Court Opinion

ID: 8952298
Source: CourtListenerOpinion
Date Created: 2022-11-27 08:54:25.90267+00
Date Added: 2024-06-11T17:09:59.511385
License: Public Domain

BECKER, Circuit Judge,
dissenting.
The majority endorses the district court’s special interrogatory, the function of which was to encapsulate the applicable law:
“Have Mr. and Mrs. Urland proved by a preponderance of the evidence that neither of them knew, or exercising reasonable diligence should have known, before October 7, 1979 [i.e., two years before their suit was filed], that Bendectin was an operative cause of Julie Beth Urland’s birth defect as alleged in their complaint?”
This formulation effectively equates the discovery rule and the doctrine of fraudulent estoppel. It also constitutes a rejection of the actual knowledge standard that I believe Pennsylvania would apply to these facts, which implicate fraudulent estoppel. I therefore believe that the majority’s approval of the interrogatory was erroneous.1 Because I also believe that it was not harmless error to fail to apply the applicable actual knowledge standard or to otherwise account for the plaintiffs’ higher burden of discovering the operative cause of Julie Beth Urland’s birth defects after defendant’s presumptively fraudulent concealment, I respectfully dissent.
I.
Pennsylvania has long recognized that the purposes of the estoppel doctrine differ markedly from those for the discovery rule. See, e.g., Smith v. Blachley, 198 Pa. 178, 47 A. 985, 987 (1901); see also Schaffer v. Larzelere, 410 Pa. 402, 405-06, 189 A.2d 267 (1963) (drawing distinction between fraudulent estoppel and discovery rule); Barshady v. Schlosser, 226 Pa.Super. 260, 313 A.2d 296, 298-99 (1974) (same); cf. Tomera v. Galt, 511 F.2d 504, 510 (7th Cir.1975) (quoting Smith v. Blachley to draw distinction). We have recently had occasion to note the continuing vitality of this distinction between the discovery rule and the doctrine of fraudulent estoppel, finding that, in addition to the discovery rule, “[t]he doctrine of estoppel is recognized under Pennsylvania law as a wholly distinct theory for tolling the statute of limitations.” Ciccarelli v. Carey Canadian Mines, Ltd., 757 F.2d 548, 556-57 (3d Cir.1985).
The critical area of concern is, of course, the level of knowledge that the Urlands must have obtained before the statute of limitations began to run against them despite the defendant’s alleged fraudulent concealment. We must therefore examine the “actual knowledge” standard advocated by the Urlands2 and articulated by the Pennsylvania Supreme Court in several leading cases. See, e.g., Nesbitt v. Erie Coach Company, 416 Pa. 89, 96, 204 A.2d 473, 477 (1964) (“the statute remains quiescent until actual knowledge arises”); Schwab v. Cornell, 306 Pa. 536, 540, 160 A. *1278449, 450 (1932) (same). The majority attempts to distinguish these cases on the basis that, in all of them, “there appears to have been no basis in the facts to discuss the reasonable diligence standard.” While these cases are not pellucid, with all respect, I believe that the majority’s basis for distinction is too narrow and fails to hold up under analysis.3
In Nesbitt, the plaintiff was seriously injured on defendant’s bus, but the blandishments of defendant’s claims adjusters lulled her into a false sense of security and she let the statute of limitations pass before bringing suit. The trial court granted summary judgment for the defendant, but the Supreme Court of Pennsylvania refused to let that holding stand. It concluded that the facts as developed at that stage would constitute fraudulent concealment on the part of the defendant, and it therefore vacated the trial court’s order to the contrary. The court stated
“If the circumstances are such that a man’s eyes should have been open to what is occurring, then the statute begins to run from the time when he could have seen, but if by concealment, through fraud or otherwise, a screen has been erected by his adversary which effectually obscures the view of what has happened, the statute remains quiescent until actual knowledge arises.”
204 A.2d at 477 (quoting Schwab, 306 Pa. at 539, 160 A. 449; emphasis supplied). The court adopted this language despite objections to it by the dissent. Id., 204 A.2d at 477 (Bell, C.J., dissenting). Furthermore, because the court remanded the case “with directions to the court below to make complete findings of fact,” this language represented instructions to the trial court to determine whether plaintiffs achieved “actual knowledge” at a time before the statutory limitation period. In my view, the court’s instructions, in the face of a dissent, reflects a reasoned choice for the higher standard of actual knowledge.4
The majority’s handling of Schwab is similarly flawed. That leading case specifically eschewed any “should have known” standard in favor of the actual knowledge standard it adopted.
In Schwab, the purchaser of certain property employed a conveyancer to prepare the deed, to see that title was clear of encumbrances and to obtain comprehensive title insurance that was to guarantee good title. Although title to the home was subject to liability for unpaid taxes, the conveyancer wrote a letter assuring the purchaser that the title was clear of liens, also enclosing a title policy said to show that *1279“the title [is] entirely clear of liens with the exception of certain rights guaranteed the telephone company and” the electric company. 306 Pa. at 538, 160 A. 449 (quoting letter). The title policy that the conveyancer had actually procured, however, did not insure against unpaid taxes. After the home had been sold some five and a half years later for collection of unpaid taxes, the purchaser discovered the conveyancer’s negligence and brought an action. In response, the conveyancer pled the statute of limitations.
Reversing the trial court’s directed verdict for the conveyancer, the Supreme Court of Pennsylvania found that the tax sale of the house was the point of actual knowledge from which the statute should run. The court specifically held unavailing the contention that the plaintiff should have known from the title policy itself that the tax lien was not covered:
The fact that plaintiff had the title policy in his possession, which showed taxes excepted as a lien against which the title was not insured, does not alter the situation created by defendant’s letter which transmitted it to him; the letter would effectually close plaintiffs eyes to the particular terms of the policy.
306 Pa. at 540-41,160 A. 449. Once again, a reasonable diligence standard would have fit the facts; once again, the Pennsylvania Supreme Court chose to hold it inapplicable. Instead, the court specifically found that actual knowledge was the proper standard. Id. at 539-40, 160 A. 449 (quoted supra at 1271).
I also believe that the majority gives too much credence to those cases in which it finds support for its decision.5 For example, Smith v. Blachley, 198 Pa. 173, 47 A. 985 (1901), one of the two principal cases on which the majority relies, does not even concern fraudulent concealment. Smith was an action to recover money obtained by gross fraud and deception, and “there was no evidence that after the transaction was complete defendant did anything or said anything to prevent investigation.” See 198 Pa. at 174, 179, 47 A. 985 (quoting lower court); id. at 180, 47 A. 985 (Supreme Court’s finding of fact); see also Smith v. Blachley, 188 Pa. 550, 552-53, 41 A. 619 (1898) (relating full facts). Rather than dealing with post-injury fraud that conceals the operative cause of the harm, the case concerns discovery of the underlying tort. Reliance on Smith in the fraudulent concealment context is misplaced. Only the discovery rule was implicated, not the rule for cases of fraudulent estoppel.6
The majority also relies on Deemer v. Weaver, 324 Pa. 85, 187 A. 215 (1936). See Maj.Op. at 1274. In Deemer, the remaindermen of a life estate in certain real property sued the estate of the owner of life interest for a violation of a fiduciary duty alleged to have occurred when, under agreement of all parties, the property was sold for $5,000. The money was then placed in a trust with the income paid to the owner of the life interest; the principal was to be paid to the remaindermen upon the life tenant’s decease. When the life tenant died, the remaindermen discovered that the buyer of the property paid not only the $5,000 stated in the deed of conveyance, but an additional $4,000 as a “bonus” to the life tenant.
Because the suit was commenced almost fifteen years after the transaction upon which the remaindermen based their complaint, the trial court found the suit barred by the statute of limitations. The Supreme Court reversed, finding that “the decedent concealed from plaintiffs all facts which might have put them on notice that her *1280statements ... were false.” 324 Pa. at 89, 187 A. 215. Although the court discussed the duty of reasonable diligence, as the majority notes, it did so chiefly to point out that defendant’s fraud relieved the plaintiffs of their obligation to investigate: because “the concealment practiced by [defendant] ... completely hid the situation from plaintiffs,” 324 Pa. at 89, 187 A. 215, plaintiffs had “no reason to make investigation, [and] they are not chargeable with what such investigation would have disclosed.” Id. The case therefore deals chiefly with the depth of fraud necessary to toll the statute of limitations. To the extent that it addresses the circumstances after the fraudulent concealment that will trigger the statute, the Deemer court found “the principle applicable in cases of this kind” to be the rule of Nesbitt and Schwab, quoted supra at 1278, which sets forth the actual knowledge standard in fraudulent concealment cases. See 324 Pa. at 88-89. It therefore seems to me that rather than supporting the majority, Deem-er lends support for the “actual knowledge” standard.
In sum, in cases of fraudulent concealment, it is the defendant’s lulling that negates any reason for the plaintiff to inquire further. I believe that the Pennsylvania jurisprudence means what it says: that there is a higher standard to overcome when fraudulent concealment has been shown. At the very least, the Pennsylvania cases do not and cannot mean what the majority says: that the discovery rule states the applicable test when fraudulent concealment has been shown.
II.
I also believe that the majority is wrong on policy grounds. The doctrine of fraudulent estoppel rests on a rationale that is wholly distinct from that for the discovery rule. See Ciccarelli, 757 F.2d at 556-57. It concerns not the diligence of the plaintiff 7 but the misdeeds of the defendant; it therefore addresses the situation where a cause of action goes undiscovered because the defendant has taken positive steps to conceal it. See Schaffer v. Larzelere, 410 Pa. 402, 405, 189 A.2d 267 (1963) (estopping invocation of statute of limitations where, “through fraud or concealment, the defendant causes the plaintiff to deviate from his right of inquiry”); Plazak v. Allegheny Steel Co., 324 Pa. 422, 431, 188 A. 130 (1936); McNair v. Weikers, 300 Pa.Super. 379, 388, 446 A.2d 905 (1982); see also Ciccarelli, 757 F.2d at 557.8 As Professor Dawson noted long ago, by the doctrine of fraudulent estoppel, courts are “led beyond a scrutiny of the original cause of action and of the plaintiffs later opportunities for discovery, to an emphasis on the means by which the defendant obstructed discovery.” Dawson, “Fraudulent Concealment and Statutes of Limitation,” 31 Mich. L.Rev. 875, 880 (1933) (emphasis in original).9
In a discovery rule case without fraudulent concealment, the plaintiff has the burden of using due diligence to discover the operative cause of his injury. When a defendant fraudulently conceals its misconduct, however, the injured person has a double burden: not only is there a burden of discovering the basis for the claim, he or she must also discover the defendant’s fraud. A “should have known standard” is therefore inappropriate because it is also necessary to account for plaintiffs’ extra burden of acquiring knowledge of the fraud, without which they could not dis*1281cover, or realize that prior to the fraud they had discovered, the basis for the claim. The way in which Pennsylvania appears to have accounted for this extra burden is by insisting on a higher threshold of knowledge on the part of the plaintiff before the claim will be barred — the “actual knowledge” standard identified and then repudiated by the majority. The district court failed to recognize this higher burden, and the majority not only does likewise, but also attempts to explain it away by a crabbed reading of the relevant Pennsylvania cases.
I also believe that, by adopting the same test for fraudulent estoppel as for original discovery, the majority unwittingly adopts a standard that may arguably encourage fraudulent concealment by defendants. Because, through the discovery rule, the statute of limitations does not begin to run until the plaintiff should have known of defendant’s liability, application of the “should have known” standard in fraudulent concealment cases creates no greater burden; defendants face no penalty if they attempt to conceal their wrongdoing but are later discovered. In contrast, the actual knowledge standard “serves as a punitive measure and perhaps as a deterrent of future fraud.” Hohri v. United States, 782 F.2d 227, 248 (D.C.Cir.1986), vacated for want of jurisdiction, — U.S. -, 107 S.Ct. 2246, 96 L.Ed.2d 51 (1987).
This policy analysis refines the issues surrounding the requisite level of knowledge beyond that engaged in by the Pennsylvania cases. A higher knowledge standard than “should have known” is necessary both to account for plaintiff’s extra burden of overcoming defendant’s fraud and to discourage fraud. While the Pennsylvania Supreme Court may not have explicitly adopted this particular policy analysis, at the very least its jurisprudence requires much more than notice inquiry and looks to a level that approximates actual knowledge. In my view, the correct test, as enunciated by the Pennsylvania cases, is that the statute runs only when a plaintiff actually knows that she has a reasonable basis for a claim against the defendant.
III.
A.
Even assuming that the tolling from fraudulent estoppel ends when the plaintiff should have known of the operative cause of her injury, I believe that the inquiry should focus entirely on the post-fraud period. In other words, the existence of effective fraud by the defendant should toll the statute, and the plaintiff should have two years to file suit after learning of the operative cause of the injury. In this case, the district court’s instructions did not differentiate between the pre-fraud and post-fraud periods, and I believe that this failure constitutes an additional grounds for reversal.
The facts of this case demonstrate that a jury could find that the Urlands knew or through reasonable diligence should have known of the operative cause of Julie’s birth defects at three different times: (1) in 1972 before Merrell-Dow is alleged to have engaged in the fraud that erected the concealing screen; (2) in September 1979, when a reporter from the National Enquirer called the Urlands, told them their letter to the FDA had come to light in a trial in Miami, and had Mrs. Urland pose for a picture with Julie, and (3) later in 1979, on whatever date Mr. Urland purchased the October 9, 1979 issue of the National Enquirer10 with the news story alleging that Merrell-Dow had concealed scientific information suggesting that Bendectin was a teratogen. Because the fraudulent concealment at least excused the failure to file suit until subsequent events revealed the danger of Bendectin, only the latter two dates are relevant to this case.
The district court, however, failed to distinguish these different periods in its charge to the jury or in its special interrogatory, both of which referred generally to the Urlands’ knowledge before October 7, *12821979. Furthermore, the district court allowed the defendant’s counsel to argue to the jury that the Urland’s should have known of the operative cause before the concealing screen erected. See App. at 283. Taking this opportunity, counsel marshalled the facts concerning Mrs. Urland’s letters to Senator Scott, the March of Dimes, the FDA, and Merrell-Dow and argued:
she featured [Bendectin], it stood out, it was targeted, it was singled out, she acknowledges that she conducted an investigation, she acknowledges that she made an inquiry and she acknowledges that she harbored suspicion.
App. at 324. He concluded that the Ur-lands “had reason to know back in 1972” and that “a reasonable person would have known that was the operative cause.” Id. By failing to direct the jury’s attention to the post-fraud period, the trial court committed reversible error, even if the reasonable diligence standard were appropriate.
B.
By equating the doctrine of fraudulent concealment with the discovery rule without specifically focusing the jury’s attention on the post-fraud period, the trial court rendered Merrell-Dow's fraud just one factual determinant of what the Urlands should have known and when they should have known it. The factual impact of fraud on the Urlands ability to know, however, depends on the extent of that fraud. I therefore believe that the trial court was in error when it excluded the facts relevant to the fraud, for in so doing, the court kept from the jury vital information concerning the impact of the fraud on what the Ur-lands should have known.
Although it remains to be proven at trial, the plaintiffs alleged by proffer that Merrell-Dow erected a concealing screen by deceiving the medical community in general and the Urlands in particular about the teratogenic properties of Bendectin. Plaintiffs offered to prove that Merrell-Dow had tested animals and found that Bendectin tended to cause birth defects, but that the company failed to disclose the. results of the research to either the Food and Drug Administration (FDA) as required by law or to the Urlands in response to their letter to Merrell-Dow. Plaintiffs contend that because the FDA was unaware of the teratogenicity of Bendectin, the medical community, for which FDA was the surrogate, was unaware of the risks involved with the drug; therefore, the agency could not inform the Urlands directly in response to their inquiry. Additionally, Merrell directly responded to the Urlands’ letter of inquiry by informing them that “the drug was not an agent that has the potential for causing malformations.” App. at 293-94 (letter by Merrell). It was only this letter from Merrell to the Urlands that the trial court allowed in as evidence, instructing the jury to assume that it was “misleading.”
Merrell’s alleged misrepresentations to the FDA, however, also may have prevented the Urlands from discovering the dangers of Bendectin. The district judge excluded evidence of these misrepresentations.
While I disagree with the majority that the reasonable diligence standard is proper, if that standard is to be applied, the jury should have before it the full information concerning what the plaintiffs could discover with reasonable diligence. By excluding this information from the jury, the trial judge deprived the jury of highly probative information concerning the effect of Merrell’s actions on what the Urlands should have reasonably discovered. I therefore believe that the district court’s exclusion of evidence concerning the alleged fraud was prejudicial and constitutes an independent basis for reversal.
IV.
It may well be that the Urlands are time-barred from bringing their claim because of the information they acquired from the National Enquirer reporter. But it is up to a jury, properly charged as to the applicable law, to determine if that information was strong enough to overcome the concealing screen and give the plaintiffs the knowledge that they have a reasonable ba*1283sis for a claim. Because the trial court’s charge allows a variety of mistaken results, I would reverse and remand for a new trial.

. In addition, the charge to the jury speaks of "the state of mind of Mr. and Mrs. Urland in 1979," two years before they filed suit, but similarly fails to distinguish between that which was known before and after the presumptive fraud. By finding that the misleading letter bears only "to some extent” on the Urlands' state of mind, the trial judge improperly minimized the concealing effect of the fraud — an especially harmful mistake, because no evidence concerning the scope and extent of the fraud was allowed to be presented to the jury. Moreover by encapsulating the reasonable diligence inquiry, it suffers from the same basic infirmity as the interrogatory: it failed to adopt the actual knowledge standard.

. The majority argues that “it is questionable whether the Urlands preserved this argument in the district court.” Maj.Op., at 1272. Because its opinion goes on to address the issue, the majority must have resolved its doubts in favor of preservation. Moreover, this resolution best comports with the record. As counsel for the plaintiff clearly stated at one point:
We’re submitting this case to the jury only on the issue of when ... was the operative cause discovered or discoverable with exercise of reasonable diligence. We do not believe that would be sufficient to resolve the estoppel claim, and we understand the Court’s prior ruling, but you understand I’m trying to preserve it, your Honor.
App. at 273.

. As has been said long ago, “[i]t would be a laborious and unprofitable task to examine all the cases which have been decided on the statute of limitations.” Fries v. Boisselet, 9 Serg. & R. 128, 130 (1822). I similarly do not believe it useful to offer extensive interpretation of all but the most important Supreme Court of Pennsylvania cases relied on by the majority. The other cases I find unpersuasive or inapplicable. For example, although the court in Schaffer v. Larzelere, 410 Pa. 402, 189 A.2d 267 (1963), spoke in terms of reasonable diligence, it specifically applied the actual knowledge standard and found that "the limitations period would not begin to run herein until December 29, 1959,” id. 189 A.2d at 270, "because the negligence of the defendant did not come to [plaintiffs] knowledge until December 29, 1959." Id. 189 A.2d at 269 (emphasis in original). Similarly, this Court’s decision in Swietlowich v. County of Bucks, 610 F.2d 1157 (1979) is susceptible to the same failings that the majority finds in other cases, for it was "decided without reference to the distinction now under consideration.” Maj.Op., at 1273. By contrast, moreover, this Court specifically decided in Ciccarelli v. Carey Canadian Mines, Ltd., 757 F.2d 548, 556-57 (3d Cir.1985), that in addition to the discovery rule, ”[t]he doctrine of estoppel is recognized under Pennsylvania law as a wholly distinct theory for tolling the statute of limitations.”

. Although the majority finds Nesbitt feeble in this context, it relies on the case as good law in order to limit this Court’s pronouncement that, "if through fraud or concealment the defendant causes the plaintiff to relax vigilance or deviate from the right of inquiry, the defendant is es-topped from invoking the bar of limitation of action.” Ciccarelli v. Carey Canadian Mines, Ltd., 757 F.2d 548, 556 (3d Cir.1985); see Maj. Op., at 1272-1273. The majority advances no reason why Nesbitt's adoption of the actual knowledge standard for renewing the statute of limitations is strong enough to have "resolved the issue [of permanent estoppel] adversely to the Urlands,” Maj.Op. at 1273 yet is too weak to suggest that the actual knowledge standard is not applicable when the plaintiff relies on fraudulent concealment for tolling.

. None of these cases, it should be noted, were decided after Nesbitt, in which the Supreme Court of Pennsylvania embraced the actual knowledge standard for application upon remand. As the latest pronouncement of the highest court, Nesbitt deserves special weight that cannot be accorded these earlier cases.

. The Pennsylvania Supreme Court in Smith explicitly recognized that “a distinction is made in regard to the starting point of the statute [of limitations] between fraud completed and ending with the act which gives rise to the cause of action, and fraud continued afterwards in efforts or acts tending to prevent discovery.” 198 Pa. at 175, 47 A. 985; see also id. at 179, 47 A. 985 (“We regard the distinction as sound, well marked and in harmony with the spirit and letter of the statute.”).

. The discovery rule concerns the diligence of the plaintiff, as it is "based upon the recognition that if a party, despite the exercise of reasonable diligence, cannot ascertain his injury, the statute of limitations should not run against his claim." Anthony v. Koppers Co., Inc., 284 Pa.Super. 81, 89, 425 A.2d 428, 432, rev’d on other grounds, 496 Pa. 119, 436 A.2d 181 (1981).

. Thus, under both the doctrine of fraudulent estoppel and the discovery rule, "the statute is tolled only for those who remain ignorant through no fault of their own.” Morgan v. Koch, 419 F.2d 993, 997 (7th Cir.1969).

. The discovery rule, in contrast, asks "not what did the plaintiff know of the injury done him, but what might he have known by the use of the means of information within his reach with the vigilance the law requires of him?” Med-Mar, Inc. v. Dilworth, 214 Pa.Super. 402, 407, 257 A.2d 910, 913 (1969) (citations omitted).

. This assumes, of course, that the jury would find that Mr. Urland purchased and read the newspaper more than two years before plaintiffs filed suit.