Cetel v. Kirwan Financial Group, Inc. , 460 F.3d 494 ( 2006 )


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  •                                                                                                                            Opinions of the United
    2006 Decisions                                                                                                             States Court of Appeals
    for the Third Circuit
    8-28-2006
    Cetel v. Kirwan Fin Grp Inc
    Precedential or Non-Precedential: Precedential
    Docket No. 04-3408
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    "Cetel v. Kirwan Fin Grp Inc" (2006). 2006 Decisions. Paper 496.
    http://digitalcommons.law.villanova.edu/thirdcircuit_2006/496
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    PRECEDENTIAL
    UNITED STATES COURT OF APPEALS
    FOR THE THIRD CIRCUIT
    ___________
    Nos. 04-3408, 05-1329, 05-1503, 05-1504
    ___________
    Case No. 04-3408
    KAREN CETEL; MORTON SCHNEIDER;
    MARVIN CETEL; MARVIN CETEL, M.D., P.A.;
    BARBARA SCHNEIDER;
    BARBARA SCHNEIDER, M.D., F.A.C.S., P.A.
    v.
    KIRWAN FINANCIAL GROUP, INC.; BARRY COHEN;
    MICHAEL KIRWAN; NEIL PRUPIS; LAMPF, LIPKIND,
    PRUPIS, PETIGROW & LaBUE;
    RAYMOND G. ANKNER;
    CJA ASSOCIATES; BEAVEN COMPANIES, INC.;
    MEDICAL SOCIETY OF NEW JERSEY;
    INTER-AMERICAN INSURANCE CO. OF ILLINOIS;
    COMMONWEALTH LIFE INSURANCE CO.;
    PEOPLES SECURITY LIFE INSURANCE CO.;
    MONUMENTAL LIFE INSURANCE CO.;
    CAPITAL HOLDING COMPANY;
    AEGON INSURANCE GROUP;
    INDIANAPOLIS LIFE INSURANCE CO.
    (District of New Jersey Civil No. 00-cv-5799)
    VIJAY SANKHLA, M.D., on behalf of himself and
    others similarly situated
    v.
    COMMONWEALTH LIFE INSURANCE COMPANY;
    PEOPLES SECURITY LIFE INSURANCE COMPANY;
    PROVIDIAN LIFE INSURANCE COMPANY; AEGON
    USA INC.; MONUMENTAL LIFE INSURANCE
    COMPANY; INDIANAPOLIS LIFE INSURANCE CO.;
    RAYMOND G. ANKNER; BEAVEN COMPANIES, INC.;
    CJA AND ASSOCIATES; KIRWAN FINANCIAL GROUP,
    INC.; KIRWAN FINANCIAL ADVISORY, INC.; BARRY
    COHEN; MICHAEL KIRWAN; PACIFIC EXECUTIVE
    SERVICES; STEPHEN R. ROSS; DONALD S. MURPHY;
    SEA NINE ASSOCIATE ; DSM, INC.; NEW JERSEY
    MEDICAL PROFESSION ASSOCIATION;
    SOUTHERN CALIFORNIA MEDICAL PROFESSION
    ASSOCIATION; THE MEDICAL SOCIETY OF NEW
    JERSEY; NEIL PRUPIS
    District of New Jersey Civil No. 01-cv-04781)
    Vijay Sankhla, M.D., *Yale Shulman, M.D.,
    *Yale Shulman, M.D., P.A., *Boris Pearlman, M.D.
    *Denville Radiology, P.A., Marvin Cetel, M.D.,
    Karen Cetel, Marvin Cetel, M.D., P.A.,
    Barbara Schneider, M.D., Morton Schneider,
    Barbara Schneider, M.D. P.A.,
    Appellants
    *(Pursuant to Rule 12(a), F.R.A.P.)
    2
    __________
    Case No: 05-1329
    KAREN CETEL; MORTON SCHNEIDER;
    MARVIN CETEL; MARVIN CETEL, M.D., P.A.;
    BARBARA SCHNEIDER;
    BARBARA SCHNEIDER, M.D., F.A.C.S., P.A.
    v.
    KIRWAN FINANCIAL GROUP, INC.; BARRY COHEN;
    MICHAEL KIRWAN; NEIL PRUPIS; LAMPF, LIPKIND,
    PRUPIS, PETIGROW & LaBUE; RAYMOND G. ANKNER;
    CJA ASSOCIATES; BEAVEN COMPANIES, INC.;
    MEDICAL SOCIETY OF NEW JERSEY;
    INTER-AMERICAN INSURANCE CO. OF ILLINOIS;
    COMMONWEALTH LIFE INSURANCE CO.;
    PEOPLES SECURITY LIFE INSURANCE CO.;
    MONUMENTAL LIFE INSURANCE CO.;
    CAPITAL HOLDING COMPANY; AEGON INSURANCE
    GROUP; INDIANAPOLIS LIFE INSURANCE CO.
    (District of New Jersey Civil No. 00-cv-5799)
    VIJAY SANKHLA, M.D., on behalf of himself and
    others similarly situated
    v.
    COMMONWEALTH LIFE INSURANCE COMPANY;
    3
    PEOPLES SECURITY LIFE INSURANCE COMPANY;
    PROVIDIAN LIFE INSURANCE COMPANY; AEGON
    USA INC.; MONUMENTAL LIFE INSURANCE
    COMPANY; INDIANAPOLIS LIFE INSURANCE CO.;
    RAYMOND G. ANKNER; BEAVEN COMPANIES, INC.;
    CJA AND ASSOCIATES; KIRWAN FINANCIAL GROUP,
    INC.; KIRWAN FINANCIAL ADVISORY, INC.; BARRY
    COHEN; MICHAEL KIRWAN; PACIFIC EXECUTIVE
    SERVICES; STEPHEN R. ROSS; DONALD S. MURPHY;
    SEA NINE ASSOCIATE ; DSM, INC.;
    NEW JERSEY MEDICAL PROFESSION ASSOCIATION;
    SOUTHERN CALIFORNIA MEDICAL PROFESSION
    ASSOCIATION; THE MEDICAL SOCIETY OF NEW
    JERSEY; NEIL PRUPIS
    (District of New Jersey Civil No. 01-cv-04781)
    Marvin Cetel, M.D., Karen Cetel,
    Marvin Cetel, M.D., P.A., Barbara Schneider, M.D.,
    Morton Schneider, Barbara Schneider, M.D. P.A.,
    Appellants
    __________
    Case No: 05-1503
    KAREN CETEL; MORTON SCHNEIDER; MARVIN
    CETEL; MARVIN CETEL, M.D., P.A.;
    BARBARA SCHNEIDER;
    BARBARA SCHNEIDER, M.D., F.A.C.S., P.A.
    4
    v.
    KIRWAN FINANCIAL GROUP, INC.; BARRY COHEN;
    MICHAEL KIRWAN; NEIL PRUPIS; LAMPF, LIPKIND,
    PRUPIS, PETIGROW & LaBUE; RAYMOND G. ANKNER;
    CJA ASSOCIATES; BEAVEN COMPANIES, INC.;
    MEDICAL SOCIETY OF NEW JERSEY;
    INTER-AMERICAN INSURANCE CO. OF ILLINOIS;
    COMMONWEALTH LIFE INSURANCE CO.;
    PEOPLES SECURITY LIFE INSURANCE CO.;
    MONUMENTAL LIFE INSURANCE CO.;
    CAPITAL HOLDING COMPANY; AEGON INSURANCE
    GROUP; INDIANAPOLIS LIFE INSURANCE CO.
    (District of New Jersey Civil No. 00-cv-5799)
    VIJAY SANKHLA, M.D., on behalf of himself and
    others similarly situated
    v.
    COMMONWEALTH LIFE INSURANCE COMPANY;
    PEOPLES SECURITY LIFE INSURANCE COMPANY;
    PROVIDIAN LIFE INSURANCE COMPANY; AEGON
    USA INC.; MONUMENTAL LIFE INSURANCE
    COMPANY; INDIANAPOLIS LIFE INSURANCE CO.;
    RAYMOND G. ANKNER; BEAVEN COMPANIES, INC.;
    CJA AND ASSOCIATES; KIRWAN FINANCIAL GROUP,
    INC.; KIRWAN FINANCIAL ADVISORY, INC.; BARRY
    COHEN; MICHAEL KIRWAN; PACIFIC EXECUTIVE
    SERVICES; STEPHEN R. ROSS;
    5
    DONALD S. MURPHY; SEA NINE ASSOCIATE ; DSM,
    INC.; NEW JERSEY MEDICAL PROFESSION
    ASSOCIATION; SOUTHERN CALIFORNIA MEDICAL
    PROFESSION ASSOCIATION; THE MEDICAL SOCIETY
    OF NEW JERSEY; NEIL PRUPIS
    (District of New Jersey Civil No. 01-cv-04781)
    Donald S. Murphy, Pacific Executive Services, DSM, Inc.,
    Appellants
    __________
    Case No: 05-1504
    KAREN CETEL; MORTON SCHNEIDER; MARVIN
    CETEL; MARVIN CETEL, M.D., P.A.;
    BARBARA SCHNEIDER;
    BARBARA SCHNEIDER, M.D., F.A.C.S., P.A.
    v.
    KIRWAN FINANCIAL GROUP, INC.; BARRY COHEN;
    MICHAEL KIRWAN; NEIL PRUPIS; LAMPF, LIPKIND,
    PRUPIS, PETIGROW & LaBUE; RAYMOND G. ANKNER;
    CJA ASSOCIATES; BEAVEN COMPANIES, INC.;
    MEDICAL SOCIETY OF NEW JERSEY;
    INTER-AMERICAN INSURANCE CO. OF ILLINOIS;
    COMMONWEALTH LIFE INSURANCE CO.;
    PEOPLES SECURITY LIFE INSURANCE CO.;
    6
    MONUMENTAL LIFE INSURANCE CO.;
    CAPITAL HOLDING COMPANY; AEGON INSURANCE
    GROUP; INDIANAPOLIS LIFE INSURANCE CO.
    (District of New Jersey Civil No. 00-cv-5799)
    VIJAY SANKHLA, M.D., on behalf of himself and
    others similarly situated
    v.
    COMMONWEALTH LIFE INSURANCE COMPANY;
    PEOPLES SECURITY LIFE INSURANCE COMPANY;
    PROVIDIAN LIFE INSURANCE COMPANY; AEGON
    USA INC.; MONUMENTAL LIFE INSURANCE
    COMPANY; INDIANAPOLIS LIFE INSURANCE CO.;
    RAYMOND G. ANKNER; BEAVEN COMPANIES, INC.;
    CJA AND ASSOCIATES; KIRWAN FINANCIAL GROUP,
    INC.; KIRWAN FINANCIAL ADVISORY, INC.; BARRY
    COHEN; MICHAEL KIRWAN; PACIFIC EXECUTIVE
    SERVICES; STEPHEN R. ROSS; DONALD S. MURPHY;
    SEA NINE ASSOCIATE ; DSM, INC.; NEW JERSEY
    MEDICAL PROFESSION ASSOCIATION;
    SOUTHERN CALIFORNIA MEDICAL PROFESSION
    ASSOCIATION;
    THE MEDICAL SOCIETY OF NEW JERSEY;
    NEIL PRUPIS
    (District of New Jersey Civil No. 01-cv-04781)
    7
    Monumental Life Insurance Company,
    Commonwealth Life Insurance Company,
    Capital Holding Corporation, and AEGON USA, Inc.,
    Appellants
    ___________
    On Appeal from the United States District Court
    for the District of New Jersey
    (D.C. Nos. 00-cv-5799, 01-cv-4781)
    District Judge: The Honorable Anne E. Thompson
    ___________
    ARGUED APRIL 24, 2006
    BEFORE: SCIRICA, Chief Judge,
    and NYGAARD, Circuit Judge,
    and YOHN,* District Judge.
    (Filed August 28, 2006)
    ___________
    *Honorable William H. Yohn, Jr., Senior District Judge
    for the United States District Court for the Eastern District of
    Pennsylvania, sitting by designation.
    8
    Mark J. Oberstaedt, Esq. (Argued)
    Stephen J. Fram, Esq.
    Archer & Greiner
    One Centennial Square
    P. O. Box 3000
    Haddonfield, NJ 08033
    Counsel for Appellants/Cross Appellees
    Kevin L. Smith, Esq. (Argued)
    Hines Smith
    3080 Bristol Street, Suite 540
    Costa Mesa, CA 92626
    Charles L. Becker, Esq.
    Reed Smith
    1650 Market Street
    2500 One Liberty Place
    Philadelphia, PA 19103-7301
    Counsel for Appellee/Cross Appellant
    Comm Life Ins. Co., et al.
    Christopher P. Leise, Esq. (Argued)
    White & Williams
    457 Haddonfield Road
    Suite 400 Liberty View
    Cherry Hill, NJ 08034
    9
    Elizabeth A. Venditta, Esq.
    Edward M. Koch, Esq.
    White & Williams
    One Liberty Place, Suite 1800
    Philadelphia, PA 19103
    Counsel for Appellee/Cross Appellant Pacific
    Executive Serv., et al.
    Walter F. Kawalec, III, Esq. (Argued)
    Larry I. Zucker, Esq.
    Marshall Dennehey Warner Coleman & Goggin
    200 Lake Drive East
    Woodland Falls Corporate Park, Suite 300
    Cherry Hill, NJ 08002
    Counsel for Appellee/Cross Appellant
    Medical Society of NJ
    Richard L. Hertzberg, Esq. (Argued)
    Greenbaum Rowe Smith & Davis
    P. O. Box 5600
    Metro Corporate Campue One
    Woodbridge, NJ 07095
    Alain Leibman, Esq.
    Stern & Kilcullen
    75 Livingston Avenue
    Roseland, NJ 07068
    Counsel for Appellee/Cross Appellant
    Raymond G. Ankner, et al.
    10
    William P. Marshall, Esq.
    3101 Trewigton Road
    P. O. Box 267
    Colmar, PA 18915
    Counsel for Appellee Barry Cohen
    Michael Kirwan
    1249 Knox Drive
    Yardley, PA 19067
    Pro Se
    ___________
    OPINION OF THE COURT
    ___________
    NYGAARD, Circuit Judge.
    Appellants/Plaintiffs are physicians and their professional
    corporations who purchased life insurance through Voluntary
    Employee Beneficiary Associations (“VEBAs”) created,
    marketed, operated, and endorsed by Appellees/Defendants, a
    number of individuals, corporations, and associations connected
    11
    to the VEBAs.1 They claim that defendants misrepresented the
    potential tax benefits of the VEBAs to induce them to purchase
    the life insurance policies. After the Internal Revenue Service
    decided that the VEBAs did not possess the tax benefits,
    plaintiffs brought civil RICO, ERISA, and state law causes of
    action against defendants.       The District Court granted
    defendants’ motions for summary judgment. We will affirm.
    I. FACTS
    This case involves a protracted disagreement over the
    validity and legitimacy of VEBA plans that were developed and
    marketed in the early 1990s, the history of which can be read in
    Neonatology Assocs., v. Comm’r, 
    115 T.C. 43
    (2000), aff’d 
    299 F.3d 221
    (3d Cir. 2002). Sometime in the mid-1980s, Donald
    Murphy and Stephen Ross formed a partnership called Pacific
    1.
    We refer herein to the parties simply as “plaintiffs” and
    “defendants.”
    12
    Executive Services (“Murphy Defendants”) and sought to sell
    life insurance policies through VEBAs specially designed to
    take advantage of the Tax Reform Act of 1986, Pub.L. 99-514,
    100 Stat. 2085. The Murphy Defendants believed that the Tax
    Reform Act allowed them to market and sell life insurance
    policies through the tax-exempt VEBAs, creating a scheme by
    which they could sell more insurance policies by coupling them
    with the tax benefits of the VEBAs. Specifically, the Murphy
    Defendants conceived the scheme so as to require an employer
    to purchase, at an inflated cost, group life insurance for its
    employees. The annual contributions made by the employers
    (purportedly for their employees) were to be tax-deductible and
    the employees could later convert the group life insurance to
    individual policies such that any premium overpayments would
    convert to tax conversion credits.       Under the Murphy
    Defendants’ plan, purchasers could realize two distinct tax
    13
    benefits: (1) the professional corporations would be able to
    deduct the life insurance premium payments; and (2) after
    converting the group policies to individual policies, the
    individual employees would obtain the insurance overpayments
    as conversion credits.
    To facilitate this plan, the Murphy Defendants engaged
    Michael Kirwan and Kirwan Financial Group as well as Barry
    Cohen (“Kirwan Defendants”), to act as “financial advisors,”
    and to assist in the sales and marketing of the VEBAs to small
    professional businesses. As noted earlier, the money-making
    hook for the VEBAs was selling more life insurance policies.
    As such, the Murphy and Kirwan Defendants initially sold
    Continuous Group (“C-Group”) life insurance policies2 created
    2.
    C-Group life insurance policies “masquerade as a policy that
    provides only term life insurance benefits in order to make the
    product marketable to targeted investors.” See Neonatology,
    
    115 T.C. 53
    . However, the policy is actually a universal life
    (continued...)
    14
    by Raymond Ankner and supplied by his non-party company
    Inter-American Insurance Company. However, Inter-American
    lost financial stability and, in 1991, Ankner convinced a number
    of insurance sales companies (“Monumental Defendants”)3 to
    supply the C-Group policies. Consequently, the Monumental
    Defendants entered into a series of sales and marketing
    agreements with the Murphy and Kirwan Defendants.
    Additionally, in connection with the Murphy and Kirwan
    Defendants’ attempts at marketing and promotion, the VEBAs
    were also endorsed by the Medical Society of New Jersey, a
    2.
    (...continued)
    policy comprised of two distinct but related policies. The first
    — the accumulation phase — is a group term policy known as
    the C-group term policy. The second — the payout phase — is
    an individual universal policy known as the “C-group
    conversion universalife” policy. 
    Id. 3. The
    Monumental Defendants include Commonwealth Life
    Insurance Company, Monumental Life Insurance, People
    Security Life, Capital Holding Company, Providence Life
    Insurance, and AEGON USA, Inc.
    15
    professional organization composed of physicians, in exchange
    for royalties generated by the sale of the VEBA plans to its
    members.
    With this framework in place, defendants began
    marketing these plans to small businesses.        Because they
    promised significant tax avoidance, the plans were appealing,
    and several businesses and employers purchased the VEBA
    plans from defendants. One such company was Lakewood
    Radiology, P.C., and its partners, plaintiffs Vijay Sankhla, Yale
    Shulman, and Boris Pearlman (collectively, the “Sankhla
    physicians”). After Cohen and Kirwan recommended that
    Lakewood participate in the VEBA scheme, the professional
    corporation agreed. Another corporation to be convinced by
    Cohen and Kirwan was that of Cetel and Schenider (“Cetel
    physicians”), who agreed to participate both individually and
    through their professional corporation.         Both of these
    16
    corporations, and the doctors, individually, began making
    contributions to the VEBA plan in or around 1990. Moreover,
    all of the plaintiffs had dealings, in some capacity with Kirwan
    and Cohen, who became plaintiffs’ financial advisors, in all
    relevant respects, for questions concerning the VEBA plans.
    Additionally, plaintiffs also came to know Neil Prupis, who was
    hired as an attorney by the Murphy Defendants.
    However, the VEBA plans came to the attention of the
    IRS which, on June 5, 1995, issued Notice 95-34. Notice 95-34
    stated that the IRS did not consider the VEBAs’ tax-avoidance
    mechanism to comply with the tax code. It asserted that such
    deductions would be disallowed and that, if litigation were to
    ensue, it would assert this position in court. Moreover, in 1994
    and 1995 the IRS issued deficiency notices to a number of the
    participants and also began audits of some businesses and
    individuals who had participated in the VEBA plans. After the
    17
    IRS issued Notice 95-34, and after the IRS issued its audit
    notices, Prupis was hired by the Murphy Defendants. He
    drafted a letter to Cohen on July 12, 1995, which Cohen
    circulated to the VEBA participants. This letter accompanied a
    memorandum from Cohen and Kirwan to the VEBA
    participants. Both communications sought to allay any concerns
    the participants might have developed in light of the IRS
    actions. To wit, the letters strongly conveyed the belief that the
    IRS had taken an incorrect position, that the VEBA plans were
    completely legitimate, and that no court had ever upheld the
    IRS’ position concerning the validity of the VEBA plans.
    Nonetheless, the IRS began sending deficiency notices to the
    participants. Then, at the advice of Cohen and Kirwan, some of
    the participants retained Prupis as their attorney to help them
    deal with the IRS. Cohen and Prupis stood by their earlier
    assurances and a letter dated August 7, 1996, to the participants,
    18
    encouraging them to continue participating in the plan. It also
    outlined a proposal for attacking the IRS’ position in Tax Court.
    As it turned out, in 2000 the Tax Court did indeed
    determine that the VEBA plans marketed and sold by defendants
    impermissibly circumvented the intent and provisions of the
    Internal Revenue Code. See Neonatology, 
    115 T.C. 43
    .
    Specifically, the court found that the VEBAs were merely
    “vehicles which were designed and serve in operation to
    distribute surplus cash surreptitiously (in the form of excess
    contributions) from the corporations for the employee/owner’s
    ultimate use and benefit.” 
    Id. at 89.
    The Court also held that the
    individuals who had contributed to the plans were liable for any
    accuracy-related negligence penalties under I.R.C. § 6662(a).
    This decision all but invalidated plaintiffs’ VEBA plans, and
    plaintiffs’ professional medical corporations were denied
    deductions they had taken for the contributions to the plan; as
    19
    well, the individual participants were levied a significant tax on
    their dividend income.
    The District Court found that the New Jersey Consumer
    Fraud Act did not cover plaintiff’s allegations and also
    dismissed certain ERISA claims for lack of standing. The
    District Court granted summary judgment for all claims on
    statute of limitations grounds. Because the District Court’s
    order and our review hinge on a thorough grasp of the predicate
    facts concerning plaintiffs’ knowledge at all relevant times, we
    will review these facts as they relate to each individual plaintiff.
    Dr. Sankhla
    Vijay Sankhla practices radiology with Lakewood
    Radiology, P.A. Upon becoming a partner with the Lakewood
    group in 1995, Sankhla began participating in and made
    contributions to the VEBA plan.           He continued making
    payments to the plan for five years, until 2000. He was never
    20
    audited by the IRS and claims he never saw their Notice 95-34.
    However, his employer was audited for its contributions to the
    VEBA plan, and he was subpoenaed in March 1995 in
    connection with this audit. Additionally, Sankhla admitted that
    he learned of the audits in mid-1995 and that he discussed the
    audits with his radiology partners. Consequently, he contacted
    Barry Cohen, the Lakewood Radiologists’ VEBA plan financial
    advisor, and inquired about how the audits would affect him.
    Cohen assured him that “his previous VEBA contributions were
    entirely safe” but expressed a certain discomfort with one of the
    VEBA plans. He additionally told Sankhla that “we are going
    to win the [Neonatology] case,” apparently in an effort to assure
    Sankhla of the safety of his investments. Moreover, he advised
    Sankhla that the only way to guarantee the safety of his previous
    VEBA plan investments would be to continue to make
    contributions to it for another three years, to enable him to make
    21
    tax-free withdrawals. By 2000, however, Sankhla could not get
    an adequate answer from Cohen concerning the propriety of
    continued participation in the VEBA plan and so decided to
    discontinue contributions to the plan.
    Dr. Pearlman
    Boris Pearlman, also a partner with Lakewood
    Radiology. He participated in and made contributions to the
    VEBA plan from 1991 until 1999. Like Sankhla, he terminated
    his participation in 2000. Pearlman also contends that he never
    saw the IRS Notice 95-34, although he did receive the July 1995
    letter from Cohen and Kirwan. He also received a copy of the
    letter from Prupis. In addition, Pearlman received notice of an
    audit in June or July of 1995 and an IRS examination report.
    However, Pearlman contends that he did not receive a
    deficiency notice from the IRS until sometime after September
    16, 1996.
    22
    After he received the IRS audit notice, Pearlman
    contacted Cohen and Prupis with his concerns. In response
    Cohen and Prupis both assured Pearlman that the “IRS had no
    case” and that the VEBA plans were legitimate and would
    continue to be so. Pearlman was apparently convinced by these
    avowals and continued to invest in the VEBA plan. After the
    Tax Court effectively invalidated the VEBA scheme in 2000,
    Pearlman quit contributing to the plan.
    Dr. Shulman
    A third partner at Lakewood Radiology, Yale Shulman
    participated in the VEBA plan from 1993 until 1998. Shulman
    was on the board of the Medical Society of New Jersey at the
    time that the Medical Society approved Cohen and Kirwan’s
    VEBA plan scheme. He also received a copy of Cohen and
    Kirwan’s 1995 letter, and Prupis’ legal opinion concerning the
    VEBA plan. Cohen and Kirwan then advised Shulman that he
    23
    should retain attorney Prupis to represent him in connection with
    any impending IRS action. Shulman did so.
    In late 1996, Shulman was audited by the IRS, which, in
    1997, assessed penalties and taxes against Shulman for his
    contributions to the VEBA plan. Evidently still believing the
    plan to be legitimate, Shulman continued making contributions
    until 1998.
    Drs. Cetel and Schneider
    Marvin Cetel and Barbara Schneider are the last two
    physicians to participate in this particular VEBA scheme. They
    began participating and contributing to the VEBA plan in 1990
    and both received the IRS Notice 95-34 in May of 1995, the
    IRS audit notices in June of 1995, and the Prupis and Cohen
    letter of July 12, 1995. Schneider also received a notice of
    deficiency from the IRS on October 31, 1995, after which she
    hired Prupis as her attorney. Both physicians also received the
    24
    letter from Prupis dated August 7, 1996. Schneider made her
    last contribution in 1998 and Cetel made his last contribution in
    1997.
    II. PROCEDURAL HISTORY
    This appeal comprises actions that were initially filed as
    two separate putative class actions (the Cetel action, filed on
    July 20, 2000 and the Sankhla action, filed on September 6,
    2001).4 Recognizing the importance of the Neonatology action
    for the future of their investments in the VEBA plan, both the
    Cetel physicians and the Sankhla physicians sought, and were
    granted, leave to participate as amici curiae in the Neonatology
    appeal to the Court of Appeals for the Third Circuit.
    Neonatology Assocs. v. Comm’r., 
    293 F.3d 128
    (3d Cir. 2002).
    After the Tax Court’s decision was affirmed, 
    299 F.3d 221
    (3d
    Cir. 2002), plaintiffs sued defendants, alleging violations of
    4.
    Pearlman and Shulman joined the Sankhla suit in March 2002.
    25
    ERISA, RICO, and various state law claims, including the New
    Jersey RICO statute and the New Jersey Consumer Fraud Act.
    Although the actions were initially filed separately in New
    Jersey state court, both were removed to the United States
    District Court for the District of New Jersey on the basis of the
    ERISA claims.
    On July 8, 2002, the District Court dismissed the Sankhla
    physicians’ state law claims as being preempted by section
    514(a) of ERISA, 29 U.S .C. § 1144(a), and on November 25,
    2002, consolidated the two cases.5        After completion of
    discovery, defendants filed a motion for summary judgment,
    seeking to dismiss plaintiffs’ remaining ERISA claims and their
    civil RICO claims.
    5.
    Both suits named the same set of defendants: Barry Cohen,
    Michael Kirwan and Kirwan Financial Group, the Medical
    Society of New Jersey, Raymond Ankner and his companies,
    Commonwealth Life Insurance Company and related entities,
    and Neil Prupis, Esquire.
    26
    The District Court, in an order dated March 2, 2004, first
    reversed itself on the issue of ERISA preemption, reinstating
    plaintiffs’ state law claims but declining to finally resolve them,
    and then granted defendants’ motion for summary judgment on
    plaintiffs’ federal RICO claims and most of the ERISA claims.
    The District Court held the RICO claims time-barred. Applying
    the four-year statute of limitations period established by the
    Supreme Court in Agency Holding Corp. v. Malley-Duff &
    Assocs., 
    483 U.S. 143
    , 156, 
    107 S. Ct. 2759
    , 
    97 L. Ed. 2d 121
    (1987) along with the “injury discovery rule” adopted by our
    Court in Mathews v. Kidder Peabody & Co., 
    260 F.3d 239
    , 252
    (3d Cir. 2001), the District Court determined that plaintiffs
    should have been on notice of their injuries, at the latest, in 1995
    after the IRS issued Notice 95-34 and began its audits of the
    VEBA plan participants. With respect to plaintiffs’ ERISA
    claims, the District Court held that the counts relating to §§ 409
    27
    and 502(a) of ERISA, 29 U.S.C. §§ 1109(a) and 1132(a)(2),
    should be dismissed for lack of standing because plaintiffs
    sought to recover benefits owed to them in their individual
    capacities and not on behalf of their employer plans. The
    District Court also dismissed both parties’ attempts to import the
    findings of Neonatology to bind each other, employing its broad
    discretion to determine that collateral estoppel should be denied
    based on the complexity of the case. Finally, the District Court
    granted summary judgment to defendants on plaintiffs’ “benefit-
    of-the-bargain” theory of recovery. The District Court opined
    that such damages would be highly speculative and would result
    in the enforcement of an illegal tax-avoidance scheme.
    In a third opinion dated July 16, 2004, the District Court
    granted defendants’ motion for summary judgment on all of the
    reinstated state law claims and the remaining ERISA and New
    Jersey RICO claims and denied plaintiffs’ motion for
    28
    reconsideration of its March 2, 2004 opinion.6 The District
    Court held the surviving ERISA claims under section 502(a)(3)
    of ERISA, 29 U.S.C. § 1132(a)(3), for breach of fiduciary duty
    to be time-barred. The Court concluded that plaintiffs had
    actual knowledge of their fiduciary-breach allegations when, in
    1995, the IRS sent out Notice 95-34 and began its audits of the
    VEBA plan participants. The District Court, noting that the
    federal RICO statute served as a model for the state corollary
    and in the absence of any governing state law to the contrary,
    concluded that a four-year statute of limitations, analogous to
    that in the federal Act, controlled the New Jersey RICO claims.
    It held that this statute of limitations began running by the
    summer of 1995, when all of the plaintiffs had learned of the
    IRS Notice 95-34 or had learned that the IRS had audited or was
    6.
    The District Court’s dismissal of plaintiffs’ breach of contract
    and unjust enrichment claims are not appealed.
    29
    going to audit the personal accounts of the participants.
    Moreover, the District Court held that plaintiffs failed to
    undertake reasonable inquiries into the alleged fraud, vitiating
    their reliance on New Jersey’s discovery rule as support for their
    claim that the statute of limitations should be equitably tolled.
    The District Court also rejected plaintiffs’ claim that the statute
    of limitations did not begin to run until they suffered actual
    damages, concluding that under New Jersey law, fraud claims
    like those premised on the New Jersey RICO statute did not
    require a knowledge of actual damages.7 Finally, the District
    7.
    The District Court applied the same reasoning to the Sankhla
    Plaintiffs’ state law fraud-based claims, including fraud (Count
    XII), breach of fiduciary duty (Count XIV), breach of good faith
    and fair dealing (Count XVI), respondeat superior (Count
    XVII), conspiracy and aiding and abetting fraudulent
    misrepresentation (Count XVIII) and the physicians’ negligent
    misrepresentation claim (Count XIII). The District Court held
    that these claims had a six-year statue of limitations but, because
    the Sankhla physicians filed their claims in September 2001 and
    the date of accrual was, at the latest August 1995, these were
    (continued...)
    30
    Court dismissed plaintiffs’ Consumer Fraud Act claim, opining
    that, as a matter of law, the terms and scope of the CFA could
    not apply to the sale and purchase of the VEBA plans because,
    absent a clear indication by New Jersey courts otherwise, the
    CFA did not intend to cover the sale and purchase of the
    complex tax-avoidance schemes at issue here.
    The disposition of this third opinion did leave certain
    common law state claims intact, but plaintiffs entered into a
    settlement agreement concerning these claims shortly thereafter
    and the District Court entered a final Order of Dismissal.
    Plaintiffs timely appeal from this Order and we have jurisdiction
    pursuant to 28 U.S.C. § 1291. We review decisions granting
    summary judgment de novo, applying the same legal standard
    as the trial court to the same record. Omnipoint Comm’cns
    7.
    (...continued)
    also time barred.
    31
    Enters., L.P. v. Newtown Twp., 
    219 F.3d 240
    , 242 (3d Cir.
    2000).     Summary judgment can only be granted “if the
    pleadings, depositions, answers to interrogatories, and
    admissions on file, together with the affidavits, if any, show that
    there is no genuine issue as to any material fact and that the
    moving party is entitled to judgment as a matter of law.” FED.
    R. CIV. P. 56(c).
    III. Discussion
    A.
    We will quickly dispose of a preliminary waiver issue.
    Plaintiffs argue that when certain defendants filed their answers
    to the complaint they failed to raise the issue of the statute of
    limitations, instead taking the position that the claims asserted
    were not ripe because the Tax Court litigation had yet to
    conclude. In essence, plaintiffs make a waiver argument. The
    District Court rejected it, applying the statute of limitations to
    32
    bar all pertinent claims against all defendants. We review the
    District Court’s decision for abuse of discretion and we will
    affirm on this point. Oddi v. Ford Motor Co., 
    234 F.3d 136
    , 146
    (3d Cir.), cert. den. 
    532 U.S. 921
    (2000). It is true that “parties
    should generally assert affirmative defenses early in litigation,
    so they may be ruled upon, prejudice may be avoided, and
    judicial resources may be conserved.” Robinson v. Johnson,
    
    313 F.3d 128
    , 134 (3d Cir. 2002). However, there is no hard
    and fast rule limiting defendants’ ability to plead the statute of
    limitations. Accordingly, affirmative defenses can be raised by
    motion, at any time (even after trial), if plaintiffs suffer no
    prejudice. Charpentier v. Godsil, 
    937 F.2d 859
    , 863–64 (3d Cir.
    1991). Here, the District Court determined, and we agree, that
    plaintiffs suffered no undue prejudice because they had notice
    that the statute of limitations was an issue for the simple reason
    that other defendants had pleaded in their answer that the claims
    33
    were time-barred. Because plaintiffs were on sufficient notice,
    it did not inhibit their ability to gauge and respond to all the
    possible defenses. The District Court was well within the
    bounds of its discretion to allow defendants to plead the statute
    of limitations even if they had not done so in their initial
    answers.
    B. Federal RICO Claims
    Turning to the substance of plaintiffs’ appeal, the first
    issue we address is whether the District Court erred when it
    dismissed plaintiffs’ federal RICO claims as time-barred.
    Plaintiffs do not contest that civil RICO actions are subject to a
    four-year statute of limitations. See Forbes v. Eagleson, 
    228 F.3d 471
    (3d Cir. 2000).       Rather, they recognize that the
    dispositive question concerning the federal RICO claims here is
    whether plaintiffs were on “inquiry notice” of their injuries by
    August 1995. In determining when a RICO claim accrues, we
    34
    apply an injury discovery rule “whereby a RICO claim accrues
    when plaintiffs knew or should have known of their injury.”
    Mathews v. Kidder Peabody & Co., 
    260 F.3d 239
    , 252 (3d Cir.
    2001) (quoting 
    Forbes, 228 F.3d at 484
    ). As we noted in
    Mathews, this rule has “both subjective and objective”
    components and, with respect to the subjective, “a claim accrues
    no later than when the plaintiffs themselves discover their
    injuries.”   
    Id. However, because
    the components are
    disjunctive we first perform an objective inquiry to determine
    when plaintiffs should have known of the basis of their claims,
    which “depends on whether [and when] they had sufficient
    information of possible wrongdoing to place them on ‘inquiry
    notice’ or to excite ‘storm warnings’ of culpable activity.”
    Benak ex rel. Alliance Premier Growth Fund v. Alliance Capital
    Mgmt. L.P., 
    435 F.3d 396
    , 400 (3d Cir. 2006) (internal
    quotations omitted). Moreover, plaintiffs have inquiry notice
    35
    “whenever circumstances exist that would lead a reasonable
    investor of ordinary intelligence, through the exercise of due
    diligence, to discovery of his or her injury.” 
    Mathews, 260 F.3d at 252
    .
    In determining inquiry notice, our analysis proceeds in
    two steps. First, the burden is on the defendant to show the
    existence of “storm warnings.” 
    Id. Storm warnings
    have not
    been exhaustively catalogued, but they are essentially any
    information or accumulation of data “that would alert a
    reasonable person to the probability that misleading statements
    or significant omissions had been made.” 
    Id. This is
    an
    objective inquiry and hinges not on a plaintiff’s actual
    awareness of suspicious circumstances or even on the ability of
    a plaintiff to understand their import. Instead, “[i]t is enough
    that a reasonable investor of ordinary intelligence would have
    discovered the information and recognized it as a storm
    36
    warning.”    
    Id. This charge
    saddles the investor with
    responsibilities like reading prospectuses, reports, and other
    information related to the investments, 
    Mathews, 260 F.3d at 252
    , and, additionally, assumes knowledge of “publicly
    available news articles and analyst’s reports.” 
    Benak, 435 F.3d at 400
    quoting Lui v. Credit Suise First Boston Corp. (In re
    Initial Public Offering Sec. Litig.), 
    341 F. Supp. 2d 328
    , 345
    (S.D.N.Y. 2004)). Once determined, the second step then shifts
    the burden to plaintiffs to show that, heeding the storm
    warnings, they exercised reasonable diligence but were unable
    to find and avoid the storm. 
    Mathews, 260 F.3d at 252
    ; 
    Benak, 435 F.3d at 400
    .
    Here, we conclude that the District Court correctly
    decided that sufficient storm warnings existed by August 1995
    to satisfy the first prong of our inquiry notice analysis. By
    August 1995, the IRS had circulated Notice 95-34, which
    37
    informed plaintiffs that the IRS had not approved the deduction
    contributions to VEBA plans and, in fact, had actually
    disallowed these deductions. The Notice made clear that the
    VEBA plans were inconsistent with the tax code. Additionally,
    in 1995 the Medical Society stopped endorsing the VEBA plans
    and the IRS undertook audits of some of the plaintiffs, amassing
    even more troubling storm clouds. All this information, taken
    together, establishes with enough objective certainty that storm
    warnings did exist concerning the lawfulness of the VEBA
    plans, thus satisfying the first step.8
    8.
    We decline to treat Sankhla differently from any of the
    other plaintiffs in determining that sufficient storm warnings
    were sounding by August 1995. The fact that Sankhla may have
    never seen the IRS’ Notice or heard of the audits does not save
    him from attribution of inquiry notice because, as noted earlier,
    his employer was audited and he was subpoenaed in connection
    to this audit in March 1995. Moreover, he admitted that he had
    learned of the audits of his other Lakewood Radiology partners
    by mid-1995 and that he had discussed the audits and their
    implications with his partners. Thus, the existence of storm
    (continued...)
    38
    With respect to the second step, there is little doubt that
    plaintiffs exercised scant, if any, diligence in attempting to
    discover their injuries.     The District Court appropriately
    commented that:
    [i]t seems incredible . . . to argue they relied
    solely on the defendants’ assurances of a
    “victory” over the IRS in the Tax Court . . . .
    Asking the defendants whether the plans were
    legal does not constitute reasonable due diligence
    . . . . [A] reasonable person would not continue to
    participate in a tax avoidance scheme after the
    IRS issues a notice condemning such plans, and
    that person was the subject of an IRS audit of his
    participation in that plan.
    By all accounts, plaintiffs’ only effort to discover their injuries
    was to inquire about the validity of the plans with Cohen and
    Prupis, both defendants in this dispute and also, at the time,
    involved in the running and operation of the plan. Both Cohen
    8.
    (...continued)
    warnings by August 1995 applies to all plaintiffs, including
    Sankhla.
    39
    and Prupis continued to assure plaintiffs that the plans were
    legitimate and “would be upheld in the courts.” In Mathews,
    we addressed a similar degree of diligence and concluded that
    it did not constitute the exercise of due diligence expected of
    reasonable investors. There, plaintiffs sent a letter to defendants
    inquiring into the state of their investment.          Defendants
    responded that they “remain[ed] confident in the underlying
    value of the . . . assets and believe[d] this value will be realized
    once the[] markets turnaround.” 
    Mathews, 260 F.3d at 255
    .
    Plaintiffs in Mathews argued that this inquiry constituted
    reasonable diligence, but we rejected that argument, stating:
    Reasonable due diligence does not require a
    plaintiff to exhaust all possible avenues of
    inquiry. Nor does it require the plaintiff to
    actually discover his injury. At the very least,
    however, due diligence does require plaintiffs to
    do something more than send a single letter to the
    defendant.
    
    Id. at 255.
    40
    This analysis guides our conclusion here. Merely asking
    defendants whether the plans were legal is inadequate to show
    reasonable diligence. As we noted in Mathews and reiterate
    here, plaintiffs who undertake no diligence beyond superficial
    inquiry of defendants concerning the validity or propriety of
    their investments cannot obtain the benefit that a finding of
    reasonable diligence will confer. Accordingly, plaintiffs have
    not met their portion of the burden-shifting requirement under
    our inquiry-notice analysis and thus cannot defeat the finding
    that they were on inquiry notice by August 1995 and, by
    extension, that their claims accrued as of that date. See id.; In re
    NAHC, Inc. Sec. Litig., 
    306 F.3d 1314
    , 1325 (3d Cir. 2002).
    Plaintiffs submit, however, that even if their claims
    accrued by August 1995, the District Court should have tolled
    the statute of limitations because defendants fraudulently
    concealed the VEBA scheme and therefore prevented plaintiffs
    41
    from discovering their injuries. It is true that “[f]raudulent
    concealment is an equitable doctrine that is read into every
    federal statute of limitations[,]” 
    Mathews, 260 F.3d at 256
    (quoting Davis v Grusemeyer, 
    996 F.2d 617
    , 624 (3d Cir. 1993),
    and additionally, that it will toll the RICO limitation period
    “where a pattern remains obscure in the face of a plaintiff’s
    diligence in seeking to identify it.” 
    Id. (quoting Rotella
    v.
    Wood, 
    528 U.S. 549
    , 561, (2000). But, to benefit from the
    equitable tolling doctrine, plaintiffs have the burden of proving
    three necessary elements: (1) that the defendant actively misled
    the plaintiff; (2) which prevented the plaintiff from recognizing
    the validity of her claim within the limitations period; and (3)
    where the plaintiff’s ignorance is not attributable to her lack of
    reasonable due diligence in attempting to uncover the relevant
    facts. 
    Mathews, 260 F.3d at 256
    .
    42
    Plaintiffs’ claim fails on the third element. As discussed
    above, plaintiffs did not exercise the due diligence expected of
    a reasonable investor because they failed to undertake any
    investigation into the meaning of the storm warnings beyond
    asking defendants whether their plans were legitimate. As in
    Mathews, a finding that plaintiffs did not exercise reasonable
    diligence for the determination of when the claim accrues will
    also likely foreclose the possibility of equitable tolling. 
    Id. at 257
    (“In order to avoid summary judgment, there must be a
    genuine issue of material fact as to whether the Appellants
    exercised reasonable due diligence in investigating their claim).9
    9.
    We, of course, do not suggest that in every case involving an
    IRS audit of some form, the claim will begin to run on the date
    of the audit. Nor do we suggest that assurances made by an
    investment’s promoter or manager will never toll the statute of
    limitations. Rather, these types of questions are necessarily fact
    specific, based on the presence and exact type of storm warnings
    and the extent of inquiry undertaken with respect to due
    diligence. In this case, plaintiffs simply did not exercise enough
    (continued...)
    43
    Finally, with respect to the federal RICO claims,
    plaintiffs contend that under basic contract law, the accrual date
    could only occur when a default in the contractual obligation
    occurs. The District Court properly rejected this claim, holding
    that “plaintiffs have failed to proffer sufficient evidence that
    defendants breached any contractual obligation” and that
    “plaintiffs have not pointed to any contractual provision or duty
    that obligated Defendants to provide tax benefits.” Unlike in
    the creditor-debtor context, where an injury may not accrue
    unless and until the debtor defaults on some contractual
    obligation, see Cruden v. Bank of New York, 
    957 F.2d 961
    , 967
    (2d Cir. 1992), there simply is no contractual obligation upon
    which one of the parties could have defaulted. In short, there is
    9.
    (...continued)
    diligence to either prevent the claim from accruing or to allow
    the statute of limitations to be tolled, as both “benefits” hinge on
    the exercise of reasonable diligence.
    44
    no contractual claim, and plaintiffs’ attempt to reframe their
    RICO claims in this vein appropriately must fail.
    C. New Jersey RICO Claims
    Plaintiffs next object to the District Court’s application
    of a four-year statute of limitations to their New Jersey RICO
    claims as opposed to a six-year limitations period. Although
    they concede that some New Jersey courts have applied the
    federal RICO statute of limitations of four years to New Jersey
    RICO claims, see Matter of Integrity Ins. Co., 
    584 A.2d 286
    (1990), they insist that due to some recent changes to the way
    New Jersey courts approach state RICO claims, “it can no
    longer be predicted that the New Jersey Supreme Court would
    feel compelled to follow federal law in determining the
    appropriate statute of limitations for NJRICO.” Thus, they
    argue that the law is unsettled with respect to how long the
    statute of limitations is for New Jersey RICO claims and suggest
    45
    that the appropriate statute of limitations should be six years.10
    To support this claim, plaintiffs rely on State v. Ball, 
    661 A.2d 251
    (N.J. 1995), in which, according to plaintiffs, the New
    Jersey Supreme Court declined to interpret NJRICO
    coextensively with federal interpretations of RICO, instead
    opting to interpret NJRICO as governed by state law principles.
    We disagree. A close reading of Ball suggests, contrary to
    plaintiffs’ contention, that the New Jersey Supreme Court
    believed the New Jersey RICO statute was and should be
    consistent with the federal RICO statute. 
    Ball, 661 A.2d at 258
    (“[B]ecause the federal statute served as an initial model for [the
    NJRICO statute], we heed federal legislative history and case
    law in construing our statute.”). Moreover, subsequent New
    Jersey cases belie plaintiffs’ contention that the New Jersey
    10.
    This is the general statute of limitations for New Jersey state
    law claims. Mirra v. Holland Am. Line, 
    751 A.2d 138
    , 140 (N.J.
    App. Div. 2002)
    46
    RICO is somehow divergent from the federal RICO statute.
    See, e.g., Interchange State Bank v. Veglia, 
    668 A.2d 465
    , 472
    (App. Div. 1995) (“There is no state decisional law on this
    aspect of civil RICO law. Therefore, parallel federal case law
    is an appropriate reference source to interpret the RICO
    statute.”).   In any event, nothing in Ball, or any other
    case, stands for the proposition that claims under the New Jersey
    RICO statute possess a six-year statute of limitations, as
    opposed to the commonly applied four-year limitations period
    for federal RICO claims. There is no evidence that the New
    Jersey RICO statute possesses a different statute of limitations
    from the federal RICO statute and we refuse to adopt such a
    rule. Thus, for the reasons above, and because plaintiffs were
    47
    on notice of their claims, we will affirm the dismissal of the
    NJRICO claim on the ground of statute of limitations.11
    D. ERISA Claims
    11.
    Our decision that the District Court was correct in applying the
    four-year statute of limitations to plaintiffs’ New Jersey RICO
    claims is buttressed by the Supreme Court’s analysis in Agency
    Holding Corp. v. Malley-Duff & Associates, Inc., 
    483 U.S. 143
    (1987), which held that a universal four-year statute of
    limitations would apply in federal civil RICO actions. After
    deciding that a uniform federal statute of limitations was
    necessary, the Court adopted the Clayton Act’s statute of
    limitation. The Court found that the Clayton Act provided the
    closest analogy to federal civil RICO claims because both
    statutes “were designed to remedy economic injury by providing
    for the recovery of treble damages, costs and attorney’s fees.
    Both statutes also bring to bear the pressure of ‘private
    attorneys’ general’ on a serious national problem for which
    public prosecutorial resources are deemed 
    inadequate.” 483 U.S. at 151
    . We anticipate the New Jersey Supreme Court will
    apply this analysis to New Jersey law and adopt the New Jersey
    Antitrust Act as the closest analogy to the New Jersey
    Racketeering Act, thus, the Antitrust Act’s four-year statute of
    limitations would apply. See Integrity 
    Insurance, 584 A.2d at 287
    .
    48
    We turn next to plaintiffs’ claim that the District Court
    erred when it dismissed the ERISA §§ 409 and 502(a)(2) claims
    for lack of standing. The District Court granted summary
    judgment for defendants on these two counts because it found
    that plaintiffs had only sought to recover damages in their
    individual capacities and failed to name their employer plans as
    plaintiffs. Because plaintiffs had not sued in a representative
    capacity they could not meet the standing requirements under
    either sections 409 or 502(a)(2).       Plaintiffs present two
    arguments on appeal. However, we need not address them
    because irrespective of the vitality of their arguments, their
    ERISA §§ 409 and 502(a)(2) claims and their ERISA §
    502(a)(3) claim are barred by the statute of limitations. See
    Curay-Cramer v. Ursuline Acad. of Wilmington, 
    450 F.3d 130
    ,
    133 (3d Cir. 2006) (citing Bernitsky v. United States, 
    620 F.2d 948
    , 950 (3d Cir. 1980)) (recognizing that “we can affirm on
    49
    any basis appearing in the record”). ERISA § 413, 29 U.S.C. §
    1113 provides that all claims based on breach of fiduciary duty
    must be brought within 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.
    By its terms then, ERISA’s statute of limitations provision
    offers a choice of periods, depending on “whether the plaintiff
    has actual knowledge of the breach . . . .” Kurz v. Phila. Elec.
    Co., 
    96 F.3d 1544
    , 1551 (3d Cir. 1996). In Gluck v. Unisys
    Corp., we established that:
    Actual knowledge of a breach or violation
    requires that a plaintiff have actual knowledge of
    50
    all material facts necessary to understand that
    some claim exists, which facts could include
    necessary opinions of experts, knowledge of a
    transactions’s harmful consequences, or even
    actual harm.
    
    960 F.2d 1168
    , 1178 (3d Cir. 1992) (internal citations omitted).
    We have thus stated that for purposes of determining actual
    knowledge, it must be shown 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.”      Montrose Med. Group
    Participating Savs. Plan v. Bulger, 
    243 F.3d 773
    , 787 (3d Cir.
    2001) (citations omitted). In other words, where a claim is for
    breach of fiduciary duty, to be charged with actual knowledge
    “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
    .
    51
    Recognizing that the § 1113 statute of limitations sets a
    “high standard for barring claims against fiduciaries prior to the
    expiration of the six-year limitations” and the requirements must
    be interpreted “stringently,” 
    Montrose, 243 F.3d at 778
    , here,
    we nonetheless agree with the District Court that by 1995,
    plaintiffs had actual knowledge of the events and facts necessary
    to understand that a claim or violation existed. The core of
    plaintiffs’ breach of fiduciary duty claim is that defendants made
    or ratified material misrepresentations to plaintiffs, or concealed
    material information from them, concerning the legitimacy of
    the VEBA plans. The record reveals the presence of IRS audits,
    examination reports, deficiency notices, Notice 95-34, and the
    possibility that plaintiffs would have to pay taxes, penalties, and
    interest on money they were told would be tax-free, in addition
    to their concerns that this information engendered. The totality
    of this information unequivocally demonstrates that plaintiffs
    52
    were not only aware of all the material necessary to determine
    that defendants had in fact misrepresented the tax benefits of the
    VEBA plans, but also that defendants’ representations were
    suspect.12
    Plaintiffs’ claim that their knowledge of a possible breach
    could not have arisen until the Tax Court invalidated the VEBA
    plans in 2001 is unpersuasive in light of both the clear import of
    the IRS’s statements and warnings that the plans were in
    violation of the tax code and that any deductions stemming from
    investments in the VEBA plans would be disallowed, and the
    IRS’ actions in disallowing, at that time, the contributions made
    to the VEBA plans. This information and corresponding official
    12.
    We decline to treat Sankhla differently here again because, as
    noted earlier, despite the fact that he was never audited and
    never received a deficiency notice, he was subpoenaed in
    connection with his employer’s audit in March 1995, and
    learned of and discussed the audits and their implications with
    his partners who had been targeted by the IRS, thereby placing
    him in possession of the same knowledge as the other plaintiffs.
    53
    action stand in direct contradiction to the representations made
    by defendants and support a conclusion that, as a matter of law,
    plaintiffs were aware of the facts establishing a breach of
    fiduciary duty and thus in possession of actual knowledge
    necessary to understand that some claim exists. See Romero v.
    Allstate Corp., 
    404 F.3d 212
    , 226 (3d Cir. 2005) (“In order to
    make out a breach of fiduciary duty claim . . . , a plaintiff must
    establish each of the following elements (1) the defendant’s
    status as an ERISA fiduciary acting as a fiduciary; (2) a
    misrepresentation on the part of the defendant; (3) the
    materiality of that misrepresentation; and (4) detrimental
    reliance by the plaintiff on the misrepresentation.”) (quoting
    Daniels v. Thomas & Betts Corp., 
    263 F.3d 66
    , 73 (3d Cir.
    2001)); see also Ranke v. Sanofi-Synthelabo Inc., 
    436 F.3d 197
    ,
    202–03 (3d Cir. 2006).
    54
    Moreover, the record establishes that after the IRS
    circulated Notice 95-34 and after it had audited and disallowed
    certain of plaintiffs’ contributions, certain plaintiffs sought legal
    advice concerning the validity of the VEBA plans and the
    propriety of defendants’ claims concerning the plan’s validity.
    This establishes sufficient evidence that they were aware of the
    alleged breach and belying any claim to the contrary that they
    could not have known or understood that some claim existed.13
    See Connell v. Trustess of the Pension Fund of the Ironworkers
    Dist. Council, 
    118 F.3d 154
    , 158 (3d Cir. 1997) (recognizing
    that evidence of actual knowledge of an alleged breach can
    include the fact that plaintiffs sought expert advice).
    Consequently, we conclude that the evidence establishes that
    13.
    Of course, as noted earlier, the legal advice they sought came
    from defendants’ own attorney, Prupis, but this is irrelevant for
    a determination of whether plaintiffs had actual knowledge of
    the alleged breach.
    55
    plaintiffs were in possession of the “material facts necessary to
    understand that some claim exists,” 
    Gluck, 960 F.2d at 1177
    ,
    and, therefore, that they had actual knowledge of the alleged
    breach and are subject to the three year statute of limitations
    period for the ERISA claims. Accordingly, we will affirm the
    District Court’s order dismissing plaintiffs’ ERISA claims.
    E. Plaintiffs’ State Law Claims
    Plaintiffs also object to the District Court’s dismissal of
    their myriad state common law claims as time-barred.14 Both
    parties agree that these claims are governed by New Jersey state
    law, which applies a six-year statute of limitations. N.J.S.A. §
    2A:14-1; Mirra v. Holland America Line, 
    751 A.2d 138
    , 142
    14.
    As noted earlier, plaintiffs state law fraud claims include fraud
    (Count XII), breach of fiduciary duty (Count XIV), breach of
    good faith and fair dealing (Count XVI), respondeat superior
    (Count XVII), conspiracy and aiding and abetting fraudulent
    misrepresentation (Count XVIII) and negligent
    misrepresentation (Count XIII).
    56
    (N.J. App. Div. 2002); The District Court determined that
    plaintiffs’ state law claims accrued in August 1995, when the
    IRS issued Notice 95-34 and some plaintiffs were audited. In
    making this determination, the District Court was bound to
    apply New Jersey’s discovery rule, which begins the statute of
    limitations running when two conditions are met: (1) the
    plaintiff has suffered actual injury; (2) the plaintiff knows that
    the injury is due to the fault of another.15 Martinez v. Cooper
    15.
    Generally, a cause of action accrues when a plaintiff has
    suffered an injury and is aware of a causal relationship between
    the injury and the actor. See S. Cross Overseas Agency, Inc. v.
    Wah Kwong Shipping Group, Ltd., 
    181 F.3d 410
    , 425 (3d Cir.
    1999). However, where “a party is reasonably unaware either
    that he has been injured, or that the injury is due to the fault or
    neglect of an identifiable individual or entity,” the discovery
    rule will “postpone the accrual of a cause of action” until such
    time as a “reasonable person, exercising ordinary diligence,
    [would know or should have known] that he or she was injured
    due to the fault of another.” Caravaggio v. D’Agostini, 
    765 A.2d 182
    , 186–87 (N.J. 2001). Here, it is agreed that because
    the plaintiffs’ common law state claims sound in fraud, the
    discovery rule is applicable. S. 
    Cross, 181 F.3d at 425
    (“When
    (continued...)
    57
    Hosp./Univ. Med. Ctr., 
    747 A.2d 266
    , 272 (2000). This inquiry
    boils down to “whether the facts presented would alert a
    reasonable person, exercising ordinary diligence, that he or she
    was injured due to the fault of another,” and requires an
    objective analysis. Caravaggio v. D’Agostini, 
    765 A.2d 182
    ,
    186–87 (N.J. 2001).
    As we have discussed earlier, despite plaintiffs’
    assertions to the contrary, by August 1995 a reasonable person,
    exercising ordinary diligence, would have known both that they
    had been injured and that the injury was due to the fault of
    defendants. The presence of Notice 95-34 and its attendant
    consequences, combined with the audits and deficiency notices
    constitute sufficient harm to satisfy the first prong of the
    15.
    (...continued)
    the gist of the action is fraud concealed from the plaintiff, the
    statute begins to run on discovery of the wrong or of facts that
    reasonably should lead the plaintiff to inquire into the fraud.”).
    58
    discovery test. See Nappe v. Anscheleqitz, Barr, Ansell &
    Bonell, 
    477 A.2d 1224
    (N.J. 1984). And, additionally, despite
    the clear signs that plaintiffs had been harmed, they failed to
    make reasonable inquiries or investigations into the source of
    that harm, thus vitiating any claim that they could not establish
    some causation between their harm and another’s fault. See
    Apgard v. Lederle Labs., 
    588 A.2d 380
    , 383 (N.J. 1991); see
    also Savage v. Old Bridge-Sayreville Med. Group, P.A., 
    633 A.2d 514
    (N.J. 1993). We thus have no trouble agreeing with
    the District Court that, by August 1995, for purposes of
    plaintiffs’ state law claims, the statute of limitations had begun
    to run.16
    16.
    Additionally, plaintiffs’ insistence that the continuing tort
    doctrine renders the District Court’s conclusion erroneous fails
    because, although the doctrine might apply where the plaintiff
    has no reason to believe he has been injured, it will not apply
    where the plaintiff “discovered or should have discovered the
    injury and its cause connection with the [negligence] before that
    (continued...)
    59
    F. New Jersey Consumer Fraud Act
    Plaintiffs next contend that the District Court erred by
    holding that the New Jersey Consumer Fraud Act (CFA) does
    not apply. Specifically, the District Court held that because the
    VEBA plans “were extremely complicated tax avoidance
    schemes involving tens, if not hundreds, of thousands of
    dollars[,]” to apply the Consumer Fraud Act would “stretch the
    admittedly broad application of the [] Act beyond the intent of
    the New Jersey legislature.” Plaintiffs argue that the CFA must
    16.
    (...continued)
    time.” Lopez v. Sawyer, 
    279 A.2d 116
    , 123 (N. J. App.Div.
    1971). Here, plaintiffs should have discovered the cause of their
    injury in August 1995 because this is when facts became
    available that a reasonable person would have taken to suggest
    the possibility of wrongdoing. Additionally, neither the
    continuing tort doctrine nor the “last overt act” doctrine, which
    defendants also press, applies to fraud claims. No New Jersey
    courts have ever applied these doctrines to fraud claims and we
    are unwilling, on these facts, to do so today. Republic of
    Philippines v. Westinghouse Elec. Corp., 774 F. Supp 1438
    (D.N.J. 1991).
    60
    be applied broadly, and to the VEBA plans at issue here, as
    commanded by the New Jersey Supreme Court’s holding in
    Lemelledo v. Beneficial Management Corp., 
    696 A.2d 546
    ,
    550–51 (N.J. 1997). We are unpersuaded.
    The CFA “is intended to protect consumers by
    eliminating sharp practices and dealings in the marketing of
    merchandise and real estate.” 
    Id. at 554
    (internal quotations
    omitted); see N.J. Stat. Ann. § 56:8-1 et seq.17 It is true that in
    Lemelledo, the New Jersey Supreme Court held the Act to apply
    17.
    By its terms, the Act prohibits:
    [t]he act, use or employment by any person of any
    unconscionable commercial practice, deception,
    fraud, false promise, misrepresentation, or the
    knowing concealment, suppression, or omission
    of any material fact with intent that others rely
    upon such concealment, suppression or omission,
    in connection with the sale or advertisement of
    any merchandise or real estate, or with the
    subsequent performance of such person as
    aforesaid, whether or not any person has in fact
    been mislead, deceived or damaged thereby . . . .
    N.J. Stat. Ann. § 56:8-2.
    61
    to the sale of insurance policies to 
    consumers. 696 A.2d at 555
    (“[O]ur reading of the CFA convinces us that the statute’s
    language is ample enough to encompass the sale of insurance
    policies as goods and services that are marketed to
    consumers.”). However, as New Jersey courts have repeatedly
    made clear, the CFA seeks to protect consumers who purchase
    “goods or services generally sold to the public at large.”
    Marascio v. Campanella, 
    689 A.2d 859
    (App.Div. 1997).
    Furthermore, “[t]he entire thrust of the Act is pointed to
    products and services sold to consumers in the popular sense.”
    Arc Networks, Inc. v. Gold Phone Card Co., 
    756 A.2d 636
    , 637
    (N.J. Super. Ct. App. Div. 2000) (internal quotations omitted).
    Thus, the CFA “is not intended to cover every transaction that
    occurs in the marketplace[,]” but, rather, “[i]ts applicability is
    limited to consumer transactions which are defined both by the
    status of the parties and the nature of the transaction itself.” 
    Id. 62 These
    facts are insufficient to establish that the plans at
    issue, and the transactions by which they were sold, qualify as
    “products and services sold to consumers in the popular
    sense[,]” such that they fall within the ambit of the CFA. Arc
    
    Networks, 756 A.2d at 638
    . As opposed to the traditional sale
    of insurance policies, which are undoubtedly subject to the
    provisions of the CFA, see 
    Lemelledo, 696 A.2d at 551
    , the
    VEBA plans at issue here are instead rather complex
    arrangements that do not reflect the kinds of “goods or services
    generally sold to the public.” Arc 
    Networks, 756 A.2d at 638
    .
    As the District Court found, the VEBA plans were
    complex tax-avoidance schemes designed primarily to allow an
    investor to make tax-deductible contributions while allowing for
    a permanent tax deferral upon withdrawal. Moreover, the plans
    were not available to the general public and were never
    marketed as such. Thus, the plans represent a highly specific
    63
    scheme providing no real insurance products to plaintiffs,
    necessarily marketed to a discrete and specific class of capable
    investors — not the general public. Unlike the sale of credit to
    the general public or the “sale of insurance policies . . . that are
    marketed to consumers[,]” or even “anything offered[] directly
    or indirectly to the public for sale,” 
    Lemelledo, 696 A.2d at 551
    ,
    the sale of complex employee welfare benefit plans to a very
    specific class of investor does not point to the remedial purpose
    or intent of the CFA, “namely, to root out consumer fraud.” 
    Id. Consequently, because
    “the entire thrust of the [CFA] is pointed
    to products and services sold to consumers in the popular
    sense[,]” 
    id., we cannot
    conclude that the District Court erred
    when it dismissed plaintiffs’ claim under the CFA.18
    18.
    Two issues remain. Penultimately, plaintiffs claim the District
    Court’s erred by denying their claim to recover “benefit-of-the-
    bargain” damages for losses incurred as a result of the collapse
    of the VEBA plans. Because we affirm the District Court’s
    (continued...)
    64
    IV. Conclusion
    For the foregoing reasons, we will affirm the District
    Court’s orders granting defendants’ motions for summary
    judgment.
    18.
    (...continued)
    dismissal of plaintiffs’ substantive claims in all respects,
    including the dismissal of plaintiffs’ state law claims, the issue
    as to whether plaintiffs could proceed under a benefit-of-the-
    bargain theory of recovery is moot. Lastly, on cross-appeal,
    defendants argue that plaintiffs’ state law claims are preempted
    by ERISA. Because we have dismissed the state claims on other
    grounds, we need not reach and do not address this issue.
    Nugent v. Ashcroft, 
    367 F.3d 62
    , 168 (3d Cir. 2004).
    65
    

Document Info

Docket Number: 04-3408, 05-1329, 05-1503, 05-1504

Citation Numbers: 460 F.3d 494, 39 Employee Benefits Cas. (BNA) 1041, 98 A.F.T.R.2d (RIA) 6273, 2006 U.S. App. LEXIS 21938, 2006 WL 2466855

Judges: Scirica, Nygaard, Yohn

Filed Date: 8/28/2006

Precedential Status: Precedential

Modified Date: 10/19/2024

Authorities (36)

21-employee-benefits-cas-1538-pens-plan-guide-cch-p-23935z-phillip-j , 118 F.3d 154 ( 1997 )

neonatology-associates-pa-v-commissioner-of-internal-revenue-john-j , 293 F.3d 128 ( 2002 )

Rotella v. Wood , 120 S. Ct. 1075 ( 2000 )

Interchange State Bank v. Veglia , 286 N.J. Super. 164 ( 1995 )

neonatology-associates-pa-v-commissioner-of-internal-revenue-tax-court , 299 F.3d 221 ( 2002 )

Mirra v. Holland America Line , 331 N.J. Super. 86 ( 2000 )

Arc Networks, Inc. v. Gold Phone Card Co. , 333 N.J. Super. 587 ( 2000 )

southern-cross-overseas-agencies-inc-a-new-jersey-corporation-transport , 181 F.3d 410 ( 1999 )

ida-k-daniels-widow-of-charles-p-daniels-deceased-v-thomas-betts , 263 F.3d 66 ( 2001 )

michele-curay-cramer-v-the-ursuline-academy-of-wilmington-delaware-inc , 450 F.3d 130 ( 2006 )

State v. Ball , 141 N.J. 142 ( 1995 )

Martinez v. Cooper Hospital-University Medical Center , 163 N.J. 45 ( 2000 )

Apgar v. Lederle Laboratories , 123 N.J. 450 ( 1991 )

Caravaggio v. D'AGOSTINI , 166 N.J. 237 ( 2001 )

joseph-bernitsky-albert-bernitsky-vincent-bernitsky-and-george-stenulis , 620 F.2d 948 ( 1980 )

omnipoint-communications-enterprises-lp-v-newtown-township-zoning , 219 F.3d 240 ( 2000 )

In Re Initial Pub. Offering Securities Litigation , 341 F. Supp. 2d 328 ( 2004 )

Lemelledo v. Beneficial Management Corp. of America , 150 N.J. 255 ( 1997 )

Nos. 90-5656, 90-5701 , 937 F.2d 859 ( 1991 )

Robert F. Davis v. James Grusemeyer, Raymond Gurak, Donald ... , 996 F.2d 617 ( 1993 )

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