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An investor’s breach of fiduciary duty claim under ERISA can survive because the statute of limitations did not start ticking until the plaintiff had actual knowledge that an ERISA claim existed, the 3rd U.S. Circuit Court of Appeals has ruled, reinforcing the two-prong statute of limitations standard established by the court in Montrose Med. Grp. Participating Sav. Plan v. Bulger. In Richard B. Roush Inc. Profit Sharing Plan v. The New England Mutual Life Insurance Co., a unanimous three-judge panel found that the plaintiff did not have the “actual knowledge” required under ERISA to start the three-year statute of limitations favored by the defendant. The panel’s decision reverses the district court’s ruling. “The record clearly reveals to us that in December 1995, Roush did not have ‘actual knowledge’ that he had an ERISA cause of action,” Judge Leonard I. Garth wrote. Judges Thomas L. Ambro and Maryanne Trump Barry also sat on the panel. On Dec. 6, 1995, Roush, a company named after its owner, executed the New England Age Based Contribution Plus Profit Sharing Plan Adoption Agreement which was designed by New England. New England issued a group annuity policy on March 29, 1995, and the policy was to pay the benefits under the plan, according to court records. Under the policy, New England would maintain a general account and several separate accounts in which it would invest Roush’s funds, according to Roush employees’ designations. General account funds earned a fixed interest rate determined by New England, and the separate accounts received earnings based on market performance, according to the opinion. On May 24, 1995, Roush transferred $961,394 to New England for allocation into separate accounts. According to the opinion, between May 24 and Sept. 30, Roush made several requests to New England for a complete accounting report of the funds. In September and November, New England provided reports but did not provide specific information on the accounts, court records stated. According to the opinion, Roush informed New England that the account allocation and balances were incorrect and demanded that adjustments be made and that correct reports be provided. In December 1995, New England’s attorney, Stephen Chiumenti, wrote a letter to Roush admitting New England’s failure to properly invest the funds, the opinion stated. In part, the letter read: “We want to confirm that the instructions that we received dated May 22, 1995 continue to be valid directions. If so, we will implement them immediately without prejudice to your rights regarding the intervening delay.” The bulk of the general account was then transferred to the separate accounts on Dec. 14, 1995, except for $25,000, which, according to court records, Roush asked to be transferred to the separate accounts, but the amount was not transferred. In July 1996, Chiumenti sent a second letter that assured Roush that New England planned to adjust the separate accounts to reflect Roush’s instructions, according to the opinion. Roush demanded that funds be increased to account for the loss of interest in the investment delay and that all accounts be transferred out of New England without the company’s 5 percent surrender charge. According to the opinion, Chiumenti stated to Roush that New England would not waive the surrender charge or make any adjustments for the lost interest if Roush withdrew its accounts from New England. He also wrote that New England would adjust the balance to reflect dividends from the investment delay in the amount of $101,727 only if Roush agreed to a settlement agreement and release or rolled over the funds into a new policy. Roush stated in court papers that New England owed it at least $313,000. Roush then filed suit against New England in the U.S. District Court for the Middle District of Pennsylvania on March 26, 1999, alleging ERISA and state law claims regarding the management of assets under the pension benefit plan. New England filed a motion to dismiss the state law claims based on ERISA pre-emption. Roush then filed an amended complaint on June 14, 1999, asserting, in its first count, breaches of fiduciary duty under ERISA, failing to provide a complete accounting, failing to credit accounts according to Roush’s instructions, failing to provide administrative services and failing to return the plan funds with the returns generated by the funds. In count two, Roush alleged that New England participated in several prohibited transactions under ERISA. Roush moved for partial summary judgment on liability on June 19, 2000, and New England moved for summary judgment on July 13, 2000. In October, the district court denied Roush’s motion, because, it said, the statute of limitations under ERISA, 29 U.S.C. §1113(2), had expired, and granted New England’s motion. Roush appealed the decision. In part, § 1113 reads: “No action may be commenced under this subchapter with respect to a fiduciary’s breach … after the earlier of (1) six years after the date of the last action which constituted a part of the breach or violation or in the case of an omission, the latest date on which the fiduciary could have cured the breach or violation or three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation.” In order for New England to prevail, Garth wrote in the opinion, it would have to fulfill the two-prong test established in 2001′s Montrose that interprets “actual knowledge” as requiring not only actual knowledge of the facts giving rise to the fiduciary violation but also as requiring actual knowledge that those facts supported a claim of breach of fiduciary duty under ERISA. In Montrose, a hospital filed suit against an insurance company in charge of the hospital’s retirement plan for breach of fiduciary duty. The main issue in the case was whether the hospital had “actual knowledge” of its ERISA claim by November 1991. If the hospital did have actual knowledge, its claim would be barred by the three-year statute of limitations. The court concluded that the hospital could not have had actual knowledge that an ERISA claim existed since it did not know that the plan in question was covered by ERISA. Turning to the case at bar, Garth said that Roush knew in December 1995 that New England had not followed instructions, had not provided complete accountings and had not allocated funds to the separate accounts for each plan participant. “What Roush did not know was that those actions by New England had harmed him or would have harmful consequences — an ingredient of the second prong of ‘actual knowledge,’” Garth wrote. Roush could not have known that it had a cause of action at the time Chiumenti sent the first letter, as New England claimed, because Chiumenti said New England would carry out Roush’s instructions and that Roush would receive returns based on these instructions. The court also emphasized that in December 1995, the date that the district court marked as the statute of limitations start date, Roush had not yet received an accurate accounting report. “Without knowledge of how New England had handled, invested or allocated the $961,394.84 transferred to it and with assurances that all would be corrected and without prejudice to Roush’s rights, it cannot be said, let alone inferred, that Roush had ‘actual knowledge’ of the harm he ultimately was to suffer,” Garth said. “The undisputed facts establish that under the second prong for ‘actual knowledge’ of an ERISA cause of action … Roush did not have the required ‘actual knowledge.’” Roush, the court determined, could not have had actual knowledge until March 26, 1996, at the earliest — the date it filed suit in the Middle District, and therefore the three-year statute of limitations could not be a bar to the action against New England. “It would be ludicrous to require a claimant who had been informed that his claims would be favorably resolved or that ‘the check is in the mail’ to institute immediately a legal action,” Garth said. “Chiumenti’s letter, at the very least, acted to lull Roush into inaction until such time as New England’s violations were cured, proper accountings were received and adjustments to the accounts were made.” E. Parry Warner and William J. Leonard of Obermayer, Rebmann, Maxwell & Hippell represented Roush. E. Thomas Henefer of Stevens & Lee represented New England.

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