Court Opinion

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Date Created: 2015-10-13 22:21:37.876397+00
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Opinions of the United
2006 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

8-28-2006

Cetel v. Kirwan Fin Grp Inc
Precedential or Non-Precedential: Precedential

Docket No. 04-3408

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                                       PRECEDENTIAL

      UNITED STATES COURT OF APPEALS
           FOR THE THIRD CIRCUIT
                ___________

      Nos. 04-3408, 05-1329, 05-1503, 05-1504
                    ___________

                  Case No. 04-3408

     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.

     (District of New Jersey Civil No. 00-cv-5799)
   VIJAY SANKHLA, M.D., on behalf of himself and
             others similarly situated

                          v.

  COMMONWEALTH LIFE INSURANCE COMPANY;
 PEOPLES SECURITY LIFE INSURANCE COMPANY;
 PROVIDIAN LIFE INSURANCE COMPANY; AEGON
    USA INC.; MONUMENTAL LIFE INSURANCE
 COMPANY; INDIANAPOLIS LIFE INSURANCE CO.;
RAYMOND G. ANKNER; BEAVEN COMPANIES, INC.;
CJA AND ASSOCIATES; KIRWAN FINANCIAL GROUP,
INC.; KIRWAN FINANCIAL ADVISORY, INC.; BARRY
 COHEN; MICHAEL KIRWAN; PACIFIC EXECUTIVE
SERVICES; STEPHEN R. ROSS; DONALD S. MURPHY;
  SEA NINE ASSOCIATE ; DSM, INC.; NEW JERSEY
       MEDICAL PROFESSION ASSOCIATION;
 SOUTHERN CALIFORNIA MEDICAL PROFESSION
  ASSOCIATION; THE MEDICAL SOCIETY OF NEW
              JERSEY; NEIL PRUPIS

     District of New Jersey Civil No. 01-cv-04781)

              Vijay Sankhla, M.D., *Yale Shulman, M.D.,
       *Yale Shulman, M.D., P.A., *Boris Pearlman, M.D.
          *Denville Radiology, P.A., Marvin Cetel, M.D.,
                   Karen Cetel, Marvin Cetel, M.D., P.A.,
             Barbara Schneider, M.D., Morton Schneider,
                           Barbara Schneider, M.D. P.A.,
                                              Appellants
                      *(Pursuant to Rule 12(a), F.R.A.P.)

                          2
                    __________

                 Case No: 05-1329

      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.

            (District of New Jersey Civil No. 00-cv-5799)

   VIJAY SANKHLA, M.D., on behalf of himself and
             others similarly situated

                         v.

  COMMONWEALTH LIFE INSURANCE COMPANY;

                         3
 PEOPLES SECURITY LIFE INSURANCE COMPANY;
 PROVIDIAN LIFE INSURANCE COMPANY; AEGON
    USA INC.; MONUMENTAL LIFE INSURANCE
 COMPANY; INDIANAPOLIS LIFE INSURANCE CO.;
RAYMOND G. ANKNER; BEAVEN COMPANIES, INC.;
CJA AND ASSOCIATES; KIRWAN FINANCIAL GROUP,
INC.; KIRWAN FINANCIAL ADVISORY, INC.; BARRY
 COHEN; MICHAEL KIRWAN; PACIFIC EXECUTIVE
SERVICES; STEPHEN R. ROSS; DONALD S. MURPHY;
         SEA NINE ASSOCIATE ; DSM, INC.;
NEW JERSEY MEDICAL PROFESSION ASSOCIATION;
 SOUTHERN CALIFORNIA MEDICAL PROFESSION
  ASSOCIATION; THE MEDICAL SOCIETY OF NEW
              JERSEY; NEIL PRUPIS

     (District of New Jersey Civil No. 01-cv-04781)

                        Marvin Cetel, M.D., Karen Cetel,
       Marvin Cetel, M.D., P.A., Barbara Schneider, M.D.,
        Morton Schneider, Barbara Schneider, M.D. P.A.,
                                              Appellants

                     __________

                  Case No: 05-1503

  KAREN CETEL; MORTON SCHNEIDER; MARVIN
      CETEL; MARVIN CETEL, M.D., P.A.;
           BARBARA SCHNEIDER;
    BARBARA SCHNEIDER, M.D., F.A.C.S., P.A.

                           4
                          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.

     (District of New Jersey Civil No. 00-cv-5799)

   VIJAY SANKHLA, M.D., on behalf of himself and
             others similarly situated

                          v.

  COMMONWEALTH LIFE INSURANCE COMPANY;
 PEOPLES SECURITY LIFE INSURANCE COMPANY;
 PROVIDIAN LIFE INSURANCE COMPANY; AEGON
    USA INC.; MONUMENTAL LIFE INSURANCE
 COMPANY; INDIANAPOLIS LIFE INSURANCE CO.;
RAYMOND G. ANKNER; BEAVEN COMPANIES, INC.;
CJA AND ASSOCIATES; KIRWAN FINANCIAL GROUP,
INC.; KIRWAN FINANCIAL ADVISORY, INC.; BARRY
 COHEN; MICHAEL KIRWAN; PACIFIC EXECUTIVE
          SERVICES; STEPHEN R. ROSS;

                          5
 DONALD S. MURPHY; SEA NINE ASSOCIATE ; DSM,
    INC.; NEW JERSEY MEDICAL PROFESSION
 ASSOCIATION; SOUTHERN CALIFORNIA MEDICAL
PROFESSION ASSOCIATION; THE MEDICAL SOCIETY
          OF NEW JERSEY; NEIL PRUPIS

     (District of New Jersey Civil No. 01-cv-04781)

  Donald S. Murphy, Pacific Executive Services, DSM, Inc.,
                                                Appellants

                      __________

                   Case No: 05-1504

  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.;

                           6
      MONUMENTAL LIFE INSURANCE CO.;
CAPITAL HOLDING COMPANY; AEGON INSURANCE
  GROUP; INDIANAPOLIS LIFE INSURANCE CO.

     (District of New Jersey Civil No. 00-cv-5799)

   VIJAY SANKHLA, M.D., on behalf of himself and
             others similarly situated

                           v.

  COMMONWEALTH LIFE INSURANCE COMPANY;
 PEOPLES SECURITY LIFE INSURANCE COMPANY;
 PROVIDIAN LIFE INSURANCE COMPANY; AEGON
    USA INC.; MONUMENTAL LIFE INSURANCE
 COMPANY; INDIANAPOLIS LIFE INSURANCE CO.;
RAYMOND G. ANKNER; BEAVEN COMPANIES, INC.;
CJA AND ASSOCIATES; KIRWAN FINANCIAL GROUP,
INC.; KIRWAN FINANCIAL ADVISORY, INC.; BARRY
 COHEN; MICHAEL KIRWAN; PACIFIC EXECUTIVE
SERVICES; STEPHEN R. ROSS; DONALD S. MURPHY;
  SEA NINE ASSOCIATE ; DSM, INC.; NEW JERSEY
       MEDICAL PROFESSION ASSOCIATION;
 SOUTHERN CALIFORNIA MEDICAL PROFESSION
                ASSOCIATION;
     THE MEDICAL SOCIETY OF NEW JERSEY;
                 NEIL PRUPIS

     (District of New Jersey Civil No. 01-cv-04781)

                           7
                       Monumental Life Insurance Company,
                    Commonwealth Life Insurance Company,
        Capital Holding Corporation, and AEGON USA, Inc.,
                                                Appellants

                        ___________

       On Appeal from the United States District Court
              for the District of New Jersey

            (D.C. Nos. 00-cv-5799, 01-cv-4781)
     District Judge: The Honorable Anne E. Thompson
                       ___________

                 ARGUED APRIL 24, 2006

             BEFORE: SCIRICA, Chief Judge,
              and NYGAARD, Circuit Judge,
                and YOHN,* District Judge.

                   (Filed August 28, 2006)
                        ___________

       *Honorable William H. Yohn, Jr., Senior District Judge
for the United States District Court for the Eastern District of
Pennsylvania, sitting by designation.

                               8
Mark J. Oberstaedt, Esq. (Argued)
Stephen J. Fram, Esq.
Archer & Greiner
One Centennial Square
P. O. Box 3000
Haddonfield, NJ 08033
       Counsel for Appellants/Cross Appellees

Kevin L. Smith, Esq. (Argued)
Hines Smith
3080 Bristol Street, Suite 540
Costa Mesa, CA 92626

Charles L. Becker, Esq.
Reed Smith
1650 Market Street
2500 One Liberty Place
Philadelphia, PA 19103-7301
      Counsel for Appellee/Cross Appellant
      Comm Life Ins. Co., et al.

Christopher P. Leise, Esq. (Argued)
White & Williams
457 Haddonfield Road
Suite 400 Liberty View
Cherry Hill, NJ 08034

                             9
Elizabeth A. Venditta, Esq.
Edward M. Koch, Esq.
White & Williams
One Liberty Place, Suite 1800
Philadelphia, PA 19103
       Counsel for Appellee/Cross Appellant Pacific
       Executive Serv., et al.

Walter F. Kawalec, III, Esq. (Argued)
Larry I. Zucker, Esq.
Marshall Dennehey Warner Coleman & Goggin
200 Lake Drive East
Woodland Falls Corporate Park, Suite 300
Cherry Hill, NJ 08002
       Counsel for Appellee/Cross Appellant
       Medical Society of NJ

Richard L. Hertzberg, Esq. (Argued)
Greenbaum Rowe Smith & Davis
P. O. Box 5600
Metro Corporate Campue One
Woodbridge, NJ 07095

Alain Leibman, Esq.
Stern & Kilcullen
75 Livingston Avenue
Roseland, NJ 07068
       Counsel for Appellee/Cross Appellant
       Raymond G. Ankner, et al.

                            10
William P. Marshall, Esq.
3101 Trewigton Road
P. O. Box 267
Colmar, PA 18915
       Counsel for Appellee Barry Cohen

Michael Kirwan
1249 Knox Drive
Yardley, PA 19067
      Pro Se

                         ___________

                 OPINION OF THE COURT
                      ___________

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

                               11
to the VEBAs.1 They claim that defendants misrepresented the

potential tax benefits of the VEBAs to induce them to purchase

the life insurance policies. After the Internal Revenue Service

decided that the VEBAs did not possess the tax benefits,

plaintiffs brought civil RICO, ERISA, and state law causes of

action against defendants.       The District Court granted

defendants’ motions for summary judgment. We will affirm.

                          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), aff’d 299
F.3d 221 (3d Cir. 2002). Sometime in the mid-1980s, Donald

Murphy and Stephen Ross formed a partnership called Pacific

1.
 We refer herein to the parties simply as “plaintiffs” and
“defendants.”

                              12
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

                              13
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

2.
 C-Group life insurance policies “masquerade as a policy that
provides only term life insurance benefits in order to make the
product marketable to targeted investors.” See Neonatology,
115 T.C. 53. However, the policy is actually a universal life
                                                  (continued...)

                              14
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 and Kirwan Defendants.

Additionally, in connection with the Murphy and Kirwan

Defendants’ attempts at marketing and promotion, the VEBAs

were also endorsed by the Medical Society of New Jersey, a

2.
 (...continued)
policy comprised of two distinct but related policies. The first
— the accumulation phase — is a group term policy known as
the C-group term policy. The second — the payout phase — is
an individual universal policy known as the “C-group
conversion universalife” policy. Id.
3.
 The Monumental Defendants include Commonwealth Life
Insurance Company, Monumental Life Insurance, People
Security Life, Capital Holding Company, Providence Life
Insurance, and AEGON USA, Inc.

                              15
professional organization composed of physicians, in exchange

for royalties generated by the sale of the VEBA plans to its

members.

       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 Schenider (“Cetel

physicians”), who agreed to participate both individually and

through their professional corporation.         Both of these

                               16
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

                              17
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,

                               18
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. 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 that the

individuals who had contributed to the plans were liable for any

accuracy-related negligence penalties under I.R.C. § 6662(a).

This decision all but invalidated plaintiffs’ VEBA plans, and

plaintiffs’ professional medical corporations were denied

deductions they had taken for the contributions to the plan; as

                               19
well, the individual participants were levied a significant tax on

their dividend income.

       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

                                20
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

                               21
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.

                              22
       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 plan from 1993 until 1998. Shulman

was on the board of the Medical Society of New Jersey at the

time that the Medical Society approved Cohen and Kirwan’s

VEBA plan scheme. He also received a copy of Cohen and

Kirwan’s 1995 letter, and Prupis’ legal opinion concerning the

VEBA plan. Cohen and Kirwan then advised Shulman that he

                              23
should retain attorney Prupis to represent him in connection with

any impending IRS action. Shulman did so.

       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

                               24
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

4.
  Pearlman and Shulman joined the Sankhla suit in March 2002.

                                25
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, 29 U.S .C. § 1144(a), and on November 25,

2002, consolidated the two cases.5        After completion of

discovery, defendants filed a motion for summary judgment,

seeking to dismiss plaintiffs’ remaining ERISA claims and their

civil RICO claims.

5.
 Both suits named the same set of defendants: Barry Cohen,
Michael Kirwan and Kirwan Financial Group, the Medical
Society of New Jersey, Raymond Ankner and his companies,
Commonwealth Life Insurance Company and related entities,
and Neil Prupis, Esquire.

                               26
       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 Court held the RICO claims time-barred. Applying

the four-year statute of limitations period established by the

Supreme Court in Agency Holding Corp. v. Malley-Duff &

Assocs., 483 U.S. 143, 156, 107 S. Ct. 2759, 97 L. Ed. 2d 121

(1987) along with the “injury discovery rule” adopted by our

Court in Mathews v. Kidder Peabody & Co., 260 F.3d 239, 252

(3d Cir. 2001), the District Court determined that plaintiffs

should have been on notice of their injuries, at the latest, in 1995

after the IRS issued Notice 95-34 and began its audits of the

VEBA plan participants. With respect to plaintiffs’ ERISA

claims, the District Court held that the counts relating to §§ 409

                                27
and 502(a) of ERISA, 29 U.S.C. §§ 1109(a) and 1132(a)(2),

should be dismissed for lack of standing because plaintiffs

sought to recover benefits owed to them in their individual

capacities and not on behalf of their employer plans. The

District Court also dismissed both parties’ attempts to import the

findings of Neonatology to bind each other, employing its broad

discretion to determine that collateral estoppel should be denied

based on the complexity of the case. Finally, the District Court

granted summary judgment to defendants on plaintiffs’ “benefit-

of-the-bargain” theory of recovery. The District Court opined

that such damages would be highly speculative and would result

in the enforcement of an illegal tax-avoidance scheme.

       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

                               28
reconsideration of its March 2, 2004 opinion.6 The District

Court held the surviving ERISA claims under section 502(a)(3)

of ERISA, 29 U.S.C. § 1132(a)(3), for breach of fiduciary duty

to be time-barred. The Court concluded that plaintiffs had

actual knowledge of their fiduciary-breach allegations when, in

1995, the IRS sent out Notice 95-34 and began its audits of the

VEBA plan participants. The District Court, noting that the

federal RICO statute served as a model for the state corollary

and in the absence of any governing state law to the contrary,

concluded that a four-year statute of limitations, analogous to

that in the federal Act, controlled the New Jersey RICO claims.

It held that this statute of limitations began running by the

summer of 1995, when all of the plaintiffs had learned of the

IRS Notice 95-34 or had learned that the IRS had audited or was

6.
 The District Court’s dismissal of plaintiffs’ breach of contract
and unjust enrichment claims are not appealed.

                               29
going to audit the personal accounts of the participants.

Moreover, the District Court held that plaintiffs failed to

undertake reasonable inquiries into the alleged fraud, vitiating

their reliance on New Jersey’s discovery rule as support for their

claim that the statute of limitations should be equitably tolled.

The District Court also rejected plaintiffs’ claim that the statute

of limitations did not begin to run until they suffered actual

damages, concluding that under New Jersey law, fraud claims

like those premised on the New Jersey RICO statute did not

require a knowledge of actual damages.7 Finally, the District

7.
 The District Court applied the same reasoning to the Sankhla
Plaintiffs’ state law fraud-based claims, including fraud (Count
XII), breach of fiduciary duty (Count XIV), breach of good faith
and fair dealing (Count XVI), respondeat superior (Count
XVII), conspiracy and aiding and abetting fraudulent
misrepresentation (Count XVIII) and the physicians’ negligent
misrepresentation claim (Count XIII). The District Court held
that these claims had a six-year statue of limitations but, because
the Sankhla physicians filed their claims in September 2001 and
the date of accrual was, at the latest August 1995, these were
                                                     (continued...)

                                30
Court dismissed plaintiffs’ Consumer Fraud Act claim, opining

that, as a matter of law, the terms and scope of the CFA could

not apply to the sale and purchase of the VEBA plans because,

absent a clear indication by New Jersey courts otherwise, the

CFA did not intend to cover the sale and purchase of the

complex tax-avoidance schemes at issue here.

       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 28 U.S.C. § 1291. We review decisions granting

summary judgment de novo, applying the same legal standard

as the trial court to the same record. Omnipoint Comm’cns

7.
 (...continued)
also time barred.

                               31
Enters., L.P. v. Newtown Twp., 219 F.3d 240, 242 (3d Cir.

2000).     Summary judgment can only be granted “if the

pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show that

there is no genuine issue as to any material fact and that the

moving party is entitled to judgment as a matter of law.” FED.

R. CIV. P. 56(c).

                         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

                                32
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 (2000). 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

                                33
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

dispositive question concerning the federal RICO claims here is

whether plaintiffs were on “inquiry notice” of their injuries by

August 1995. In determining when a RICO claim accrues, we

                               34
apply an injury discovery rule “whereby a RICO claim accrues

when plaintiffs knew or should have known of their injury.”

Mathews v. Kidder Peabody & Co., 260 F.3d 239, 252 (3d Cir.

2001) (quoting Forbes, 228 F.3d at 484). As we noted in

Mathews, this rule has “both subjective and objective”

components and, with respect to the subjective, “a claim accrues

no later than when the plaintiffs themselves discover their

injuries.”   Id.    However, because the components are

disjunctive we first perform an objective inquiry to determine

when plaintiffs should have known of the basis of their claims,

which “depends on whether [and when] they had sufficient

information of possible wrongdoing to place them on ‘inquiry

notice’ or to excite ‘storm warnings’ of culpable activity.”

Benak ex rel. Alliance Premier Growth Fund v. Alliance Capital

Mgmt. L.P., 435 F.3d 396, 400 (3d Cir. 2006) (internal

quotations omitted). Moreover, plaintiffs have inquiry notice

                              35
“whenever circumstances exist that would lead a reasonable

investor of ordinary intelligence, through the exercise of due

diligence, to discovery of his or her injury.” Mathews, 260 F.3d

at 252.

          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

                                36
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 Suise 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

                              37
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

8.
        We decline to treat Sankhla differently from any of the
other plaintiffs in determining that sufficient storm warnings
were sounding by August 1995. The fact that Sankhla may have
never seen the IRS’ Notice or heard of the audits does not save
him from attribution of inquiry notice because, as noted earlier,
his employer was audited and he was subpoenaed in connection
to this audit in March 1995. Moreover, he admitted that he had
learned of the audits of his other Lakewood Radiology partners
by mid-1995 and that he had discussed the audits and their
implications with his partners. Thus, the existence of storm
                                                   (continued...)

                                 38
       With respect to the second step, there is little doubt that

plaintiffs exercised scant, if any, diligence in attempting to

discover their injuries.     The District Court appropriately

commented that:

       [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

8.
 (...continued)
warnings by August 1995 applies to all plaintiffs, including
Sankhla.

                                39
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.

Id. at 255.

                                40
       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

                                41
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 additionally, that it will toll the RICO limitation period

“where a pattern remains obscure in the face of a plaintiff’s

diligence in seeking to identify it.” Id. (quoting Rotella v.

Wood, 528 U.S. 549, 561, (2000). But, to benefit from the

equitable tolling doctrine, plaintiffs have the burden of proving

three necessary elements: (1) that the defendant actively misled

the plaintiff; (2) which prevented the plaintiff from recognizing

the validity of her claim within the limitations period; and (3)

where the plaintiff’s ignorance is not attributable to her lack of

reasonable due diligence in attempting to uncover the relevant

facts. Mathews, 260 F.3d at 256.

                               42
       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

9.
 We, of course, do not suggest that in every case involving an
IRS audit of some form, the claim will begin to run on the date
of the audit. Nor do we suggest that assurances made by an
investment’s promoter or manager will never toll the statute of
limitations. Rather, these types of questions are necessarily fact
specific, based on the presence and exact type of storm warnings
and the extent of inquiry undertaken with respect to due
diligence. In this case, plaintiffs simply did not exercise enough
                                                     (continued...)

                                43
       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

9.
 (...continued)
diligence to either prevent the claim from accruing or to allow
the statute of limitations to be tolled, as both “benefits” hinge on
the exercise of reasonable diligence.

                                44
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., 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

                               45
that the appropriate statute of limitations should be six years.10

       To support this claim, plaintiffs rely on State v. Ball, 661
A.2d 251 (N.J. 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

10.
  This is the general statute of limitations for New Jersey state
law claims. Mirra v. Holland Am. Line, 751 A.2d 138, 140 (N.J.
App. Div. 2002)

                                46
RICO is somehow divergent from the federal RICO statute.

See, e.g., Interchange State Bank v. Veglia, 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

                               47
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

11.
  Our decision that the District Court was correct in applying the
four-year statute of limitations to plaintiffs’ New Jersey RICO
claims is buttressed by the Supreme Court’s analysis in Agency
Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143
(1987), which held that a universal four-year statute of
limitations would apply in federal civil RICO actions. After
deciding that a uniform federal statute of limitations was
necessary, the Court adopted the Clayton Act’s statute of
limitation. The Court found that the Clayton Act provided the
closest analogy to federal civil RICO claims because both
statutes “were designed to remedy economic injury by providing
for the recovery of treble damages, costs and attorney’s fees.
Both statutes also bring to bear the pressure of ‘private
attorneys’ general’ on a serious national problem for which
public prosecutorial resources are deemed inadequate.” 483
U.S. at 151. We anticipate the New Jersey Supreme Court will
apply this analysis to New Jersey law and adopt the New Jersey
Antitrust Act as the closest analogy to the New Jersey
Racketeering Act, thus, the Antitrust Act’s four-year statute of
limitations would apply. See Integrity Insurance, 584 A.2d at
287.

                               48
       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 vitality of their arguments, their

ERISA §§ 409 and 502(a)(2) claims and their ERISA §

502(a)(3) claim are barred by the statute of limitations. See

Curay-Cramer v. Ursuline Acad. of Wilmington, 450 F.3d 130,

133 (3d Cir. 2006) (citing Bernitsky v. United States, 620 F.2d
948, 950 (3d Cir. 1980)) (recognizing that “we can affirm on

                              49
any basis appearing in the record”). ERISA § 413, 29 U.S.C. §

1113 provides that all claims based on breach of fiduciary duty

must be brought within the earlier of:

       (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., we established that:

       Actual knowledge of a breach or violation
       requires that a plaintiff have actual knowledge of

                               50
        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.

960 F.2d 1168, 1178 (3d Cir. 1992) (internal citations omitted).

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.

                              51
       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

                                52
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

       Plaintiffs’ claim that their knowledge of a possible breach

could not have arisen until the Tax Court invalidated the VEBA

plans in 2001 is unpersuasive in light of both the clear import of

the IRS’s statements and warnings that the plans were in

violation of the tax code and that any deductions stemming from

investments in the VEBA plans would be disallowed, and the

IRS’ actions in disallowing, at that time, the contributions made

to the VEBA plans. This information and corresponding official

12.
  We decline to treat Sankhla differently here again because, as
noted earlier, despite the fact that he was never audited and
never received a deficiency notice, he was subpoenaed in
connection with his employer’s audit in March 1995, and
learned of and discussed the audits and their implications with
his partners who had been targeted by the IRS, thereby placing
him in possession of the same knowledge as the other plaintiffs.

                               53
action stand in direct contradiction to the representations made

by defendants and support a conclusion that, as a matter of law,

plaintiffs were aware of the facts establishing a breach of

fiduciary duty and thus in possession of actual knowledge

necessary to understand that some claim exists. See Romero v.

Allstate Corp., 404 F.3d 212, 226 (3d Cir. 2005) (“In order to

make out a breach of fiduciary duty claim . . . , a plaintiff must

establish each of the following elements (1) the defendant’s

status as an ERISA fiduciary acting as a fiduciary; (2) a

misrepresentation on the part of the defendant; (3) the

materiality of that misrepresentation; and (4) detrimental

reliance by the plaintiff on the misrepresentation.”) (quoting

Daniels v. Thomas & Betts Corp., 263 F.3d 66, 73 (3d Cir.

2001)); see also Ranke v. Sanofi-Synthelabo Inc., 436 F.3d 197,

202–03 (3d Cir. 2006).

                               54
       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

13.
  Of course, as noted earlier, the legal advice they sought came
from defendants’ own attorney, Prupis, but this is irrelevant for
a determination of whether plaintiffs had actual knowledge of
the alleged breach.

                                 55
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. N.J.S.A. §

2A:14-1; Mirra v. Holland America Line, 751 A.2d 138, 142

14.
  As noted earlier, plaintiffs state law fraud claims include fraud
(Count XII), breach of fiduciary duty (Count XIV), breach of
good faith and fair dealing (Count XVI), respondeat superior
(Count XVII), conspiracy and aiding and abetting fraudulent
misrepresentation (Count XVIII) and negligent
misrepresentation (Count XIII).

                                56
(N.J. App. Div. 2002); The District Court determined that

plaintiffs’ state law claims accrued in August 1995, when the

IRS issued Notice 95-34 and some plaintiffs were audited. In

making this determination, the District Court was bound to

apply New Jersey’s discovery rule, which begins the statute of

limitations running when two conditions are met: (1) the

plaintiff has suffered actual injury; (2) the plaintiff knows that

the injury is due to the fault of another.15 Martinez v. Cooper

15.
  Generally, a cause of action accrues when a plaintiff has
suffered an injury and is aware of a causal relationship between
the injury and the actor. See S. Cross Overseas Agency, Inc. v.
Wah Kwong Shipping Group, Ltd., 181 F.3d 410, 425 (3d Cir.
1999). However, where “a party is reasonably unaware either
that he has been injured, or that the injury is due to the fault or
neglect of an identifiable individual or entity,” the discovery
rule will “postpone the accrual of a cause of action” until such
time as a “reasonable person, exercising ordinary diligence,
[would know or should have known] that he or she was injured
due to the fault of another.” Caravaggio v. D’Agostini, 765
A.2d 182, 186–87 (N.J. 2001). Here, it is agreed that because
the plaintiffs’ common law state claims sound in fraud, the
discovery rule is applicable. S. Cross, 181 F.3d at 425 (“When
                                                    (continued...)

                                57
Hosp./Univ. Med. Ctr., 747 A.2d 266, 272 (2000). This inquiry

boils down to “whether the facts presented would alert a

reasonable person, exercising ordinary diligence, that he or she

was injured due to the fault of another,” and requires an

objective analysis. Caravaggio v. D’Agostini, 765 A.2d 182,

186–87 (N.J. 2001).

       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

15.
  (...continued)
the gist of the action is fraud concealed from the plaintiff, the
statute begins to run on discovery of the wrong or of facts that
reasonably should lead the plaintiff to inquire into the fraud.”).

                               58
discovery test. See Nappe v. Anscheleqitz, Barr, Ansell &

Bonell, 477 A.2d 1224 (N.J. 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

Apgard v. Lederle Labs., 588 A.2d 380, 383 (N.J. 1991); see

also Savage v. Old Bridge-Sayreville Med. Group, P.A., 633
A.2d 514 (N.J. 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

16.
  Additionally, plaintiffs’ insistence that the continuing tort
doctrine renders the District Court’s conclusion erroneous fails
because, although the doctrine might apply where the plaintiff
has no reason to believe he has been injured, it will not apply
where the plaintiff “discovered or should have discovered the
injury and its cause connection with the [negligence] before that
                                                   (continued...)

                               59
            F. New Jersey Consumer Fraud Act

       Plaintiffs next contend that the District Court erred by

holding that the New Jersey Consumer Fraud Act (CFA) does

not apply. Specifically, the District Court held that because the

VEBA plans “were extremely complicated tax avoidance

schemes involving tens, if not hundreds, of thousands of

dollars[,]” to apply the Consumer Fraud Act would “stretch the

admittedly broad application of the [] Act beyond the intent of

the New Jersey legislature.” Plaintiffs argue that the CFA must

16.
  (...continued)
time.” Lopez v. Sawyer, 279 A.2d 116, 123 (N. J. App.Div.
1971). Here, plaintiffs should have discovered the cause of their
injury in August 1995 because this is when facts became
available that a reasonable person would have taken to suggest
the possibility of wrongdoing. Additionally, neither the
continuing tort doctrine nor the “last overt act” doctrine, which
defendants also press, applies to fraud claims. No New Jersey
courts have ever applied these doctrines to fraud claims and we
are unwilling, on these facts, to do so today. Republic of
Philippines v. Westinghouse Elec. Corp., 774 F. Supp 1438
(D.N.J. 1991).

                               60
be applied broadly, and to the VEBA plans at issue here, as

commanded by the New Jersey Supreme Court’s holding in

Lemelledo v. Beneficial Management Corp., 696 A.2d 546,

550–51 (N.J. 1997). We are unpersuaded.

       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 N.J. Stat. Ann. § 56:8-1 et seq.17 It is true that in

Lemelledo, the New Jersey Supreme Court held the Act to apply

17.
 By its terms, the Act prohibits:
       [t]he act, use or employment by any person of any
       unconscionable commercial practice, deception,
       fraud, false promise, misrepresentation, or the
       knowing concealment, suppression, or omission
       of any material fact with intent that others rely
       upon such concealment, suppression or omission,
       in connection with the sale or advertisement of
       any merchandise or real estate, or with the
       subsequent performance of such person as
       aforesaid, whether or not any person has in fact
       been mislead, deceived or damaged thereby . . . .
N.J. Stat. Ann. § 56:8-2.

                                61
to the sale of insurance policies to consumers. 696 A.2d at 555

(“[O]ur reading of the CFA convinces us that the statute’s

language is ample enough to encompass the sale of insurance

policies as goods and services that are marketed to

consumers.”). However, as New Jersey courts have repeatedly

made clear, the CFA seeks to protect consumers who purchase

“goods or services generally sold to the public at large.”

Marascio v. Campanella, 689 A.2d 859 (App.Div. 1997).

Furthermore, “[t]he entire thrust of the Act is pointed to

products and services sold to consumers in the popular sense.”

Arc Networks, Inc. v. Gold Phone Card Co., 756 A.2d 636, 637

(N.J. Super. Ct. App. Div. 2000) (internal quotations omitted).

Thus, the CFA “is not intended to cover every transaction that

occurs in the marketplace[,]” but, rather, “[i]ts applicability is

limited to consumer transactions which are defined both by the

status of the parties and the nature of the transaction itself.” Id.

                                62
       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

                               63
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 policies . . . that are

marketed to consumers[,]” or even “anything offered[] directly

or indirectly to the public for sale,” Lemelledo, 696 A.2d at 551,

the sale of complex employee welfare benefit plans to a very

specific class of investor does not point to the remedial purpose

or intent of the CFA, “namely, to root out consumer fraud.” Id.

Consequently, because “the entire thrust of the [CFA] is pointed

to products and services sold to consumers in the popular

sense[,]” id., we cannot conclude that the District Court erred

when it dismissed plaintiffs’ claim under the CFA.18

18.
  Two issues remain. Penultimately, plaintiffs claim the District
Court’s erred by denying their claim to recover “benefit-of-the-
bargain” damages for losses incurred as a result of the collapse
of the VEBA plans. Because we affirm the District Court’s
                                                   (continued...)

                                64
                        IV. Conclusion

       For the foregoing reasons, we will affirm the District

Court’s orders granting defendants’ motions for summary

judgment.

18.
  (...continued)
dismissal of plaintiffs’ substantive claims in all respects,
including the dismissal of plaintiffs’ state law claims, the issue
as to whether plaintiffs could proceed under a benefit-of-the-
bargain theory of recovery is moot. Lastly, on cross-appeal,
defendants argue that plaintiffs’ state law claims are preempted
by ERISA. Because we have dismissed the state claims on other
grounds, we need not reach and do not address this issue.
Nugent v. Ashcroft, 367 F.3d 62, 168 (3d Cir. 2004).

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