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A recent decision by the 6th U.S. Circuit Court of Appeals is “timely” in two senses of the word. Wright v. Heyne , No. 01-4359, decided on Nov. 14 an issue of timing-the tolling of a statute of limitations under the Employee Retirement Income Security Act (ERISA). And the underlying action-a lawsuit against an investment advisor who allegedly gave dodgy and self-serving advice-could hardly be of greater timeliness in these days of ever widening financial scandals. Following the lead of the 7th, 9th and 11th circuits, the 6th Circuit interpreted the statute of limitations in a way that requires investors to act quickly on their suspicions. In contrast, the 3d and 5th circuits (and probably the 2d) hold that misgivings about the actions of an investment advisor do not start the clock running until the victim becomes aware that he might have a legal claim under ERISA. ‘Neglect of ethics’ Frank C. Wright, John P. Goff and Carl Krantz, three doctors who shared an Ohio practice, entrusted their company retirement plan and their individual accounts to Michael Heyne and his company, VesTrak Investment Analysis Service, in 1987. As early as 1991 or 1992, the doctors began to have their doubts about Heyne’s management. In 1993 and 1994, they took their misgivings to outside advisors, who warned them that Heyne was ignoring their instructions and choosing investments that would maximize his fee rather than the doctors’ returns. The doctors terminated Heyne’s contract in 1995, when yet another outside advisor said, “I have never seen such gross neglect of ethics,” and advised them to seek legal counsel. The doctors took that step only in 1997, when their new plan manager informed them that Heyne’s risky investments were not paying off. The doctors filed suit in late 1998, charging Heyne with violations of his fiduciary duties under ERISA. The ERISA statute of limitations, 29 U.S.C. 1113, states that an action must be brought within “three years after the earliest date of which the plaintiff had actual knowledge of the breach or violation.” (There are exceptions and other limitations that do not come into play in the case at hand.) The issue that has split the circuits is the meaning of the phrase “actual knowledge of the breach or violation.” In the earliest case on the subject, 1985′s Blanton v. Anzalone, 760 F.2d 989, the 9th Circuit took what might be termed a “just the facts” approach: “The statute of limitations is triggered by . . . knowledge of the transaction that constituted the alleged violation, not by . . . knowledge of the law.” The opposing facts-plus-law view was presented by the 3d Circuit in 1992′s International Union v. Murata Erie North America Inc., 980 F.2d 889: ” ‘Actual knowledge’ requires a showing that plaintiffs actually knew not only of the events that occurred which constitute the breach or violation but also that those events supported a claim for breach of fiduciary duty or violations under ERISA.” The 2d Circuit presents a special case. As noted by the Wright court, the 2d Circuit’s 2001 decision, Caputo v. Pfizer Inc., 267 F.3d 181, quotes from both streams of thought without distinguishing them. The Wright court essentially threw up its hands, called the 2d Circuit’s approach a “hybrid,” and quoted Caputo at length in lieu of attempting to summarize its holding. The 6th Circuit joined the “just the facts” camp because it felt that approach best served the fundamental purposes of statutes of limitation: “preventing plaintiffs from sleeping on their rights and prohibiting the prosecution of stale claims.” The court threw out the doctors’ claim, noting that they knew something was fishy as early 1992, yet waited until 1998 to file suit. It added that because the doctors were counseled to seek legal advice in early 1995, their claim would probably have failed even under a facts-plus-law regime. Young’s e-mail address is gyoungnlj.com .

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