Court Opinion

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Opinions of the United
2002 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

11-27-2002

Richard B Roush Inc v. New England Mutl
Precedential or Non-Precedential: Precedential

Docket No. 01-4156

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PRECEDENTIAL

       Filed November 27, 2002

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 01-4156

RICHARD B. ROUSH, INC. PROFIT SHARING PLAN,
by Richard K. Roush, Trustee;
ROUSH INSURANCE GROUP, INC., as successor
to RICHARD B. ROUSH, INC.; RICHARD B. ROUSH, INC.;
RICHARD K. ROUSH,
       Appellants

v.

THE NEW ENGLAND MUTUAL LIFE INSURANCE
COMPANY; NEW ENGLAND FINANCIAL

On Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. Civ. No. 4:CV-99-00485)
District Judge: Honorable James F. McClure, Jr.

Argued: Thursday, September 26, 2002

Before: BARRY, AMBRO and GARTH, Circuit Judges

(Opinion Filed: November 27, 2002)

       E. Parry Warner (argued)
       William J. Leonard
       Obermayer Rebmann Maxwell &
        Hippell LLP
       One Pennsylvania Center, 19th Floor
       Philadelphia, PA 19103-1895

       Attorneys for Appellants

       E. Thomas Henefer (argued)
       Stevens & Lee
       111 North Sixth Street
       P.O. Box 679
       Reading, Pennsylvania 19603

       Attorney for Appellees

OPINION OF THE COURT

Garth, Circuit Judge:

This appeal brings before us a claim by the plaintiff,
Roush,1 that the fiduciary of his funds, the defendant, New
England,2 failed to deposit and invest the funds as
instructed and by that failure, among others, breached his
trust under the Employee Retirement Income Security Act
of 1974 ("ERISA"), 29 U.S.C. S 1001-1461.

The District Court barred Roush’s action pursuant to the
three year statute of limitations period provided in 29
U.S.C. S 1113(2)3 and by so doing ruled against Roush in
each of the breach of fiduciary duty claims alleged in Count
I. The District Court ruled against Roush as well with
respect to Count II (prohibited transactions). The District
Court held that Roush had been obliged to file his action
against New England by December of 1998,4 holding that
Roush’s cause of action commenced in December 1995.
_________________________________________________________________

1. The plaintiffs are Richard B. Roush Profit Sharing Plan, an ERISA-
regulated profit sharing plan, currently having participants that were
employed by Roush Insurance Group, Inc., and the two plan trustees,
Richard B. and Richard K. Roush (collectively "Roush").
2. The defendants are The New England Mutual Life Insurance Company
and its successor, New England Financial (collectively "New England").
3. In relevant part, 29 U.S.C. S 1113(2) provides:

        No action may be commenced under this subchapter with respect
       to a fiduciary’s breach of any responsibility, duty, or obligation
       under this part, or with respect to a violation of this part, after the
       earlier of--

       . . . . three years after the earliest date on which the plaintiff had
       actual knowledge of the breach or violation . . . .
4. The District Court never explicitly stated the exact date on which
Roush’s cause of action accrued; instead, it adverted to the fact that

                                2

Although our decisions in Kurz v. Philadelphia Elec. Co.,
96 F.3d 1544 (3d Cir. 1996), and its predecessors Gluck v.
Unisys Corp., 960 F.2d 1168 (3d Cir. 1992), and Int’l Union
of Elect., Elect., Salaried, Mach. and Furniture Workers, AFL-
CIO v. Murata Erie N. Am., Inc., 980 F.2d 889 (3d Cir.
1992), were addressed by the District Court, the two-prong
standard prescribed for the analysis of the ERISA statute of
limitations bar was not employed in accordance with these
precedents. Subsequent to the District Court’s summary
judgment ruling in favor of New England, Montrose Med.
Grp. Participating Sav. Plan v. Bulger, 243 F.3d 773 (3d Cir.
2001), was filed, clarifying the two-prong standard we
discuss infra.

We hold that the District Court erred in barring Roush’s
claim against New England for breach of fiduciary duties
(the delay in investment of his funds and the delay in
accurate accountings) and we will remand to the District
Court for further proceedings now that we have held that
the statute of limitations is no bar to Roush’s action.

I

The District Court had jurisdiction pursuant to 28 U.S.C.
S 1331 and 29 U.S.C. S 1132(e)(1). We have jurisdiction
under 28 U.S.C. S 1291. Our review of a district court’s
decision on summary judgment is plenary. Fogleman v.
Mercy Hosp., Inc., 283 F.3d 561, 566 n.3 (3d Cir. 2002). On
review, we are required to apply the same test the District
Court should have utilized initially. J.F. Feeser, Inc. v. Serv-
A-Portion, Inc., 909 F.2d 1542, 1530-31 (3d Cir. 1990).

II

For our purposes here, we have detailed only those facts
that bear on our current disposition.
_________________________________________________________________

Roush received notice of the investment delay in the"fall of 1995" and
then referred to the New England December 1995 letter, which confirmed
that a delay in investments had occurred, as providing the
commencement date of Roush’s cause of action. Richard B. Roush, Inc.
v. The New England Mut. Life Ins. Co., 166 F. Supp. 2d 187, 200 (M.D.
Pa. 2001).

                                3

A. The Plan

On December 6, 1994, Roush executed the New England
Age Based Contribution Plus Profit Sharing Plan Adoption
Agreement, which was designed by New England and
constituted an amendment and restatement of Roush’s
existing Profit Sharing Plan. Roush then adopted The New
England Age Based Contribution Plus Profit Sharing Plan
(the "Plan"). New England issued a Group Annuity Policy
("Policy") on March 29, 1995, which it designed to pay the
benefits under the Plan. The Policy provided that New
England would maintain a General Account and various
Separate Accounts in which it would invest funds received
from Roush, according to Roush’s employees’ designations.
Funds in the General Account earned a fixed rate of
interest determined by New England. The General Account
funds were unaffected by market movements, whereas
funds deposited in the Separate Accounts received earnings
based on market movements and thus had the potential for
much higher returns to Plan participants. On May 24,
1995, Roush transferred Plan assets in the amount of
$961,394.89 to New England for allocation into these
Separate Accounts.

B. The Investment Delay

During the period of May 24 to September 30, 1995,
Roush made numerous requests to New England for a
complete accounting of the funds transferred to New
England and the return on those funds. In September 1995
and later in November 1995, New England provided
accountings to Roush but did not furnish information as to
the specific principal amounts transferred into each fund,
nor the return on such funds for each participant. Roush
informed New England, several times, that the account
allocation and balances were incorrect and demanded that
adjustments be made, and that correct accountings be
provided.

C. New England’s December 12, 1995 letter

On December 12, 1995, Stephen Chiumenti, an attorney
employed by New England, wrote a letter to Roush

                                4

admitting New England’s failure to invest properly Roush’s
funds. Among other matters, Chiumenti represented that:

       . . . we want to confirm that the instructions that we
       received dated May 22, 1995 continue to be valid
       directions. If so, we will implement them immediately
       without prejudice to your rights regarding the
       intervening delay.

Subsequently, most of the Plan funds in the General
Account were transferred to the Separate Accounts on
December 14, 1995, except for approximately $25,000
which, contrary to Roush’s instructions, apparently
remained in New England’s General Account. In a July 17,
1996 letter to Roush, Chiumenti wrote that New England
wished to put Roush in the "same place" he would have
been put, as "[i]t is our intention, as expressed in my prior
letter and every communication we have had, to adjust
your plan accounts to reflect the instructions as you believe
they should have been implemented."

D. Settlement Discussions

On July 13, 1996, Roush demanded by letter to
Chiumenti that funds be increased to account for the loss
of interest from the investment delay, that an accurate and
complete accounting be provided, and that all funds be
transferred out of New England without a surrender charge.5
In an August 2, 1996 letter, however, Chiumenti stated that
New England would not waive the surrender charge nor
make any adjustment for the lost interest should Roush
decide to transfer the funds. He also wrote that New
England would adjust the balance to reflect dividends from
the investment delay, in the amount of $101,727.87, only
if Roush executed a settlement agreement and release or
rolled over the funds into a new policy. Based on an
independent audit, Roush claimed that New England owed
Roush at least $313,000.
_________________________________________________________________

5. New England required a 5% surrender charge on withdrawal of funds
during the first five years. A-126.

                                5

III

Roush filed a complaint against New England in the
United States District Court for the Middle District of
Pennsylvania on March 26, 1999. Roush alleged ERISA and
state law claims regarding mismanagement of assets under
an employee pension benefit plan. After New England filed
a motion to dismiss Roush’s state law claims based on
ERISA preemption, Roush filed an amended complaint on
June 14, 1999. Roush asserted, in Count I, breaches of
fiduciary duty under ERISA from the investment delay;
failing to provide a complete accounting; failing to credit
accounts according to Roush’s instructions; failing to
provide administrative services and failing to return the
Plan funds with the returns generated by the funds. The
amended complaint also asserted, in an alternative Count
II, various prohibited transactions under ERISA. Complaint
PP 76-82.

Roush moved for partial summary judgment on liability
on June 19, 2000. New England moved for summary
judgment on July 13, 2000. On October 16, 2001, the
District Court denied Roush’s motion and granted New
England’s motion. Roush filed a timely notice of appeal on
November 14, 2001, seeking reversal of the District Court’s
judgment.

IV

As we have earlier noted, this case presents the issue of
when the three year limitations period in ERISA, 29 U.S.C.
S 1113(2), which is triggered by the plaintiff having "actual
knowledge" of a breach or violation under ERISA, begins.

The applicable statute of limitations for breach of
fiduciary duty under ERISA is found in 29 U.S.C.S 1113. It
provides:

       No action may be commenced under this subchapter
       with respect to a fiduciary’s breach of any
       responsibility, duty, or obligation under this part, or
       with respect to a violation of this part, after the earlier
       of--

                                6

       (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.
       (Emphasis supplied).

Because the statute of limitations is an affirmative
defense and because New England is the movant for
summary judgment, the burden of proof that the statute of
limitations bars Roush’s action rests on New England.
Thus, to prevail in its summary judgment motion, New
England had to prove that Roush had "actual knowledge of
the breach" more than three years before his action was
filed on March 26, 1999, which would be before March 26,
1996. We have interpreted "actual knowledge" in the
context of 29 U.S.C. S 1113 as requiring not only actual
knowledge of the facts giving rise to the fiduciary violation
but also as requiring actual knowledge that those facts
support a cause of action under ERISA. Montrose , 243 F.3d
at 787.

Gluck v. Unisys Corp., 960 F.2d 1168 (3d Cir. 1992), is
the seminal case in the Circuit on the issue of"actual
knowledge" under 29 U.S.C. S 1113. In Gluck, we held that
" ‘[a]ctual knowledge of a breach or violation’ 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." Id. at 1178. This knowledge
could come from "necessary opinions of experts . . . [,]
knowledge of a transaction’s harmful consequences . . . [,]
or even actual harm." Id. at 1177 (internal citations
omitted). We also emphasized that "[s]ection 1113 sets a
high standard for barring claims against fiduciaries prior to
the expiration of the sections’s six-year limitations period."
Id. at 1176. (Emphasis supplied).

                                7

In Gluck, the underlying violation concerned an
amendment to a pension plan. This amendment
impermissibly changed and partially terminated the plan,
resulting in a failure of the participants’ benefits to vest
fully. The District Court barred the participants’ claims as
untimely as they were filed more than three years after the
company’s alleged breach. We held that a participant’s
knowledge of the amendment and its effect failed to provide
"actual knowledge" of "each of the elements of a violation of
a technical provision of ERISA," as we could not discern
from the record what the "employees knew and when." Id.
at 1171. We reasoned that a participant could not have
knowledge of an ERISA violation where the amendment did
not disclose its harmful consequences. We further reasoned
that because the company literature distributed to
employees described the amendment as improving benefits,
such literature served to mask the amendment’s harmful
consequences. Id. at 1178-9. Accordingly, we concluded
that under the circumstances of the case, for a participant
to realize that he had a cause of action he had to review the
plan document and balance sheet and that this "level of
research and scrutiny [was] inconsistent with section
1113’s actual knowledge standard." Id. at 1179.

Since Gluck, there have been other cases that have
refined the ERISA "actual knowledge" standard. In Int’l
Union of Elect., Elect., Salaried, Mach. and Furniture
Workers, AFL-CIO v. Murata Erie N. Am., Inc., we interpreted
Gluck as a two-prong test requiring "a showing that
plaintiffs actually knew not only of the events that occurred
which constituted the breach or violation but also that
those events supported a claim of breach of fiduciary duty
or violation under ERISA." 980 F.2d 889, 900 (3d Cir.
1992).

In Kurz v. Philadelphia Elect. Co., we employed the same
two-prong standard where the underlying violation
concerned a change to an employee pension plan and the
statute of limitations barred the employees’ claims. The
employer had made efforts to change its pension plan in
order to provide more lucrative benefits to its employees.
The employer announced the favorable change on July 2,
1987 and implemented it on August 1, 1987. Kurz , 96 F.3d
8

at 1547. The employer, however, had given "serious
consideration"6 to the beneficial change beginning on May
28, 1987. The plaintiffs were employees who had inquired
as to their benefits after May 28, 1987 but retired before
the July 2, 1987 announcement. We reasoned there that
employees had "actual knowledge" of their breach of
fiduciary duty claim the day the employer announced the
pension increase because on that date all the material
elements of a breach of fiduciary duty were "patently
obvious." Kurz, 96 F.3d at 1551. Specifically, on the day of
the announcement, those who had inquired about their
benefits and had retired prior to reaping the rewards of that
amendment knew that: (1) benefits had been increased; (2)
they were not eligible for the new benefits package; and (3)
their employer had failed to inform them about the change,
even though they had asked. Thus, the employees had
"actual knowledge" of the event (the modification of
benefits) and the consequences that ensued.

Of greater significance to us is our holding in the recent
case of Montrose Med. Grp. Participating Sav. Plan v. Bulger,
243 F.3d 773 (3d Cir. 2001). In Montrose we stated that
"Gluck . . . requires a showing 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 under ERISA."
243 F.3d at 787. (Emphasis in original).

In Montrose, a hospital and its retirement plan had
brought an action against an insurance company for
breach of fiduciary duty. The insurance company’s policies
funded the hospital’s retirement plan. At issue was whether
the hospital could be charged with having "actual
knowledge" of its claim for breach of fiduciary duty under
ERISA by November 1991. If the hospital possessed the
"actual knowledge" required by our two-prong standard its
claim would be barred by the three year statute of
limitations. The insurance company charged that Montrose
had knowledge of a number of relevant facts, all of which
were based on the claimed fiduciary violations.
_________________________________________________________________

6. See Fisher v. Philadelphia Elec. Co., 96 F.3d 1533 (3d Cir. 1996)
("Fisher II") (cited in Kurz, 96 F.3d at 1550).

                                9

We concluded that the hospital could not have had
"actual knowledge" that an ERISA claim existed since it did
not possess "actual knowledge" that the plan in question
was covered by ERISA. 243 F.3d at 788. Thus, with the
two-prong standard of Montrose squarely established, we
turn to New England’s defense that Roush’s claims are
barred by the three year statute of limitations, 29 U.S.C.
S 1113(2).

V

As we have discussed, the significant feature of the two-
prong standard discussed in Montrose is that in order to be
barred by the three year statute of limitations the claimant
knows the facts on which he relies to establish a breach of
fiduciary duty. It must also be established that the
claimant knows that he has a cause of action under ERISA,
which includes "actual knowledge" of harm inflicted or
harmful consequences.

Here, Roush knew in December 1995 that New England
had not followed his instructions, had not furnished him
with the necessary and complete accountings and had not
allocated the funds to the Separate Accounts for each of the
participants. What Roush did not know was that those
actions by New England had harmed him or would have
harmful consequences--an ingredient of the second prong
of "actual knowledge." Int’l Union, 980 F.2d at 900.

As earlier related, when Roush received Chiumenti’s
December 12, 1995 letter, which informed him that the
allocation to the Separate Accounts had not been made as
his instructions required but that action would be taken to
implement Roush’s instructions without prejudice to
Roush’s rights regarding the intervening delay (i.e., the
delay from May 24, 1995 to December 12, 1995), Roush
could not have known that he and the participants had an
ERISA cause of action at that point in time because he had
not yet been harmed nor did he have knowledge that he
would be harmed.

It should be remembered that in December 1995, the
date to which the District Court looked for the running of
the statute of limitations, Roush had yet to receive a

                                10

completed, accurate accounting for the funds he had
transferred to New England. Without knowledge of how New
England had handled, invested or allocated the
$961,394.89 transferred to it and with assurances that all
would be corrected and without prejudice to Roush’s rights,
it cannot be said, let alone inferred, that Roush had "actual
knowledge" of the harm he ultimately was to suffer. Indeed,
as we noted earlier, an independent audit disclosed that
Roush’s claim against New England was calculated as
$313,000.7

As we have stated previously, S 1113 sets a"high
standard" for barring claims against fiduciaries prior to the
expiration of the six year limitations period and thus we
have interpreted the actual knowledge requirement
"stringent[ly]". See Montrose, 243 F.3d at 787 (quoting
Gluck, 960 F.2d at 1176). The undisputed facts establish
that under the second prong for "actual knowledge" of an
ERISA cause of action, which includes actual knowledge of
harm or harmful consequences required by Montrose,
Roush did not have the required "actual knowledge." See
Montrose, 243 F.3d at 787-88. As we review the record it is
clear that Roush did not have "actual knowledge" of harm
and thus an ERISA cause of action until March 26, 1996 at
the earliest, if then.8 If Roush could not have had "actual
_________________________________________________________________

7. We are also aware of the $25,000 which still remained in New
England’s General Account and apparently was not distributed to the
Separate Accounts until well into 1996. It is obvious, however, in terms
of Roush’s actual knowledge that this $25,000 retained in the General
Account at a lower interest rate was not known to Roush by December
1995. Indeed, the internal memoranda of New England reveal New
England’s very evident reluctance to inform Roush of its failure to invest
all of the monies transferred. Specifically, in a March 5, 1996 e-mail
from Dawn Loase to Larry Hoisington, two employees of New England,
Loase wrote that she "would rather [Roush] wasn’t aware that these [the
$25,000] didn’t get transferred as [Roush] wished."

8. In his brief, Roush maintains that he did not possess "actual
knowledge" of his cause of action until August 5, 1996, when he received
a letter from Chiumenti outlining settlement options. A-259-60. Under
these options, if Roush wished to receive the interest he lost due to the
investment delay, he would only be entitled to $101,727.87, and
moreover, he would either be forced to maintain his accounts at New

                                11

knowledge" until March 26, 1996, then 29 U.S.C.S 1113(2),
the three year statute of limitations, cannot be a bar to his
action against New England, inasmuch as Roush’s
complaint was filed on March 26, 1999.

Moreover, buttressing this conclusion is the promise
made by Chiumenti in his December 12, 1995 letter that
New England would cure the violations and deficiencies for
which it was responsible to that point. It would be
ludicrous to require a claimant who had been informed that
his claims would be favorably resolved or that "the check is
in the mail" to institute immediately a legal action seeking
to rectify the violations of which he complained and which
were now to be cured. Nor should he be required to start an
action for money due when told that payment had been
posted to him. Were we to hold that a "curing" letter should
be disregarded and that actions must be filed regardless of
the assurances given by the putative defendant or debtor,
we would be encouraging needless litigation that would
result in unwarranted penalties being visited upon those
who voluntarily and willingly sought to resolve their
differences with claimants.

In this case, even if Roush could be deemed to have had
the actual knowledge of harm (which we have held he did
not), Chiumenti’s letter at the very least acted to lull Roush
into inaction until such time as New England’s violations
were cured, proper accountings were received and
adjustments to accounts were made. See, e.g., Bechtel v.
Robinson, 886 F.2d 644, 650 (3d Cir. 1989) (under
_________________________________________________________________

England or incur a 5% surrender charge, and in both cases execute a
release. The only other option involved New England treating the
contract as void, which would deprive Roush of the benefits of the
investment returns. By this time, however, Roush had hired an outside
firm to calculate his losses from the investment delay, which were
calculated in excess of $313,000 as of June 1998.

At oral argument, counsel for New England argued that although New
England had always intended to resolve the investment delay by
providing the missing interest, it was clear by the summer of 1996 that
there would be no amicable resolution. Again, this only underscores our
conclusion that Roush could not have known, until that time, of the
harm that he would suffer.

                                12

Delaware law, a plaintiff ’s reliance on a defendant’s
conduct or statements, whether intentionally or
unintentionally misleading, to his detriment will equitably
estop a defendant from asserting a statute of limitations
defense); McConnell v. Gen. Tel. Co. of Cal., 814 F.2d 1311,
1317 (9th Cir. 1987) (representations of possible alternative
employment within the company may toll the limitations
period for the filing of an Age Discrimination in
Employment Act ("ADEA") claim when the representations
lull employees into untimely filings); Meyer v. Riegel Prods.
Corp., 720 F.2d 303, 307 (3d Cir. 1983) (despite the statute
of limitations provided by Congress in ADEA, where
employer’s own acts have "lulled" plaintiff into foregoing
prompt attempts to vindicate his rights, equitable tolling
may be proper). The record fairly read leads to no other
conclusion than that New England had not rectified its
violations respecting Roush until well after the bar date of
March 26, 1996.

VI

The record clearly reveals to us that in December 1995
Roush did not have "actual knowledge" that he had an
ERISA cause of action. Hence, by calculating the accrual
date of the statute of limitations from December 1995, the
District Court erred in holding that Roush’s claim for
breach of fiduciary duty was time-barred by the three year
statute of limitations.
Accordingly, we will reverse the District Court’s order of
October 16, 2001 which granted summary judgment to New
England on Count I and remand to the District Court for
further proceedings as to all issues of the parties,
including, but not limited to, the remedies if any to which
Roush may be entitled.9
_________________________________________________________________

9. At oral argument, Roush’s counsel stated that our ruling on the three
year limitations period would make it unnecessary to address the
applicability of the six year limitations period under the fraud or
concealment exception that he urged in his brief. We agree.

                                13

A True Copy:
Teste:

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

Both parties agreed at oral argument that a decision by this Court
reversing on the basis of the statute of limitations would render it
unnecessary for us to consider the remedies Roush seeks, i.e., damages
for the interest lost in the investment delay, relief from the surrender
charges, etc.

In addition, we need not address the second issue presented in
Roush’s appeal, i.e., did the District Court err in concluding, as a matter
of law, that New England had not engaged in transactions prohibited by
ERISA under 29 U.S.C. S 1106 (prohibited transactions). Both parties
agreed that our reversal of the District Court’s judgment respecting
Count I renders discussion of Count II, an alternative claim based on the
same matrix of facts, unnecessary.

                                14