Opinion ID: 775112
Heading Depth: 2
Heading Rank: 1

Heading: The Fraud or Concealment Exception

Text: 30 Relying on this Court's decision in Diduck v. Kaszycki & Sons Contractors, Inc., 874 F.2d 912, 919 (2d Cir. 1989) (Diduck I), plaintiffs argue that their breach of fiduciary duty claims involve allegations of common-law fraud, and therefore earn the six-year fraud or concealment period rather than the three-year actual knowledge limitations period. Pfizer, however, contends that the fraud or concealment provision applies - not to actions for breach of fiduciary duty in which the underlying action itself sounds in fraud (i.e., looking to the nature of the factual allegations supporting the claim for breach of fiduciary duty) - but only to actions in which the plaintiff alleges that the defendant engaged in conduct intended to hide its breach of fiduciary duty, thereby preventing the plaintiff's discovery of the underlying breach. This issue was not placed before us in Diduck I and is, therefore, one of first impression in this Circuit. 31 In support of its argument, Pfizer cites various circuits that have held that the fraud or concealment provision does not automatically apply to fraud claims, but rather incorporates the federal concealment rule, also known as the fraudulent concealment doctrine. Kurz v. Philadelphia Elec. Co., 96 F. 3d 1544, 1552 (3d Cir. 1996); J. Geils Band Employee Benefit Plan v. Smith Barney, 76 F.3d 1245, 1252 (1st Cir. 1996); Barker v. American Mobil Power Corp., 64 F.3d 1397, 1401-02 (9th Cir. 1995); Larson v. Northrop Corp., 21 F.3d 1164, 1172-1173 (D.C. Cir. 1994); Radiology Ctr. v. Stifel Nicolaus & Co., 919 F.2d 1216, 1220 (7th Cir. 1990); Schaefer v. Arkansas Med. Soc'y, 853 F.2d 1487, 1491-1492 (8th Cir. 1988). The concealment rule, established by the Supreme Court in Bailey v. Glover, 88 U.S. 342 (1874), grew from the soil of equitable estoppel. It provides that when a defendant's wrongdoing has been concealed, or is of such character as to conceal itself, the statute [of limitations] does not begin to run until the [wrongdoing] is discovered by the plaintiff. Id. at 349-50; see also Black's Law Dictionary 282 (7th ed. 1999). Therefore, to be entitled to the six-year fraud or concealment limitations period, these courts require that, in addition to alleging a breach of fiduciary duty (be it fraud or any other act or omission), the plaintiff must also allege that the defendant committed either: (1) a self-concealing act - an act committed during the course of the breach that has the effect of concealing the breach from the plaintiff; or (2) active concealment - an act distinct from and subsequent to the breach intended to conceal it. See, e.g., In re Unisys Corp. Retiree Med. Benefit ERISA Litig., 242 F.3d 497, 503 (3d Cir. 2001). 32 For a number of reasons, we decline to follow our sister circuits in fusing the phrase fraud or concealment into the single term fraudulent concealment. First, the genesis of this uniformly adopted theory is a footnote in a district court opinion that cites no legal support for the proposition. 2 Second, the fraud or concealment provision does not toll the otherwise applicable six- or three-year statute of limitations established in § 413(1) or (2); rather, it prescribes a separate statute of limitations of six years from the date of discovery. 33 Third, principles of statutory interpretation counsel strongly against merging the two terms. Relying on the canon of statutory construction that words grouped in a list should be given a related meaning, some courts have held that the term fraud cannot refer to the common-law cause of action because there is no such thing as a cause of action for concealment. Radiology Ctr., 919 F.2d at 1220. However, as the Supreme Court has recently held: [I]n interpreting a statute a court should always turn first to one, cardinal canon before all others. We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there. Connecticut Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992). 34 The plain language of the statute states that the six-year limitations period applies to case[s] of fraud or concealment. When the statute was enacted, fraud was defined as a false representation of a matter of fact, whether by words or conduct, by false or misleading allegations or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury. Black's Law Dictionary 788 (Rev. 4th ed. 1968); compare Black's Law Dictionary 670 (7th ed. 1999) ([a] knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment). And concealment was defined as [a] withholding of something which one knows and which one, in duty, is bound to reveal. Black's Law Dictionary 360 (Rev. 4th ed. 1968); compare Black's Law Dictionary 282 (7th ed. 1999) ([t]he act of refraining from disclosure; esp[ecially] an act by which one prevents or hinders the discovery of something). Concealment of a cause of action was similarly defined as follows: To constitute it so as to prevent running of a limitations, some trick or artifice must be employed to prevent inquiry or elude investigation, or to mislead and hinder [a] party who has a cause of action from obtaining information, and acts relied on must be of an affirmative character and fraudulent. Black's Law Dictionary 361 (Rev. 4th ed. 1968). 35 Giving each term independent significance (as one must when terms are used in the disjunctive unless the context dictates otherwise, Reiter v. Sonotone Corp., 442 U.S. 330, 339 (1979)) the six-year statute of limitations should be applied to cases in which a fiduciary: (1) breached its duty by making a knowing misrepresentation or omission of a material fact to induce an employee/beneficiary to act to his detriment; or (2) engaged in acts to hinder the discovery of a breach of fiduciary duty. In re Unisys Corp., 242 F.3d at 513-16 (Mansmann, J., concurring in part, and concurring in the result in part). This interpretation is amply supported by the provision's legislative history. A preliminary draft of § 413 provided: 36 In the case of a willfully false or fraudulent statement or representation of a material fact or the willful concealment of, or willful failure to disclose, a material fact required by this Act to be disclosed, a proceeding in court may be brought at any time within ten years after such violation occurs. 37 S. 4, 93d Cong., 1st Sess. § 11 (draft, Jan. 4, 1973), reprinted, 1 Legislative History of the Employee Retirement and Income Security Act of 1974, at 315 (1976). Clearly, Congress intended to provide a lengthier statute of limitations where the fiduciary breached its duty by misrepresenting or failing to disclose a material fact that ERISA required the fiduciary to disclose, most likely because such violations would be difficult to discover. Although the final version of the statute adopted a six-year term and a discovery rule (i.e., the limitations period begins to run when the employee discovers or with due diligence should have discovered the breach) it retained the class of actions to which the exception applied. The pleonastic description of a cause of action for breach of fiduciary duty arising from the commission of a fraud (whether it be via affirmative misrepresentation, omission or concealment of a material fact) was replaced by the simpler term fraud. The term concealment would thus be superfluous unless it be given its common, independent meaning with respect to causes of action. Therefore, in light of the adoption of the discovery rule, the term concealment arguably incorporates the fraudulent concealment doctrine. 38 Accordingly, our interpretation of ERISA § 413's fraud or concealment provision overlaps somewhat with that of our sister circuits as we construe it to apply in cases of fraud or [fraudulent] concealment. 3