissal of the Fictitious Plaintiffs
The Third Amended Complaint lists as John Doe plaintiffs “fictitious farmers not yet identified” in order to “protect those plaintiffs’ interests.” There is no allegation or evidence of the citizenship of these fictitious farmers. John Doe parties destroy diversity jurisdiction if their citizenship cannot truthfully be alleged. See Kiser v. Gen. Elec. Corp., 831 F.2d 423, 426 n. 6 (3d Cir. 1987). However, the Supreme Court has held that courts of appeals have the authority to dismiss dispensable John Doe parties in order to preserve diversity jurisdiction. See Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 827, 109 S.Ct. 2218, 104 L.Ed.2d 893 (1989). Here, the named plaintiffs can obtain complete relief without the presence of the John Doe plaintiffs, and any claims arising between the John Doe plaintiffs and Novartis can be adjudicated in a subsequent action. We conclude that the John Doe plaintiffs are dispensable parties, and we will therefore dismiss their claims.
III. Conclusion
For the reasons stated above, we vacate the District Court‘s judgment dismissing the plaintiffs’ claims as preempted by FIFRA and remand for further proceedings consistent with this opinion. We also remand to the District Court to determine whether, under Bates, FIFRA preempts 1) Plaintiffs’ negligent misrepresentation, fraud, and statutory fraud claims to the extent they are based on written misrepresentations and 2) Plaintiffs’ failure-to-warn claim. We affirm the District Court‘s grant of summary judgment dismissing the claims of plaintiffs Augustine, Berenato, Condo, Merlino, Rizzotte, Vaccarella, and Whalen, and we dismiss the claims of the John Doe plaintiffs.
Mark J. Oberstaedt, Esq., (Argued), Stephen J. Fram, Esq., Archer & Greiner, Haddonfield, NJ, for Appellants/Cross Appellees.
Kevin L. Smith, Esq., (Argued), Hines Smith, Costa Mesa, CA, Charles L. Becker, Esq., Reed Smith, Philadelphia, PA, for Appellee/Cross Appellant, Comm Life Ins. Co., et al.
Christopher P. Leise, Esq., (Argued), White & Williams, Cherry Hill, NJ, Elizabeth A. Venditta, Esq., Edward M. Koch, Esq., White & Williams, Philadelphia, PA, for Appellee/Cross Appellant Pacific, Executive Serv., et al.
Walter F. Kawalec, III, Esq., (Argued), Larry I. Zucker, Esq., Marshall Dennehey Warner Coleman & Goggin, Cherry Hill, NJ, for Appellee/Cross Appellant, Medical Society of NJ.
Richard L. Hertzberg, Esq., (Argued), Greenbaum Rowe Smith & Davis, Woodbridge, NJ, Alain Leibman, Esq., Stern & Kilcullen, Roseland, NJ, for Appellee/Cross Appellant Raymond G. Ankner, et al.
William P. Marshall, Esq., Colmar, PA, for Appellee Barry Cohen.
Michael Kirwan, Yardley, PA, Pro Se.
Before SCIRICA, Chief Judge, and NYGAARD, Circuit Judge, and YOHN,* District Judge.
NYGAARD, Circuit Judge.
Appellants/Plaintiffs are physicians and their professional corporations who purchased life insurance through Voluntary Employee Beneficiary Associations (“VEBAs“) created, marketed, operated, and endorsed by Appellees/Defendants, a number of individuals, corporations, and associations connected to the VEBAs.1 They
I. FACTS
This case involves a protracted disagreement over the validity and legitimacy of VEBA plans that were developed and marketed in the early 1990s, the history of which can be read in Neonatology Assocs., v. Comm‘r, 115 T.C. 43, 2000 WL 1048512 (2000), aff‘d, 299 F.3d 221 (3d Cir.2002). Sometime in the mid-1980s, Donald Murphy and Stephen Ross formed a partnership called Pacific Executive Services (“Murphy Defendants“) and sought to sell life insurance policies through VEBAs specially designed to take advantage of the Tax Reform Act of 1986, Pub.L. 99-514, 100 Stat.2085. The Murphy Defendants believed that the Tax Reform Act allowed them to market and sell life insurance policies through the tax-exempt VEBAs, creating a scheme by which they could sell more insurance policies by coupling them with the tax benefits of the VEBAs. Specifically, the Murphy Defendants conceived the scheme so as to require an employer to purchase, at an inflated cost, group life insurance for its employees. The annual contributions made by the employers (purportedly for their employees) were to be tax-deductible and the employees could later convert the group life insurance to individual policies such that any premium overpayments would convert to tax conversion credits. Under the Murphy Defendants’ plan, purchasers could realize two distinct tax benefits: (1) the professional corporations would be able to deduct the life insurance premium payments; and (2) after converting the group policies to individual policies, the individual employees would obtain the insurance overpayments as conversion credits.
To facilitate this plan, the Murphy Defendants engaged Michael Kirwan and Kirwan Financial Group as well as Barry Cohen (“Kirwan Defendants“), to act as “financial advisors,” and to assist in the sales and marketing of the VEBAs to small professional businesses. As noted earlier, the money-making hook for the VEBAs was selling more life insurance policies. As such, the Murphy and Kirwan Defendants initially sold Continuous Group (“C-Group“) life insurance policies2 created by Raymond Ankner and supplied by his non-party company Inter-American Insurance Company. However, Inter-American lost financial stability and, in 1991, Ankner convinced a number of insurance sales companies (“Monumental Defendants“)3 to supply the C-Group policies. Consequently, the Monumental Defendants entered into a series of sales and marketing agreements with the Murphy
With this framework in place, defendants began marketing these plans to small businesses. Because they promised significant tax avoidance, the plans were appealing, and several businesses and employers purchased the VEBA plans from defendants. One such company was Lakewood Radiology, P.C., and its partners, plaintiffs Vijay Sankhla, Yale Shulman, and Boris Pearlman (collectively, the “Sankhla physicians“). After Cohen and Kirwan recommended that Lakewood participate in the VEBA scheme, the professional corporation agreed. Another corporation to be convinced by Cohen and Kirwan was that of Cetel and Schneider (“Cetel physicians“), who agreed to participate both individually and through their professional corporation. Both of these corporations, and the doctors, individually, began making contributions to the VEBA plan in or around 1990. Moreover, all of the plaintiffs had dealings, in some capacity with Kirwan and Cohen, who became plaintiffs’ financial advisors, in all relevant respects, for questions concerning the VEBA plans. Additionally, plaintiffs also came to know Neil Prupis, who was hired as an attorney by the Murphy Defendants.
However, the VEBA plans came to the attention of the IRS which, on June 5, 1995, issued Notice 95-34. Notice 95-34 stated that the IRS did not consider the VEBAs’ tax-avoidance mechanism to comply with the tax code. It asserted that such deductions would be disallowed and that, if litigation were to ensue, it would assert this position in court. Moreover, in 1994 and 1995 the IRS issued deficiency notices to a number of the participants and also began audits of some businesses and individuals who had participated in the VEBA plans. After the IRS issued Notice 95-34, and after the IRS issued its audit notices, Prupis was hired by the Murphy Defendants. He drafted a letter to Cohen on July 12, 1995, which Cohen circulated to the VEBA participants. This letter accompanied a memorandum from Cohen and Kirwan to the VEBA participants. Both communications sought to allay any concerns the participants might have developed in light of the IRS actions. To wit, the letters strongly conveyed the belief that the IRS had taken an incorrect position, that the VEBA plans were completely legitimate, and that no court had ever upheld the IRS’ position concerning the validity of the VEBA plans. Nonetheless, the IRS began sending deficiency notices to the participants. Then, at the advice of Cohen and Kirwan, some of the participants retained Prupis as their attorney to help them deal with the IRS. Cohen and Prupis stood by their earlier assurances and a letter dated August 7, 1996, to the participants, encouraging them to continue participating in the plan. It also outlined a proposal for attacking the IRS’ position in Tax Court.
As it turned out, in 2000 the Tax Court did indeed determine that the VEBA plans marketed and sold by defendants impermissibly circumvented the intent and provisions of the Internal Revenue Code. See Neonatology, 115 T.C. at 43. Specifically, the court found that the VEBAs were merely “vehicles which were designed and serve in operation to distribute surplus cash surreptitiously (in the form of excess contributions) from the corporations for the employee/owner‘s ultimate use and benefit.” Id. at 89. The Court also held
The District Court found that the New Jersey Consumer Fraud Act did not cover plaintiff‘s allegations and also dismissed certain ERISA claims for lack of standing. The District Court granted summary judgment for all claims on statute of limitations grounds. Because the District Court‘s order and our review hinge on a thorough grasp of the predicate facts concerning plaintiffs’ knowledge at all relevant times, we will review these facts as they relate to each individual plaintiff.
Dr. Sankhla
Vijay Sankhla practices radiology with Lakewood Radiology, P.A. Upon becoming a partner with the Lakewood group in 1995, Sankhla began participating in and made contributions to the VEBA plan. He continued making payments to the plan for five years, until 2000. He was never audited by the IRS and claims he never saw their Notice 95-34. However, his employer was audited for its contributions to the VEBA plan, and he was subpoenaed in March 1995 in connection with this audit. Additionally, Sankhla admitted that he learned of the audits in mid-1995 and that he discussed the audits with his radiology partners. Consequently, he contacted Barry Cohen, the Lakewood Radiologists’ VEBA plan financial advisor, and inquired about how the audits would affect him. Cohen assured him that “his previous VEBA contributions were entirely safe” but expressed a certain discomfort with one of the VEBA plans. He additionally told Sankhla that “we are going to win the [Neonatology] case,” apparently in an effort to assure Sankhla of the safety of his investments. Moreover, he advised Sankhla that the only way to guarantee the safety of his previous VEBA plan investments would be to continue to make contributions to it for another three years, to enable him to make tax-free withdrawals. By 2000, however, Sankhla could not get an adequate answer from Cohen concerning the propriety of continued participation in the VEBA plan and so decided to discontinue contributions to the plan.
Dr. Pearlman
Boris Pearlman, also a partner with Lakewood Radiology. He participated in and made contributions to the VEBA plan from 1991 until 1999. Like Sankhla, he terminated his participation in 2000. Pearlman also contends that he never saw the IRS Notice 95-34, although he did receive the July 1995 letter from Cohen and Kirwan. He also received a copy of the letter from Prupis. In addition, Pearlman received notice of an audit in June or July of 1995 and an IRS examination report. However, Pearlman contends that he did not receive a deficiency notice from the IRS until sometime after September 16, 1996.
After he received the IRS audit notice, Pearlman contacted Cohen and Prupis with his concerns. In response Cohen and Prupis both assured Pearlman that the “IRS had no case” and that the VEBA plans were legitimate and would continue to be so. Pearlman was apparently convinced by these avowals and continued to invest in the VEBA plan. After the Tax Court effectively invalidated the VEBA scheme in 2000, Pearlman quit contributing to the plan.
Dr. Shulman
A third partner at Lakewood Radiology, Yale Shulman participated in the VEBA
In late 1996, Shulman was audited by the IRS, which, in 1997, assessed penalties and taxes against Shulman for his contributions to the VEBA plan. Evidently still believing the plan to be legitimate, Shulman continued making contributions until 1998.
Drs. Cetel and Schneider
Marvin Cetel and Barbara Schneider are the last two physicians to participate in this particular VEBA scheme. They began participating and contributing to the VEBA plan in 1990 and both received the IRS Notice 95-34 in May of 1995, the IRS audit notices in June of 1995, and the Prupis and Cohen letter of July 12, 1995. Schneider also received a notice of deficiency from the IRS on October 31, 1995, after which she hired Prupis as her attorney. Both physicians also received the letter from Prupis dated August 7, 1996. Schneider made her last contribution in 1998 and Cetel made his last contribution in 1997.
II. PROCEDURAL HISTORY
This appeal comprises actions that were initially filed as two separate putative class actions (the Cetel action, filed on July 20, 2000 and the Sankhla action, filed on September 6, 2001).4 Recognizing the importance of the Neonatology action for the future of their investments in the VEBA plan, both the Cetel physicians and the Sankhla physicians sought, and were granted, leave to participate as amici curiae in the Neonatology appeal to the Court of Appeals for the Third Circuit. Neonatology Assocs. v. Comm‘r., 293 F.3d 128 (3d Cir.2002). After the Tax Court‘s decision was affirmed, 299 F.3d 221 (3d Cir. 2002), plaintiffs sued defendants, alleging violations of ERISA, RICO, and various state law claims, including the New Jersey RICO statute and the New Jersey Consumer Fraud Act. Although the actions were initially filed separately in New Jersey state court, both were removed to the United States District Court for the District of New Jersey on the basis of the ERISA claims.
On July 8, 2002, the District Court dismissed the Sankhla physicians’ state law claims as being preempted by section 514(a) of ERISA,
The District Court, in an order dated March 2, 2004, first reversed itself on the issue of ERISA preemption, reinstating plaintiffs’ state law claims but declining to finally resolve them, and then granted defendants’ motion for summary judgment on plaintiffs’ federal RICO claims and most of the ERISA claims. The District
In a third opinion dated July 16, 2004, the District Court granted defendants’ motion for summary judgment on all of the reinstated state law claims and the remaining ERISA and New Jersey RICO claims and denied plaintiffs’ motion for reconsideration of its March 2, 2004 opinion.6 The District Court held the surviving ERISA claims under section 502(a)(3) of ERISA,
The disposition of this third opinion did leave certain common law state claims intact, but plaintiffs entered into a settlement agreement concerning these claims shortly thereafter and the District Court entered a final Order of Dismissal. Plaintiffs timely appeal from this Order and we have jurisdiction pursuant to
III. Discussion
A.
We will quickly dispose of a preliminary waiver issue. Plaintiffs argue that when certain defendants filed their answers to the complaint they failed to raise the issue of the statute of limitations, instead taking the position that the claims asserted were not ripe because the Tax Court litigation had yet to conclude. In essence, plaintiffs make a waiver argument. The District Court rejected it, applying the statute of limitations to bar all pertinent claims against all defendants. We review the District Court‘s decision for abuse of discretion and we will affirm on this point. Oddi v. Ford Motor Co., 234 F.3d 136, 146 (3d Cir.), cert. den., 532 U.S. 921, 121 S.Ct. 1357, 149 L.Ed.2d 287 (2001). It is true that “parties should generally assert affirmative defenses early in litigation, so they may be ruled upon, prejudice may be avoided, and judicial resources may be conserved.” Robinson v. Johnson, 313 F.3d 128, 134 (3d Cir.2002). However, there is no hard and fast rule limiting defendants’ ability to plead the statute of limitations. Accordingly, affirmative defenses can be raised by motion, at any time (even after trial), if plaintiffs suffer no prejudice. Charpentier v. Godsil, 937 F.2d 859, 863-64 (3d Cir.1991). Here, the District Court determined, and we agree, that plaintiffs suffered no undue prejudice because they had notice that the statute of limitations was an issue for the simple reason that other defendants had pleaded in their answer that the claims were time-barred. Because plaintiffs were on sufficient notice, it did not inhibit their ability to gauge and respond to all the possible defenses. The District Court was well within the bounds of its discretion to allow defendants to plead the statute of limitations even if they had not done so in their initial answers.
B. Federal RICO Claims
Turning to the substance of plaintiffs’ appeal, the first issue we address is whether the District Court erred when it dismissed plaintiffs’ federal RICO claims as time-barred. Plaintiffs do not contest that civil RICO actions are subject to a four-year statute of limitations. See Forbes v. Eagleson, 228 F.3d 471 (3d Cir. 2000). Rather, they recognize that the
In determining inquiry notice, our analysis proceeds in two steps. First, the burden is on the defendant to show the existence of “storm warnings.” Id. Storm warnings have not been exhaustively catalogued, but they are essentially any information or accumulation of data “that would alert a reasonable person to the probability that misleading statements or significant omissions had been made.” Id. This is an objective inquiry and hinges not on a plaintiff‘s actual awareness of suspicious circumstances or even on the ability of a plaintiff to understand their import. Instead, “[i]t is enough that a reasonable investor of ordinary intelligence would have discovered the information and recognized it as a storm warning.” Id. This charge saddles the investor with responsibilities like reading prospectuses, reports, and other information related to the investments, Mathews, 260 F.3d at 252, and, additionally, assumes knowledge of “publicly available news articles and analyst‘s reports.” Benak, 435 F.3d at 400 quoting Lui v. Credit Suisse First Boston Corp. (In re Initial Public Offering Sec. Litig.), 341 F.Supp.2d 328, 345 (S.D.N.Y.2004). Once determined, the second step then shifts the burden to plaintiffs to show that, heeding the storm warnings, they exercised reasonable diligence but were unable to find and avoid the storm. Mathews, 260 F.3d at 252; Benak, 435 F.3d at 400.
Here, we conclude that the District Court correctly decided that sufficient storm warnings existed by August 1995 to satisfy the first prong of our inquiry notice analysis. By August 1995, the IRS had circulated Notice 95-34, which informed plaintiffs that the IRS had not approved the deduction contributions to VEBA plans and, in fact, had actually disallowed these deductions. The Notice made clear that the VEBA plans were inconsistent with the tax code. Additionally, in 1995 the Medical Society stopped endorsing the VEBA plans and the IRS undertook audits of some of the plaintiffs, amassing even more troubling storm clouds. All this information, taken together, establishes with enough objective certainty that storm warnings did exist concerning the lawfulness of the VEBA plans, thus satisfying the first step.8
[i]t seems incredible ... to argue they relied solely on the defendants’ assurances of a “victory” over the IRS in the Tax Court.... Asking the defendants whether the plans were legal does not constitute reasonable due diligence.... [A] reasonable person would not continue to participate in a tax avoidance scheme after the IRS issues a notice condemning such plans, and that person was the subject of an IRS audit of his participation in that plan.
By all accounts, plaintiffs’ only effort to discover their injuries was to inquire about the validity of the plans with Cohen and Prupis, both defendants in this dispute and also, at the time, involved in the running and operation of the plan. Both Cohen and Prupis continued to assure plaintiffs that the plans were legitimate and “would be upheld in the courts.” In Mathews, we addressed a similar degree of diligence and concluded that it did not constitute the exercise of due diligence expected of reasonable investors. There, plaintiffs sent a letter to defendants inquiring into the state of their investment. Defendants responded that they “remain[ed] confident in the underlying value of the ... assets and believe[d] this value will be realized once the[] markets turnaround.” Mathews, 260 F.3d at 255. Plaintiffs in Mathews argued that this inquiry constituted reasonable diligence, but we rejected that argument, stating:
Reasonable due diligence does not require a plaintiff to exhaust all possible avenues of inquiry. Nor does it require the plaintiff to actually discover his injury. At the very least, however, due diligence does require plaintiffs to do something more than send a single letter to the defendant.
This analysis guides our conclusion here. Merely asking defendants whether the plans were legal is inadequate to show reasonable diligence. As we noted in Mathews and reiterate here, plaintiffs who undertake no diligence beyond superficial inquiry of defendants concerning the validity or propriety of their investments cannot obtain the benefit that a finding of reasonable diligence will confer. Accordingly, plaintiffs have not met their portion of the burden-shifting requirement under our inquiry-notice analysis and thus cannot defeat the finding that they were on inquiry notice by August 1995 and, by extension, that their claims accrued as of that date. See id.; In re NAHC, Inc. Sec. Litig., 306 F.3d 1314, 1325 (3d Cir.2002).
Plaintiffs submit, however, that even if their claims accrued by August 1995, the District Court should have tolled the statute of limitations because defendants fraudulently concealed the VEBA scheme and therefore prevented plaintiffs from discovering their injuries. It is true that “[f]raudulent concealment is an equitable doctrine that is read into every federal statute of limitations[,]” Mathews, 260 F.3d at 256 (quoting Davis v. Grusemeyer, 996 F.2d 617, 624 (3d Cir.1993)), and addi-
Plaintiffs’ claim fails on the third element. As discussed above, plaintiffs did not exercise the due diligence expected of a reasonable investor because they failed to undertake any investigation into the meaning of the storm warnings beyond asking defendants whether their plans were legitimate. As in Mathews, a finding that plaintiffs did not exercise reasonable diligence for the determination of when the claim accrues will also likely foreclose the possibility of equitable tolling. Id. at 257 (“In order to avoid summary judgment, there must be a genuine issue of material fact as to whether the Appellants exercised reasonable due diligence in investigating their claim“).9
Finally, with respect to the federal RICO claims, plaintiffs contend that under basic contract law, the accrual date could only occur when a default in the contractual obligation occurs. The District Court properly rejected this claim, holding that “plaintiffs have failed to proffer sufficient evidence that defendants breached any contractual obligation” and that “plaintiffs have not pointed to any contractual provision or duty that obligated Defendants to provide tax benefits.” Unlike in the creditor-debtor context, where an injury may not accrue unless and until the debtor defaults on some contractual obligation, see Cruden v. Bank of New York, 957 F.2d 961, 967 (2d Cir.1992), there simply is no contractual obligation upon which one of the parties could have defaulted. In short, there is no contractual claim, and plaintiffs’ attempt to reframe their RICO claims in this vein appropriately must fail.
C. New Jersey RICO Claims
Plaintiffs next object to the District Court‘s application of a four-year statute of limitations to their New Jersey RICO claims as opposed to a six-year limitations period. Although they concede that some New Jersey courts have applied the federal RICO statute of limitations of four years to New Jersey RICO claims, see Matter of Integrity Ins. Co., 245 N.J.Super. 133, 584 A.2d 286 (1990), they insist that due to some recent changes to the way New Jersey courts approach state RICO claims, “it can no longer be predicted that the New Jersey Supreme Court would feel compelled to follow federal law in determining the appropriate statute of limitations for NJRICO.” Thus, they argue that the law is unsettled with respect to how long the statute of limitations is for New Jersey RICO claims and suggest that
To support this claim, plaintiffs rely on State v. Ball, 141 N.J. 142, 661 A.2d 251 (1995), in which, according to plaintiffs, the New Jersey Supreme Court declined to interpret NJRICO coextensively with federal interpretations of RICO, instead opting to interpret NJRICO as governed by state law principles. We disagree. A close reading of Ball suggests, contrary to plaintiffs’ contention, that the New Jersey Supreme Court believed the New Jersey RICO statute was and should be consistent with the federal RICO statute. Ball, 661 A.2d at 258 (“[B]ecause the federal statute served as an initial model for [the NJRICO statute], we heed federal legislative history and case law in construing our statute.“). Moreover, subsequent New Jersey cases belie plaintiffs’ contention that the New Jersey RICO is somehow divergent from the federal RICO statute. See, e.g., Interchange State Bank v. Veglia, 286 N.J.Super. 164, 668 A.2d 465, 472 (App.Div.1995) (“There is no state decisional law on this aspect of civil RICO law. Therefore, parallel federal case law is an appropriate reference source to interpret the RICO statute.“). In any event, nothing in Ball, or any other case, stands for the proposition that claims under the New Jersey RICO statute possess a six-year statute of limitations, as opposed to the commonly applied four-year limitations period for federal RICO claims. There is no evidence that the New Jersey RICO statute possesses a different statute of limitations from the federal RICO statute and we refuse to adopt such a rule. Thus, for the reasons above, and because plaintiffs were on notice of their claims, we will affirm the dismissal of the NJRICO claim on the ground of statute of limitations.11
D. ERISA Claims
We turn next to plaintiffs’ claim that the District Court erred when it dismissed the ERISA §§ 409 and 502(a)(2) claims for lack of standing. The District Court granted summary judgment for defendants on these two counts because it found that plaintiffs had only sought to recover damages in their individual capacities and failed to name their employer plans as plaintiffs. Because plaintiffs had not sued in a representative capacity they could not meet the standing requirements under either sections 409 or 502(a)(2). Plaintiffs present two arguments on appeal. However, we need not address them because irrespective of the
(1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation, or
(2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation;
except that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation.
By its terms then, ERISA‘s statute of limitations provision offers a choice of periods, depending on “whether the plaintiff has actual knowledge of the breach....” Kurz v. Phila. Elec. Co., 96 F.3d 1544, 1551 (3d Cir.1996). In Gluck v. Unisys Corp., 960 F.2d 1168, 1178 (3d Cir.1992), we established that:
Actual knowledge of a breach or violation requires that a plaintiff have actual knowledge of all material facts necessary to understand that some claim exists, which facts could include necessary opinions of experts, knowledge of a transactions‘s harmful consequences, or even actual harm.
Id. at 1178. We have thus stated that for purposes of determining actual knowledge, it must be shown that “plaintiffs actually knew not only of the events that occurred which constitute the breach or violation but also that those events supported a claim of breach of fiduciary duty or violation.” Montrose Med. Group Participating Savs. Plan v. Bulger, 243 F.3d 773, 787 (3d Cir.2001) (citations omitted). In other words, where a claim is for breach of fiduciary duty, to be charged with actual knowledge “requires knowledge of all relevant facts at least sufficient to give the plaintiff knowledge that a fiduciary duty has been breached or ERISA provision violated.” Gluck, 960 F.2d at 1178.
Recognizing that the § 1113 statute of limitations sets a “high standard for barring claims against fiduciaries prior to the expiration of the six-year limitations” and the requirements must be interpreted “stringently,” Montrose, 243 F.3d at 778, here, we nonetheless agree with the District Court that by 1995, plaintiffs had actual knowledge of the events and facts necessary to understand that a claim or violation existed. The core of plaintiffs’ breach of fiduciary duty claim is that defendants made or ratified material misrepresentations to plaintiffs, or concealed material information from them, concerning the legitimacy of the VEBA plans. The record reveals the presence of IRS audits, examination reports, deficiency notices, Notice 95-34, and the possibility that plaintiffs would have to pay taxes, penalties, and interest on money they were told would be tax-free, in addition to their concerns that this information engendered. The totality of this information unequivocally demonstrates that plaintiffs were not only aware of all the material necessary to determine that defendants had in fact misrepresented the tax benefits of the VEBA plans, but also that defendants’ representations were suspect.12
Moreover, the record establishes that after the IRS circulated Notice 95-34 and after it had audited and disallowed certain of plaintiffs’ contributions, certain plaintiffs sought legal advice concerning the validity of the VEBA plans and the propriety of defendants’ claims concerning the plan‘s validity. This establishes sufficient evidence that they were aware of the alleged breach and belying any claim to the contrary that they could not have known or understood that some claim existed.13 See Connell v. Trustess of the Pension Fund of the Ironworkers Dist. Council, 118 F.3d 154, 158 (3d Cir.1997) (recognizing that evidence of actual knowledge of an alleged breach can include the fact that plaintiffs sought expert advice). Consequently, we conclude that the evidence establishes that plaintiffs were in possession of the “material facts necessary to understand that some claim exists,” Gluck, 960 F.2d at 1177, and, therefore, that they had actual knowledge of the alleged breach and are subject to the three year statute of limitations period for the ERISA claims. Accordingly, we will affirm the District Court‘s order dismissing plaintiffs’ ERISA claims.
E. Plaintiffs’ State Law Claims
Plaintiffs also object to the District Court‘s dismissal of their myriad state common law claims as time-barred.14 Both parties agree that these claims are governed by New Jersey state law, which applies a six-year statute of limitations.
As we have discussed earlier, despite plaintiffs’ assertions to the contrary, by August 1995 a reasonable person, exercising ordinary diligence, would have known both that they had been injured and that the injury was due to the fault of defendants. The presence of Notice 95-34 and its attendant consequences, combined with the audits and deficiency notices constitute sufficient harm to satisfy the first prong of the discovery test. See Nappe v. Anschelewitz, Barr, Ansell & Bonello, 97 N.J. 37, 477 A.2d 1224 (1984). And, additionally, despite the clear signs that plaintiffs had been harmed, they failed to make reasonable inquiries or investigations into the source of that harm, thus vitiating any claim that they could not establish some causation between their harm and another‘s fault. See Apgar v. Lederle Labs., 123 N.J. 450, 588 A.2d 380, 383 (1991); see also Savage v. Old Bridge-Sayreville Med. Group, P.A., 134 N.J. 241, 633 A.2d 514 (1993). We thus have no trouble agreeing with the District Court that, by August 1995, for purposes of plaintiffs’ state law claims, the statute of limitations had begun to run.16
F. New Jersey Consumer Fraud Act
Plaintiffs next contend that the District Court erred by holding that the
The CFA “is intended to protect consumers by eliminating sharp practices and dealings in the marketing of merchandise and real estate.” Id. at 554 (internal quotations omitted); see
These facts are insufficient to establish that the plans at issue, and the transactions by which they were sold, qualify as “products and services sold to consumers in the popular sense[,]” such that they fall within the ambit of the CFA. Arc Networks, 756 A.2d at 638. As opposed to the traditional sale of insurance policies, which are undoubtedly subject to the provisions of the CFA, see Lemelledo, 696 A.2d at 551, the VEBA plans at issue here are instead rather complex arrangements that do not reflect the kinds of “goods or services generally sold to the public.” Arc Networks, 756 A.2d at 638.
As the District Court found, the VEBA plans were complex tax-avoidance schemes designed primarily to allow an investor to make tax-deductible contributions while allowing for a permanent tax deferral upon withdrawal. Moreover, the plans were not available to the general public and were never marketed as such. Thus, the plans represent a highly specific scheme providing no real insurance products to plaintiffs, necessarily marketed to a discrete and specific class of capable investors—not the general public. Unlike the sale of credit to the general public or the “sale of insurance
IV. Conclusion
For the foregoing reasons, we will affirm the District Court‘s orders granting defendants’ motions for summary judgment.
RICHARD L. NYGAARD
UNITED STATES CIRCUIT JUDGE