Connell v. Trustees Ironworker , 118 F.3d 154 ( 1997 )

Opinions of the United
1997 Decisions States Court of Appeals
for the Third Circuit
7-9-1997
Connell v. Trustees Ironworker
Precedential or Non-Precedential:
Docket 96-5047
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"Connell v. Trustees Ironworker" (1997). 1997 Decisions. Paper 151.
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Filed July 9, 1997
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 96-5047
PHILLIP J. CONNELL; CHARLES NELSON,
Appellants
v.
TRUSTEES OF THE PENSION FUND OF THE
IRONWORKERS DISTRICT COUNCIL OF NORTHERN NEW
JERSEY; THE NORTHERN DISTRICT COUNCIL OF
IRONWORKERS, and its Constituent Local Unions
On Appeal From the United States District Court
for the District of New Jersey
(D.C. Civ. No. 92-cv-01655)
Argued: January 21, 1997
Before: NYGAARD, LEWIS, Circuit Judges, and
SCHWARZER, Senior District Judge*
(Filed July 9, 1997)
_________________________________________________________________
*The Honorable William W Schwarzer, Senior District Judge for the
Northern District of California, sitting by designation.
JOHN A. CRANER, ESQUIRE
(ARGUED)
Craner, Nelson, Satin & Scheer,
P.A.
320 Park Avenue, P.O. Box 367
Scotch Plains, New Jersey 07076
Attorney for Appellants Phillip J.
Connell and Charles Nelson
JOSEPH R. PAGANO, ESQUIRE
(ARGUED)
Jardine & Pagano, P.A.
11 Cleveland Place
Springfield, New Jersey 07081
Attorney for Appellees Trustees of the
Pension Fund of the Ironworkers
District Council of Northern New
Jersey and the Northern District
Council of Ironworkers and its
Constituent Local Unions
OPINION OF THE COURT
SCHWARZER, Senior District Judge.
In this appeal we are again called on to interpret the
"actual knowledge" requirement in ERISA's statute of
limitations in an action for breach of fiduciary duty. See 29
U.S.C. § 1113(a)(2)(A); see also Kurz v. Philadelphia Elec.
Co., 96 F.3d 1544 (3d Cir. 1996); International Union of
Electronic Workers v. Murata Erie North America, Inc., 980
F.2d 889 (3d Cir. 1992); Gluck v. Unisys Corp., 960 F.2d
1168 (3d Cir. 1992).
Phillip Connell, who worked as an ironworker in covered
employment1 nearly continuously between 1962 and 1993,
and Charles Nelson, who has worked as an ironworker in
covered employment periodically since 1951, brought this
_________________________________________________________________
1. According to the Fund's pension plan booklet," `Covered Employment'
consists of the jobs for which contributions are made to the pension
fund [by the employer]."
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action against the Pension Fund of the Ironworkers District
Council of Northern New Jersey (the "Fund"). The Fund
manages the pension plan established under a collective
bargaining agreement between employers and the Northern
District Council of Ironworkers (whose locals are affiliated
with the International Association of Bridge, Structural &
Ornamental Ironworkers, AFL-CIO) (the "Union"). Connell
and Nelson claim that the Fund acted arbitrarily and
capriciously in violation of 29 U.S.C. §§ 186(c)(5) and 1104
when it enforced its break-in-service rule, which provides
for cancellation of accrued pension credits after a specified
absence from covered employment, thereby canceling their
previously earned credits.2 The Fund contends, among
other things, that because Connell and Nelson failed to file
their action within three years of receiving actual notice
that certain of their pension credits were canceled, the
action is barred by the ERISA statute of limitations.
Connell worked as an ironworker from 1962 to 1968 and
again from 1971 to 1993. He testified at trial that he first
knew that he had lost certain pension credits as a result of
his break in service when he received a credit statement
from the District Council in 1981. Connell then consulted
his pension plan book and found the break-in-service rule.
He went to see his business agent to complain and then
called the Fund representative, who "quoted the broken-
service [sic] rule, that if you're out three years and you
aren't vested . . . you lose the credit for those years you had
in." Appellee's Br. at 13 (quoting Connell's testimony at
trial).
_________________________________________________________________
2. Connell and Nelson also claimed that the Union's discriminatory
hiring practices, see Ironworkers, Local 373, 232 NLRB 504 (1977), enf'd
sub nom., NLRB v. International Ass'n of Bridge, Structural & Ornamental
Ironworkers, Local 373, 586 F.2d 835 (3d Cir. 1978); Moore v. Local 483,
International Ass'n of Bridge, Structural & Ornamental Ironworkers, 66
N.J. 527 (1975), diminished their capacity to earn a decent living as
ironworkers and that their breaks in service were therefore involuntary
and subject to an equitable exception to the break-in-service rule. See,
e.g., Knauss v. Gorman, 583 F.2d 82 (3d Cir. 1978) (holding that
enforcement of a break-in-service clause was arbitrary and capricious
where employment hiatus was caused by involuntary unemployment and
inability to find covered work). In view of our disposition of this appeal,
we do not reach this claim.
3
Nelson worked off and on as an ironworker between 1951
and 1973. He worked continuously outside the trade
between 1973 and 1984. In 1984, Nelson resumed ironwork
and remains in covered employment today. He testified that
he first found out he had lost his pre-1974 pension credits
about 1981 or 1982, when he received a document from the
District Council stating that his credits for prior years of
service had been canceled because he had two breaks in
service. He contacted a union representative after receiving
the notice of cancellation. As he said at trial,"That's when
I thought I better find out about this whole thing."
Appellee's Br. at 13 (quoting Nelson's testimony at trial).
After a bench trial, the district court ruled in favor of the
Fund, finding that the claims were not time-barred but that
application of the break-in-service rule to Connell and
Nelson was not arbitrary and capricious because they
voluntarily left covered employment when jobs were
available with notice that such departures would cause
their pension credits to be canceled. Connell and Nelson
appeal the district court's decision.3 We have jurisdiction of
the appeal under 28 U.S.C. § 1291 and AFFIRM, albeit on
different grounds.
DISCUSSION
The claims of Connell and Nelson against the Fund for
breach of fiduciary duty arise under 29 U.S.C. §§ 186(c)(5)
and 1104(a)(1)(A)(i).4 ERISA's statute of limitations, 29
_________________________________________________________________
3. The dissent suggests that we have disregarded the factual findings
underlying the district court's disposition of the Fund's statute of
limitations defense. We do not question the district court's findings, but
we nevertheless "exercise[ ] a plenary standard of review when applying
legal precepts to undisputed facts." Easley v. Snider, 36 F.3d 297, 300
(3d Cir. 1994). We therefore review de novo the district court's decision
whether to apply 29 U.S.C. § 1113(a)(2) on the facts before it.
4. Nelson also purports to state a claim under 29 U.S.C. § 1132(a)(1)(B)
(permitting an action to be brought by a beneficiary "to clarify his rights
to future benefits under the terms of the plan"). No such claim exists
independent of his claim for breach of fiduciary duty--i.e., Nelson's only
claim for "future benefits" arises out of his contention that the Fund, by
canceling credits under its break-in-service rule, breached its fiduciary
4
U.S.C. § 1113(a)(2)(A), applies to claims arising under both
of these statutory provisions.5 See Struble v. N.J. Brewery
Emp. Welfare Trust Fund, 732 F.2d 325, 331-32 (3d Cir.
1984). That section provides in relevant part:
No action may be commenced . . . with respect to a
fiduciary's breach of any . . . obligation . . . 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 . . .
(2) three years after the earliest date on which the
plaintiff had actual knowledge of the breach or violation
....
29 U.S.C. § 1113(a). We have held that "Section 1113 sets
a high standard for barring claims against fiduciaries prior
to the expiration of the section's six-year limitations
_________________________________________________________________
duty in violation of §§ 186(c)(5) and 1104. Under the facts of this case,
§ 1132(a)(1)(B) does not create a right to relief distinct from that arising
under §§ 186(c)(5) and 1104. And even if Nelson were able to state a
claim under § 1132(a)(1)(B), the claim would be time-barred. New
Jersey's statute of limitations for contract actions, which would apply,
see Kennedy v. Electricians Pension Plan, 954 F.2d 1116, 1120 (5th Cir.
1992) (quoting Johnson v. State Mut. Life Ass. Co., 942 F.2d 1260, 1262
(8th Cir. 1991); see also National Iranian Oil Co. v. Mapco Int'l, Inc., 983
F.2d 485, 492 (citing Johnson with approval as an example where state
statute of limitations was applied to federal statute that lacked a time
bar), is six years. N.J. Stat. Ann. § 2A:14-1. As Nelson had notice of his
forfeited credits in 1981 or 1982, the statute began to run on that date,
and whatever cause of action he might have had under § 1132(a)(1)(B)
was barred after 1987 or 1988.
5. Connell and Nelson claim that we may not consider the Fund's statute
of limitations argument because the Fund failed to cross-appeal from the
district court's adverse ruling on that issue. Their contention is without
merit. Because the Fund "seek[s] to sustain th[e] judgment [below] . . .
there was no need for a cross appeal." Reserve Ins. Co. v. Brokerage
Surplus Corp., 570 F.2d 487, 491 (3d Cir. 1978) (citing 9 Moore's
Practice ¶ 204.11(3) (2d ed.)); see United States v. American Ry. Exp. Co.,
265 U.S. 425, 435 (1924) (stating that "it is likewise settled that the
appellee may, without taking a cross-appeal, urge in support of a decree
any matter appearing in the record, although his argument may involve
an attack upon the reasoning of the lower court").
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period." Gluck v. Unisys Corp., 960 F.2d 1168, 1176 (3d
Cir. 1992).6 " `[A]ctual knowledge of a breach or violation'
requires that a plaintiff have actual knowledge of all
material facts necessary to understand that some claim
exists, which facts could include . . . knowledge of a
transaction's harmful consequences . . . ." Id. at 1177(citations omitted).
A breach may occur without a plaintiff's having suffered
actual harm. Ziegler v. Connecticut General Life Ins. Co.,
916 F.2d 548, 551 (9th Cir. 1990). Plaintiffs' complaint that
the Fund's cancellation of their pension credits under the
break-in-service rule is arbitrary and capricious sufficiently
alleges a claim for breach of fiduciary duties. See Knauss v.
Gorman, 583 F.2d 82 (3d Cir. 1978). If a breach was
committed, it therefore must have occurred upon
cancellation of the credits; by the terms of the plan,
accrued credits were canceled immediately after a break-in-
service exceeded the period specified by the plan (i.e., in
1971 for Connell and in 1964 and 1978 for Nelson).
In Gluck we held that mere knowledge of amendments of
the employer's benefit plan, the effect of which was to cause
accrued benefits not to fully vest upon partial termination,
could not be deemed actual knowledge of a violation of the
technical provisions of ERISA. We noted that:
the company literature distributed to employees . . .
described [the amendments] as improving participants'
benefit packages. . . . For a participant to have
discerned a cause of action for partial termination at
that time . . . may have required a review of the plan
document and of the plan's balance sheet . . . a level
of research and scrutiny inconsistent with section
1113's actual knowledge standard.
Gluck, 960 F.2d at 1179. We remanded for a determination
of "when each employee had actual knowledge of all
_________________________________________________________________
6. The Fund does not contend that the action is barred by the six-year
statute. It is clear that if the forfeiture of pension credits under the
break-in-service rule resulted in a breach of fiduciary duties, the last
action constituting a part of that breach did not occur until payment of
reduced pension benefits to the beneficiaries.
6
material facts relevant to a partial termination claim,"
having emphasized, however, "that our holding does not
mean that the statute of limitations can never begin to run
until a plaintiff first consults with a lawyer." Id. at 1177.
Following Gluck, we held in International Union of
Electronic Workers v. Murata Erie North America, Inc., 980
F.2d 889, 900 (3d Cir. 1992), that beneficiaries who had
notice of a plan amendment but were not informed that the
amendment provided for reversion of excess funds to the
employer lacked actual knowledge of a breach. As we then
said, Murata "failed to make the showing of actual
knowledge necessary to meet the `stringent requirement'
imposed by . . . 29 U.S.C. 1113[(a)](2)." Id. at 901 (citing
Gluck, 960 F.2d at 1176).
Recently, we held that where a company decides to make
a material change to its pension plan but misrepresents its
intent to make such a modification, the statute of
limitations will begin to run once an employee knows of the
change in benefits and of his own ineligibility. See Kurz v.
Philadelphia Elec. Co., 96 F.3d 1544, 1551 (3d Cir. 1996).
In Kurz, we found that plaintiffs' knowledge of the change
in plan was sufficient to begin the running of § 1113(a)(2)
because:
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.
Id. Similarly, the plaintiffs in this case were aware of the
Fund's break-in-service rule and were aware that it had
already been applied to them.
It is undisputed that Connell and Nelson knew as early
as 1981 or 1982 that the Fund had canceled their pension
credits by applying the break-in-service rule and that the
Fund's actions would diminish their future benefits. Like
the plaintiffs in Kurz, their actual knowledge of both the
alleged breach and the consequential injury they would
thereby suffer gave them "knowledge that a fiduciary duty
[may have] been breached or ERISA provision violated."
Gluck, 960 F.2d at 1178. Indeed, both Connell and Nelson
felt sufficiently aggrieved by the Fund's actions to question
7
their union representatives. Thus by 1981 or 1982, Connell
and Nelson had "actual knowledge of all of the [material]
elements of the violation," Gluck, 960 F.2d at 1176,
including knowledge of the harmful consequencesflowing
from the cancellation of the credits. See International Union,
980 F.2d at 901; Gluck, 960 F.2d at 1177, 1179. There was
nothing left for them to discover and nothing more for them
to do but to file suit or to seek legal counsel. As we stated
in Kurz, "the `harmful consequences' .. . were obvious."
Kurz, 96 F.3d at 1551 (citation omitted).7 Their action,
having been filed more than three years after 1982, is
therefore time-barred.
The judgment is AFFIRMED.
_________________________________________________________________
7. The dissent's hypothetical concerning a pair of ironworkers
discriminated against on the basis of their nonunion status has no
bearing here. Unlike the dissent's hypothetical plaintiffs, who were
unaware that they had lost pension credits because they were not union
members, Connell and Nelson clearly knew in 1981 or 1982 of the
break-in-service rule, of the union's discriminatory practices, of their
own employment histories, and of the effect of the rule's application to
them. The hypothetical, sound as it may be on its own terms, is
therefore not relevant to the facts of this case.
8
LEWIS, Circuit Judge, concurring and dissenting.
I agree with the majority's conclusion that the district
court's judgment should be affirmed. I write separately,
however, because I disagree that ERISA's statute of
limitations bars the Appellants' claim.
My disagreement lies with the majority's interpretation
and application of Gluck v. Unisys Corporation , 960 F.2d
1168 (3d Cir. 1992). In Gluck, we held that "actual
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." Gluck, 960 F.2d at 1178. This
requires "the district court [to] determine, as a factual
matter, the date on which each employee had actual
knowledge of the breach or violation." Id. at 1176.
Knowledge of the breach is distinguished from knowledge of
the actions constituting the breach or violation. See id.;
International Union of Electronic Workers v. Murata Erie
North America, Inc., 980 F.2d 889, 900 (3d Cir. 1992)
(requiring 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").
Noting Gluck's "stringent" actual knowledge requirement,
the district court found that although the pension fund
"demonstrated that plaintiffs became aware of their loss of
pension credits during 1981," the fund had "failed to
demonstrate that [Connell and Nelson] actually knew of
their potential ERISA cause of action." Connell v. Pension
Fund, Civ. No. 92-1655, slip op. at 16 (D.N.J. Jan. 2, 1996).
To support this conclusion, the district court drew certain
factual inferences from the testimony presented at the non-
jury trial. Specifically, the court found that Connell's failure
to take any action after learning of his loss of pension
credits other than contacting the plan administrator and
Nelson's failure to express any concerns to the plan
administrator about the break-in-service rule "clearly
indicate[d] that [they] were not aware of their potential
cause of action." Id. at 6, 11 & 16.
The majority seems to overlook the district court's factual
inferences, concluding:
9
[I]t is undisputed in this case that Connell and Nelson
knew as early as 1981 or 1982 that the Fund had
canceled their pension credits by applying the break-
in-service rule and that the Fund's actions would
diminish their future benefits. Their actual knowledge
of both the alleged breach and the consequential injury
they would thereby suffer gave them "knowledge that a
fiduciary duty [may have] been breached or ERISA
provision violated."
Maj. Op. at 7 (quoting Gluck, 960 F.2d at 1178) (alteration
of Gluck in original). The majority's conclusion does not
follow from its premise. Although it was established that
Connell and Nelson knew in 1981 or 1982 of the pension
fund's action which constituted the alleged breach -- that
is, its enforcement of the break-in-service rule -- it does not
follow that they had actual knowledge of the breach itself.
The majority further notes, again without reference to the
district court's findings, that Connell and Nelson must have
had " `actual knowledge of all of the [material] elements of
the violation' " because they "felt sufficiently aggrieved by
the Fund's actions to question their union representatives."
Maj. Op. at 8 (quoting Gluck, 960 F.2d at 1178).
As noted earlier, however, the district court reached the
exact opposite conclusion from the same facts and
testimony cited by the majority. Indeed, the district court
found that Connell's and Nelson's actions after receiving
notice of their lost pension credits "clearly indicate[d] that
plaintiffs were not aware of their potential ERISA cause of
action." Connell, Civ. No. 92-1655, slip op. at 16. I would
not disregard, as the majority does, the district court's
factual determination that Connell's and Nelson's actions,
or lack thereof, indicated that they had no knowledge of a
breach.
Moreover, contrary to the majority's indication, it is not
enough that the plaintiffs have knowledge that afiduciary
duty "may have" been breached or ERISA provision
violated. Rather, the plaintiff must have actual knowledge
that a fiduciary duty "has" been breached or ERISA
provision violated. See Gluck, 960 F.2d at 1178.
While this distinction may seem merely semantic, it is
important, as perhaps the following hypothetical will
10
explain. Assume that Smith and Jones were non-union iron
workers who occasionally worked in the iron trade and
participated in a multi-employer pension fund that
supported both union and non-union workers. In 1981,
Smith and Jones received notice that some of their pension
credits would be lost because they had incurred breaks in
service. Assume further that they questioned a
representative of the Fund but were told that the Fund was
merely enforcing its break-in-service rule, of which they
were on notice. Jones and Smith were upset about their
lost credits and may have even assumed that the Fund was
treating them unfairly. But, without any other information,
Jones and Smith thought that they were just out of luck.
Now assume that in 1990, Jones and Smith discovered that
the Fund was in practice only applying the break-in-service
rule to non-union workers.
Under Gluck, the statute of limitations would start to run
in 1990, when Smith and Jones learned that the Fund was
discriminating in its enforcement of the break-in-service
rule. In other words, the statute would start to run when
they possessed knowledge that the enforcement of the
break-in-service rule violated ERISA. Under the majority's
analysis, which, in my view, relaxes Gluck's "stringent"
requirement, Jones and Smith would be barred from
bringing their claim because the three-year statute would
have started running in 1981 when they first learned that
they had lost credits due to their break in service.
The hypothetical discussed above is not that different
from the case at hand. Here, Connell and Nelson admit that
they knew in 1981 or 1982 that they had lost credits. But
they allege that they incurred the breaks in service because
the union had discriminated against them in allocating iron
work. Thus, if Connell and Nelson could show that they
had left the ironworking trade involuntarily, enforcement of
the break-in-service rule against them might have
constituted a breach of ERISA.1 Had the union's
_________________________________________________________________
1. We recognized in Knauss v. Gorman, 583 F.2d 82 (3d Cir. 1978), that
if a plan beneficiary incurs a break in service involuntarily, the pension
fund must come forward with a justification for why the rule is
enforceable. See also Van Fossan v. International Brotherhood of
Teamsters, 649 F.2d 1243, 1248 (7th Cir. 1981) ("We believe the
distinction between voluntary and involuntary breaks in service is
crucial to determining the arbitrariness of the operation of a given break
in service rule.").
11
discrimination forced Connell and Nelson out of the trade
involuntarily, and had they not had actual knowledge of the
discrimination (say, for example, they thought that they
just were unlucky in obtaining work), they would not have
possessed the requisite "actual knowledge" of a breach of
fiduciary duty or ERISA violation merely when they had
been notified of their lost credits. Indeed, they would be
lacking "actual knowledge of all material facts constituting
[the] breach of fiduciary duty or violation of ERISA [which]
is the sine qua non for application of [ERISA's] three-year
limitation." Gluck, 960 F.2d at 1177.
Put simply, then, the actual knowledge requirement is
necessarily intertwined with the cause of action or the
theory of the breach. See Martin v. Consultants &
Administrators, Inc., 966 F.2d 1078 (7th Cir. 1992) (courts
must take into account "the complexity of the underlying
factual transaction, the complexity of the legal claim and
the egregiousness of the alleged violation").
At bottom, a determination of what the plaintiffs knew
and when is a very fact-intensive inquiry. See Gluck, 960
F.2d at 1176 (requiring the district court to determine "as
a factual matter" when the statute began to run). I cannot
agree with the majority's disregard of the inferences that
the district court drew from the facts here.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
12