Wright v. Heyne , 349 F.3d 321 ( 2003 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 Wright, et al. v. Heyne, et al. No. 01-4359
ELECTRONIC CITATION: 2003 FED App. 0405P (6th Cir.)File Name: 03a0405p.06 Before: NELSON and COLE, Circuit Judges; ROSEN,
District Judge.*
UNITED STATES COURT OF APPEALS _________________
FOR THE SIXTH CIRCUIT COUNSEL
_________________
ARGUED: Alphonse P. Cincione, BUTLER, CINCIONE,
FRANK C. WRIGHT , M.D., X DiCUCCIO & BARNHART, Columbus, Ohio, for
- Appellants. Nancy J. Manougian, ARTER & HADDEN,
JOHN P. GOFF , M.D., and Columbus, Ohio, for Appellees. ON BRIEF: Alphonse P.
CARL A. KRANTZ, M.D., as -
- No. 01-4359 Cincione, N. Gerald DiCuccio, BUTLER, CINCIONE,
Trustees of the Wright, Goff, - DiCUCCIO & BARNHART, Columbus, Ohio, Roger
Krantz, Harmon, Jones, > Makley, COOLIDGE, WALL, WOMSLEY & LOMBARD,
, Dayton, Ohio, for Appellants. Nancy J. Manougian, Danny
M.D.’s Profit Sharing Plan, -
Plaintiffs-Appellants, - L. Cvetanovich, ARTER & HADDEN, Columbus, Ohio, for
Appellees.
-
v. - _________________
-
- OPINION
MICHAEL A. HEYNE, and
- _________________
VESTAX SECURITIES -
CORPORATION , - ROSEN, District Judge.
Defendants-Appellees. -
- I. INTRODUCTION
N
Plaintiff-Appellants Frank C. Wright, John P. Goff and Carl
Appeal from the United States District Court Krantz brought this action as Trustees of the Wright, Goff,
for the Southern District of Ohio at Columbus. Krantz, Harmon and Jones Profit Sharing Plan (the
No. 98-01102—Norah McCann King, Magistrate Judge. “Retirement Plan”) under the Employee Retirement Income
Security Act of 1974, 29 U.S.C. § 1132(a) (“ERISA”), against
Argued: May 2, 2003 Vestax Securities Corporation (“Vestax”) and its owner,
Michael A. Heyne, investment advisors to Plaintiffs’
Decided and Filed: November 14, 2003 Retirement Plan, alleging that Vestax and Heyne breached
certain fiduciary duties in making investment decisions and
*
The Honorable Gerald E. Rosen, United States District Judge for the
Eastern District of Michigan, sitting by designation.
1
No. 01-4359 Wright, et al. v. Heyne, et al. 3 4 Wright, et al. v. Heyne, et al. No. 01-4359
engaged in conduct prohibited under ERISA with regard to Prior to late 1987, Plaintiffs utilized the services of
the receipt of commissions. The District Court for the Professional Investment Management to help them invest the
Southern District of Ohio granted Defendants’ Motion for assets of the Plan’s general account. Wright, Goff and Krantz
Summary Judgment on the ground that ERISA’s three-year also each used the services of Professional Investment
statute of limitations barred Plaintiffs’ claims. Plaintiffs Management to help them with investments in their respective
timely appealed the District Court’s decision. self-directed accounts.
For the reasons set forth below, we affirm the District Plaintiffs terminated the services of Professional
Court’s grant of Defendants’ Motion for Summary Judgment. Investment Management in late 1987, and shortly thereafter,
hired Defendant Michael Heyne to provide investment advice
II. FACTUAL BACKGROUND and services to the Plan with respect to the general account.
Each individual also retained Heyne to provide investment
Plaintiffs Frank C. Wright, John L. Goff and Carl A. Krantz advice and services for his self-directed account.
are trustees of the Wright, Goff, Krantz, Harmon Jones,
M.D.’s Profit Sharing Plan (“the Retirement Plan”). They are Plaintiffs were also aware that Heyne was affiliated with,
physicians who practiced together as a professional and had an ownership interest in, Vestax. In December 1987,
corporation known as “Wright, Goff, Krantz, M.D.’s, Inc.” the Plan and each of the individual Plaintiffs also entered into
from the late 1970s until 1995 when Goff retired.1 a “VesTrak Investment Analysis Service Agreement” with
Vestax, under which Vestax was to provide quarterly
Shortly after the corporation was formed, it created a Investment Analysis Reports to the Plan with respect to the
Retirement Plan. Wright and Krantz have been trustees of the general account, as well as to Plaintiffs with respect to each
Plan since its inception, and Goff was a trustee of the Plan of their respective self-directed accounts. These reports
from the time the Plan was created until his retirement from included a list of each investment made, the date and cost of
the practice of medicine in 1995. each investment, the proceeds received from the sale of each
investment, the current market value of each investment and
The Plan included a commonly-managed general account, the earnings of each investment. The VesTrak Agreements
as well as individual self-directed accounts for those disclosed that Vestax would earn fees for the services it
participants who wanted them. Plaintiffs were all participants would provide and the amount of the fees that would be
in the Plan, and each had a self-directed account under the earned. The Agreements further disclosed that Vestax could
Plan. While Wright, Goff, and Krantz, as trustees, were earn commissions on the purchase or sale of certain securities:
responsible for directing transactions in the Plan’s general
account, Goff played the most active role in directing those Client understands that if he as a purchaser of the
transactions. With respect to the self-directed accounts, each VesTrak Investment Analysis Service uses the services
individual was responsible for the direction of his own self- of Vestax in connection with the sale or purchase of a
directed account. security that is the object of the VesTrak Investment
Analysis Service, then Vestax may act as principal for its
own account or as agent for another person in
1 undertaking such sale or purchase and may be paid a
The name of the corporation has changed from time to time to
reflect the names of the physicians affiliated with the practice.
No. 01-4359 Wright, et al. v. Heyne, et al. 5 6 Wright, et al. v. Heyne, et al. No. 01-4359
commission on such sale or purchase. Client hereby fees and commissions that Heyne was earning was “driving
consents to the payment of such commission to Vestax. the choice of investment as opposed to the appropriateness of
the investment.” (JA 86, 97-104).
(See JA 1502, 1551)
During 1992 and 1993, Krantz likewise began to become
Also in December 1987, the Plan and Wright, Goff, and dissatisfied with Heyne’s services. Like Goff, Krantz was
Krantz, individually with respect to their self-directed concerned with Heyne’s affiliation with AFA Financial,
accounts, entered into a Soliciting Agent Agreement with Heyne’s failure to follow investment objectives, and the fees
Heyne. The Soliciting Agent Agreements disclosed that and commissions paid to Heyne.
Heyne solicited clients to enter into VesTrak Agreements
with Vestax, that Heyne was an officer and stockholder of Sometime in 1993, Goff asked Philip Shaffer of the
Vestax, that Heyne could receive a portion of the fees that a Consulting Group at Smith Barney Shearson to review the
client would pay to Vestax, that Vestax would receive performance of the general account and his own self-directed
“commissions or other compensation” if “financial service account. Shaffer informed Goff that the investments in his
products or investments are purchased through Vestax” and portfolio were “driven by fees and commissions” and were
that Heyne would receive “a portion of such commissions if “not proper.” (JA 105). Shaffer also informed Goff that
such sales are arranged through [Heyne] and [he] is a Heyne had deviated from the investment plans for the
registered representative of Vestax.” (See JA 1522). Plaintiffs’ self-directed accounts. (JA 125).
Pursuant to the VesTrak Agreements, quarterly Investment Later in 1993 or early 1994, Goff also asked Denny Dicky
Analysis Reports were provided to the Plan and to Wright, of Berwanger Overmeyer to review the Plan’s investments
Goff and Krantz, individually, for their respective self- and performance. Dicky informed Goff that after reviewing
directed accounts. Heyne also usually met with Plaintiffs on the Plan’s investments, he “couldn’t sleep at night.” (JA 108)
a quarterly basis to discuss the reports as well as to answer Dicky also made statements of “the same tenor as Mr.
any questions Plaintiffs had about the investments and other Shaffer’s comments.” Id.information reflected in the reports.
In 1994, Wright asked his brother, Tom Wright (who had
In 1991 or 1992, approximately three or four years after the experience managing his own investments and later registered
Plan’s relationship with Heyne and Vestax began, Goff began as an investment advisor), to review his self-directed account.
to feel some “dissatisfaction” with Heyne. The dissatisfaction In June 1994, Tom Wright advised his brother to “get away
stemmed from Goff’s learning that Heyne was an officer of from” Heyne, Vestax, and AFA Financial. (JA 889) Tom
AFA Financial, Inc., an entity with which the Plan and Wright further advised his brother that he had received “bad
Wright, Goff and Krantz on behalf of their own respective [investment] advice” from Heyne, should “not purchase any
self-directed accounts had placed money for management. more limited partnerships,” and should not “annuitize any
Goff considered Heyne’s affiliation with AFA Financial to be more of the annuities.” (JA 1773-74). Tom Wright also
a conflict of interest and he instructed Heyne to take his concluded that Heyne had been paid “excessive
money out of AFA, which Heyne did. Goff was also compensation” for his services . (JA 1804-05).
concerned that the general account and his own self-directed
account were not meeting his financial objectives and that the
No. 01-4359 Wright, et al. v. Heyne, et al. 7 8 Wright, et al. v. Heyne, et al. No. 01-4359
Then, in early 1995, Goff asked William Cseplo of On July 20, 1995, the Plan informed Heyne that it, too, was
McDonald & Company to review his self-directed account. terminating its relationship with Heyne and Vestax with
In a letter dated March 18, 1995, Cseplo specifically stated respect to the general account and on August 10, 1995, the
that he was “terribly disturbed at the failure of this investment Plan’s general account was transferred to Cseplo.
advisor to implement your written desires and the thought that
he would place his interests (commissions) before your On September 11, 1995, Wright terminated his relationship
interests. I have never seen such gross neglect of ethics with with Heyne and Vestax with respect to his self-directed
regards to this portfolio. . . .” (JA 558-59, 622-23). The letter account.
went on to state:
On February 27, 1997, Plaintiffs retained the services of an
If you feel as if you have been wronged by what has attorney, Tony Merry. In late 1997, after further analysis by
occurred in this portfolio, I would suggest you could Cseplo, in which Cseplo advised at least Goff and Krantz that
probably seek legal action. I believe you have some the Plan had suffered monetary losses at the hands of Heyne
basis. Michael Heyne invested your money in high yield and Vestax, Merry advised Plaintiffs that they had valid
bonds that you specifically told him not to buy. He ERISA claims arising out of Heyne’s alleged breach of
annuitized an annuity and, in my opinion, had no reason fiduciary duties. Merry specifically advised Plaintiffs that
to do so. . . . I would seek full restitution for the some of Heyne’s investments had created a conflict with
transactions that were not in your specific written organizations in which Heyne and Vestax had personal
directions and the annuity transactions that make no interests, and that Heyne had been paid excessive
sense at all. . . . compensation.
Id. On October 30, 1998, Plaintiffs filed the instant action. In
their Complaint, Plaintiffs alleged that Heyne and Vestax
On March 26, 1995, just a few weeks after receiving acted in breach of their fiduciary duties in violation of
Cseplo’s conclusions with respect to his review of Goff’s self- ERISA, 29 U.S.C. §§1109, 1132(a)(2), (3), and engaged in
directed account, Goff terminated his relationship with Heyne conduct prohibited by 29 U.S.C. § 1106(a), (b).
and Vestax and transferred his self-directed account to
Cseplo. Pursuant to 28 U.S.C. § 636(c)(3) and Fed. R. Civ. P. 73(c),
the parties consented to the jurisdiction of a United States
In April 1995, Plaintiff Krantz asked Cseplo to review his Magistrate Judge and further consented that an appeal from
self-directed account. On April 19, 1995, Cseplo informed the Magistrate Judge’s judgment would be directly to the
Krantz in writing that, although Krantz had instructed Heyne Court of Appeals for the Sixth Circuit. (JA 22).
“not to purchase high yield (junk) bond portfolios[, Heyne]
began the account in 1988 with a purchase of the very thing III. THE DISTRICT COURT’S DECISION
you did not want to own. . . .” (JA 598-99, 624). On May 2,
1995, based on Cseplo’s conclusions, Krantz terminated his On July 31, 2001, Defendants filed a Motion for Summary
relationship with Heyne and Vestax with respect to his self- Judgment arguing that because the action had been
directed account and engaged Cseplo to manage the account. commenced more than three years after the Plaintiffs acquired
actual knowledge of the Defendants’ alleged breach of duty,
No. 01-4359 Wright, et al. v. Heyne, et al. 9 10 Wright, et al. v. Heyne, et al. No. 01-4359
the claims of the Plaintiffs were barred by the three-year general concerns for [their] investments, which every
statute of limitations provided in 29 U.S.C. § 1113. (The text investor should have.” Rather, each of the three trustees
of § 1113 is set forth in footnote 2, infra.) On November 29, had been advised by any number of financial experts, by
2001, the District Court issued an Opinion and Order and mid-1995, that defendants had engaged in inappropriate
Judgment agreeing with Defendants that Plaintiffs’ Complaint and unauthorized investments, under circumstances that
was time-barred. conflicted with the interests of the Plan and its
participants.
In reaching its conclusion, the District Court relied on
several previous decisions of this Court. While noting that (JA 2013 (citation omitted)).
this Circuit has yet to articulate in any published decision a
broad definition of “actual knowledge” for purposes of The District Court also rejected Plaintiffs’ argument that it
ERISA’s limitations of actions provision, 29 U.S.C. § 1113, was not until the fall of 1997, when William Cseplo informed
the District Court also noted that the Sixth Circuit has them that Appellee’s conduct had worked to the financial
examined numerous cases involving the question of whether detriment of the Plan, that Plaintiffs had the requisite “actual
a plaintiff had “actual knowledge” under § 1113(2). knowledge.” The District Court determined that “ERISA’s
Specifically, the District Court stated: three-year statute of limitations will apply when the plaintiff
has actual knowledge of the facts that give rise to the claims
[T]o charge an ERISA plaintiff “with actual knowledge upon which it sues; it ‘cannot wait until the consequences of
of an ERISA violation, it is not enough that he had notice the act become painful.’” (JA 2013) (citing Ternes v. Tern-
that something was awry; he must have had specific Farm, Inc., 904 F.2d 708, 1990 WL 80915 at *3 (6th Cir.
knowledge of the actual breach of duty upon which he 1990) (unpublished decision; text available on WESTLAW)).
sues ... [S]ection 1113(a)(2)(A) [sic] means only that Therefore, the District Court concluded that Plaintiffs had
once [the plaintiff] learns of the facts that support his actual knowledge by at least September 1995 and their claim
allegation of illegality, he has no more than three years was, therefore, barred by § 1113(2) of ERISA.
in which to bring his ... suit.”
IV. DISCUSSION
(JA 2011 (quoting Rogers v. Millan, 920 F.2d 34, 1990 WL
61120 at *4 (6th Cir. 1990) (unpublished decision; text A. STANDARD OF REVIEW
available on WESTLAW) (emphasis added by district court)).
This Court reviews a district court’s grant of summary
Relying on the information provided to Plaintiffs by judgment de novo. Pinney Dock & Transport Co. v. Penn
various investment advisors in 1994 and 1995, the District Cent. Corp., 838 F.2d 1445, 1472 (6th Cir. 1998), cert.
Court reached the conclusion that Plaintiffs had “actual denied, 488 U.S. 880 (1988). In conducting this review, the
knowledge” under § 1113(2) more than three years prior to Court determines, in the light most favorable to the non-
filing their claim in October 1998. Specifically, the District moving party, whether any issue of material fact existed in the
Court concluded that: record below. Celotex Corp. v. Catrett, 477 U.S. 317, 323-
24(1986).
The record in this action does not portray investors (or
trustees) who, prior to the Fall of 1997, merely “had
No. 01-4359 Wright, et al. v. Heyne, et al. 11 12 Wright, et al. v. Heyne, et al. No. 01-4359
B. ERISA’S THREE-Y EAR STATUTE OF 1. THE “ACTUAL KNOWLEDGE” REQUIREMENT
LIMITATIONS
The basic ERISA limitation period of six years begins on
Under ERISA, when a fiduciary breaches an obligation or the date of the breach or violation. However, a “plaintiff with
duty, the victim of the breach normally has six years in which actual knowledge of a non-fraudulent breach of ERISA
to file suit. 29 U.S.C. § 1113(1). However, this period may fiduciary duties must file suit within three years.” Tassinare
be shortened to three years where the victim had “actual v. American Nat’l Ins. Co., 32 F.3d 220, 223 (6th Cir. 1994).
knowledge of the breach or violation.” 29 U.S.C. § 1113(2).2
As the District Court observed, the Sixth Circuit has yet to
The District Court found that Plaintiffs had “actual articulate a broad definition of “actual knowledge” under 29
knowledge of the breach or violation” by at least September U.S.C. § 1113(2). However, other circuits have examined the
1995. It is clear from the record below that if Plaintiffs did issue of what constitutes “actual knowledge” under §1113(2),
not have “actual knowledge,” their claim was filed within the and differing views of the definition have emerged.
requisite six-year period provided in § 1113(1). Therefore,
the ultimate question presented here is whether Plaintiffs had Plaintiffs urge the Court to apply the standard articulated by
“actual knowledge of the breach or violation” more than three the Third Circuit in Gluck v. Unisys Corp., 960 F.2d 1168years prior to the initiation of this action on October 30, 1998. (3rd Cir. 1992), which was subsequently adopted and applied
by the Fifth Circuit in Reich v. Lancaster, 55 F.3d 1034, 1057
(5th Cir. 1995) and Maher v. Strachan Shipping Co., 68 F.3d
951, 954-55 (5th Cir. 1995).
2
In Gluck, the Third Circuit held that “‘[a]ctual knowledge
Section 413 of ERISA, 29 U .S. C. §11 13, states: of a breach or violation’ requires that a plaintiff have actual
knowledge of all material facts necessary to understand that
No action may be commenced under this subchapter with respect
to a fiduciary’s breach of any resp onsibility, duty, or obligation
some claim exists, which facts could include necessary
under this part, or with respect to a violation of this part, after opinions of experts, knowledge of a transaction’s harmful
the earlier of – consequences, or even actual harm.” Id. at 1177. The Third
Circuit elaborated upon its formula in International Union v.
(1) six years after (A) the date of the last action which Murata Erie North America, Inc., 980 F.2d 889 (3rd Cir.
constituted a part of the breach or violation, or (B) in
the case of an omission, the latest date on which the
1992), stating that “‘actual knowledge’ requires a showing
fiduciary could have cured the breach or violation, or that plaintiffs actually knew not only of the events that
occurred which constitute the breach or violation but also that
(2) three years after the earliest date of which the those events supported a claim for breach of fiduciary duty or
plaintiff had actual knowledge of the breach or violation under ERISA.” Id. at 900.
violation;
except that in the case of fraud or concealment, such action may
However, as indicated above, courts are divided on the
be commenced not later than six years after the date of discovery issue of what constitutes “actual knowledge” under § 1113(2).
of such breach or violation. The Third Circuit’s position represents one view. Other
circuits which have examined Section 1113(2)’s “actual
29 U.S.C. § 1113.
No. 01-4359 Wright, et al. v. Heyne, et al. 13 14 Wright, et al. v. Heyne, et al. No. 01-4359
knowledge” requirement -- specifically, the Seventh, Ninth by the Seventh, Ninth and Eleventh Circuits. The Caputo
and Eleventh Circuits -- have held that “actual knowledge” court held as follows:
requires only knowledge of all the relevant facts, not that the
facts establish a cognizable legal claim under ERISA. See Although this Court has not previously defined the
Martin v. Consultants & Administrators, Inc., 966 F.2d 1078, term, we now hold that a plaintiff has “actual knowledge
1086 (7th Cir. 1992) (“[T]he relevant knowledge for of the breach or violation” within the meaning of ERISA
triggering the statute of limitations is knowledge of the facts § 413(2), 29 U.S.C. § 1113(2), when he has knowledge
or transaction that constituted the alleged violation. of all material facts necessary to understand that an
Consequently, it is not necessary for a potential plaintiff to ERISA fiduciary has breached his or her duty or
have knowledge of every last detail of a transaction, or otherwise violated the Act. Accord Maher v. Strachan
knowledge of its illegality.” (Emphasis in original)); Rush v. Shipping Co., 68 F.3d 951, 954 (5th Cir. 1995); Gluck v.
Martin Peterson Co., 83 F.3d 894, 896 (7th Cir. 1996) (“We Unisys Corp., 960 F.2d 1168, 1177 (3d Cir. 1992).
have defined ‘actual knowledge’. . . as knowledge of the While a plaintiff need not have knowledge of the relevant
‘essential facts of the transaction or conduct constituting the law, Blanton v. Anzalone, 760 F.2d 989, 992 (9th Cir.
violation,’ and have explained that this means it is ‘not 1985), he must have knowledge of all facts necessary to
necessary for a potential plaintiff to have knowledge of every constitute a claim. Such material facts “could include
last detail of a transaction, or knowledge of its illegality.’” necessary opinions of experts, knowledge of a
(internal citations omitted)); Blanton v. Anzalone, 760 F.2d transaction’s harmful consequences, or even actual
989, 992 (9th Cir. 1985) (holding that a claim for breach of harm.” Gluck, 960 F.2d at 1177. . . .
ERISA fiduciary duties is not tolled until an attorney advises
the plaintiff that the transaction was prohibited and stating: 267 F.3d at 193.
“The statute of limitations is triggered by. . . knowledge of the
transaction that constituted the alleged violation, not by . . . Some courts, in an attempt to resolve the “actual
knowledge of the law.”) Brock v. Nellis, 809 F.2d 753, 755 knowledge” inquiry also look to whether the defendant’s
(11th Cir. 1987) (“To us, section 1113(a)(2)(A) means only actions giving rise to the plaintiff’s breach of fiduciary claims
that once the Secretary learns of the facts that support his were “inherently suspect,” or “inherently” a statutory
allegation of illegality, he has no more than three years in violation. For example, in Fink v. National Savings and
which to bring his suit.”); Scott v. Evins, 802 F. Supp. 411, Trust Co., 772 F.2d 951 (D.D.C. 1985), the plaintiff’s breach
416 (N.D. Ala. 1992), aff’d, 998 F.2d 1022 (11th Cir. 1993) of fiduciary claim was predicated upon the ERISA Plan
(section 1113(2) “bars an action for violation of [ERISA trustee’s alleged failure to independently evaluate the Plan’s
fiduciary duties] three years after the plaintiff has actual investments, not upon the investment itself. The defendant
knowledge of the facts, not knowledge of the violation of the argued that the plaintiff’s claim was time-barred because he
law.”) had knowledge as of the date of the Plan’s filing of forms
filed with the Department of Labor which disclosed the
Citing both of the foregoing distinct lines of cases, in investment transaction. The court held that the Department
Caputo v. Pfizer, Inc., 267 F.3d 181 (2nd Cir. 2001), the of Labor forms alone were insufficient to constitute
Second Circuit appears to have adopted a “hybrid” view of knowledge to the Plan beneficiaries of the breach of the
the actual knowledge requirement, extrapolating parts of both fiduciary duty of independent evaluation. “The disclosure of
the Third and Fifth Circuits’ view, and of the view espoused a transaction that is not inherently a statutory breach of
No. 01-4359 Wright, et al. v. Heyne, et al. 15 16 Wright, et al. v. Heyne, et al. No. 01-4359
fiduciary duty cannot communicate the existence of the “protest letter” to the Internal Revenue Service in which he
underlying breach.” Id. at 957. See also, Waller v. Blue complained about the defendant’s conduct with regard to the
Cross of California, 32 F.3d 1337, 1338 (9th Cir. 1994) underpayment of his pension benefits. See also Farrell v.
(plaintiffs’ knowledge of Retirement Plan’s purchase of Automobile Club, 870 F.2d 1129, 1131 (6th Cir. 1989)
annuities to provide retirement benefits to Plan participants (holding that but for an unrelated tolling of the statute of
held not to constitute actual knowledge that defendants limitations, the plaintiffs’ claim for breach of ERISA
breached their fiduciary duties by using an infirm bidding fiduciary duties would have been time-barred because the
process in selecting the annuity providers); Caputo v. Pfizer, plaintiffs had not filed suit within three years after “meeting
Inc., supra (plaintiffs’ knowledge of defendant’s offering of with one another. . . to review documents which allegedly
a second voluntary separation offer (VSO) did not constitute prove their claim,” and rejecting the plaintiffs’ contention that
actual knowledge of a breach of fiduciary duty claim charging they did not have the requisite “actual knowledge” until “their
defendants with misrepresentation of future pension benefits attorney gave his opinion on the strength of their claim.”)
for purposes of the § 4113 three-year statute of limitations
where the plaintiffs admitted that, when the second VSO was In Ternes v. Tern-Fam, Inc., 904 F.2d 708, 1990 WL
formally announced, although they “suspected” that 80915 (6th Cir. 1990) the plaintiff sued his family
management had been “fudging it” when it denied that such corporation to recover payment of ERISA and other benefits
a package would be offered, they had no knowledge that any due to him under the corporation’s profit-sharing plan. 1990
individual had knowingly lied to them. 267 F.3d at 186, WL 80915 at *3. The district court found that the plaintiff
193.) was aware that he was entitled to the funds in March of 1983.
The district court further held that a December 1984 letter
As correctly noted by the Seventh Circuit, “[A]ctual from Ternes to the members of the profit-sharing plan showed
knowledge must be distinguished from constructive his actual knowledge that he had not received the plan
knowledge.” Martin, 966 F.2d at 1086. The line between benefits to which he claimed to be entitled. On appeal, the
actual and constructive knowledge is not a bright and readily plaintiff argued that the three-year statute of limitations did
distinguishable one. “We know that somewhere between not commence until his application for the benefits was
‘every last detail’ and ‘something was awry’ lies the requisite denied. This Court disagreed, holding that to trigger the
knowledge of an ERISA violation . . . . [J]udges, faced with ERISA statute of limitations, the plaintiff “need only have
particular contexts and relying on their ‘situation sense,’ must knowledge of the act and cannot wait until the consequences
make the determination.” Id. at 1086. of the act become painful.” Id. at *11-*12 (citing Turner v.
Retirement Plan of Marathon Oil Co., 659 F. Supp. 534 (N.D.
Although in this Circuit, we have yet to firmly establish a Ohio), aff’d, 845 F.2d 327 (6th Cir. 1988)). See also, Rogers
rule of law broadly defining “actual knowledge of the breach v. Millan, 920 F.2d 34, 1990 WL 61120 (6th Cir. 1990)
or violation” under Section 413(2) of ERISA, we have had (“The three-year limitation period began to run only when
occasion to examine numerous ERISA claims dealing with [the plaintiff] learned of the facts that support his allegation
the determination of when litigants had “actual knowledge.” that the [defendants] breached their [ERISA] fiduciary
For example, in Tassinare v. American Nat’l Ins. Co., 32 F.3d duties.”)
220, 222-224 (6th Cir. 1994), we held that a plaintiff’s claim
for breach of ERISA fiduciary duties was time-barred because Based on the foregoing discussion of Sixth Circuit law as
the plaintiff did not file suit within three years after he sent a well as the analysis reflected in the decisions of the Seventh,
No. 01-4359 Wright, et al. v. Heyne, et al. 17 18 Wright, et al. v. Heyne, et al. No. 01-4359
Ninth and Eleventh Circuits discussed above, we find that allowed for instituting suit inevitably reflects a value
view reflected in these decisions is the better view. judgment concerning the point at which the interests in favor
Accordingly, we join those Circuits in concluding that the of protecting valid claims are outweighed by the interests in
relevant knowledge required to trigger the statute of prohibiting the prosecution of stale ones.” 421 U.S. at 463-64,
limitations under 29 U.S.C. § 1113(2) is knowledge of the 95 S.Ct. at 1722). If the requisite “actual knowledge of the
facts or transaction that constituted the alleged violation; it is breach or violation” could only be obtained, as the Plaintiffs
not necessary that the plaintiff also have actual knowledge suggest, when they learned that they had a claim for violation
that the facts establish a cognizable legal claim under ERISA of ERISA after consulting with an attorney even though they
in order to trigger the running of the statute. This view is not had actual knowledge years earlier of all of the facts and
only in accord with our previous ERISA “actual knowledge” alleged misdeeds constituting their claim, these policies
decisions but it also furthers the policies underlying statutes would be frustrated. If the statute were tolled until an attorney
of limitations. Among the basic policies served by statutes of informs the plaintiff that he or she has an ERISA claim, a
limitations is preventing plaintiffs from sleeping on their plaintiff could delay accrual of a claim simply by waiting
rights and prohibiting the prosecution of stale claims. See before consulting an attorney. This would nullify the three-
e.g., Board of Regents of University of State of N. Y. v. year limitation period of Section 1113(2), something
Tomanio, 446 U.S. 478, 487-88, 100 S.Ct. 1790, 1796-97 Congress surely did not intend to result when it enacted the
(1980); Johnson v. Railway Exp. Agency, Inc., 421 U.S. 454, statute.
463-64, 95 S.Ct. 1716, 1722 (1975). As the Supreme Court
explained in Tomanio, supra, Although the actions complained of in this case may not
themselves “communicate the existence of an underlying
Statutes of limitations are not simply technicalities. On breach,” the extrinsic facts of which the Plaintiffs had actual
the contrary, they have long been respected as knowledge demonstrate that Plaintiffs must have known that
fundamental to a well-ordered judicial system. Making they had been wronged long before they consulted with an
out the substantive elements of a claim for relief involves attorney. Neither Fink nor any of its progeny suggest that
a process of pleading, discovery, and trial. The process of Plaintiffs were entitled to sit on such knowledge for more
discovery and trial which results in the finding of than three years.
ultimate facts for or against the plaintiff by the judge or
jury is obviously more reliable if the witness or For the foregoing reasons, we hold that to trigger the
testimony in question is relatively fresh. Thus in the running of the statute of limitations under Section 413(2) of
judgment of most legislatures and courts, there comes a ERISA, 29 U.S.C. § 1113(2), it is only the plaintiff’s actual
point at which the delay of a plaintiff in asserting a claim knowledge of the underlying conduct giving rise to the
is sufficiently likely either to impair the accuracy of the alleged violation that is required, rather than the knowledge
fact-finding process or to upset settled expectations that that the underlying conduct violates ERISA. We reject
a substantive claim will be barred without respect to Plaintiffs’ argument that the three-year limitation period is
whether it is meritorious. tolled until the plaintiff consults with an attorney and learns
from the attorney that he has a claim for breach of ERISA
446 U.S. at 487-88, 100 S.Ct. at 1796-97 (emphasis added). fiduciary duties. In fact, even the Third Circuit has made
See also, Johnson, supra, (“Although any statute of clear that the running of the three-year statute of limitations
limitations is necessarily arbitrary, the length of the period is not tolled until an attorney tells the plaintiff that he has a
No. 01-4359 Wright, et al. v. Heyne, et al. 19 20 Wright, et al. v. Heyne, et al. No. 01-4359
claim. See, Gluck v. Unisys, supra (“We emphasize, Plaintiffs of the “harmful consequences” of Vestax’s and
however, that our holding does not mean that the statute of Heyne’s allegedly improper acts and at least one of them
limitations can never begin to run until a plaintiff first (Cseplo) advised that they should “seek legal action” in early
consults with a lawyer.” 960 F.2d at 1177.) 1995. Indeed, it was based upon their actual knowledge of
the foregoing material facts that all of the Plaintiffs fully
Applying this rule to the facts of the instant case, resolution terminated all of their relationships with Defendants by
of the issue presented becomes rather straightforward, as it is September 11, 1995.3 Notwithstanding this, Plaintiffs did not
beyond serious question that Plaintiffs had “actual file their Complaint in this case until October 30, 1998.
knowledge” of the material facts upon which their claims for Because they did not file their action within three years after
breach of ERISA fiduciary duties are based more than three obtaining actual knowledge of the alleged facts upon which
years before they filed this action on October 30, 1998. their claims for breach of ERISA fiduciary duties are based,
their claims are time-barred by 29 U.S.C. § 1113(2).
Wright, Goff and Krantz obtained actual knowledge that
Vestax and Heyne allegedly “invested the assets” of the Plan V. CONCLUSION
“in high-risk investments” such as “junk bonds”; that Vestax
and Heyne allegedly made “investment decisions that were For the foregoing reasons, the District Court’s grant of
imprudent” including “annuitizing an annuity, investing in Defendants’ Motion for Summary Judgment is AFFIRMED.
certain limited partnerships, and purchasing both “A” and “B”
shares of the same investment fund”; that Vestax and Heyne
allegedly “caused” the Plan “to invest in and through
companies in which the Defendants had a direct financial
interest [AFA Financial]”; that Vestax and Heyne allegedly
“caused” the Plan to purchase or sell assets principally for the
purpose of earning transaction commissions” for themselves;
and that Vestax and Heyne allegedly “paid themselves
commissions on certain securities transactions in which they
engaged on behalf of the [Plan].” [See Complaint, ¶¶ 10-13;
16]. Further, Plaintiffs were, in several instances, specifically
told that Heyne had invested their funds in a manner they had
specifically instructed against.
Plaintiffs obtained actual knowledge of all of those alleged
facts from their own dealings with Vestax and Heyne during
the period from 1992 through 1995 and from their
consultations in 1993, 1994 and 1995 with four investment
professionals -- Phillip Shaffer, Denny Dicky, William 3
Go ff terminated his relationship with Defendants on March 25,
Cseplo and Tom Wright -- well outside the three-year 1995. Krantz terminated his relationship with them on May 2, 1995.
limitations period established by § 1113(2). Further each of Defendants’ relationship with the Plan’s general account was terminated
these consultants specifically and unequivocally informed on July 20, 1995, and on September 11, 1995, Plaintiff Wright terminated
his relationship w ith Defendants, as well.