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. e du/thir dc ir c uit_1997/151Filed July 9, 1997

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 96-5047

PHILLIP J. CONNELL; CHARLES NELSON, Appellants

v.

TRUSTEES OF THE PENSION FUND OF THE
IRONWORKERS DISTRICT COUNCIL OF NORTHERN NEW JERSEY; THE NORTHERN DISTRICT COUNCIL OF IRONWORKERS, and its Constituent Local Unions

On Appeal From the United States District Court for the District of New Jersey (D.C. Civ. No. 92-cv-01655)

Argued: January 21, 1997

Before: NYGAARD, LEWIS, Circuit Judges , and SCHWARZER, Senior District Judge *

(Filed July 9, 1997)

___________________________________________________ ______________ *The Honorable William W Schwarzer, Senior District Judge for the Northern District of California, sitting by designa tion.JOHN A. CRANER, ESQUIRE

(ARGUED) Craner, Nelson, Satin & Scheer,
P.A. 320 Park Avenue, P.O. Box 367 Scotch Plains, New Jersey 07076 Attorney for Appellants Phillip J.
Connell and Charles Nelson

JOSEPH R. PAGANO, ESQUIRE (ARGUED) Jardine & Pagano, P.A.
11 Cleveland Place Springfield, New Jersey 07081 Attorney for Appellees Trustees of the
Pension Fund of the Ironworkers
District Council of Northern New Jersey and the Northern District
Council of Ironworkers and its
Constituent Local Unions

OPINION OF THE COURT

SCHWARZER, Senior District Judge

.

In this appeal we are again called on to interpret the "actual knowledge" requirement in ERISA's statute o f limitations in an action for breach of fiduciary du ty. See 29 U.S.C. § 1113(a)(2)(A); see also Kurz v. Philadelph ia Elec.
Co. , 96 F.3d 1544 (3d Cir. 1996); International Union of Electronic Workers v. Murata Erie North America, In c. , 980 F.2d 889 (3d Cir. 1992); Gluck v. Unisys Corp. , 960 F.2d 1168 (3d Cir. 1992).

Phillip Connell, who worked as an ironworker in cov ered employment1 nearly continuously between 1962 and 19 93, and Charles Nelson, who has worked as an ironworker in covered employment periodically since 1951, brought this

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1. According to the Fund's pension plan booklet," ` Covered Employment' consists of the jobs for which contributions are ma de to the pension fund [by the employer]."

2action against the Pension Fund of the Ironworkers District

Council of Northern New Jersey (the "Fund"). The Fu nd manages the pension plan established under a collec tive bargaining agreement between employers and the Nort hern District Council of Ironworkers (whose locals are a ffiliated with the International Association of Bridge, Struc tural & Ornamental Ironworkers, AFL-CIO) (the "Union"). Con nell and Nelson claim that the Fund acted arbitrarily an d capriciously in violation of 29 U.S.C. §§ 186(c)(5) and 1104 when it enforced its break-in-service rule, which p rovides for cancellation of accrued pension credits after a specified absence from covered employment, thereby canceling their previously earned credits.2 The Fund contends, amon g other things, that because Connell and Nelson faile d to file their action within three years of receiving actual notice that certain of their pension credits were canceled , the action is barred by the ERISA statute of limitation s.

Connell worked as an ironworker from 1962 to 1968 a nd again from 1971 to 1993. He testified at trial that he first knew that he had lost certain pension credits as a result of
his break in service when he received a credit stat ement
from the District Council in 1981. Connell then con sulted his pension plan book and found the break-in-servic e rule. He went to see his business agent to complain and t hen called the Fund representative, who "quoted the bro kenservice [sic] rule, that if you're out three years and you aren't vested . . . you lose the credit for those y ears you had in." Appellee's Br. at 13 (quoting Connell's testim ony at trial).

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2. Connell and Nelson also claimed that the Union's discriminatory hiring practices, see Ironworkers, Local 373 , 232 NLRB 504 (1977), enf'd
sub nom. , NLRB v. International Ass'n of Bridge, Structural & Ornamental Ironworkers, Local 373 , 586 F.2d 835 (3d Cir. 1978); Moore v. Local 483, International Ass'n of Bridge, Structural & Ornamen tal Ironworkers , 66 N.J. 527 (1975), diminished their capacity to earn a decent living as
ironworkers and that their breaks in service were t herefore involuntary and subject to an equitable exception to the break- in-service rule. See, e.g., Knauss v. Gorman , 583 F.2d 82 (3d Cir. 1978) (holding that
enforcement of a break-in-service clause was arbitr ary and capricious where employment hiatus was caused by involuntary u nemployment and inability to find covered work). In view of our dis position of this appeal,
we do not reach this claim.

3Nelson worked off and on as an ironworker between 1 951

and 1973. He worked continuously outside the trade between 1973 and 1984. In 1984, Nelson resumed iron work and remains in covered employment today. He testifi ed that he first found out he had lost his pre-1974 pension credits about 1981 or 1982, when he received a document fro m the District Council stating that his credits for prior years of
service had been canceled because he had two breaks in service. He contacted a union representative after receiving the notice of cancellation. As he said at trial,"Th at's when I thought I better find out about this whole thing. " Appellee's Br. at 13 (quoting Nelson's testimony at trial).

After a bench trial, the district court ruled in fa vor of the Fund, finding that the claims were not time-barred but that application of the break-in-service rule to Connell and Nelson was not arbitrary and capricious because the y voluntarily left covered employment when jobs were available with notice that such departures would ca use their pension credits to be canceled. Connell and N elson appeal the district court's decision.3 We have jur isdiction of the appeal under 28 U.S.C. § 1291 and AFFIRM, albei t on different grounds.

DISCUSSION

The claims of Connell and Nelson against the Fund f or breach of fiduciary duty arise under 29 U.S.C. §§ 1 86(c)(5) and 1104(a)(1)(A)(i).4 ERISA's statute of limitatio ns, 29

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3. The dissent suggests that we have disregarded th e factual findings underlying the district court's disposition of the Fund's statute of limitations defense. We do not question the distric t court's findings, but we nevertheless "exercise[ ] a plenary standard of review when applying legal precepts to undisputed facts." Easley v. Snid er , 36 F.3d 297, 300 (3d Cir. 1994). We therefore review de novo the dis trict court's decision whether to apply 29 U.S.C. § 1113(a)(2) on the fact s before it.

4. Nelson also purports to state a claim under 29 U .S.C. § 1132(a)(1)(B) (permitting an action to be brought by a beneficiar y "to clarify his rights to future benefits under the terms of the plan"). N o such claim exists independent of his claim for breach of fiduciary du ty--i.e., Nelson's only
claim for "future benefits" arises out of his conte ntion that the Fund, by canceling credits under its break-in-service rule, breached its fiduciary

4U.S.C. § 1113(a)(2)(A), applies to claims arising u nder both

of these statutory provisions.5 See Struble v. N.J. Brewery Emp. Welfare Trust Fund , 732 F.2d 325, 331-32 (3d Cir. 1984). That section provides in relevant part:

No action may be commenced . . . with respect to a fiduciary's breach of any . . . obligation . . . af ter the
earlier of--

(1) six years after (A) the date of the last action which constituted a part of the breach or violation . . . or . . .

(2) three years after the earliest date on which th e plaintiff had actual knowledge of the breach or vio lation

. . . .

29 U.S.C. § 1113(a). We have held that "Section 111 3 sets a high standard for barring claims against fiduciar ies prior to the expiration of the section's six-year limitat ions

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duty in violation of §§ 186(c)(5) and 1104. Under t he facts of this case, § 1132(a)(1)(B) does not create a right to relief d istinct from that arising under §§ 186(c)(5) and 1104. And even if Nelson wer e able to state a claim under § 1132(a)(1)(B), the claim would be tim e-barred. New Jersey's statute of limitations for contract action s, which would apply, see Kennedy v. Electricians Pension Plan , 954 F.2d 1116, 1120 (5th Cir. 1992) (quoting Johnson v. State Mut. Life Ass. Co. , 942 F.2d 1260, 1262 (8th Cir. 1991); see also National Iranian Oil Co. v. Mapco Int'l, Inc. , 983 F.2d 485, 492 (citing Johnson with approval as an example where state statute of limitations was applied to federal statu te that lacked a time bar), is six years. N.J. Stat. Ann. § 2A:14-1. As N elson had notice of his forfeited credits in 1981 or 1982, the statute bega n to run on that date, and whatever cause of action he might have had unde r § 1132(a)(1)(B)
was barred after 1987 or 1988.

5. Connell and Nelson claim that we may not conside r the Fund's statute of limitations argument because the Fund failed to cross-appeal from the district court's adverse ruling on that issue. Thei r contention is without merit. Because the Fund "seek[s] to sustain th[e] j udgment [below] . . . there was no need for a cross appeal." Reserve Ins. Co. v. Brokerage Surplus Corp. , 570 F.2d 487, 491 (3d Cir. 1978) (citing 9 Moore' s Practice ¶ 204.11(3) (2d ed.)); see United States v . American Ry. Exp. Co.

, 265 U.S. 425, 435 (1924) (stating that "it is likew ise settled that the appellee may, without taking a cross-appeal, urge i n support of a decree any matter appearing in the record, although his ar gument may involve an attack upon the reasoning of the lower court").

5period." Gluck v. Unisys Corp. , 960 F.2d 1168, 1176 (3d

Cir. 1992).6 " `[A]ctual knowledge of a breach or v iolation' requires that a plaintiff have actual knowledge of all material facts necessary to understand that some cl aim exists, which facts could include . . . knowledge o f a transaction's harmful consequences . . . ." Id. at 1177 (citations omitted).

A breach may occur without a plaintiff's having suf fered actual harm. Ziegler v. Connecticut General Life In s. Co.

, 916 F.2d 548, 551 (9th Cir. 1990). Plaintiffs' comp laint that the Fund's cancellation of their pension credits un der the break-in-service rule is arbitrary and capricious s ufficiently alleges a claim for breach of fiduciary duties. See Knauss v.
Gorman , 583 F.2d 82 (3d Cir. 1978). If a breach was committed, it therefore must have occurred upon cancellation of the credits; by the terms of the pl an, accrued credits were canceled immediately after a b reak-inservice exceeded the period specified by the plan ( i.e., in 1971 for Connell and in 1964 and 1978 for Nelson).

In Gluck we held that mere knowledge of amendments of the employer's benefit plan, the effect of which wa s to cause accrued benefits not to fully vest upon partial ter mination, could not be deemed actual knowledge of a violation of the technical provisions of ERISA. We noted that:

the company literature distributed to employees . .

. described [the amendments] as improving participant s' benefit packages. . . . For a participant to have discerned a cause of action for partial termination at that time . . . may have required a review of the p lan document and of the plan's balance sheet . . . a le vel of research and scrutiny inconsistent with section 1113's actual knowledge standard.

Gluck , 960 F.2d at 1179. We remanded for a determination of "when each employee had actual knowledge of all

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6. The Fund does not contend that the action is bar red by the six-year statute. It is clear that if the forfeiture of pens ion credits under the
break-in-service rule resulted in a breach of fiduc iary duties, the last action constituting a part of that breach did not o ccur until payment of reduced pension benefits to the beneficiaries.

6material facts relevant to a partial termination cl aim,"

having emphasized, however, "that our holding does not mean that the statute of limitations can never begi n to run until a plaintiff first consults with a lawyer." Id

. at 1177.

Following Gluck , we held in International Union of Electronic Workers v. Murata Erie North America, In c. , 980 F.2d 889, 900 (3d Cir. 1992), that beneficiaries wh o had notice of a plan amendment but were not informed th at the amendment provided for reversion of excess funds to the employer lacked actual knowledge of a breach. As we then said, Murata "failed to make the showing of actual knowledge necessary to meet the `stringent requirem ent' imposed by . . . 29 U.S.C. 1113[(a)](2)." Id. at 901 (citing
Gluck , 960 F.2d at 1176).

Recently, we held that where a company decides to m ake a material change to its pension plan but misrepres ents its intent to make such a modification, the statute of limitations will begin to run once an employee know s of the change in benefits and of his own ineligibility. Se e Kurz v. Philadelphia Elec. Co. , 96 F.3d 1544, 1551 (3d Cir. 1996).

In Kurz , we found that plaintiffs' knowledge of the change in plan was sufficient to begin the running of § 11 13(a)(2)
because:

This was not a technical violation of ERISA, nor a cleverly concealed plan amendment. PECo openly announced that certain employees would receive bett er benefits, and others would not.

Id. Similarly, the plaintiffs in this case were aware of the
Fund's break-in-service rule and were aware that it had already been applied to them.

It is undisputed that Connell and Nelson knew as ea rly as 1981 or 1982 that the Fund had canceled their pe nsion credits by applying the break-in-service rule and t hat the
Fund's actions would diminish their future benefits . Like the plaintiffs in Kurz , their actual knowledge of both the alleged breach and the consequential injury they wo uld thereby suffer gave them "knowledge that a fiduciar y duty [may have] been breached or ERISA provision violate d."
Gluck , 960 F.2d at 1178. Indeed, both Connell and Nelson felt sufficiently aggrieved by the Fund's actions t o question

7their union representatives. Thus by 1981 or 1982, Connell

and Nelson had "actual knowledge of all of the [mat erial] elements of the violation," Gluck , 960 F.2d at 1176, including knowledge of the harmful consequencesflow ing
from the cancellation of the credits. See Internati onal Union

, 980 F.2d at 901; Gluck , 960 F.2d at 1177, 1179. There was nothing left for them to discover and nothing more for them to do but to file suit or to seek legal counsel. As we stated
in Kurz , "the `harmful consequences' .. . were obvious."

Kurz , 96 F.3d at 1551 (citation omitted).7 Their action

, having been filed more than three years after 1982, is
therefore time-barred.

The judgment is AFFIRMED.

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7. The dissent's hypothetical concerning a pair of ironworkers discriminated against on the basis of their nonunio n status has no bearing here. Unlike the dissent's hypothetical pla intiffs, who were unaware that they had lost pension credits because they were not union members, Connell and Nelson clearly knew in 1981 or 1982 of the break-in-service rule, of the union's discriminator y practices, of their own employment histories, and of the effect of the rule's application to them. The hypothetical, sound as it may be on its o wn terms, is
therefore not relevant to the facts of this case.

8LEWIS, Circuit Judge , concurring and dissenting.

I agree with the majority's conclusion that the dis trict court's judgment should be affirmed. I write separa tely, however, because I disagree that ERISA's statute of limitations bars the Appellants' claim.

My disagreement lies with the majority's interpreta tion and application of Gluck v. Unisys Corporation , 960 F.2d 1168 (3d Cir. 1992). In Gluck , we held that "actual knowledge of a breach or violation requires knowled ge of all relevant facts at least sufficient to give the plai ntiff knowledge that a fiduciary duty has been breached o r ERISA provision violated." Gluck , 960 F.2d at 1178. This requires "the district court [to] determine, as a f actual matter, the date on which each employee had actual knowledge of the breach or violation." Id. at 1176. Knowledge of the breach is distinguished from knowl edge of the actions constituting the breach or violation. S ee id. ; International Union of Electronic Workers v. Murata Erie North America, Inc. , 980 F.2d 889, 900 (3d Cir. 1992) (requiring a showing "that plaintiffs actually knew not only
of the events that occurred which constitute the br each or violation but also that those events supported a cl aim of breach of fiduciary duty or violation under ERISA")

.

Noting Gluck 's "stringent" actual knowledge requirement, the district court found that although the pension fund "demonstrated that plaintiffs became aware of their loss of pension credits during 1981," the fund had "failed to demonstrate that [Connell and Nelson] actually knew of their potential ERISA cause of action." Connell v. Pension
Fund , Civ. No. 92-1655, slip op. at 16 (D.N.J. Jan. 2, 1996). To support this conclusion, the district court drew certain factual inferences from the testimony presented at the nonjury trial. Specifically, the court found that Conn ell's failure to take any action after learning of his loss of pe nsion credits other than contacting the plan administrato r and Nelson's failure to express any concerns to the pla n administrator about the break-in-service rule "clea rly indicate[d] that [they] were not aware of their pot ential
cause of action." Id. at 6, 11 & 16.

The majority seems to overlook the district court's factual inferences, concluding:

9[I]t is undisputed in this case that Connell and Ne lson

knew as early as 1981 or 1982 that the Fund had canceled their pension credits by applying the breakin-service rule and that the Fund's actions would
diminish their future benefits. Their actual knowle dge of both the alleged breach and the consequential in jury they would thereby suffer gave them "knowledge that a fiduciary duty [may have] been breached or ERISA provision violated."

Maj. Op. at 7 (quoting Gluck , 960 F.2d at 1178) (alteration
of Gluck in original). The majority's conclusion does not follow from its premise. Although it was establishe d that Connell and Nelson knew in 1981 or 1982 of the pens ion fund's action which constituted the alleged breach -- that is, its enforcement of the break-in-service rule -- it does not follow that they had actual knowledge of the breach itself. The majority further notes, again without reference to the district court's findings, that Connell and Nelson must have had " `actual knowledge of all of the [material] el ements of the violation' " because they "felt sufficiently ag grieved by the Fund's actions to question their union represen tatives." Maj. Op. at 8 (quoting Gluck , 960 F.2d at 1178).

As noted earlier, however, the district court reach ed the exact opposite conclusion from the same facts and testimony cited by the majority. Indeed, the distri ct court
found that Connell's and Nelson's actions after rec eiving notice of their lost pension credits "clearly indic ate[d] that plaintiffs were not aware of their potential ERISA cause of
action." Connell , Civ. No. 92-1655, slip op. at 16. I would not disregard, as the majority does, the district c ourt's
factual determination that Connell's and Nelson's a ctions, or lack thereof, indicated that they had no knowled ge of a
breach.

Moreover, contrary to the majority's indication, it is not enough that the plaintiffs have knowledge that afid uciary duty "may have" been breached or ERISA provision violated. Rather, the plaintiff must have actual kn owledge that a fiduciary duty "has" been breached or ERISA provision violated. See Gluck , 960 F.2d at 1178.

While this distinction may seem merely semantic, it is important, as perhaps the following hypothetical wi ll

10explain. Assume that Smith and Jones were non-union iron

workers who occasionally worked in the iron trade a nd participated in a multi-employer pension fund that supported both union and non-union workers. In 1981

, Smith and Jones received notice that some of their pension credits would be lost because they had incurred bre aks in service. Assume further that they questioned a representative of the Fund but were told that the F und was merely enforcing its break-in-service rule, of whic h they were on notice. Jones and Smith were upset about th eir lost credits and may have even assumed that the Fun d was treating them unfairly. But, without any other info rmation, Jones and Smith thought that they were just out of luck. Now assume that in 1990, Jones and Smith discovered that the Fund was in practice only applying the break-in -service
rule to non-union workers.

Under Gluck , the statute of limitations would start to run in 1990, when Smith and Jones learned that the Fund was discriminating in its enforcement of the break-in-s ervice rule. In other words, the statute would start to ru n when they possessed knowledge that the enforcement of th e break-in-service rule violated ERISA. Under the maj ority's analysis, which, in my view, relaxes Gluck 's "stringent" requirement, Jones and Smith would be barred from bringing their claim because the three-year statute would have started running in 1981 when they first learne d that they had lost credits due to their break in service

.

The hypothetical discussed above is not that differ ent from the case at hand. Here, Connell and Nelson adm it that they knew in 1981 or 1982 that they had lost credit s. But they allege that they incurred the breaks in servic e because the union had discriminated against them in allocat ing iron work. Thus, if Connell and Nelson could show that t hey had left the ironworking trade involuntarily, enfor cement of the break-in-service rule against them might have
constituted a breach of ERISA.1 Had the union's

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1. We recognized in Knauss v. Gorman , 583 F.2d 82 (3d Cir. 1978), that if a plan beneficiary incurs a break in service inv oluntarily, the pension fund must come forward with a justification for why the rule is
enforceable. See also Van Fossan v. International B rotherhood of

Teamsters , 649 F.2d 1243, 1248 (7th Cir. 1981) ("We believe the distinction between voluntary and involuntary break s in service is crucial to determining the arbitrariness of the ope ration of a given break in service rule.").

11discrimination forced Connell and Nelson out of the trade

involuntarily, and had they not had actual knowledg e of the discrimination (say, for example, they thought that they just were unlucky in obtaining work), they would no t have possessed the requisite "actual knowledge" of a bre ach of fiduciary duty or ERISA violation merely when they had been notified of their lost credits. Indeed, they w ould be lacking "actual knowledge of all material facts con stituting [the] breach of fiduciary duty or violation of ERIS A [which] is the sine qua non for application of [ERISA's] th ree-year limitation." Gluck , 960 F.2d at 1177.

Put simply, then, the actual knowledge requirement is necessarily intertwined with the cause of action or the theory of the breach. See Martin v. Consultants & Administrators, Inc. , 966 F.2d 1078 (7th Cir. 1992) (courts must take into account "the complexity of the under lying factual transaction, the complexity of the legal cl aim and the egregiousness of the alleged violation").

At bottom, a determination of what the plaintiffs k new and when is a very fact-intensive inquiry. See Gluc k , 960 F.2d at 1176 (requiring the district court to deter mine "as a factual matter" when the statute began to run). I cannot agree with the majority's disregard of the inferenc es that
the district court drew from the facts here.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

12