Kurz v. Philadelphia Electric Co. , 96 F.3d 1544 ( 1996 )

Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit
10-1-1996
Kurz v. Phila Elec Co
Precedential or Non-Precedential:
Docket 95-1795,95-1796
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Recommended Citation
"Kurz v. Phila Elec Co" (1996). 1996 Decisions. Paper 37.
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 95-1795 and 95-1796
DONALD R. KURZ; WILLIAM ANDERSON; JAMES E.W.
BECK; WILLIAM T. BERGEN; CHARLES W. BOWDEN;
WILLIAM H. BROWN; RICHARD CAHILL; ARMANDO L. CAPOFERRI;
ROBERT C. DEMARCO; JAMES J. DILOLLE, SR.; VINCENT J.
DIMAGGIO; JOHN J. DIVALENTINO, JR.; WILLIAM E. DRUMEL;
VICTOR J. GIBIALANTE; FRANCIS T. GOLDEN; JAMES J.
GRANGER; ELMER D. GREIM, JR.; JAMES H. HAIR; JOHN M.
HOOPES; BENJAMIN J. KILIAN; GEORGE C. LINTHICUM;
HUBERT A. MCKOWN, JR.; HENRY P. MCNAMEE;
OLIVER K. MESSNER; ROBERT E. MILLER; JOHN A. MORSE;
SAMUEL J. MULLEN; JOHN A. MUNLEY; STANLEY B. MYERS;
JOHN J. NUSSPICKEL; JAMES W. PATTERSON; ALFRED B.
SCHUMANN; JOSEPH C. SHARKEY; WILLIAM H. SMOYER;
WOODROW E. SNYDER; JAMES D. SUTLIFF; EDWARD J. VETNER;
DOMINIC C. VIGLIANESE; G. EARLE WATT; FREDERICK
W. WINTERLING; JOHN R. YOUNG
v.
PHILADELPHIA ELECTRIC COMPANY; SERVICE ANNUITY
PLAN OF PHILADELPHIA ELECTRIC COMPANY; CHARLES L.
FRITZ; J.L. EVERETT, III; JOHN H. AUSTIN, JR.
JOHN J. DIVALENTINO, JR., WILLIAM E. DRUMEL;
JOHN A. MORSE; SAMUEL J. MULLEN; STANELY B. MYERS;
DOMINIC C. VIGLIANESE; JAMES J. DILOLLE; BENJAMIN
J. KILIAN; CHARLES W. BOWDEN; ELMER D. GREIM, JR.;
FREDERICK W. WINTERLING; JAMES W. BECK; JAMES H. HAIR;
ROBERT C. DEMARCO; ALFRED G. SCHUMANN; RICHARD CAHILL;
JAMES W. PATTERSON; JOHN M. HOOPES; HUBERT A. MCKOWN,
JR.; ROBERT E. MILLER; JAMES D. SUTLIFF; HENRY P.
MCNAMEE; FRANCIS T. GOLDEN; WILLIAM T. BERGEN;
GEORGE C. LINTHICUM; WILLIAM W. ANDERSON: JOHN R.
YOUNG; VINCENT J. DIMAGGIO; SHIELDS L. DALTROFF;
RICHARD O. FOLKMAN; ALFRED E. STAVOLA; ROBERT H.C.
LESS; SAMUEL E. BELL; DONALD F. WASHINGTON; FRANK
J. GALLAGHER; MAURICE M. PEITZMAN; HARRY G. TURNER,
JR.; ROBERT I. FRIEND; DONALD C. ROBINSON;
WILLIAM J. LEAMAN, JR.; AUGUSTUS W. O'MALLEY; DALLAS
S. SCOTT, JR.; JOHN S. STILLWAGON; ROBERT C. HECKESSER;
WILLIAM R. TRAVETTI; WILLIAM B. HORLOCK; JAMES STATES;
THOMAS W. RAYER; JOHN H. VONRHINE; WALTER ALLWOERDEN;
GEORGE C. WIEDERSUM, JR.; JAMES R. MCCARRON; SALVATOR
J. DESTEFANO; JOHN C. GARVIN; A. WILLIAM LANCASTER;
JOSEPH A. FOCHT; ROBERT MITCHELL; JOSEPH P. SUBRANNI;
JOHN F. CRAWFORD; WILLIAM G. TAYLOR; KENNETH R. SEDGLEY,
JR., IRWIN G. BLACKBURN; CHARLES R. CAREY; JOHN R. YOUNG;
JESSEE E. GRAY, JR.; JAMES D. DERSTINE; ALLEN H. BRAID;
PAUL L. THOMAS; STEPHEN MICKLOSH, JR.; WILLIAM L. GIBBONS;
RUSSELL B. MURRAY; ROLAND J. MARKUN; ERNEST W. BEAM;
RAYMOND W. SCHOLL, JR.; JOHN F. PARKER; JOSEPH F. MCBRIDE;
VINCENT S. BOYER; MARTIN M. MORGAN and DAVID MONZO,
Appellants in 95-1795
---------------------
DONALD R. KURZ; WILLIAM ANDERSON; JAMES E.W.
BECK; WILLIAM T. BERGEN; CHARLES W. BOWDEN;
WILLIAM H. BROWN; RICHARD CAHILL; ARMANDO L. CAPOFERRI;
ROBERT C. DEMARCO; JAMES J. DILOLLE, SR.; VINCENT J.
DIMAGGIO; JOHN J. DIVALENTINO, JR.; WILLIAM E. DRUMEL;
VICTOR J. GIBIALANTE; FRANCIS T. GOLDEN; JAMES J.
GRANGER; ELMER D. GREIM, JR.; JAMES H. HAIR; JOHN M.
HOOPES; BENJAMIN J. KILIAN; GEORGE C. LINTHICUM;
HUBERT A. MCKOWN, JR.; HENRY P. MCNAMEE;
OLIVER K. MESSNER; ROBERT E. MILLER; JOHN A. MORSE;
SAMUEL J. MULLEN; JOHN A. MUNLEY; STANLEY B. MYERS;
JOHN J. NUSSPICKEL; JAMES W. PATTERSON; ALFRED B.
SCHUMANN; JOSEPH C. SHARKEY; WILLIAM H. SMOYER;
WOODROW E. SNYDER; JAMES D. SUTLIFF; EDWARD J. VETNER;
DOMINIC C. VIGLIANESE; G. EARLE WATT; FREDERICK
W. WINTERLING; JOHN R. YOUNG
v.
PHILADELPHIA ELECTRIC COMPANY; SERVICE ANNUITY
PLAN OF PHILADELPHIA ELECTRIC COMPANY; CHARLES L.
FRITZ; J.L. EVERETT, III; JOHN H. AUSTIN, JR.
Peco Energy Company, formerly
Known as Philadelphia Electric
Company, Service Annuity Plan of
Philadelphia Electric Company,
Charles L. Fritz, J.L. Everett,
III and John H. Austin, Jr.
Appellants in 95-1796
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 91-cv-02771)
Argued April 29, 1996
Before: COWEN and ROTH, Circuit Judges
and CINDRICH, District Judge
(Opinion filed October 1, l996)
Ronald L. Wolf, Esq.
Martina W. McLaughlin, Esq. (Argued)
Litvin, Blumberg, Matusow & Young
1339 Chestnut Street
The Widener Building, 18th Floor
Philadelphia, PA 19107
Attorneys for Appellants in 95-1795
and for Cross-Appellees in 95-1796
David H. Marion, Esq.
David Zalesne, Esq. (Argued)
Howard J. Bashman, Esq.
Montgomery, McCracken, Walker & Rhoads
Three Parkway, 20th Floor
Philadelphia, PA 19102
Attorneys for Appellees in 95-1795
For Cross-Appellants in 95-1796
OPINION OF THE COURT
ROTH, Circuit Judge:
This appeal marks the second time this case has reached
this court. In its first incarnation, Kurz v. Philadelphia Elec.
Co., 994 F.2d 136 (3d Cir.) ("Kurz I"), cert. denied, 510 U.S.
1020 (1993), we reversed the district court's grant of summary
judgment to defendant Philadelphia Electric Co. ("PECo").
Applying the rule established in Fischer v. Philadelphia Elec.
Co., 994 F.2d 130 (3d Cir.) ("Fischer I"), cert. denied, 510 U.S.
1020 (1993), we held that genuine issues of material fact
remained as to whether PECo, acting in its role as fiduciary
under the Employee Retirement Income Security Act ("ERISA"), had
made affirmative material misrepresentations to its employee-
beneficiaries by denying, or failing to disclose when asked, that
it was seriously considering changes in its pension benefits
program. On remand, after a bench trial, the district court
entered judgment for those members of the plaintiff class who had
asked about a change in benefits after March 1, 1987, the date on
which the district court found that serious consideration began.
Kurz v. Philadelphia Elec. Co., No. 91-2771, slip op. at 24 (E.D.
Pa. May 13, 1994) ("District Ct. Op."). We will apply the
formulation of "serious consideration" established in Fischer v.
Philadelphia Elec. Co., ___ F.3d ___ (3d Cir. 1996) ("Fischer
II"), and on the basis of that analysis we will reverse the
district court's decision and enter judgment for defendant PECo.
I.
This action stems from PECo's efforts to change its
pension plan to provide more lucrative benefits to its employees.
PECo announced this change on July 2, 1987, and implemented it on
August 1, 1987. The plaintiff class consists of various
employees who retired between February 1, 1987, and July 1, 1987,
and who were therefore ineligible for the plan.
On April 30, 1991, the plaintiffs filed suit in the
U.S. District Court for the Eastern District of Pennsylvania,
alleging that PECo had long known of its intent to change its
pension package and had breached its fiduciary duty under ERISA §
404, 29 U.S.C. § 1104, by representing that no change was under
consideration. The district court certified the class, then
entered summary judgment for PECo. In Kurz I, we reversed.
Relying on our decision in Fischer I, we held that PECo could be
liable for breach of fiduciary duty if it had made affirmative
misrepresentations, such as denying that any change was being
considered when in fact a change was under serious consideration.
Kurz I, 994 F.2d at 139. We remanded for a trial on the merits
to determine, inter alia, when the plan came under serious
consideration. The district court found the following facts, the
vast majority of which were stipulated.
Since 1977, PECo had conducted periodic reviews of its
pension fund program as part of its ordinary course of business.
PECo also participated in an annual or biannual survey that
compared benefits packages at selected utilities.
On October 2, 1985, the consulting firm of Towers,
Perrin, Forster & Crosby ("TPF&C") completed a study of PECo's
pension benefit plan. TPF&C concluded that the plan was well-
funded and that the current rate of contributions would be
sufficient to cover improvements in the benefits package. At
approximately the same time, Michael Crommie, PECo's Director of
Employee Services, noted that PECo's comparative ranking in the
benefits survey had fallen. On June 23, 1986, Crommie sent a
memorandum to Ronald Downs, Manager of the Industrial Relations
Department, asking whether TPF&C should be asked to prepare a
pension benefit study based on the survey results. Downs
responded, "Probably not, but suggest we consider after we see
[this year's] survey results. Obviously, some input from TPF&C
will be required with regard to our recommended modifications to
plan!"
In 1986, PECo took over the task of compiling the
benefits survey. Fred Beaver, an Administrative Assistant in the
Personnel and Industrial Relations Department, was assigned the
task of preparing the survey. In February, 1987, Beaver received
data from other utilities on their 1986 benefits levels. Beaver
concluded that PECo's position was below the mid-point for the
industry. After discussing the matter with his colleagues,
Beaver suggested that PECo increase its benefits. On February
27, 1987, Beaver contacted Donald Fleischer, a consultant at
TPF&C, to discuss a possible pension plan change.
During March, 1987, the pace of deliberations
increased. Charles L. Fritz, PECo's Vice President of Personnel
and Industrial Relations, met with members of the Independent
Group Association, PECo's unofficial employee representative, to
discuss an increase in pension benefits. Fritz told them that
the time was ripe to make significant changes in the pension
plan. It was also during March that TPF&C began calculating the
results of various changes in the pension benefit rate. TPF&C
continued its work through April and May.
On May 6, 1987, Crommie and William Murdoch, a
consultant with TPF&C, met to discuss competing alternatives for
the amended plan. On May 11, Fritz reviewed the costs of the
various alternatives with Murdoch. On May 20, TPF&C presented
the results of its pension benefit study and recommended a
pension increase. The TPF&C report discussed seven different
proposals for changing the plan. By memorandum dated May 28,
Fritz contacted J.L. Everett, III, PECo's Chief Executive
Officer, and John H. Austin, Jr., PECo's President & Chief
Operating Officer, to request permission to recommend a pension
change to the Board of Directors. Everett and Austin were the
only two individuals with authority to make recommendations to
the Board. After receiving permission, Fritz prepared a
recommendation, which was approved at the Board's June 22, 1987,
meeting.
Based on this record, the district court concluded that
PECo began seriously considering an increase in its pension
benefit plan in March, 1987. It therefore set March 1, 1987, as
the date on which PECo's duty to inform its employees arose. The
district court entered judgment for those retirees who asked
about pension benefits and retired after that date. The court
entered judgment for PECo on the claims of those retirees who
asked about pension benefits and retired before that date. This
appeal followed.
II.
Our analysis proceeds within the confines of Fischer Iand Fischer
II. Liability turns on the materiality of PECo's
representation that no change was being considered. Fischer I,
994 F.2d at 135. Under Fischer II, whether PECo's statement was
a material "misrepresentation" turns on whether a change in
benefits was in fact under serious consideration at the time the
statement was made. Fischer II, ___ F.3d at ___ [typescript at
11-12]. "[S]erious consideration requires (1) a specific proposal
(2) discussed for purposes of implementation (3) by senior
management with the authority to implement the change." Id. at
___ [typescript at 15]. Based on this formulation, the district
court's conclusion that serious consideration began on March 1,
1987, was incorrect.
Under the first Fischer II factor, we must examine the
record for evidence of a specific proposal. No such proposal
existed until May 20, 1987, when TPF&C presented the results of
its pension benefits study. The TPF&C report
noted that PECO's normal retirement benefits
were below average of the survey group . . ..
It commented that PECO needed to improve its
pension, [and it] recommend[ed] that
alternative pension improvements should take
into consideration 1. objectives for income
replacement at various pay levels, 2. the
company's desired competitive posture, 3.
cost implications for alternatives, 4.
posture with respect to introduction of
company-matching contribution in savings
plan, and 5. other benefits such as life
insurance and medical benefits.
District Ct. Op. at 12. Most importantly, the study "proposed
seven alternate benefit improvements." Id. at 13.
This document marked the culmination of PECo's
considerable efforts, with the help of TPF&C, to "gather[]
information, develop[] strategies, and analyz[e] options."
Fischer II, ___ F.3d at ___ [typescript at 16]. It provided
specific proposals for the company to evaluate, and it outlined
factors and principles for senior management to consider. This
document was "sufficiently concrete to support consideration by
senior management for the purpose of implementation." Id.[typescript at
16]. Indeed, it appears to have been intended for
this very purpose. The TPF&C report therefore satisfies the
first Fischer II factor.
By contrast, the laundry list of pre-May 20, 1987,
events cited by the plaintiff class falls short of serious
consideration. These activities fit comfortably within the
categories of gathering information, developing strategies, and
analyzing options that precede the drafting of a specific
proposal. As we explained in Fischer II,
large corporate entities conduct regular or
on-going reviews of their benefit packages in
their ordinary course of business. These
entities employ individuals, including middle
and upper-level management employees, to
gather information and conduct reviews. The
periodic review process may also entail
contacting outside consultants or
commissioning studies. During the course of
their employment, the employees assigned
these tasks necessarily discuss their duties
and the results of their studies. These
discussions may include issues of
implementation. The employees may also make
recommendations to upper level management or
senior executives. As a general rule, such
operations will not constitute serious
consideration.
Fischer II, ___ F.3d at ___ [typescript at 17]. The efforts of
Beaver, Crommie, Downs, and other individuals in PECo's seemingly
far-flung personnel department illustrate this general rule.
These individuals were simply performing their ordinary duties.
Their activities do not constitute serious consideration.
Because a specific proposal did not emerge until May
20, 1987, serious consideration could not have commenced before
this date. The existence of a specific proposal, however, does
not resolve matters.
[The Fischer II] formulation does not turn on
any single factor; the determination is
inherently fact-specific. Kurz I, 994 F.2d
at 139. Likewise, the factors themselves are
not isolated criteria; the three interact and
coalesce to form a composite picture of
serious consideration.
Id. at ___ [typescript at 15-16]. Moreover, as we emphasized in
Fischer II, "these factors do not establish a bright-line rule."
Id. at ___ [typescript at 18]. We therefore turn to the second
and third factors.
Under the second and third factors, we look to whether
the specific proposal was being considered for implementation by
senior management. As noted, supra, the contents of the proposal
itself suggest that TPF&C intended its report for consideration
by senior management for purposes of implementation. What is
important for this phase of our inquiry, however, is whether
PECo's senior management considered the document for purposes of
implementation. In addition, consideration must have been by
senior management with the authority to implement the change.
This final requirement will not limit serious consideration to
discussion by the Board of Directors: "It is sufficient for this
factor that the plan be considered by those members of senior
management with responsibility for the benefits area of the
business, and who ultimately will make recommendations to the
Board regarding benefits operations." Id. at ___ [typescript at
18].
Although the record is sparse on these points, the
district court found that "[t]he persons having authority in 1987
to recommend that the PECO Board of Directors implement the
pension plan changes were Everett and Austin." District Ct. Op.at 14.
Based on this finding, we conclude that Everett and
Austin were the appropriate cadre of senior management whose
consideration is pertinent.
We must therefore determine when Everett and Austin
began considering the specific proposal for purposes of
implementation. The record indicates that on May 22, 1987,
Everett and Austin submitted the TPF&C report to the Board of
Directors. On May 28, Fritz sent a memorandum to Austin and
Everett setting out the cost for one of the seven proposals and
requesting their approval to proceed further. After receiving
approval, Fritz prepared a recommendation for the Board. The
Board made the decision to amend the plan on June 22, 1987.
We conclude that Fritz's May 28 memorandum and Everett
and Austin's subsequent approval of his recommendation mark the
beginning of serious consideration by senior management for
purposes of implementation. We therefore hold that serious
consideration began on May 28, 1987.
In reaching this conclusion, we stress yet again the
fact-specific nature of our analysis. Our holding in this case
does not establish a bright-line rule based on management's
approval of an employee's request to make a recommendation to the
Board of Directors, just as in Kurz I we rejected a bright-line
rule based on the formal proposal of a plan change to the Board
of Directors. 994 F.2d at 139. Rather, serious consideration
depends on "(1) a specific proposal (2) discussed for purposes of
implementation (3) by senior management with the authority to
implement the change." Fischer II, ___ F.3d at ___ [typescript
at 15]. Here, these factors indicate that serious consideration
began on May 28, 1987.
Based on this analysis, any employee who asked about
changes in pension benefits after serious consideration began on
May 28, 1987, but before the formal announcement of the change on
July 2, 1987, received material misinformation. We will enter
judgment for PECo on the claims of all employees who asked about
a benefits change and retired before May 28. The record reveals,
however, that some members of the plaintiff class retired after
May 28, 1987. We must therefore consider the viability of their
claims in light of PECo's statute of limitations defense.
ERISA § 413, 29 U.S.C. § 1113, establishes a
combination of limitations provisions to govern breach of
fiduciary duty claims. 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
(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.
29 U.S.C. § 1113. This section thus creates a general six year
statute of limitations, shortened to three years in cases where
the plaintiff has actual knowledge, and potentially extended to
six years from the date of discovery in cases involving fraud or
concealment.
Invoking § 413, PECo argues that the three year period
for actual knowledge applies. PECo points out that the benefits
change was formally announced on July 2, 1987. No lawsuit was
filed until April 3, 1991, more than three and a half years
later. In addition, the record contains statements by sixteen of
the twenty members of the plaintiff class stating that they knew
of the plan change more than three years before the complaint was
filed. PECo concludes that on these facts, the claim was
untimely.
The plaintiff class responds by pointing to § 413's
language on fraud and concealment, claiming it refers to the type
of behavior in which PECo engaged. The district court adopted
this position, explaining,
The class action complaint clearly sounds in
concealment. The heart of the complaint is
PECO's concealment of the plan to implement
the early retirement plan. PECO admits it
had a policy of keeping such matters
confidential and telling potential retirees
that no such plans existed until formally
announced.
Section [413] provides a six year statute
of limitation for cases of concealment,
measured from the time the plaintiff
discovers the breach or violation.
Members of the plaintiffs' class discovered
the breach or violation as early as June
1987. Suit was filed in this matter April
30, 1991, less than six years later.
District Ct. Op. at 25-26. We disagree with the district court's
interpretation of the statute in the circumstances of this case.
The proper interpretation of § 413 presents an issue of
law subject to plenary review. Board of Trustees of District No.
15 Machinists' Pension Fund v. Kahale Engineering Corp., 43 F.3d
852, 857 (3d Cir. 1994); Sheet Metal Workers, Local 19 v. 2300
Group, Inc., 949 F.2d 1274, 1278 (3d Cir. 1991). We first hold
that § 413(2)'s three year period applies on the facts of this
case. We next hold that the district court misconstrued § 413's
fraud and concealment language. We find that the claims of the
plaintiff class are untimely and barred.
We begin with the selection of the 6 year or the 3 year
limitations period as provided in subsections (1) and (2). We
find that the 3 year "actual knowledge" provision of subsection
(2) applies here. We first examined the meaning of § 413(2)'s
"actual knowledge" in Gluck v. Unisys Corp., 960 F.2d 1168 (3d
Cir. 1992). We interpreted the phrase "actual knowledge" to
require actual knowledge of "all material facts necessary to
understand that some claim exists, which facts could include
necessary opinions of experts, knowledge of a transaction's
harmful consequences, or even actual harm." Id. at 1177
(citations omitted).
In the current case, all the material elements of a
breach of fiduciary duty claim were patently obvious on July 2,
1987, the day PECo announced the pension increase. On that date,
employees who had asked about benefits and retired before July 2
knew (1) benefits had been increased, (2) they were not eligible
for the new package, and (3) no one had told them about the
change even though they had asked. This was not a technical
violation of ERISA, nor a cleverly concealed plan amendment.
PECo openly announced that certain employees would receive better
benefits, and others would not. For those who did not qualify,
the "harmful consequences" of the change were obvious. Gluck,
960 F.2d at 1177. No "opinions of experts" were needed. Id.
Legal consultation was not required. Id. The plaintiffs had
"knowledge of all relevant facts at least sufficient to give
[them] knowledge that a fiduciary duty ha[d] been breached or
ERISA provision violated." Id. at 1178. The plaintiff class
therefore had actual knowledge as of July 2, 1987, and § 413's
three year statute of limitations began to run on that date.
We next turn to the "fraud and concealment" language of
§ 413, which the district court applied to save the class claim.
The district court apparently interpreted this language as
referring to the type of ERISA claim in question. See District
Ct. Op. at 25 ("[t]he class action complaint clearly sounds in
concealment"). We disagree.
With rare exceptions, the courts of appeals have
interpreted the final clause of § 413's as incorporating the
federal doctrine of fraudulent concealment: The statute of
limitations is tolled until the plaintiff in the exercise of
reasonable diligence discovered or should have discovered the
alleged fraud or concealment. See J. Geils Band Employee Benefit
Plan v. Smith Barney Shearson, Inc., 76 F.3d 1245, 1253 (1st
Cir.), petition for cert. filed, 65 U.S.L.W. 3001 (June 19,
1996); Barker v. American Mobil Power Corp., 64 F.3d 1397,
1401-02 (9th Cir. 1995); Larson v. Northrop Corp., 21 F.3d 1164,
1172-74 (D.C. Cir. 1994); Martin v. Consultants & Administrators,
Inc., 966 F.2d 1078, 1093-96 (7th Cir. 1992); Schaefer v.
Arkansas Medical Soc'y, 853 F.2d 1487, 1491-92 (8th Cir. 1988);
but see Diduck v. Kaszycki & Sons Contractors, Inc., 874 F.2d
912, 919 (2d Cir. 1989) ("[f]or a breach of fiduciary duty
involving fraud or concealment, the three year exception for
actual knowledge does not apply, and a party has six years from
the time it discovers the breach to bring an action").
Although we have yet to address this issue squarely,
we have implicitly rejected the district court's interpretation
in dictum. See Gluck, 960 F.2d at 1177 n.5 ("Although not
implicated here, we note that the six-year limitation period of
[§ 413(1)] does not protect defendants in instances involving
concealment or fraud."). We now join our sister courts and hold
that § 413's "fraud and concealment" language applies the federal
common law discovery rule to ERISA breach of fiduciary duty
claims. In other words, when a lawsuit has been delayed because
the defendant itself has taken steps to hide its breach of
fiduciary duty, see Barker, 64 F.3d at 1402, the limitations
period will run six years after the date of the claim's
discovery. The relevant question is therefore not whether the
complaint "sounds in concealment," but rather whether there is
evidence that the defendant took affirmative steps to hide its
breach of fiduciary duty.
Turning to the case at bar, we find nothing suggesting
that fraud or concealment delayed the discovery of the breach of
fiduciary duty claim. Serious consideration began on May 28,
1987. The plan was announced one month later on July 2, 1987.
Although again eschewing a bright-line rule, we suggest that this
relatively brief period exemplifies the type of timely
notification that companies should give their employees. By
publicly announcing its decision on July 2, 1987, PECo foreclosed
any suggestion that it attempted to conceal its plans or engaged
in a campaign of fraud to prevent the plaintiff class from suing
for the alleged breach. The claim, such as it was, lay bare for
the world to see. The federal discovery rule, and hence the six
year fraud or concealment limitation period, does not apply.
We therefore hold that § 413's statute of limitations
bars the fiduciary duty claims of those members of the plaintiff
class who asked about a change in pension benefits and retired
after May 28 but before July 2, 1987. Given our disposition of
the claims of class members who asked about benefits and retired
before May 28, we will enter judgment for PECo on the entire
class's breach of fiduciary duty claim.
Our treatment of the breach of fiduciary duty claim
leaves the plaintiff class with two theories of recovery,
discriminatory treatment under ERISA § 510, 29 U.S.C. § 1140, and
equitable estoppel. Neither theory has merit. We reject the
class's § 510 claim for the reasons announced in Fischer II, ___
F.3d at ___ [typescript at 26-27]. As to the equitable estoppel
claim, our reasoning in Fischer II is equally controlling for
those members who retired before May 28, 1987. PECo correctly
informed these class members that no pension increase was under
serious consideration. As a result, these class members cannot
establish the first element of an estoppel claim, material
misrepresentation. See Curcio v. John Hancock Mut. Life Ins.
Co., 33 F.3d 226, 235 (3d Cir. 1994) (listing elements of
equitable estoppel claim under ERISA); Fischer II, ___ F.3d at
___ [typescript at 25]. We also reject the equitable estoppel
claim of the post-May 28 class members. These plaintiffs have
failed to establish the third ERISA estoppel element,
extraordinary circumstances. See Curcio, 33 F.3d at 235.
We have never clearly defined "extraordinary
circumstances," relying instead on case law to establish its
parameters. Id. A review of our precedents indicates that
extraordinary circumstances do not exist in this case. To
support this element, we have previously required a showing of
affirmative acts of fraud or similarly inequitable conduct by an
employer. See Rosen v. Hotel & Restaurant Employees & Bartenders
Union, 637 F.2d 592, 598 (3d Cir. 1981) (holding that pension
fund could not deny benefits to participant on grounds that
participant's employer failed to pay required contributions where
fund administrator allowed employee to pay contributions
himself), cert. denied, 454 U.S. 898 (1981); see also Hozier v.
Midwest Fasteners, Inc., 908 F.2d 1155, 1165 n.10 (3d Cir. 1990)
(citing Rosen). Elsewhere, we have focused on the network of
misrepresentations that arises over an extended course of dealing
between parties. See Curcio, 33 F.3d at 238 (finding
extraordinary circumstances where insurer misrepresented type of
coverage available, informed patient that certain coverage would
be provided, then disclaimed coverage); Smith v. Hartford Ins.
Group, 6 F.3d 131, 142 (3d Cir. 1993) (suggesting extraordinary
circumstances might exist where plaintiff repeatedly and
diligently inquired about benefits and defendant repeatedly
misrepresented scope of coverage to plaintiff). We have also
cited the vulnerability of particular plaintiffs. See Curcio, 33
F.3d at 238 (hospital patient denied coverage for substantial
claim after hospital represented that coverage would exist);
Smith, 6 F.3d at 142 (same); but see Gridley v. Cleveland
Pneumatic Co., 924 F.2d 1310, 1319 (3d Cir.) (rejecting estoppel
where widow of terminal cancer victim sought increased life
insurance benefits), cert. denied, 501 U.S. 1232 (1991).
These cases demonstrate that a plaintiff must do more
than merely make out the "ordinary elements" of equitable
estoppel to establish a claim for equitable estoppel under ERISA.
Gillis v. Hoechst Celanese Corp., 4 F.3d 1137, 1142 (3d Cir.
1993), cert. denied, ___ U.S. ___, 114 S. Ct. 1540 (1994);
Gridley, 924 F.2d at 1319. Because of these heightened
requirements, we have consistently rejected estoppel claims based
on simple ERISA reporting errors or disclosure violations, such
as a variation between a plan summary and the plan itself, or an
omission in the disclosure documents. See Gillis, 4 F.3d at 1142
(denying recovery where plaintiffs claimed plan documents failed
to disclose that severance pay would not be provided to employees
who continued working for purchaser of corporate division);
Gridley, 924 F.2d at 1319 (denying recovery despite omission from
disclosure documents of requirement that employee be "actively at
work" to qualify for increased life insurance benefits; employee
was later denied increased benefits based on requirement).
Applying these principles to the current case, we find
nothing to suggest that extraordinary circumstances exist. At
best, plaintiffs have established the basic elements of an
estoppel claim. There is no conduct suggesting that PECo sought
to profit at the expense of its employees, no showing of repeated
misrepresentations over time, no suggestion that plaintiffs are
particularly vulnerable. In addition, we note that the district
court made no finding of extraordinary circumstances. SeeDistrict Ct. Op.
at 20, 24. The plaintiffs seem to have ignored
the issue, despite the fact that they bear the burden of proof on
each estoppel element. See Gillis, 4 F.3d at 1142. We therefore
hold that extraordinary circumstances do not exist on the facts
of this case, and we will enter judgment for the defendant on the
post-May 28 class members' equitable estoppel claim.
III.
The plaintiff class has failed to establish a valid
claim for breach of fiduciary duty. Those class members who
retired prior to May 28, 1987, did not receive material
misinformation about a benefits change because no pension
increase was then under serious consideration. The claims of the
remaining class members are barred by the applicable statute of
limitations. The class's equitable estoppel claim and ERISA §
510 claim also fail. We will therefore reverse the district
court's judgment and enter judgment for defendant PECo.