National Security Systems, Inc. v. Iola

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 10-4154

_____________

NATIONAL SECURITY SYSTEMS, INC.;

STEVEN CAPPELLO;

UNIVERSAL MAILING SERVICE, INC.;

MICHAEL MARONEY, SR.; MICHAEL MARONEY, JR.;

LIMA PLASTICS, INC.;

JOSE M. CARIA, also known as JOSEPH M. CARIA;

MARGIT GYANTOR;

FINDERNE MANAGEMENT COMPANY, INC.;

ROCQUE DAMEO; DANIEL DAMEO;

ALLOY CAST PRODUCTS, INC.;

KENNETH FISHER; FRANK PANICO

v.

ROBERT L. IOLA, JR.; JAMES W. BARRETT;

GERARD T. PAPETTI;

CIGNA FINANCIAL ADVISORS INC;

LINCOLN NATIONAL LIFE INSURANCE COMPANY;

U.S. FINANCIAL SERVICES CORPORATION;

RONN REDFEARN; STEVEN G. SHAPIRO;

TRI-CORE, INC.;

COMMONWEALTH LIFE INSURANCE COMPANY;

MONUMENTAL LIFE INSURANCE COMPANY;

PEOPLES SECURITY LIFE INSURANCE COMPANY;

RAYMOND J. ANKNER; BEAVEN COMPANIES, INC.;

CJA ASSOCIATES, INC.;

NATIONSBANK TEXAS TRUST;

RIGGS NATIONAL BANK; PNC BANK N.A.;

BANK OF AMERICA

1

UNIVERSAL MAILING SERVICE, INC.;

MICHAEL MARONEY, SR.; MICHAEL MARONEY, JR.;

LIMA PLASTICS, INC.; JOSE M. CARIA, also known as

JOSEPH M. CARIA; MARGIT GYANTOR;

FINDERNE MANAGEMENT COMPANY, INC.;

ROCQUE DAMEO; DANIEL DAMEO;

ALLOY CAST PRODUCTS, INC.;

KENNETH FISHER; FRANK PANICO,

Appellants

_____________

No. 10-4155

_____________

NATIONAL SECURITY SYSTEMS, INC.;

STEVEN CAPPELLO;

UNIVERSAL MAILING SERVICE, INC.;

MICHAEL MARONEY, SR.; MICHAEL MARONEY, JR.;

LIMA PLASTICS, INC.;

JOSE M. CARIA, also known as JOSEPH M. CARIA;

MARGIT GYANTOR;

FINDERNE MANAGEMENT COMPANY, INC.;

ROCQUE DAMEO; DANIEL DAMEO;

ALLOY CAST PRODUCTS, INC.;

KENNETH FISHER; FRANK PANICO

v.

ROBERT L. IOLA, JR.; JAMES W. BARRETT;

GERARD T. PAPETTI;

CIGNA FINANCIAL ADVISORS INC;

LINCOLN NATIONAL LIFE INSURANCE COMPANY;

U.S. FINANCIAL SERVICES CORPORATION;

RONN REDFEARN; STEVEN G. SHAPIRO;

TRI-CORE, INC.;

COMMONWEALTH LIFE INSURANCE COMPANY;

MONUMENTAL LIFE INSURANCE COMPANY;

PEOPLES SECURITY LIFE INSURANCE COMPANY;

2

RAYMOND J. ANKNER; BEAVEN COMPANIES, INC.;

CJA ASSOCIATES, INC.;

NATIONSBANK TEXAS TRUST;

RIGGS NATIONAL BANK; PNC BANK N.A.;

BANK OF AMERICA

JAMES W. BARRETT,

Appellant

_____________

On Appeal from the United States District Court

for the District of New Jersey

(No. 3-00-cv-06293)

District Judge: Honorable Anne E. Thompson

Argued November 16, 2011

Before: FUENTES and CHAGARES, Circuit Judges, and

RESTANI, Judge.*

(Filed: November 8, 2012)

Steven J. Fram, Esq. (Argued)

Kerri E. Chewning, Esq.

Archer & Greiner

One Centennial Square

P.O. Box 3000

Haddonfield, NJ 08033

Counsel for Appellants / Cross-Appellees

Edward M. Koch, Esq.

White & Williams

1650 Market Street

One Liberty Place, Suite 1800

Philadelphia, PA 19103

Christopher P. Leise, Esq. (Argued)

*

Honorable Jane A. Restani, Judge, United States Court of

International Trade, sitting by designation.

3

White & Williams

457 Haddonfield Road

Suite 400, Liberty View

Cherry Hill, NJ 07095

Counsel for Appellee / Cross-Appellant

____________

OPINION

____________

CHAGARES, Circuit Judge.

We are called upon once again to address litigation

arising out of a tax avoidance scheme devised in the late

1980s.1 Defendant James Barrett, a financial planner,

induced the plaintiffs, four small New Jersey corporations and

their respective owners, to adopt an employee welfare benefit

plan known as the Employers Participating Insurance

Cooperative (―EPIC‖). EPIC‘s advertised tax benefits, the

plaintiffs discovered years later, were illusory; the scheme

masqueraded as a multiple employer welfare benefit plan, but

in fact was a method of deferring compensation. After the

Internal Revenue Service audited the plaintiffs‘ plans and

disallowed certain deductions claimed on their federal income

tax returns, the plaintiffs initiated this suit against Barrett and

other entities involved in the scheme. They asserted claims

under the Employee Retirement Income Security Act of 1974

(―ERISA‖), 29 U.S.C. §§ 1001-1461; the civil component of

the Racketeer Influenced and Corrupt Organization Act

(―RICO‖), 18 U.S.C. §§ 1961-1968; and New Jersey statutory

and common law. A jury found Barrett liable on the

plaintiffs‘ common law breach of fiduciary duty claim, but

1

This Court has, on at least three occasions, considered

claims arising out of employee welfare benefit plans with tax

avoidance features resembling the scheme at the root of this

case. See Cetel v. Kirwan Fin. Grp., Inc., 460 F.3d 494 (3d

Cir. 2006); Neonatology Assocs., P.A. v. Comm‘r, 299 F.3d

221 (3d Cir. 2002); Faulman v. Sec. Mut. Fin. Life Ins. Co.,

353 F. App‘x 699, 2009 WL 4367311 (3d Cir. Dec. 3, 2009).

4

not liable on their RICO claim. The District Court held a

bench trial on the ERISA claim and issued partial judgment

for the plaintiffs.

The parties raise a litany of challenges to rulings made

by the District Court over the course of the proceedings.

Several of their claims present matters of first impression in

this Circuit. For the reasons that follow, we will affirm the

District Court in most respects. On the issues of whether the

District Court properly deemed certain state law causes of

action preempted by ERISA, properly held certain ERISA

claims time-barred, and properly limited the jury‘s

consideration of one theory of recovery under RICO, we will

vacate and remand for further proceedings.

I.2

A.

EPIC was a complex tax avoidance scheme designed

to exploit 26 U.S.C. § 419A(f)(6), a tax code provision that

exempts ―10-or-more-employer plans‖ from limitations on

employers‘ deductions for contributions to employee welfare

benefit plans. See IRS Notice 95-34, 1995-1 C.B. 309.

Promoters of EPIC marketed it to closely held corporations as

a means of obtaining two attractive tax benefits: pre-

retirement, it permitted employers to claim large deductions

for contributions to employee benefit plans, and post-

retirement, it promised owner-employees a stream of tax-free,

annuity-like payments. Defendant Ronn Redfearn, a now-

deceased insurance salesman, created EPIC. He formed

defendant Tri-Core, Inc., a corporation that has since filed for

bankruptcy protection, to administer employee benefit plans

that conformed with EPIC‘s specifications.

EPIC purported to be a multiple employer welfare

benefit plan and trust, but in fact was an umbrella structure

within which discrete employee welfare benefit plans

operated. To join EPIC, a participating corporation signed a

standard form contract drafted by Tri-Core and titled the

2

We recount the facts based on the findings made by the

District Court in the bench trial.

5

―EPIC Welfare Benefit Plan and Trust Adoption Agreement‖

(―Adoption Agreement‖). An Adoption Agreement

established an employee welfare benefit plan funded by

employer contributions, set up a trust to hold plan assets, and

generally bound the employer to the terms of participation in

EPIC. It denominated the employer as the plan fiduciary and

administrator, but also required the employer to delegate

―substantial ministerial functions‖ to Tri-Core. In particular,

Tri-Core was responsible for formulating rules necessary to

administer the plans, determining employees‘ eligibility for

benefits, processing claims, collecting and accounting for

premiums, and directing others with respect to plan

administration.

Tri-Core selected two group term life insurance

policies as the only investment vehicles for the plans. The

Inter-American Insurance Company of Illinois initially issued

the policies, but after it declared bankruptcy in 1991,

defendant Commonwealth Life Insurance Company

(―Commonwealth‖) began issuing the policies. One of the

products, the Millennium Group 5 (―MG-5‖) policy, provided

participants with a fixed pre-retirement death benefit, charged

premiums commensurate with risk, and extended to

participants an option to convert to an individual life

insurance policy upon retirement or termination of

employment.

The second product was the continuous group (―C-

group‖) policy. A C-group policy consisted of two phases:

an accumulation phase and a payout phase. In the

accumulation phase, the employer made contributions (in the

form of insurance premiums) to a group term life insurance

policy that funded a guaranteed pre-retirement death benefit

for an employee‘s beneficiaries. The policies were valued at

a multiple of the employee‘s most recent annual salary. C-

group premiums far exceeded premiums for conventional life

insurance policies, often by a multiple of four to six. The

portion of the premium necessary to fund the death benefit

was set aside for that purpose. The remainder of the premium

— the difference between the C-group premiums and the

actual cost of insuring the employee‘s life — was reserved as

so-called ―conversion credits.‖ Conversion credits were

maintained in a ―premium stabilization reserve fund,‖ an

6

account that guaranteed policy holders a minimum interest

rate.

To transition to the payout phase, the employee could

convert from the group term life insurance policy to an

individual life insurance policy. Conversion could occur

under five circumstances, including retirement or termination

of employment. Upon conversion, the death benefit from the

group policy would transfer to the employee‘s individual

policy, as would conversion credits from the interest-bearing

account. The value of the transferred conversion credits was

calculated at the time of conversion and was not guaranteed.

A portion of the conversion credits was earmarked for

lowering the post-retirement premium to the premium

associated with the employee‘s age at the time of entry into

EPIC rather than at the time of conversion. Surplus

conversion credits not necessary for keeping the policy in

force were then made available to the employee, who could

borrow against the policy at an interest rate identical to that of

the interest-bearing account in which the conversion credits

were held. That is, the employee could withdraw funds from

the policy as a loan that would never be repaid. In this way,

the employee could access, as tax-free income, excess funds

paid as ―contributions‖ by the employer to the plan.

As mentioned, EPIC called for establishment of a trust

to hold and manage each plan‘s assets. A number of banks

were designated trustees of EPIC plans over the course of

EPIC‘s operation. In practice, Tri-Core, not the trustees,

directed the management of plan assets; the trustee operated

only as a pass-through entity. When an employer adopted an

EPIC plan, Tri-Core instructed the trustee to purchase the mix

of MG-5 and C-group life insurance products selected by the

employer. The employer then deposited its contributions with

the bank trustee on a biannual or quarterly schedule, and the

trustee remitted the premiums to Commonwealth‘s general

asset account. Commonwealth thereafter placed a portion of

the payments in the premium stabilization reserve fund.

As the architect, promoter, and manager of EPIC, Tri-

Core received a commission from Commonwealth on each C-

group policy it sold. Commonwealth paid Tri-Core out of its

general asset account and set the commission rate at a

7

percentage of the employers‘ annual contributions. Tri-Core

typically received up to 85% of employer contributions in the

first year of the policy and approximately 6% in subsequent

years, and then redistributed part of its commission to the

insurance broker who sold the EPIC plans.

B.

Redfearn enlisted defendant James Barrett in 1989 to

market EPIC to closely held corporations with few employees

and principals between the ages of 45 and 60. At the time,

Barrett was a financial planner employed by Cigna Financial

Advisors, Inc. In the years that followed, Barrett provided

financial planning advice to each of the plaintiffs: Michael

Maroney, Sr. and Michael Maroney, Jr., executive officers of

Universal Mailing Service, Inc. (collectively, the ―Universal

Mailing plaintiffs‖); Jose Caria and Margit Gyantar,

executive officers of Lima Plastics, Inc. (collectively, the

―Lima Plastics plaintiffs‖); Rocque Dameo and Daniel

Dameo, executive officers of Finderne Management

Company, Inc. (collectively, the ―Finderne plaintiffs‖); and

Kenneth Fisher and Frank Panico, executive officers of Alloy

Cast Products, Inc. (collectively, the ―Alloy Cast plaintiffs‖).3

We hereinafter refer to the four corporations as the ―corporate

plaintiffs‖ and the eight executive officers as the ―individual

plaintiffs.‖

Acting as Tri-Core‘s regional agent for New Jersey,

Barrett introduced EPIC to the individual plaintiffs and

recommended that their companies establish employee

benefit plans within the EPIC umbrella. Barrett plied them

with projections of their tax-free retirement income,

brochures and other marketing materials produced by Tri-

Core, and a legal opinion letter that vouched for the validity

of the favorable tax benefits.4 Employers‘ inflated

3

Two additional plaintiffs, National Security Systems, Inc.

and Steven Cappello, settled their claims and are not involved

in this appeal.

4

Trial testimony disclosed Barrett‘s knowledge of a

published article that questioned the validity of the EPIC

model. Appendix (―App.‖) 6649-52, 6659. The District

Court made no findings of fact with respect to Barrett‘s

8

contributions to the plans‘ group insurance policies, Barrett

represented, were fully deductible as business expenses, and

employees with C-group policies could expect tax-free

retirement income. Barrett did not explain that the

conversion credits — the source of the projected post-

retirement income — were not guaranteed, but in fact were

calculated by Tri-Core at the time of conversion.

Finding Barrett persuasive, each of the corporate

plaintiffs elected to establish an employee welfare benefit

plan within EPIC. They did so primarily because they

believed that it would provide them a tax-advantageous way

to save for retirement. Between 1990 and 1992, each

executed an Adoption Agreement with Tri-Core. Per the

Adoption Agreements, the corporate plaintiffs assumed the

role of sponsor and administrator of their employee welfare

benefit plans. As administrators, they selected one of the two

life insurance products designated by Tri-Core — the MG-5

policy or the C-group policy — for each employee. On

Barrett‘s recommendation, the corporate plaintiffs purchased

C-group policies for each of the individual plaintiffs and MG-

5 policies for other employees in the company. In other

words, the individual plaintiffs designed the plans to generate

tax-free post-retirement income for themselves, but not for

their employees. As required by their Adoption Agreements,

the corporate plaintiffs delegated most of their plan

management and investment duties to Tri-Core.

Tri-Core and Barrett (acting as an agent of Tri-Core)

frequently sent the corporate plaintiffs invoices for their

quarterly or biannual premiums. They also collected the

corporate plaintiffs‘ plan contributions and forwarded the

payments to the trustees. Barrett served as Tri-Core‘s contact

person for the plaintiffs, fielding their inquiries about plans

and benefits. He was not named a fiduciary of the employers‘

plans, nor did he have discretion to manage or invest plan

assets.

The Universal Mailing and Alloy Cast plaintiffs were

notified when they established their plans that Tri-Core would

awareness that EPIC posed tax risks to participating

employers.

9

receive a commission on the purchase of their life insurance

contracts, but they were not provided information on the

amount of the commission, who paid it, or how it was

calculated. From its commission, Tri-Core paid Barrett the

equivalent of 40-50% of the corporate plaintiffs‘ first-year

plan contributions and 3% of their contributions in

subsequent years. Barrett, in turn, distributed a portion of his

commission to co-brokers. Some of the plaintiffs were aware

that Barrett received commissions, but he did not tell them

how much he was paid or how his compensation was

calculated.

Between 1990 and 1997, the corporate plaintiffs each

made contributions to their plans totaling several hundred

thousand dollars.5 On their federal income tax returns, they

deducted the contributions in full as ordinary and necessary

business expenses pursuant to 26 U.S.C. § 162. In 1995, the

Internal Revenue Service (―IRS‖) issued Notice 95-34, which

concerned employer trust arrangements premised on the same

scheme as EPIC. See 1995-1 C.B. 309. The Notice

explained that the arrangements do not satisfy the 10-or-

more-employer-plan exemption provided by § 419A(f)(6)

because they call for individual plans maintained by each

employer.6 Employers, the IRS warned, should expect

disallowance of deductions for contributions made to such

plans. The Notice characterized EPIC-style plans as

providing deferred compensation subject to taxation.

In 1997 and 1998, the IRS audited certain tax returns

of each of the corporate plaintiffs. Consistent with its

position in the Notice, the IRS disallowed most of their

deductions.7 Each corporate plaintiff incurred over $100,000

in fees and taxes or penalties.8

5

The Lima Plastics plaintiffs contributed $726,001.00, the

Alloy Cast plaintiffs $378,057.87, the Finderne plaintiffs

$336,591.86, and the Universal Mailing plaintiffs

$755,819.00.

6

The United States Tax Court endorsed this position in Booth

v. Commissioner, 108 T.C. 524, 571 (T.C. 1997).

7

In Neonatology Associates, P.A. v. Commissioner, 115 T.C.

43 (T.C. 2000), the United States Tax Court considered two

test cases involving a tax deferral scheme that mirrored EPIC.

10

II.

A.

The Finderne plaintiffs and Alloy Cast plaintiffs

initiated separate actions in New Jersey Superior Court

against Barrett and related defendants in 1999. Asserting a

number of state law claims, they alleged that Barrett‘s

fraudulent misrepresentations about the tax benefits of the

plan caused them substantial economic injury. The trial

judges in those actions issued judgments for the defendants

on the basis that the claims were preempted by ERISA and

that federal courts retain exclusive jurisdiction over the

ERISA claims. Finderne Mgmt. Co. v. Barrett, 809 A.2d 842,

847 (N.J. Super. Ct. App. Div. 2002).

The cases were consolidated on appeal and the

Appellate Division of the New Jersey Superior Court

reversed, holding that ERISA did not preempt the state law

claims. Id. at 856. The court first determined that although

the EPIC structure itself was not a multiple employer

employee welfare benefit plan under ERISA, each individual

employer plan did constitute an ERISA employee benefit

plan. Id. at 850-51. The court nevertheless determined that

ERISA did not preempt the plaintiffs‘ state law claims

because the harm alleged — reliance on misrepresentations

about the tax benefits of the EPIC model made in the course

of marketing EPIC — occurred before the corporate plaintiffs

established their individual ERISA plans. Id. at 855. The

challenged conduct, therefore, did not ―relate to‖ an ERISA

plan. Id. (applying 29 U.S.C. § 1144(a)). Moreover, the

court explained, Barrett‘s alleged misrepresentations that the

plans would qualify for favorable tax treatment did ―not

impact the structure or administration of the ERISA plans;

The court upheld the Commissioner‘s disallowance of

deductions and imposition of penalties on participant

corporations. We affirmed that decision. Neonatology, 299

F.3d at 233.

8

However, the District Court found that ―the effect of the IRS

audit on the Finderne plaintiffs was not established at trial.‖

App. 56 ¶ 46.

11

they [did] not relate to any state laws that regulate the type of

benefits or terms of the ERISA plan; they [were] unrelated to

laws creating reporting, disclosure, funding or vesting

requirements or the plans; and they [did] not affect the

calculation of plan benefits.‖ Id. at 855.

On remand, the Finderne plaintiffs added a federal

RICO claim which, along with a common law breach of

fiduciary duty claim, was tried before a jury. The jury

returned a verdict for the plaintiffs and awarded

approximately $70,000 in damages. The judgment was

affirmed on appeal. Finderne Mgmt. Co. v. Barrett, 955 A.2d

940 (N.J. Super. Ct. App. Div. 2008). The Alloy Cast

plaintiffs‘ case on remand was removed to federal court and

consolidated with this case.

B.

In December 2000, the plaintiffs initiated this action in

the United States District Court for the District of New

Jersey. The amended complaint asserted eighteen claims

against seventeen defendants, but the only allegations

relevant here are that Tri-Core and Barrett intentionally

misrepresented or failed to disclose material information

about EPIC. In general, the claims fall into three substantive

theories of liability. Tri-Core and Barrett allegedly (1)

misrepresented the tax risks and benefits of the plans, (2)

concealed their extraction of commissions from the plaintiffs‘

contributions to the plans, and (3) misrepresented the ability

of plan participants to access conversion credits in their

premium rate stabilization funds. Against Barrett, the

corporate plaintiffs asserted claims under ERISA § 502(a)(2)

and (a)(3) for violations of the duties imposed by ERISA §§

404, 405, and 406. In addition, the plaintiffs asserted five

civil RICO claims under 18 U.S.C. § 1964(c), as well as nine

state statutory and common law claims, including breach of

fiduciary duty.

The parties filed cross motions for partial summary

judgment. With respect to the Finderne plaintiffs, the District

Court granted summary judgment in favor of Barrett on all

claims that were or could have been asserted in the state court

proceeding. What remained were the Finderne plaintiffs‘

12

ERISA claims, which survived because Congress vested

federal courts with exclusive jurisdiction over most ERISA

claims. See 29 U.S.C. § 1132(e).

The District Court next turned to Barrett‘s contention

that he was not a proper defendant under ERISA § 502(a)(2)

and (a)(3). Barrett was not a fiduciary with respect to the

plans, the court explained. In effect, this legal conclusion

necessitated the grant of summary judgment to Barrett on the

§ 502(a)(2) claim, for that provision only provides a cause of

action against ERISA fiduciaries. See 29 U.S.C. §§ 1109,

1132(a)(2); Mertens v. Hewitt Assocs., 508 U.S. 248, 252-53

(1993).9 But Barrett‘s status as a nonfiduciary, the court

continued, did not preclude potential liability under §

502(a)(3), for that provision permits claims for equitable

relief against knowing participants in a fiduciary‘s breach of

its fiduciary obligations under ERISA. By requesting

disgorgement of Barrett‘s commissions, the court determined,

the plaintiffs sought ―appropriate equitable relief‖ within the

meaning of § 502(a)(3). The court also rejected Barrett‘s

argument that the ERISA claims were barred by the statute of

limitations set forth in 29 U.S.C. § 1113 because no evidence

revealed when the plaintiffs became aware of Tri-Core‘s

commissions. Finding a number of remaining disputes of

material fact, the court denied the plaintiffs‘ motion for

summary judgment on the § 502(a)(3) claim.

Finally, the District Court addressed Barrett‘s

argument that certain state law claims (asserted by the Alloy

Cast, Lima Plastics, and Universal Mailing plaintiffs) were

preempted by ERISA § 514(a). Reasoning that state law

claims based on misrepresentations made by Barrett about tax

advantages did not ―relate to‖ the individual ERISA plans

because they pre-dated the plans‘ formation, the court found

no ERISA preemption. The court next considered state law

claims concerning Barrett‘s alleged misrepresentations about

9

Section 502(a)(2) extends a cause of action ―for appropriate

relief‖ under ERISA § 409. Section 409 makes a ―fiduciary

with respect to a plan‖ personally liable for losses caused by

its breach of fiduciary obligations imposed by ERISA and

permits a court to award ―equitable or remedial relief‖ against

the fiduciary. 29 U.S.C. § 1109(a).

13

conversion credits and commissions made before and after

the ERISA plans were established. Because those claims

―related to‖ alleged misconduct in the administration of the

plans, the District Court held, they were preempted.

C.

The District Court bifurcated the claims into those that

would be decided by a jury (the RICO and state law claims)

and those that would be decided by the court in a bench trial

(the ERISA claims).10 For the sake of judicial economy, the

court held one two-week trial in November and December of

2009. As a result of the summary judgment ruling and the

plaintiffs‘ withdrawal and settlement of claims, only the

ERISA, RICO, and common law breach of fiduciary duty

claims against Barrett remained by the end of the trial.

Consistent with the rationale of the preemption ruling, the

common law breach of fiduciary duty claim concerned only

Barrett‘s alleged pre-plan misrepresentations about EPIC‘s

tax benefits. The ERISA claims were narrowed to Barrett‘s

alleged participation in Tri-Core‘s breach of the fiduciary

duties imposed by ERISA §§ 404(b) and 406(b). Over the

plaintiffs‘ objection, the District Court instructed the jury not

to consider evidence pertaining to Tri-Core and Barrett‘s

commissions in their deliberations on the RICO claim.

The jury returned a verdict for Barrett on the RICO

claim and for the plaintiffs on the common law breach of

fiduciary duty claim. It awarded the plaintiffs the damages

they incurred as a result of the IRS audits: $128,925 to the

Alloy Cast plaintiffs, $133,415 to the Lima Plastics plaintiffs,

and $176,643 to the Universal Mailing plaintiffs. Barrett

promptly requested apportionment of damages between

Barrett and other tortfeasors — namely, Tri-Core and

Redfearn. Over the plaintiffs‘ objection, the court gave the

instruction, and the jury determined that one half of the

plaintiffs‘ loss was attributable to Tri-Core and Redfearn.

10

Because ERISA § 502(a)(3) authorizes only ―equitable

relief,‖ no right to a jury trial attaches under the Seventh

Amendment to the United States Constitution. Cox v.

Keystone Carbon Co., 861 F.2d 390, 393 (3d Cir. 1988).

14

That determination halved the damages recoverable from

Barrett.

The parties filed several post-trial motions. In a series

of decisions, the court granted Barrett‘s motion for judgment

as a matter of law on the plaintiffs‘ demand for punitive

damages; denied the plaintiffs‘ motion for a new trial on their

civil RICO claims; and denied the plaintiffs‘ motion for

judgment as a matter of law with respect to the jury‘s

apportionment of damages.

Some time later, the court issued its findings of fact

and conclusions of law with respect to the ERISA claims. As

had been established by the summary judgment ruling, the

claims only concerned misrepresentations made with respect

to commissions and the accessibility of conversion credits,

both of which occurred after the establishment of the plans.

The court reiterated that while the EPIC framework was not a

―multiple employer‖ welfare benefit plan within the meaning

of ERISA § 3(40), each individual plan at issue in this case

was covered by ERISA as a ―single-employer plan,‖ as

defined by ERISA § 3(41). See 29 U.S.C. § 1002(40), (41).

Turning to the status of the defendants, the District

Court reaffirmed that Tri-Core was a fiduciary under ERISA

§ 3(21)(A), 29 U.S.C. § 1002(21)(A), but Barrett was not.

The court determined that Barrett nevertheless could be held

accountable under § 502(a)(3) if he knowingly participated in

Tri-Core‘s violation of substantive ERISA provisions. The

District Court next ruled that Tri-Core breached its fiduciary

obligations imposed by ERISA § 406(b)(3), but not §§

406(b)(1) or 404. Taking the § 404 claim first, it explained

that Tri-Core did not misrepresent the accessibility of

conversion credits in the reserve fund because the plan

documents clearly stated that no employee was entitled to

employer contributions. Nor did Tri-Core misappropriate

plan assets for its own account, an act that would have

violated § 406(b)(1), because Tri-Core was no longer a

fiduciary when Commonwealth paid its commissions and

Commonwealth did not pay its commissions out of plan

assets. Regarding the plaintiffs‘ theory that Tri-Core received

excessive compensation, the court explained that the only

relevant testimony in the record confirmed that the

compensation was reasonable under industry norms. Finally,

15

to the extent that § 404 imposed a duty on Tri-Core to

disclose the fact and amount of its commissions, the court

found that any nondisclosure did not harm the plaintiffs

because the plans provided guaranteed benefits.

Tri-Core‘s receipt of commissions from

Commonwealth, however, did run afoul of § 406(b)(3),

according to the District Court. Section 406(b)(3), ERISA‘s

anti-kickback provision, bars a fiduciary from receiving

consideration in connection with a transaction involving plan

assets. 29 U.S.C. § 1106(b)(3). The District Court found that

Tri-Core promoted Commonwealth‘s policies as investment

vehicles for the plans knowing that it would draw a handsome

salary from Commonwealth on each C-group policy it sold.

This gave Tri-Core an incentive to recommend that the

plaintiffs choose C-group policies as plan assets. Indeed,

EPIC depended on funding the plans with C-group policies.

Section 406(b)(3), the court concluded, forbids this sort of

symbiotic relationship between a plan fiduciary and an

institution offering funding vehicles for the plan.

The reasonableness of Tri-Core‘s commissions, the

court next determined, was no defense. Whether or not Tri-

Core‘s commissions were reasonable, § 406(b)(3) erects a

categorical bar to such compensation. The court found that

an abundance of evidence established that Barrett knew about

and actively assisted in Tri-Core‘s violation of § 406(b)(3).

Accordingly, the court concluded that Barrett was liable

under § 502(a)(3) for his knowing participation in Tri-Core‘s

§ 406(b)(3) violation, and it issued judgment for the plaintiffs

on that claim.

Disgorgement of one-half of the commissions Barrett

received in connection with his sale of EPIC to plaintiffs, the

District Court determined, would most equitably remediate

their injuries.11 Exercising its discretion, the court applied a

11

The court ordered Barrett to disgorge $15,508.97 to the

Finderne plaintiffs, $41,634.35 to the Lima Plastics plaintiffs,

$38,657.08 to the Alloy Cast plaintiffs, and $16,657.61 to the

Universal Mailing plaintiffs.

16

prejudgment interest rate of 3.91%12 and declined to award

the plaintiffs attorneys‘ fees and costs.

Both parties moved to amend the judgment. The

District Court granted in part and denied in part the motions.

Reversing its prior ruling, it held the Alloy Cast and

Universal Mailing plaintiffs‘ ERISA claims were time-barred

in light of evidence establishing their awareness, dating to

1990, of Tri-Core‘s § 406(b)(3) violation. The parties‘

remaining contentions, the court concluded, had already been

resolved or were otherwise meritless. The plaintiffs timely

appealed and Barrett cross appealed.

III.

We have subject matter jurisdiction over this case

under 28 U.S.C. §§ 1331 and 1367 and 29 U.S.C. § 1132(e).

Our appellate jurisdiction is based on 28 U.S.C. § 1291.

―We exercise plenary review over a district court‘s

summary judgment ruling.‖ Disabled in Action of Pa. v. Se.

Pa. Transp. Auth., 635 F.3d 87, 92 (3d Cir. 2011) (quotation

marks omitted). ―Summary judgment is appropriate only

where, drawing all reasonable inferences in favor of the

nonmoving party, there is no genuine issue as to any material

fact and . . . the moving party is entitled to judgment as a

matter of law.‖ Id. In an appeal from an ERISA bench trial,

we review the District Court‘s findings of fact for clear error

and its conclusions of law de novo. Vitale v. Latrobe Area

Hosp., 420 F.3d 278, 281 (3d Cir. 2005).

IV.

Congress enacted ERISA ―to ensure the proper

administration of pension and welfare plans, both during the

years of the employee‘s active service and in his or her

retirement years.‖ Boggs v. Boggs, 520 U.S. 833,

12

The court borrowed the rate from that set forth in 28 U.S.C.

§ 1961. Its calculus resulted in $29,114.72 for the Finderne

plaintiffs, $81,941.41 for the Lima Plastics plaintiffs,

$76,329.75 for the Alloy Cast plaintiffs, and $29,458.71 for

the Universal Mailing plaintiffs.

17

839 (1997). Crafted to bring order and accountability to a

system of employee benefit plans plagued by

mismanagement, see Massachusetts v. Morash, 490 U.S. 107,

112 (1989), ERISA is principally concerned with protecting

the financial security of plan participants and beneficiaries.

29 U.S.C. § 1001(b); Boggs, 520 U.S. at 845; Shaw v. Delta

Air Lines, Inc., 463 U.S. 85, 90 (1983). To this end, the

statute sets forth detailed disclosure and reporting obligations

for plans and imposes various participation, vesting, and

funding requirements. See 29 U.S.C. §§ 1021-1086; Morash,

490 U.S. at 113.

Relevant here, ERISA also prescribes standards of

conduct for plan fiduciaries, derived in large part from the

common law of trusts. 29 U.S.C. §§ 1101-1114; Firestone

Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989).

Section 404 requires fiduciaries to discharge their duties

―solely in the interest of the participants and beneficiaries . . .

with the care, skill, prudence, and diligence under the

circumstances then prevailing that a prudent man acting in a

like capacity‖ would use. 29 U.S.C. § 1104(a)(1).

Supplementing that foundational obligation is § 406, which

prohibits plan fiduciaries from entering into certain

transactions. Id. § 1106. Subsection (a) erects a categorical

bar to transactions between the plan and a ―party in interest‖

deemed likely to injure the plan. Id. § 1106(a); Reich v.

Compton, 57 F.3d 270, 275 (3d Cir. 1995).13 Subsection (b)

prohibits fiduciaries from entering into transactions with the

plan tainted by conflict-of-interest and self-dealing concerns.

29 U.S.C. § 1106(b); Lowen v. Tower Asset Mgmt., Inc., 829

F.2d 1209, 1213 (2d Cir. 1987). Section 408 offsets § 406 by

creating exemptions from liability on certain transactions that

would otherwise be prohibited. 29 U.S.C. § 1108.

ERISA also aims ―to provide a uniform regulatory

regime over employee benefit plans‖ in order to ease

administrative burdens and reduce employers‘ costs. Aetna

13

ERISA defines ―party in interest‖ to include nine classes of

individuals or entities, 29 U.S.C. § 1002(14), but the general

concept ―encompass[es] those entities that a fiduciary might

be inclined to favor at the expense of the plan‘s

beneficiaries.‖ Harris Trust & Sav. Bank v. Salomon Smith

Barney, Inc., 530 U.S. 238, 242 (2000).

18

Health Inc. v. Davila, 542 U.S. 200, 208 (2004). To ensure

that plan regulation resides exclusively in the federal domain,

Congress inserted in the statute an expansive preemption

provision, codified at § 514(a). See 29 U.S.C. § 1144(a);

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523

(1981). Congress paired § 514(a) with § 502(a), which

enumerates a set of integrated civil enforcement remedies

designed to redress violations of the statute or the terms of a

plan. See 29 U.S.C. § 1132(a).

All of these aspects of ERISA are at issue in this case.

In the sections that follow, we address the plaintiffs‘

objections to the District Court‘s ruling on preemption, the

amenability of Barrett to suit under ERISA for his

participation in a violation of Tri-Core‘s fiduciary

obligations, and the availability of various statutory defenses

to liability. We also examine the District Court‘s application

of ERISA‘s statute of limitations and its award of equitable

relief in favor of the plaintiffs.

A.

We begin with the plaintiffs‘ challenge to the grant of

partial summary judgment in favor of Barrett on the basis that

ERISA preempts a subset of the state law claims.14 The

complaint alleged that Barrett induced the plaintiffs to

participate in EPIC by misrepresenting the tax advantages of

the plans, the accessibility of conversion credits, the presence

of a reserve fund, and the nature of the commissions he and

Tri-Core anticipated earning. It also alleged that Barrett

encouraged the plaintiffs‘ ongoing participation in EPIC after

the plans‘ adoption by continuing to misrepresent the

accessibility of conversion credits within a reserve fund and

by concealing information about the commissions he and Tri-

Core earned. Insofar as the claims of fraud, breach of

fiduciary duty, breach of contract, breach of the implied duty

of good faith and fair dealing, and conspiracy/aiding and

abetting pertained to alleged misrepresentations about

commissions, the accessibility of conversion credits, and the

14

We exercise plenary review over the legal question of

ERISA preemption. Barber v. UNUM Life Ins. Co. of Am.,

383 F.3d 134, 138 n.5 (3d Cir. 2004).

19

presence of a reserve fund, the District Court deemed them

preempted.

ERISA possesses ―extraordinary pre-emptive power.‖

Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 65 (1987). Its

broad preemptive scope reflects Congress‘s intent to lodge

regulation of employee benefit plans firmly in the federal

domain. N.Y. State Conference of Blue Cross & Blue Shield

Plans v. Travelers Ins. Co., 514 U.S. 645, 656-57 (1995).

Consolidation of regulation and decisionmaking with respect

to covered plans in the federal sphere, Congress anticipated,

would promote uniform administration of benefit plans and

avoid subjecting regulated entities to conflicting sources of

substantive law. Id. at 657. This, in turn, would ―minimize

the administrative and financial burden‖ imposed on

regulated entities, Ingersoll-Rand Co. v. McClendon, 498

U.S. 133, 142 (1990), and expand employers‘ provision of

benefits in light of the more predictable set of liabilities, Rush

Prudential HMO, Inc. v. Moran, 536 U.S. 355, 379 (2002).

What emerged from Congress‘s deliberations on ERISA was

a statute that both preempts state law expressly and contains a

comprehensive civil enforcement scheme that preempts any

conflicting state remedy. Ingersoll-Rand, 498 U.S. at 138-45;

Barber, 383 F.3d at 138-41.15

The District Court focused on express rather than

conflict preemption, so we will begin by considering whether

the District Court properly found the plaintiffs‘ state law

causes of action expressly preempted. Section 514(a)

provides that ERISA ―shall supersede any and all State laws

insofar as they may now or hereafter relate to any employee

benefit plan[.]‖ 29 U.S.C. § 1144(a). A ―State law‖ under

the statute includes ―all laws, decisions, rules, regulations, or

other State action having the effect of law, of any State.‖ Id.

§ 1144(c)(1). State common law claims fall within this

15

Under the conflict preemption analysis, ―any state law

cause of action that duplicates, supplements, or supplants the

ERISA civil enforcement remedy conflicts with the clear

congressional intent to make the ERISA remedy exclusive

and is therefore pre-empted.‖ Davila, 542 U.S. at 209 (citing

Ingersoll-Rand, 498 U.S. at 143-45; Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41, 54-56 (1987)).

20

definition and, therefore, are subject to ERISA preemption.

See, e.g., Ingersoll-Rand, 498 U.S. at 140; Pilot Life Ins. Co

v. Dedeaux, 481 U.S. 41, 48 (1987).

The term ―relate to‖ in § 514(a) is ―deliberately

expansive.‖ Ingersoll-Rand, 498 U.S. at 138; Pilot Life, 481

U.S. at 46. Nevertheless, the Supreme Court cautions, its

broad scope cannot ―extend to the furthest stretch of its

indeterminacy‖; otherwise, ―for all practical purposes pre-

emption would never run its course.‖ Travelers, 514 U.S. at

655. The test for whether a state law cause of action

―relate[s] to‖ an employee benefit plan is whether ―‗it has a

connection with or reference to such a plan.‘‖ Egelhoff v.

Egelhoff ex rel. Breiner, 532 U.S. 141, 147 (2001) (quoting

Shaw, 463 U.S. at 97). The ―connection with‖ component of

this test, however, supplies scarcely more content than the

―relate to‖ formulation. So, in applying the test, we must also

look to ―‗the objectives of the ERISA statute as a guide to the

scope of the state law that Congress understood would

survive,‘ as well as to the nature of the effect of the state law

on ERISA plans.‖ Cal. Div. of Labor Standards Enforcement

v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 325 (1997)

(quoting Travelers, 514 U.S. at 658-59).

We are satisfied that the District Court correctly held

the plaintiffs‘ common law claims were preempted to the

extent they relate to Barrett‘s alleged misrepresentations,

made after the plans‘ adoption, about commissions and the

accessibility of conversion credits within a purported reserve

fund.16 Those claims have ―a connection with‖ the ERISA

plans because they are premised on the existence of the plans.

See Ingersoll-Rand, 498 U.S. at 140 (finding that a common

law claim for wrongful discharge ―relates to‖ an ERISA plan

because the cause of action ―is premised on[] the existence of

a pension plan‖). To prevail on those claims, the plaintiffs

would have had to plead, and the court to find, that the plans

were in fact adopted. The court would then be called on to

assess Barrett‘s representations in light of the plaintiffs‘

benefits and rights under the plans. This type of analysis —

16

The plaintiffs do not contend that any of the claims survive

by virtue of the insurance savings clause in § 514(b)(2)(A),

29 U.S.C. § 1144(b)(2)(A).

21

concerning the accuracy of statements made by an alleged

(state law) fiduciary to plan participants in the course of

administering the plans — sits within the heartland of ERISA.

See, e.g., Kollman v. Hewitt Assocs., LLC, 487 F.3d 139,

149–50 (3d Cir. 2007) (reasoning that the calculation and

payment of a benefit due to a plan participant goes to the

essential function of an ERISA plan). We therefore conclude

that the plaintiffs‘ common law claims are preempted to the

extent they relate to Barrett‘s conduct after he enrolled the

plaintiffs in EPIC.

We are left, then, with the plaintiffs‘ common law

claims concerning Barrett‘s representations about the

presence of a reserve fund, the accessibility of conversion

credits, and the nature of his commissions made before the

establishment of the plans.17 Those representations, plaintiffs

allege, induced them to participate in EPIC. Whether or not

claims touching on those alleged misrepresentations are

preempted requires us to confront the following question: do

common law claims that an insurance agent misrepresented

the structure and benefits afforded by an ERISA plan in order

to induce participation in that plan ―ha[ve] a connection with‖

the plan, such that they are preempted?

In answering this question, we are not without

guidance. Several Courts of Appeals have held that an

insurance agent who makes fraudulent or misleading

statements to induce participation in an ERISA plan is

amenable to suit under state law theories of recovery. See,

e.g., Woodworker‘s Supply, Inc. v. Principal Mut. Life Ins.

Co., 170 F.3d 985, 991-92 (10th Cir. 1999) (holding the

plaintiffs‘ fraudulent inducement claims not preempted

because the actions had occurred before the defendant had

become a fiduciary); Wilson v. Zoellner, 114 F.3d 713, 721

(8th Cir. 1997) (finding that a state law claim of negligent

misrepresentation was not preempted because allowing the

plaintiff to recover for pre-plan tortious conduct would not

prevent plan administrators from carrying out their duties and

would not impose new duties on plan administrators); Coyne

& Delany Co. v. Selman, 98 F.3d 1457, 1472 (4th Cir. 1996)

17

Neither Barrett nor the plaintiffs question the District

Court‘s finding that the claims concerning Barrett‘s pre-plan

promises of tax advantages were not preempted.

22

(finding a state law claim of professional negligence not

preempted because ―the court‘s inquiry will be centered on

whether the defendants‘ conduct comported with the relevant

professional standard‖); accord Morstein v. Nat‘l Ins. Servs,

Inc., 93 F.3d 715 (11th Cir. 1996); Perkins v. Time Ins. Co.,

898 F.2d 470 (5th Cir. 1990). Displacing claims of this

variety, these courts reason, ―would not further Congress‘

purpose in passing ERISA.‖ Woodworkers, 170 F.3d at 991

(citing Coyne & Delany Co., 98 F.3d at 1466-71). We agree.

―Holding insurers accountable for pre-plan fraud does not

affect the administration or calculation of benefits, nor does it

alter the required duties of plan fiduciaries.‖ Id. (citing

Wilson, 114 F.3d at 719; Coyne & Delaney Co., 98 F.3d at

1471). A state‘s common law, generally intended to ―prevent

sellers of goods and services, including benefit plans, from

misrepresenting . . . the scope of their services,‖ is ―‗quite

remote from the areas with which ERISA is expressly

concerned — reporting, disclosure, fiduciary responsibility,

and the like.‘‖ Wilson, 114 F.3d at 720 (quoting Dillingham,

519 U.S. at 330).

In our view, these sorts of claims rest on

misrepresentations made about an ERISA plan before that

plan‘s existence. They are not premised on a challenge to the

actual administration of the plan. To the extent that a

reviewing court would need to examine the provisions of the

plan in considering the claims, it would be only to determine

whether the representations made by Barrett regarding plan

structure and benefits were at odds with the plan itself, or

with the plaintiffs‘ understanding of the benefits afforded by

the plans. This is not the sort of exacting, tedious, or

duplicative inquiry that the preemption doctrine is intended to

bar. To the contrary, that comparison requires only a cursory

examination of the plan provisions and turns largely on ―legal

duties generated outside the ERISA context.‖ Coyne &

Delany Co., 98 F.3d at 1472. Nor do we think these claims

strike at that area of core ERISA concern — ―funding,

benefits, reporting, and administration‖ — in which the use of

state, rather than federal, law threatens to undermine the goals

of Congress in enacting ERISA in the first place. See

Kollman, 487 F.3d at 149.

23

Accordingly, we conclude that ERISA does not

preempt the plaintiffs‘ state law claims to the extent they

allege that Barrett misrepresented the existence of a reserve

fund, the availability of conversion credits, and the nature of

his commissions before adoption of the EPIC plans. To the

extent it granted partial summary judgment in favor of Barrett

on those theories of recovery, we will vacate the District

Court‘s ruling and remand for further proceedings. Retrial on

these claims may be necessary. However, the District Court

may, on remand, consider other arguments pressed by the

parties in dispositive motions or consider, among other issues,

whether retrial on those claims would result in double

recovery for a single injury. We express no view on these

matters.

B.

We turn next to Barrett‘s cross appeal, which

challenges the District Court‘s threshold determination that

Barrett is amenable to suit under ERISA § 502(a)(3) as a

nonfiduciary who knowingly participated with Tri-Core in

transactions forbidden by § 406(b)(3). Section 406(b)(3)

prohibits a fiduciary from ―receiv[ing] any consideration for

his own personal account from any party dealing with [an

ERISA plan] in connection with a transaction involving assets

of the plan.‖ 29 U.S.C. § 1106(b)(3).18 Section 502(a)(3)

18

Section 406(b) provides in full:

A fiduciary with respect to a plan shall not—

(1) deal with the assets of the plan in his own

interest or for his own account,

(2) in his individual or in any other capacity act

in any transaction involving the plan on behalf

of a party (or represent a party) whose interests

are adverse to the interests of the plan or the

interests of its participants or beneficiaries, or

(3) receive any consideration for his own

personal account from any party dealing with

24

authorizes a civil action by ―a participant, beneficiary, or

fiduciary‖ of an ERISA plan ―to obtain . . . appropriate

equitable relief (i) to redress . . . violations [of Title I of

ERISA or the plan] or (ii) to enforce any provisions of [Title I

of ERISA] or the terms of the plan[.]‖ 29 U.S.C. §

1132(a)(3).19 The plaintiffs‘ theory was that § 502(a)(3)

enabled them to seek restitution from Barrett for an ―act or

practice‖ that injured them — namely, Tri-Core‘s receipt of

commissions from Commonwealth in connection with

transactions involving plan assets. Accepting the premise, the

District Court deemed Barrett a proper defendant under §

502(a)(3) as construed by the Supreme Court in Harris Trust

such plan in connection with a transaction

involving the assets of the plan.

29 U.S.C. § 1106(b).

19

In relevant part, § 502(a) provides:

A civil action may be brought—

....

(3) by a participant, beneficiary, or fiduciary

(A) to enjoin any act or practice which violates

any provision of this subchapter or the terms of

the plan, or (B) to obtain other appropriate

equitable relief (i) to redress such violations or

(ii) to enforce any provisions of this subchapter

or the terms of the plan;

....

(5) except as otherwise provided in subsection

(b) of this section, by the Secretary (A) to

enjoin any act or practice which violates any

provision of this subchapter, or (B) to obtain

other appropriate equitable relief (i) to redress

such violation or (ii) to enforce any provision of

this subchapter[.]

29 U.S.C. § 1132(a).

25

& Savings Bank v. Salomon Smith Barney, Inc., 530 U.S.

238 (2000). Barrett maintains that a recent decision of this

Court, Renfro v. Unisys Corp., 671 F.3d 314 (3d Cir. 2011),

clarifies that he cannot be held accountable under § 502(a)(3)

because he is not a fiduciary or a party in interest to a

transaction prohibited by ERISA § 406(a).20 To weigh these

20

Section 406(a) provides in full:

Except as provided in section 1108 of this title:

(1) A fiduciary with respect to a plan shall not

cause the plan to engage in a transaction, if he

knows or should know that such transaction

constitutes a direct or indirect—

(A) sale or exchange, or leasing, of any

property between the plan and a party in

interest;

(B) lending of money or other extension

of credit between the plan and a party in

interest;

(C) furnishing of goods, services, or

facilities between the plan and a party in

interest;

(D) transfer to, or use by or for the

benefit of, a party in interest, of any

assets of the plan; or

(E) acquisition, on behalf of the plan, of

any employer security or employer real

property in violation of section 1107(a)

of this title.

(2) No fiduciary who has authority or discretion

to control or manage the assets of a plan shall

permit the plan to hold any employer security or

employer real property if he knows or should

know that holding such security or real property

violates section 1107(a) of this title.

29 U.S.C. § 1106(a).

26

competing positions, we must first step back and recount the

pertinent cases construing § 502(a)(3).

1.

The Supreme Court first had occasion to construe §

502(a)(3) in Mertens v. Hewitt Associates, 508 U.S. 248

(1993). That suit arose out of the Kaiser Steel Corporation‘s

inadequate funding of its ERISA-governed pension plan,

resulting in termination of the plan and diminished payouts

for beneficiaries. Id. at 250. A putative class of former

Kaiser employees brought suit under § 502(a)(3) against

Kaiser and Hewitt Associates, a nonfiduciary actuary whose

acts and omissions allegedly caused Kaiser to miscalculate its

funding obligations. The plaintiffs sought equitable relief and

money damages from Hewitt for its active participation in the

plan fiduciaries‘ breach of legal duties. Id. The Supreme

Court agreed to consider ―whether ERISA authorizes suits for

money damages against nonfiduciaries who knowingly

participate in a fiduciary‘s breach of fiduciary duty.‖ Id. at

251.

Within this question, the Court recognized, are two

distinct issues. The antecedent issue is whether a § 502(a)(3)

claim may be asserted against a nonfiduciary that knowingly

participates in a fiduciary‘s breach of fiduciary duty. The

secondary issue concerns the availability of money damages.

Because the parties‘ briefs were directed primarily to the

second question, the Court resolved only that issue, holding

that ―appropriate equitable relief‖ under § 502(a)(3) does not

encompass suits seeking compensatory damages from

nonfiduciaries. Id. at 254-55.

Although it ―reserve[d] decision of th[e] antecedent

question,‖ the Court took the opportunity to make some brief

comments. Id. at 255. While certain ERISA provisions like §

406(a) may by their plain text impose duties on

nonfiduciaries, the Court observed, ―no provision explicitly

requires them to avoid participation (knowing or unknowing)

in a fiduciary‘s breach of fiduciary duty.‖ Id. at 254 & n.4.

By contrast, the Court noted, ERISA § 405(a), the cofiduciary

provision, ―does explicitly impose ‗knowing participation‘

liability on cofiduciaries.‖ Id. (emphasis in original) (citing

27

29 U.S.C. § 1105(a)). In effect, the Court‘s dicta hitched

defendant status in a § 502(a)(3) suit to the scope of ERISA‘s

substantive provisions. In so doing, it cast doubt upon the

viability of suits proceeding on the theory that § 502(a)(3)

provides a remedy for a nonfiduciary‘s knowing participation

in a fiduciary‘s breach of a duty imposed by ERISA.

We employed Mertens‘s dicta in Reich v. Compton, a

case concerning a series of questionable transactions

undertaken by an ERISA-governed union pension plan. 57

F.3d at 272. The Secretary of the Department of Labor sued

the fiduciaries of the plan for breach of the duties imposed by

ERISA §§ 404(a), 406(a), and 406(b). The Secretary also

asserted claims against two nonfiduciaries, alleging that they

had knowingly participated in the fiduciaries‘ violations of

their obligations under ERISA. Compton, 57 F.3d at 273-74.

The Secretary‘s cause of action against the nonfiduciaries

arose under § 502(a)(5). Id. at 281. That provision replicates

the language of § 502(a)(3) in all relevant respects, with the

exception that it extends a cause of action to the Secretary

instead of a participant, beneficiary, or fiduciary of the plan.

Compare 29 U.S.C. § 1132(a)(3), with id. § 1132(a)(5).21

The Secretary advanced two theories in support of his

claims against the nonfiduciaries: ―first, that section

502(a)(5) authorizes him to sue nonfiduciaries who

knowingly participate in breaches of fiduciary duty by

fiduciaries and second, that section 502(a)(5) authorizes him

to sue nonfiduciaries who participate in transactions

prohibited by section 406(a)(1).‖ Compton, 57 F.3d at 281.

Taking the theories in turn, we first rejected the Secretary‘s

argument that § 502(a)(5) permits actions against

nonfiduciaries charged solely with participating in a fiduciary

breach. Id. at 284. Three decisions informed our analysis.

First, because § 502(a)(5) mirrors § 502(a)(3), we relied

heavily on the dicta in Mertens addressing the scope of §

502(a)(3). Id. at 282. We explained that ―the Court

expressed considerable doubt that section 502(a)(3)

authorizes suits against nonfiduciaries who participate in

21

The Supreme Court instructs that the overlapping language

in the two provisions ―should be deemed to have the same

meaning.‖ Mertens, 508 U.S. at 260.

28

fiduciary breaches.‖ Id. To the Secretary‘s contention that

the plain language of § 502(a)(5) embraces a claim against a

nonfiduciary to redress a fiduciary‘s breach of ERISA, we

pointed out that the Courts of Appeals for the First and

Seventh Circuits had already rejected that argument. Id. at

283-84 (citing Reich v. Continental Cas. Co., 33 F.3d 754

(7th Cir. 1994); Reich v. Rowe, 20 F.3d 25 (1st Cir. 1994)).

Both Courts of Appeals, we observed, found the Mertens

dicta convincing. Id.; see also Continental Cas. Co., 33 F.3d

at 757; Rowe, 20 F.3d at 29-31. We did not undertake an

independent analysis of the statutory language, but rather

rooted our holding in the reasoning of our sister Courts of

Appeals and of the Supreme Court in Mertens. Compton, 57

F.3d at 284.

The Secretary‘s second theory, which narrowly

focused on the alleged breach of § 406(a), fared better.

Section 406(a) disallows certain transactions between

fiduciaries and parties in interest deemed likely to injure plan

participants and beneficiaries. 29 U.S.C. § 1106(a); Harris

Trust, 530 U.S. at 241-42. We agreed with the Secretary that

―a nonfiduciary that is a party to a transaction prohibited by

section 406(a)(1) engages in an ‗act or practice‘ that violates

ERISA‖ and may be subject to suit under § 502(a)(5).

Compton, 57 F.3d at 287. While acknowledging that §

406(a)(1) on its face imposes a duty only on fiduciaries, we

nevertheless credited the Supreme Court‘s suggestion in

Mertens that the statute also imposes obligations on

nonfiduciary ―part[ies] in interest‖ who participate in

proscribed transactions. Id. at 285 (citing Mertens, 508 U.S.

at 253-54 & n.4). Put another way, the ―party in interest‖

language in § 406(a)(1), rather than any language in §

502(a)(5), supplied the textual hook for our conclusion that

the nonfiduciaries were amenable to suit. See id. Our

analysis comported with that of the Courts of Appeals for the

First and Ninth Circuits, which likewise construed § 406(a)(1)

to apply to nonfiduciaries. Id. at 285-86 (citing Rowe, 20

F.3d at 31 & n.7; Nieto v. Ecker, 845 F.2d 868, 873-74 (9th

Cir. 1988)).

Five years later, the Supreme Court decided Harris

Trust. The question in that case was whether § 502(a)(3)

authorizes a participant, beneficiary, or fiduciary of an

29

ERISA plan to seek equitable relief from a nonfiduciary party

in interest to a transaction prohibited by § 406(a)(1). Harris

Trust, 530 U.S. at 241. That is, the Court in Harris Trust

considered the second question addressed in Compton, with

the inconsequential distinction that the suit arose under §

502(a)(3) rather than § 502(a)(5). Like this Court in

Compton, the Supreme Court answered that question in the

affirmative. Id. Notable for our purposes here was the

reasoning employed by the unanimous Court, which diverged

from Compton in important respects.

The case arose when the trustee of a pension plan

alleged that another fiduciary purchased worthless interests in

motel properties from a party in interest. Id. at 242-43. If

proven, the transaction would have been a violation of §

406(a). The nonfiduciary seller of the interest in the motel

properties persuaded the Court of Appeals for the Seventh

Circuit that § 502(a)(3) does not authorize a plan fiduciary to

seek equitable relief from a party in interest to a transaction

prohibited by § 406(a). Id. at 244.

The Supreme Court began its analysis with the

observation that, by its terms, § 406(a) ―imposes a duty only

on the fiduciary that causes the plan to engage in the

transaction.‖ Id. at 245 (citing 29 U.S.C. § 1106(a)(1)). This

construction undercut one basis for our extension in Compton

of § 502(a)(5) liability to a party in interest to a § 406(a)

transaction: the Supreme Court implicitly rejected its

suggestion in Mertens that the text of § 406(a) anticipates

liability for nonfiduciary parties in interest to § 406(a)

transactions.

Moving beyond § 406(a), the Court next explained that

§ 502(a)(3), standing alone, imposes certain duties. Id.

Liability under § 502(a)(3), the Court emphasized, ―does not

depend on whether ERISA‘s substantive provisions impose a

specific duty on the party being sued.‖ Id. Rather,

―defendant status under § 502(a)(3) may arise from duties

imposed by § 502(a)(3) itself.‖ Id. at 247. Unlike other

ERISA rights of action, § 502(a)(3) ―admits of no limit . . . on

the universe of possible defendants.‖ Id. at 246. Its focus ―is

on redressing the ‗act or practice which violates any

provision of [ERISA Title I].‘‖ Id. (quoting 29 U.S.C. §

30

1132(a)(3)) (emphasis in original). By carefully delineating

three classes of plaintiffs but leaving defendant status open-

ended, the Court explained, § 502(a)(3) signals Congress‘s

intent not to delimit categories of defendants subject to §

502(a)(3) liability. Id. at 247. Instructive, too, was the

common law of trusts, which had long countenanced suits for

restitution or disgorgement against third parties who

knowingly took trust property from a trustee in breach of the

trustee‘s fiduciary duty. Id. at 250.

Confirming the Court‘s interpretation was ERISA §

502(l), which requires the Secretary of Labor to ―assess a

civil penalty against an ‗other person‘ who ‗knowing[ly]

participat[es] in‘ ‗ any . . . violation of . . . part 4 [of ERISA

Title I] . . . by a fiduciary.‖ Id. at 248 (paraphrasing 29

U.S.C. § 1132(l)(1)-(2)) (alteration in original).22 The civil

22

Section 502(l) provides in relevant part:

(1) In the case of—

(A) any breach of fiduciary responsibility under

(or other violation of) part 4 of this subtitle by a

fiduciary, or

(B) any knowing participation in such a breach

or violation by any other person,

the Secretary shall assess a civil penalty against such

fiduciary or other person in an amount equal to 20 percent of

the applicable recovery amount.

(2) For purposes of paragraph (1), the term ―applicable

recovery amount‖ means any amount which is

recovered from a fiduciary or other person with respect

to a breach or violation described in paragraph (1)—

(A) pursuant to any settlement agreement with

the Secretary, or

(B) ordered by a court to be paid by such

fiduciary or other person to a plan or its

participants and beneficiaries in a judicial

31

penalties recoverable under § 502(l) are defined by reference

to amounts recoverable by the Secretary in § 502(a)(5)

actions. Id. That reference led the Court to conclude that §

502(a)(5) must authorize suits against any ―other person‖ who

―knowing[ly] participat[es]‖ in a fiduciary‘s violation of her

duties, ―notwithstanding the absence of any ERISA provision

explicitly imposing a duty upon an ‗other person‘ not to

engage in such ‗knowing participation.‘‖ Id. And if the

action was available under § 502(a)(5), it must also be

available under § 502(a)(3). Id. at 248-49. Section

―502(a)(3) (or (a)(5)) liability,‖ the Court concluded, does not

―hinge[] on whether the particular defendant labors under a

duty expressly imposed by the substantive provisions of

ERISA Title I.‖ Id. at 249.

Finally, the Court turned to reconcile this construction

with Mertens. The Court first rejected the implication in

Mertens that an ―other person‖ under § 502(l) might be

limited to cofiduciaries, who are expressly made liable by §

405(a) for knowing participation in another fiduciary‘s breach

of duty. Id. at 249 (citing Mertens, 508 U.S. at 261).

Congress, the Court noted, defined ―person‖ in ERISA

without regard to status as fiduciary, cofiduciary, or party in

interest. Id. (citing 29 U.S.C. § 1002(9)). And, while a

cofiduciary is a type of fiduciary, § 502(l) ―clearly

distinguishes between ‗fiduciary‘ . . . and an ‗other person.‘‖

Id. (citing 29 U.S.C. § 1132(l)(1)(A) and (B)). The Court

dismissed as ―dictum‖ the portions of Mertens discussing §

502(l) and the portion relied on by the courts in Compton,

Rowe, and Continental Casualty Company to cast doubt on

liability of nonfiduciaries under § 502(a)(3). Id. (citing

Mertens, 508 U.S. at 255, 260-61).

Several Courts of Appeals have considered whether

the Court‘s holding in Harris Trust applies only to alleged

violations of § 406(a) or whether it sweeps more broadly.

Without exception, they have concluded that the Harris Trust

proceeding instituted by the Secretary under

subsection (a)(2) or (a)(5) of this section.

29 U.S.C. § 1132(l).

32

reasoning is not tethered to the limitations of § 406(a). See

Longaberger Co. v. Kolt, 586 F.3d 459, 468 n.7 (6th Cir.

2009); Bombardier Aerospace Employee Welfare Benefits

Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348, 353-54

(5th Cir. 2003); Carlson v. Principal Fin. Grp., 320 F.3d 301,

308 (2d Cir. 2003); McDannold v. Star Bank, N.A., 261 F.3d

478, 486 (6th Cir. 2001). More to the point, the Courts of

Appeals for the Fifth and Sixth Circuits have stated directly

that nonfiduciaries who are not parties in interest are proper

defendants under § 502(a)(3) as construed by Harris Trust.

Kolt, 586 F.3d at 468 n.7; Bombardier, 354 F.3d at 353-54.

2.

We turn now to consider whether Barrett is amenable

to suit under § 502(a)(3) in view of the Supreme Court‘s

reasoning in Harris Trust. Barrett, we have noted, was found

liable for his knowing participation in transactions forbidden

by § 406(b)(3), which prohibits a ―fiduciary with respect to a

plan‖ from ―receiv[ing] any consideration for his own

personal account from any party dealing with such plan in

connection with a transaction involving the assets of the

plan.‖ 29 U.S.C. § 1106(b)(3). Several matters are not in

dispute. By accepting a salary from Commonwealth (a party

dealing with the plans) in connection with its investment of

plan assets in insurance policies issued by Commonwealth,

the parties agree, Tri-Core (as fiduciary) contravened §

406(b)(3).23 Nor is there a dispute on appeal that Barrett,

23

Barrett does contend that because the plaintiffs selected the

insurance policy for each employee — either a C-group or

MG-5 policy — Tri-Core did not engage with

Commonwealth in a transaction prohibited by § 406(b)(3).

The argument is premised on a single unreported decision of

this Court that involved the relationship between an insurance

company and participants in a different EPIC plan. See

Faulman v. Sec. Mut. Fin. Life Ins. Co., 353 F. App‘x 699

(3d Cir. 2009). That situation is obviously distinct from the

basis of liability in this case: the relationship between a

corporate fiduciary and an insurance company. In any event,

Barrett‘s argument finds no support in the text of § 406(b)(3)

or in controlling precedent. Whether or not the plaintiffs

chose one of the two policies designated by Tri-Core as their

33

acting as a nonfiduciary, had knowledge of all of the

circumstances surrounding Tri-Core‘s receipt of commissions

from Commonwealth and participated in the transactions.

The parties also agree that the plaintiffs have standing to

bring the § 502(a)(3) claim and that their requested remedy is

equitable in nature.

The parties‘ consensus on these issues leaves us to

consider only one narrow legal question: is Barrett, a

nonfiduciary who knowingly participated in a transaction

prohibited by § 406(b)(3), amenable to suit under §

502(a)(3)? We hold that he is. Tri-Core‘s receipt of

compensation from Commonwealth in connection with its

directed purchase of plan assets from Commonwealth was an

act or practice prohibited by ERISA. Operating in concert

with Tri-Core, Barrett actively facilitated that act or practice.

As the Court in Harris Trust explained, § 502(a)(3) provides a

right of action against a transferee of ill-gotten trust assets

who is a knowing participant in an ERISA violation. 530

U.S. at 251. It is of no consequence that Barrett was not a

fiduciary and that his receipt of commissions was not itself a

statutory violation, because liability under § 502(a)(3) ―does

not depend on whether ERISA‘s substantive provisions

impose a specific duty on the party being sued.‖ Id. at 245.

As construed by the Court in Harris Trust, § 502(a)(3)

provides the plaintiffs a cause of action to obtain equitable

relief from Barrett for his knowing participation in Tri-Core‘s

§ 406(b)(3) violation. Id. at 245, 247, 250-51.

Barrett counters that our recent decision in Renfro

undercuts this straightforward application of Harris Trust. In

Renfro, a putative class of participants in a 401(k) plan

brought suit under § 502(a)(3) against Fidelity Management

Trust Company, the manager and administrator of certain

funds in the plan. 671 F.3d at 317-19. They alleged that

Fidelity‘s mismanagement of the plan‘s investment options

amounted to a breach of the fiduciary duties of diligence and

prudence imposed by ERISA § 404(a). Fidelity moved to

plan funding vehicles has no bearing on the propriety of Tri-

Core‘s receipt of compensation from Commonwealth in

connection with its directed purchase of plan assets from

Commonwealth.

34

dismiss on the basis that it was not a fiduciary with respect to

the challenged conduct. Both the District Court and this

Court agreed. Id. at 323. But that did not end the inquiry,

because the plaintiffs contended that even if Fidelity was a

nonfiduciary, it was amenable to suit under § 502(a)(3) for its

knowing participation in the plan fiduciary‘s breach of

fiduciary duty under § 404(a). We disagreed, holding that §

502(a)(3) ―does not authorize suit against ‗nonfiduciaries

charged solely with participating in a fiduciary breach.‘‖ Id.

at 325 (quoting Compton, 57 F.3d at 284). In arriving at that

conclusion, we relied on the Mertens dicta and the portion of

Compton finding no § 502(a)(5) cause of action against

―‗nonfiduciaries charged solely with participating in a

fiduciary breach.‘‖ Id. (quoting Compton, 57 F.3d at 284).

In a brief footnote, we asserted that this reasoning accorded

with Harris Trust. Id. at 325 n.6. We characterized Harris

Trust as consonant with our holding in Compton that §

502(a)(3) ―authorized suits for nonfiduciary participation by

parties in interest to transactions prohibited under ERISA.‖

Id. at 325 n.6. So framed, § 502(a)(3) did not supply a cause

of action against Fidelity because the ―plaintiffs d[id] not

appear to contend the Fidelity entities were parties in interest

to a prohibited transaction.‖ Id.

Barrett urges us to read Renfro as establishing a firm

rule that a nonfiduciary may only be subjected to suit under §

502(a)(3) if she knowingly participates as a party in interest

in a § 406(a) transaction. We do not think this expansive

reading of Renfro is compatible with Harris Trust. As an

initial matter, Renfro was a § 404 breach of fiduciary duty

case, not a § 406 prohibited transaction case, and the

provisions safeguard the rights of plan participants and

beneficiaries in distinct ways. Section 404 codifies the

fiduciary‘s ―general duty of loyalty to the plan‘s

beneficiaries.‖ Harris Trust, 530 U.S. at 241-42. It springs

from the common law of trusts, which likewise charged

fiduciaries with a duty of loyalty. See Pegram v. Herdrich,

530 U.S. 211, 224 (2000) (citing 2A A. Scott & W. Fratcher,

Trusts § 170, p. 311 (4th ed.1987)). Section 406(b)(3), at

issue in this case, is among the prophylactic rules listed in §

406. Section 406(a) ―categorically bar[s] certain transactions

deemed ‗likely to injure the . . . plan.‘‖ Harris Trust, 530

U.S. at 242 (quoting Comm‘r v. Keystone Consol. Indus.,

35

Inc., 508 U.S. 152, 160 (1993)). And § 406(b) categorically

bars certain transactions likely to generate self-dealing, a

practice detrimental to plan participants and beneficiaries.

Compton, 57 F.3d at 287. Both provisions ―appl[y]

regardless of whether the transaction is ‗fair‘ to the plan.‖ Id.

at 288.

The congruity of the prohibited transaction provisions

leaves no logical basis for distinguishing between

nonfiduciaries‘ knowing participation in § 406(b) transactions

and nonfiduciaries‘ knowing participation in § 406(a)

transactions. Accord LeBlanc v. Cahill, 153 F.3d 134, 153

(4th Cir. 1998) (finding no reason why, in a § 502(a)(3)

action, ―allowing equitable relief to be obtained from

nonfiduciary parties in interest who participated in a

transaction prohibited under ERISA § 406(a)(1) would be any

different if the transaction were prohibited under ERISA §

406(b)(2) or § 406(b)(3)‖). Harris Trust, a § 406(a) case, is

the controlling precedent here; this Court‘s reasoning in

Renfro is inapt for § 406(b) transactions. Our narrow holding

in Renfro, applying to ―nonfiduciaries charged solely with

participating in a fiduciary breach,‖ see 671 F.3d at 325, is

limited in scope to nonfiduciaries who knowingly participate

in a § 404 breach of fiduciary duty.

We have still a more fundamental disagreement with

Barrett‘s position. His interpretation of Harris Trust and

Renfro hinges on the ―party in interest‖ language in § 406(a).

That textual hook, the argument goes, justified the Supreme

Court‘s willingness to subject nonfiduciaries who knowingly

participate in fiduciaries‘ violations of ERISA to § 502(a)(3)

suits. Like the Courts of Appeals for the Fifth and Sixth

Circuits, see Kolt, 586 F.3d at 468 n.7; Bombardier, 354 F.3d

at 353-54, we do not read Harris Trust as limited in reach

only to cases involving § 406(a) transactions between a

fiduciary and a party in interest. The Court‘s reasoning in

Harris Trust relied on a textual analysis of § 502(a)(3), its

analogue in § 502(a)(5), and the reference in § 502(l) to §

502(a)(5). Defendant status under § 502(a)(3), the Court

explained, arises from § 502(a)(3) itself, not from the

permutations of the various substantive provisions in ERISA

Title I. Harris Trust, 530 U.S. at 245, 249. That the

nonfiduciary defendant was a ―party in interest‖ was beside

36

the point; under § 502(a)(3), it was an ―other person‖ that

participated in a forbidden ―act or practice‖ and therefore was

amenable to suit. Id. at 245 n.2, 248. Barrett, too, is an

―other person,‖ as defined in § 502(l), who knowingly

participated in a fiduciary‘s breach of a provision of ERISA

Title I. See id. at 248.

Finally, our suggestion in Renfro that Harris Trust

applies only to nonfiduciary parties in interest to § 406(a)

transactions is dicta. And to the extent that Renfro is

inconsistent with the reasoning in Harris Trust, we must

follow the Supreme Court over our own precedent. See

United States v. Tann, 577 F.3d 533, 541-42 (3d Cir. 2009).

We have no occasion today to reconsider whether Renfro

accurately reflects the construction given to § 502(a)(3) in

Harris Trust. It is enough to say that § 406(b) prohibited

transactions are more akin to § 406(a) prohibited transactions

than to § 404 breaches of fiduciary duty. Because that is so,

we follow the Court‘s guidance in Harris Trust in holding that

Barrett was amenable to suit under § 502(a)(3) for his

knowing participation in Tri-Core‘s violation of § 406(b)(3).

C.

Even if Tri-Core‘s receipt of commissions from

Commonwealth ran afoul of § 406(b)(3), Barrett argues in the

alternative, the undisputed reasonableness of its commissions

precludes liability. He points to ERISA § 408(b)(2) and

(c)(2), provisions he reads to exempt reasonable

compensation tainted by self-dealing from the reach of §

406(b)(3). The plaintiffs respond that § 406(b)(3) establishes

a per se prohibition on kickbacks and related behavior,

regardless of the reasonableness of compensation. Finding

the plaintiffs‘ position convincing, the District Court

concluded that § 406(b) enumerates per se violations, the

reasonableness of which is immaterial. We agree.

To determine if § 408(b)(2) or (c)(2) excuse Tri-Core‘s

§ 406(b)(3) violation, we must ―examine first the language of

the governing statute, guided not by ‗a single sentence or

member of a sentence, but look[ing] to the provisions of the

whole law, and to its object and policy.‘‖ John Hancock Mut.

Life Ins. Co. v. Harris Trust & Sav. Bank, 510 U.S. 86, 94-95

37

(1993) (quoting Pilot Life, 481 U.S. at 51) (alterations in

original). Section 406(b)(3), as we have noted, provides that

―[a] fiduciary with respect to a plan shall not . . . receive any

consideration for his own personal account from any party

dealing with such plan in connection with a transaction

involving the assets of the plan.‖ 29 U.S.C. § 1106(b)(3).

Section 408(b)(2) provides

The prohibitions provided in section 1106 of

this title shall not apply to any of the following

transactions: . . . (2) Contracting or making

reasonable arrangements with a party in interest

for office space, or legal, accounting, or other

services necessary for the establishment or

operation of the plan, if no more than

reasonable compensation is paid therefor.

Id. § 1108(b)(2). And § 408(c)(2) provides, in relevant part,

Nothing in section 1106 of this title shall be

construed to prohibit any fiduciary from . . . (2)

receiving any reasonable compensation for

services rendered, or for the reimbursement of

expenses properly and actually incurred, in the

performance of his duties with the plan; except

that no person so serving who already receives

full time pay from an employer or an

association of employers, whose employees are

participants in the plan, or from an employee

organization whose members are participants in

such plan shall receive compensation from such

plan, except for reimbursement of expenses

properly and actually incurred[.]

Id. § 1108(c)(2).

We begin with Barrett‘s effort to invoke § 408(b)(2) as

a defense to liability. Section 408(b)(2), by its plain terms,

applies only to ―transactions . . . with a party in interest.‖ Id.

§ 1108(b)(2). ERISA § 406(a) proscribes transactions with

―part[ies] in interest,‖ but § 406(b) does not. It follows that §

408(b)(2) provides an exemption for § 406(a) transactions,

but not for § 406(b) transactions. Accord Patelco Credit

Union v. Sahni, 262 F.3d 897, 910 (9th Cir. 2001); Daniels v.

38

Nat‘l Employee Benefit Servs., Inc., 858 F. Supp. 684, 693

(N.D. Ohio 1994); Gilliam v. Edwards, 492 F. Supp. 1255,

1263-64 (D.N.J. 1980). The Department of Labor, the agency

charged with administration and enforcement of Title I of

ERISA, agrees. It explains that § 408(b)(2) ―exempts from

the prohibitions of section 406(a) of the Act payment by a

plan to a party in interest, including a fiduciary,‖ but ―does

not contain an exemption from acts described in section

406(b)(1) . . . , section 406(b)(2) . . . or section 406(b)(3)[.]‖

29 C.F.R. § 2550.408b–2(a). Barrett‘s liability derives from

his knowing participation in a § 406(b) transaction. Hence, §

408(b)(2) provides him no defense to liability.

The question of whether § 408(c)(2) confers a

―reasonable compensation‖ defense on a § 406(b)(3) violator

requires more discussion. We are concerned here with the

interaction between two statutes, but first consider the

language Congress used in crafting § 406(b)(3). Speaking

unequivocally, § 406(b)(3) commands that fiduciaries ―shall

not‖ receive consideration in connection with a transaction

involving plan assets. 29 U.S.C. § 1106(b)(3). It does not

purport to forbid fiduciaries from extracting only

unreasonable consideration from transactions involving plan

assets. To the contrary, it disallows ―any consideration,‖ no

matter how reasonable or inconsequential. Read most

naturally, § 406(b)(3) is a flat prohibition on a fiduciary‘s

receipt of consideration in connection with a transaction

involving plan assets. We have previously construed §

406(b)(2), another of the stringent self-dealing prohibited

transactions, in the same manner. Section 406(b)(2), we

explained, is a ―blanket prohibition,‖ Compton, 57 F.3d at

287, one that ―creates a per se proscription on the type of

transaction in question,‖ see Cutaiar v. Marshall, 590 F.2d

523, 528 (3d Cir. 1979). Even when a transaction discloses

―no taint of scandal, no hint of self-dealing, no trace of bad

faith‖ and involves ―fair and reasonable‖ terms, § 406(b)(2)

admits of no exceptions. Cutaiar, 590 F.2d at 528.24

24

Construing § 406(b)(2) in Cutaiar v. Marshall, we

acknowledged that under § 408(a), the Secretary of the

Department of Labor may grant an exemption from the

strictures of § 406(b) so long as the exemption is published in

the Federal Register and a public hearing is held on the

39

Section 406(b) differs from its neighbor § 406(a) in

this regard. Section 406(a) prohibits fiduciaries from causing

the plan to engage in certain transactions with parties in

interest, ―[e]xcept as provided in section [408].‖ See 29

U.S.C. § 1106(a). But § 406(b) contains no corresponding

reference to § 408. To avoid rendering the prefatory clause in

§ 406(a) mere surplusage, see Board of Trustees of the Leland

Stanford Junior Univ. v. Roche Molecular Sys., Inc., 131 S.

Ct. 2188, 2196 (2011), we must give meaning to this

discrepancy in the § 406 subsections. The Court of Appeals

for the Ninth Circuit has reasoned that by prefacing § 406(a),

but not § 406(b), with a qualification, Congress tempered §

406(a) transactions, but not § 406(b) transactions, with § 408

exemptions. See Sahni, 262 F.3d at 910. We agree that this

is the most sensible construction of these incongruous

provisions. By expressly limiting liability under § 406(a) by

reference to the exemptions in § 408, then removing the same

limiting principle from § 406(b), Congress cast § 406(b) as

unyielding.25

Barrett urges us to pay no mind to the language of §

406(b), and instead probe only the plain text of § 408(c)(2).

Regardless of the character of the § 406(b) prohibitions, he

contends, § 408(c)(2) insulates Tri-Core from liability so long

as its compensation is reasonable. At first blush, his

construction of § 408(c)(2) has some appeal: the provision

declares, without limitation, that ―nothing‖ in § 406 —

matter. 590 F.2d at 530. Section 408(a)‘s burdensome

procedures, we reasoned, were indicia of Congress‘s ―intent

to create, in [§] 406(b), a blanket prohibition of certain

transactions, no matter how fair, unless the statutory

exemption procedures are followed.‖ Id. We emphasized,

―[E]ach plan deserves more than a balancing of interests.

Each plan must be represented by trustees who are free to

exert the maximum economic power manifested by their fund

whenever they are negotiating a commercial transaction.‖ Id.

25

A number of district courts have reached the same

conclusion. See LaScala v. Scrufari, 96 F. Supp. 2d 233, 239-

40 (W.D.N.Y. 2000); Daniels, 858 F. Supp. at 693; Whitfield

v. Tomasso, 682 F. Supp. 1287, 1303-04 (W.D.N.Y. 1988);

Gilliam, 492 F. Supp. at 1263-64; Marshall v. Kelly, 465 F.

Supp. 341, 353-54 (W.D. Okla. 1978).

40

subsection (a) or (b) — can prohibit a fiduciary from

receiving reasonable compensation for servicing the plan. 29

U.S.C. § 1108(c)(2). But Barrett ignores the remainder of §

408(c)(2), which in substance is an exception to that broad

general rule. Under § 408(c)(2), persons receiving full-time

pay from an employer whose employees are plan participants

―shall not receive compensation from such plan.‖ Id. The

exception speaks to a matter left unaddressed by the general

pronouncement — that is, from whom are they prohibited

from receiving reasonable compensation? A fiduciary that

falls under the exception cannot receive compensation ―from

such plan.‖ This language permits an inference that §

408(c)(2) is concerned only with fiduciaries‘ receipt of

compensation from plans, not from other companies in which

the fiduciary invests plan assets.

By focusing on a particular class of entities that may

compensate fiduciaries, the exception may shed light on the

scope of § 408(c)(2)‘s general rule. But it does not do so

unambiguously. Read in conjunction with the exception, the

general rule applies only to reasonable compensation paid to a

fiduciary by a plan. See Lowen, 829 F.2d at 1216 n.4

(―[S]ervices exempted under ERISA Section 408(c)(2) are

services rendered to a plan and paid for by a plan for the

performance of plan duties, not services rendered to

companies in which a plan invests funds that are paid for by

those companies.‖). Read as a standalone requirement, on the

other hand, the general rule exempts a fiduciary from the

strictures of § 406(b) so long as compensation is reasonable.

See Harley v. Minn. Mining & Mfg. Co., 284 F.3d 901, 909

(8th Cir. 2002) (construing § 408(c)(2) to unambiguously

and ―sensibly insulate[] the fiduciary from liability [for a §

406(b) violation] if . . . compensation [is] . . . reasonable‖).

Against the backdrop of these dueling constructions – both

plausible – we conclude that § 408(c)(2) is ambiguous.

Compounding that ambiguity is the unsettled relationship

between § 408(c)(2) and the self-dealing prohibitions of §

406(b) – a relationship informed by Congress‘s omission of

any reference to § 408 in § 406(b).

It is well settled that ―when a statutory provision is

ambiguous, Chevron, [U.S.A., Inc. v. Natural Res. Def.

Council, Inc., 467 U.S. 837, 842-43 (1984)] dictates that we

41

defer to the agency‘s reasonable construction of that

provision.‖ Cheng v. Att‘y Gen., 623 F.3d 175, 187 (3d Cir.

2010). Because we have concluded above that § 408(c)(2) is

ambiguous, we look to the Department of Labor‘s

construction of the statute. The Department interprets §

408(c)(2) as a provision that ―clarif[ies] what constitutes

reasonable compensation for such services,‖ but not as an

independently operative reasonable-compensation exception.

29 C.F.R. § 2550.408c-2(a). This reading of § 408(c)(2) is a

reasonable construction of the statute insofar as it relates to

the § 406(b) prohibited transactions. The ―crucible of

[Congress‘s] concern [in enacting ERISA] was misuse and

mismanagement of plan assets.‖ Russell, 473 U.S. at 140 n.8.

One facet of plan misuse particularly troubling to Congress

was self-dealing by fiduciaries. N.L.R.B. v. Amax Coal Co.,

453 U.S. 322, 333-34 (1981). Construing § 408(c)(2) to

shield self-dealing fiduciaries with a defense whenever

reasonable sums change hands would undercut Congress‘s

goal of stamping out conflict-of-interest tainted behavior. Cf.

Lowen, 829 F.2d at 1221. This case illustrates the point.

Whether or not Tri-Core‘s compensation was reasonable, the

steady inflow of payments from Commonwealth rewarding

each sale of a C-group policy may have compromised its best

judgment as fiduciary. Skewed judgment of this order ranked

among the principal abuses motivating Congress to include

the § 406(b) provisions in ERISA in the first place. It is

reasonable for the Department of Labor, tasked with

implementing § 408(c)(2) in a manner that effectuates

Congress‘s intent, to interpret it as a clarifying provision.

Deferring, as we do, to the Department of Labor‘s

view that § 408(c)(2) is not an independent reasonable

compensation exemption, we hold that it affords Barrett no

defense to liability for knowingly participating in Tri-Core‘s

§ 406(b)(3) violation.

D.

We turn now to the plaintiffs‘ challenge to the District

Court‘s rejection of their alternative theories of recovery on

their § 502(a)(3) claim against Barrett. The District Court

found that Tri-Core‘s receipt of commissions violated §

406(b)(3), but concluded that Tri-Core did not otherwise

42

breach fiduciary obligations imposed by ERISA §§ 404 and

406(b)(1).26 Had the District Court determined that Tri-Core

violated § 404 or § 406(b)(1) and that Barrett knowingly

participated in Tri-Core‘s conduct, the plaintiffs posit, it

might have ordered full, rather than partial, disgorgement of

Barrett‘s ill-gotten commissions. We will affirm the District

Court‘s rejection of the plaintiffs‘ alternative theories of

recovery.

1.

Section 406(b)(1) prohibits a ―fiduciary with respect to

a plan‖ from ―deal[ing] with the assets of the plan in his own

interest or for his own account.‖ 29 U.S.C. § 1106(b)(1). At

trial, the plaintiffs argued that Tri-Core, acting as a fiduciary,

violated § 406(b)(1) by misappropriating a portion of their

plan contributions as commissions. They understood their

contributions as ―assets of the plan‖ and saw

Commonwealth‘s payment of commissions to Tri-Core from

its general asset account as Tri-Core‘s act of self-dealing.

The District Court rejected the argument, citing two

independent reasons. First, by the time the corporate

plaintiffs‘ contributions reached Commonwealth‘s

commingled general asset account, the court explained, Tri-

Core no longer had discretion and control over those assets,

and therefore was no longer a fiduciary under ERISA §

3(21)(A). Second, the court reasoned, the contributions were

no longer plan assets once they were placed in

Commonwealth‘s general asset account. In the court‘s view,

ERISA § 401(b)(2), the insurer exemption codified at 29

26

The District Court appears to have analyzed the § 406(b)(1)

theory in its general discussion of whether the plaintiffs

established a § 404 violation. But it clearly addressed the

plaintiffs‘ argument that Tri-Core‘s alleged misappropriation

of plan assets as commissions constituted self-dealing. On

appeal, Barrett and the plaintiffs treat this discussion as the

court‘s ruling on the § 406(b)(1) theory. Therefore,

notwithstanding the District Court‘s failure to label its

analysis as falling under the rubric of § 406(b)(1), we will

address it as such here.

43

U.S.C. § 1101(b)(2), shielded the corporate plaintiffs‘

contributions from classification as plan assets.27 Under

either rationale, Tri-Core did not violate § 406(b)(1) (and

Barrett by extension did not knowingly participate in Tri-

Core‘s violation of § 406(b)(1)) because the statute covers

only fiduciaries‘ handling of plan assets.

The plaintiffs maintain on appeal that the second basis

for the court‘s rejection of their § 406(b)(1) theory was error.

That is, they object to the court‘s application of the insurer

exemption to the facts of this case. But they do not challenge

the District Court‘s first holding that Tri-Core lacked

discretionary authority over their assets in Commonwealth‘s

general asset account when Commonwealth arranged for

payment of commissions to Tri-Core. Because that holding

constituted an independent basis for the District Court‘s

decision, the plaintiffs cannot prevail even if we were to

disagree with the applicability of insurer exemption to these

circumstances.

In any event, we agree with the District Court that Tri-

Core lacked control and discretionary authority over the plan

assets in Commonwealth‘s general asset account, and

therefore was no longer a fiduciary. Under ERISA §

3(21)(A), an entity is a fiduciary with respect to a plan if it (i)

―exercises any discretionary authority or discretionary control

respecting management of such plan or exercises any

authority or control respecting management or disposition of

its assets‖ or (ii) ―renders investment advice for a fee or other

compensation . . . or has any authority or responsibility to do

so,‖ or (iii) ―has any discretionary authority or discretionary

responsibility in the administration of such plan.‖ 29 U.S.C.

§ 1002(21)(A). An entity can be a fiduciary with respect to

certain plan activities, but not with respect to others. Renfro,

671 F.3d at 321. Thus, in every case concerning a fiduciary‘s

obligations under ERISA, the threshold question is whether

some person or entity ―was acting as a fiduciary (that is, was

27

ERISA contains no comprehensive definition of ―plan

assets,‖ but gives content to the term through certain

exclusions. John Hancock, 510 U.S. at 89, 95. Section

401(b)(2), the insurer exemption, is one such exclusion.

44

performing a fiduciary function) when taking the action

subject to complaint.‖ Pegram, 530 U.S. at 226.

No record evidence shows that Tri-Core managed the

investment of the plan contributions or otherwise rendered

investment advice once the contributions reached

Commonwealth. True, Tri-Core directed the trustees‘

handling of the contributions. But Tri-Core did not direct

Commonwealth with respect to its handling of the

contributions once they became commingled in its general

asset account. Moreover, as the District Court observed,

there was neither an allegation nor evidence that Tri-Core and

Barrett failed to remit the full value of the corporate

plaintiffs‘ contributions to the trustee. Had Tri-Core siphoned

off a percentage of the contributions as compensation before

transmitting the balance to the trustee, it might then have

exercised discretionary authority over the assets within the

scope of ERISA‘s definition of a plan fiduciary. See 29

U.S.C. § 1002(21)(A). And under those circumstances, the

plaintiffs‘ § 406(b)(1) theory very well might prevail. But

that is not the case before us. Because we agree that Tri-Core

was not a fiduciary with respect to plan assets by the time

Commonwealth paid it commissions, we will affirm the

rejection of the plaintiffs § 406(b)(1) theory.28

28

One might wonder how, under the District Court‘s

rationale, Tri-Core was a fiduciary with respect to the §

406(b)(3) transactions, but not with respect to the § 406(b)(1)

transactions. The answer lies in the wording of the

provisions. The District Court concluded, and Barrett does

not dispute, that Tri-Core acted in a fiduciary capacity when it

received consideration from Commonwealth ―in connection

with a transaction involving assets of the plan,‖ in violation of

§ 406(b)(3). 29 U.S.C. § 1106(b)(3). In connection with the

relevant transaction in the § 406(b)(3) claim — Tri-Core and

Barrett‘s recommendation that the corporate plaintiffs adopt

plans funded with Commonwealth‘s insurance policies —

Tri-Core did exercise discretion and control over what

became plan assets, knowing all the while that it would

receive compensation from Commonwealth for its

recommendation. But by the time Commonwealth generated

the commission — the relevant transaction for the § 406(b)(1)

45

2.

A fiduciary‘s duties of loyalty and prudence under

ERISA § 404 encompass a duty to communicate candidly,

Jordan v. Fed. Express Corp., 116 F.3d 1005, 1012 (3d Cir.

1997), and to not ―‗materially mislead those to whom the

duties of loyalty and prudence are owed,‘‖ In re Unisys Corp.

Retiree Med. Benefit ERISA Litig., 579 F.3d 220, 228 (3d

Cir. 2009) (quoting Adams v. Freedom Forge Corp., 204 F.3d

475, 492 (3d Cir. 2000)). The plaintiffs argued at trial that

Tri-Core infringed these duties in several respects. On

appeal, they only seriously dispute the District Court‘s

rejection of their theory that the Department of Labor‘s

Prohibited Transaction Exemption 84-24 (―PTE 84-24‖)29

supplements the § 404 duties and that Tri-Core failed to

comply with PTE 84-24. Like the District Court, we think the

plaintiffs‘ reliance on PTE 84-24 is misplaced. PTE 84-24,

much like ERISA § 408, provides conditional exemptions

from § 406 prohibited transaction restrictions. It does not

create independent affirmative duties. In attempting to

shoehorn PTE 84-24 into the substantive duties imposed by §

404, the plaintiffs misconstrue the narrow function of the

exemption. Accordingly, we will affirm the District Court‘s

rejection of the plaintiffs‘ § 404 theory of recovery.

E.

The plaintiffs next object to the District Court‘s post-

trial ruling that ERISA‘s statute of limitations barred the

claims asserted by the Universal Mailing and Alloy Cast

plaintiffs against Barrett. The court determined that, in 1990,

the principals of those corporations signed a disclosure form

attached to the Adoption Agreement that notified them of Tri-

Core‘s commissions from Commonwealth. The form

provided:

theory — Tri-Core no longer exercised discretion over the

plan assets.

29

49 Fed. Reg. 13208 (1984), as amended by 71 Fed. Reg.

5887 (2006).

46

The Insurer, as defined in the Plan document, is

an Insurance Company(ies) selected by Tri Core

to provide various Life Insurance Contracts. Tri

Core will receive a commission on the purchase

of Life Insurance Contracts. The Insurer is not

in any way related to Tri Core.

App. 3841 (example of disclosure form); 3844 (Michael

Maroney‘s signature); 3858 (Kenneth Fisher‘s signature).30

That disclosure, the District Court held, gave the Universal

Mailing and Alloy Cast plaintiffs actual knowledge of Tri-

Core‘s § 406(b)(3) breach and started the statute of

limitations clock on any claim to redress the violation.

ERISA‘s statute of limitations provides, in relevant

part:

No action may be commenced . . . with respect

to a fiduciary‘s breach of any responsibility,

duty, or obligation under this part . . . after the

earlier of

(1) six years after (A) the date of the last action

which constituted a part of the breach or

violation, or (B) in the case of an omission the

latest date on which the fiduciary could have

cured the breach or violation, or

(2) three years after the earliest date on which

the plaintiff had actual knowledge of the breach

or violation.

29 U.S.C. § 1113. This provision ―offers a choice of periods,

depending on ‗whether the plaintiff has actual knowledge of

the breach.‘‖ Cetel v. Kirwan Fin. Grp., Inc., 460 F.3d 494,

511 (3d Cir. 2006) (quoting Kurz v. Phila. Elec. Co., 96 F.3d

1544, 1551 (3d Cir. 1996)). ―[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.‖ Gluck v. Unisys Corp., 960 F.2d 1168, 1177 (3d Cir.

30

The parties did not locate similar forms from the Finderne

and Lima Plastics plaintiffs.

47

1992) (punctuation omitted). ―[W]here 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.‘‖ Cetel, 460 F.3d at

511 (quoting Gluck, 960 F.2d at 1178).

The Universal Mailing and Alloy Cast plaintiffs

contend that they did not have ―actual knowledge‖ of Tri-

Core‘s breach in 1990 because they did not know at that time

that Tri-Core was a fiduciary. This argument is meritless. In

the very same disclosure form that alerted the Universal

Mailing and Alloy Cast plaintiffs to Tri-Core‘s commission,

they delegated to Tri-Core responsibility for administration of

their plans. See App. 3841 (―The Plan Administrator has

delegated his duties under the Trust to Tri Core. . . . Tri Core

has agreed to serve as the Plan Administrator‘s delegatee.‖).

Having ceded to Tri-Core discretionary authority to manage

and administer plan assets, they plainly were aware that Tri-

Core was a fiduciary within the meaning of ERISA § 3(21).

The District Court‘s finding of actual knowledge

nevertheless was clearly erroneous for a different reason.

Barrett‘s liability under § 502(a)(3) was premised on his

knowing participation in Tri-Core‘s receipt of commissions.

The disclosure form gave the Universal Mailing and Alloy

Cast plaintiffs actual knowledge in 1990 of all facts necessary

to understand that an ERISA claim could be lodged against

Tri-Core. What matters here is whether they had actual

knowledge of all material facts necessary to appreciate that a

claim against Barrett existed. The District Court did not

consider when the Universal Mailing and Alloy Cast

plaintiffs acquired actual knowledge that Barrett participated,

knowingly, in Tri-Core‘s receipt of compensation from

Commonwealth. Absent any consideration of those facts, the

District Court clearly erred in finding that, by 1990, plaintiffs

had actual knowledge of all facts necessary to establish a §

502(a)(3) claim against Barrett. Accordingly, we will vacate

the District Court‘s partial grant of Barrett‘s motion to amend

the judgment on the Universal Mailing and Alloy Cast

plaintiffs‘ ERISA claims and remand for consideration of

when they acquired actual knowledge of Barrett‘s knowing

participation in Tri-Core‘s breach of § 406(b)(3).

48

F.

Finally, both parties dispute the District Court‘s

rulings on remedies. The plaintiffs contend that the District

Court erred in (1) awarding restitution of only half of

Barrett‘s commissions; (2) imposing a prejudgment interest

rate commensurate with the interest rate set forth in 28 U.S.C.

§ 1961; and (3) declining to award attorneys‘ fees and costs.

Barrett‘s cross appeal contends that the District Court erred in

awarding any prejudgment interest.

1.

To remedy Barrett‘s violation of § 502(a)(3), the

District Court awarded the plaintiffs restitution of half of the

commissions Barrett received in connection with his sale of

C-group policies. The court reached this conclusion by

considering the nature of Barrett‘s liability. Barrett‘s receipt

of commissions from Commonwealth (by way of Tri-Core)

was not itself a violation of § 406(b)(3), but rather derived

from his knowing participation in Tri-Core‘s § 406(b)(3)

violation. In addition, Barrett passed along 50% of his

commissions to others with whom he worked. For these

reasons, the District Court deemed it most equitable to order

Barrett to disgorge some, but not all, of the compensation he

received for his sale and management of the plaintiffs‘ plans.

The plaintiffs contend that the District Court should have

awarded full disgorgement of Barrett‘s commissions because

the common law authorized recovery of all profits obtained

by wrongful conduct. Barrett responds that partial

disgorgement was an appropriate equitable remedy under §

502(a)(3) because he was entitled to some compensation for

the services he rendered.31

―[A]ppropriate equitable relief‖ under § 502(a)(3), the

Supreme Court instructs, ―refer[s] to ‗those categories of

relief that were typically available in equity[.]‘‖ Great-West

Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 209-10

(2002) (quoting Mertens, 508 U.S. at 256) (emphasis in

31

Neither party has suggested that the relief fashioned by the

District Court conflicts with the terms of the plans.

49

original); see also CIGNA Corp. v. Amara, 131 S. Ct. 1866,

1878 (2011); Sereboff v. Mid Atlantic Med. Servs., 547 U.S.

356, 361-62 (2006). To determine if a form of relief was

typically available in equity we consult well-known treatises

and the Restatements. Great-West, 534 U.S. at 217. Those

sources help decipher whether, ―[i]n the days of the divided

bench,‖ a remedy was equitable in nature, in which case it

may be redressed by a § 502(a)(3) action, or legal in nature,

in which case it may not. Id. at 212.

It is undisputed that restitution of ill-gotten

commissions is an equitable remedy. The Restatement of

Restitution provides, ―where a fiduciary in violation of his

duty to the beneficiary receives or retains a bonus or

commission or other profit, he holds what he receives upon a

constructive trust for the beneficiary.‖ Restatement of

Restitution § 197, at 808 (1937). This rule applies even when

the fiduciary‘s disloyal enrichment causes the beneficiary no

harm. Id. § 197, at 809-10, cmt. c. ―The rule . . . is not based

on harm done to the beneficiary in the particular case, but

rests upon a broad principle of preventing a conflict of

opposing interests in the minds of fiduciaries, whose duty it is

to act solely for the benefit of their beneficiaries.‖ Id. The

Restatement of Trusts is in accord: when a fiduciary receives

a commission from an insurance company in exchange for

purchasing insurance policies as trust assets, ―he is

accountable for the commission.‖ Restatement (Second) of

Trusts § 170, at 370-71, cmt. o (1959).

These authorities instruct that had Tri-Core, as

fiduciary, remained in the suit as a defendant, its commissions

acquired from Commonwealth in breach of § 406(b)(3) would

be subject to a constructive trust for the plaintiffs, who would

be entitled to restitution of the payments. See Harris Trust,

530 U.S. at 250 (―The trustee or beneficiaries may . . .

maintain an action for restitution of the property (if not

already disposed of) or disgorgement of proceeds (if already

disposed of), and disgorgement of the third person‘s profits

derived therefrom.‖). But what of Barrett, a third party who

accepted what he knew to be commissions, obtained in breach

of § 406(a)(3)? Here again, the Restatement of Restitution is

instructive:

50

Where property is held by one person upon a

constructive trust for another, and the former

transfers the property to a third person who is

not a bona fide purchaser, the interest of the

beneficiary is not cut off . . . . In such a case he

can maintain a suit in equity to recover the

property from the third person, at least if his

remedies at law are not adequate.

Restatement of Restitution § 160, at 647, cmt. g; see also id. §

201, at 813-14. The plaintiffs‘ interest in the constructive

trust placed over Tri-Core‘s commissions, the Restatement

suggests, is not diminished because Tri-Core transferred a

portion of its commissions to Barrett. On this understanding,

Barrett should be held accountable for the commissions he

knowingly received by way of Tri-Core‘s fiduciary breach.

Cf. Skretvedt, 372 F.3d at 213-14 (analyzing the constructive

trust remedy and concluding that, in a case involving unpaid

benefits, ―Dobbs, Palmer, and the Restatement all make clear

that the constructive trust remedy typically would allow [the

beneficiary], in equity, to force [the plan administrator] to

disgorge the gain it received on his withheld benefits under a

restitutionary theory‖).

We now reach the nub of the controversy: did the

District Court have discretion to halve the commissions

recoverable from Barrett? ERISA § 502(a)(3) authorizes

suits for ―appropriate equitable relief.‖ 29 U.S.C. §

1132(a)(3) (emphasis added). Our Court recently construed

the term ―appropriate‖ to confer discretion on district courts,

sitting as courts of equity, to limit equitable relief by

doctrines and defenses traditionally available at equity. US

Airways, Inc. v. McCutchen, 663 F.3d 671, 676 (3d Cir.

2011), cert. granted, 80 U.S.L.W. 3638 (U.S. Jun. 25, 2012)

(No. 11-1285). It is a bedrock principle of equity that courts

possess discretion to limit equitable relief. See, e.g., 1 Dan B.

Dobbs, Law of Remedies § 2.4(1), at 91-92 (2d ed. 1993).

Equitable discretion enables a court to shape relief ―to fit its

view of the balance of the equities and hardships,‖ id. § 2.4(1)

at 92, and to fashion relief tailored to the unique

circumstances of a case. See Brown v. Plata, 131 S. Ct. 1910,

1944 (2011) (―Once invoked, the scope of a district court‘s

equitable powers . . . is broad, for breadth and flexibility are

51

inherent in equitable remedies.‖); Holland v. Florida, 130 S.

Ct. 2549, 2563 (2010) (―[W]e have . . . made clear that often

the ‗exercise of a court‘s equity powers . . . must be made on

a case-by-case basis.‘‖ (quoting Baggett v. Bullitt, 377 U.S.

360, 375 (1964))).

In limiting the plaintiffs‘ recovery to partial

disgorgement of Barrett‘s ill-gotten commissions, the District

Court did precisely what equity enables it to do: it exercised

its discretion not to award complete relief after balancing the

equities and hardships. It was within the District Court‘s

discretion under § 502(a)(3) to consider the role that Barrett

played as a nonfiduciary with respect to the plaintiffs‘ plans

and the amount of commissions he actually retained. See

Dobbs, Law of Remedies § 2.4(5), at 109-10; see also Amara,

131 S. Ct. at 1880 (referring to a district court‘s ―discretion

under § 502(a)(3)‖). In light of Barrett‘s comparatively

minor role in the underlying ERISA violation and his

redistribution of a portion of the commissions to co-brokers,

the District Court did not abuse its discretion by ordering

Barrett to disgorge some, but not all, of his compensation for

marketing and servicing the plaintiffs‘ plans. Accordingly,

we will affirm the award of restitution.

2.

The District Court also awarded the plaintiffs

prejudgment interest on the disgorged commissions. Section

502(a)(3) authorizes a court to award prejudgment interest as

a form of appropriate equitable relief. Fotta v. Trs. of the

United Mine Workers of Am., 319 F.3d 612, 616 (3d Cir.

2003). Both parties object to the prejudgment interest rate

applied by the District Court. We review such challenges for

abuse of discretion. Holmes v. Pension Plan of Bethlehem

Steel Corp., 213 F.3d 124, 133 (3d Cir. 2000).

Prejudgment interest exists to make plaintiffs whole

and to preclude defendants from garnering unjust enrichment.

Id. at 132. Recognizing these goals, the District Court first

explained that prejudgment interest was ―not necessarily

required‖ to make the plaintiffs whole. App. 71. This was so

because, in the court‘s view, the plaintiffs received all

benefits to which they were entitled under their plans and

52

because Tri-Core‘s commissions came from

Commonwealth‘s general asset fund, not directly from the

plans. On the other hand, the District Court reasoned, some

prejudgment interest was necessary to prevent Barrett from

unjustly retaining compensation from transactions that plainly

conflicted with the plans‘ interests. Balancing these equities,

the District Court imposed a modest prejudgment interest rate

of 3.91%. It borrowed this rate from the post-judgment

interest rate set by 28 U.S.C. § 1961 and applied the average

rate from the time the plaintiffs established the plans to the

date of the order.

The plaintiffs contend that the District Court should

have awarded prejudgment interest at the rate of return of a

typical retirement account because their money would have

earned interest at that rate had it been invested in a tax-

compliant vehicle. This may be so, but Barrett‘s knowing

participation in Tri-Core‘s receipt of commissions — the

basis for ERISA liability — has little to do with whether the

plaintiffs selected the best investment vehicle for retirement

savings. The plaintiffs offer no argument that calls into

question the District Court‘s conclusion that, because they

received the benefits to which they were entitled under the

plans, prejudgment interest was unnecessary to fully

compensate their injuries.

Barrett contends that because the District Court found

that prejudgment interest was not needed to make the

plaintiffs whole, they should not have been awarded interest

on Barrett‘s commissions. That argument neglects that

prejudgment interest aims to make plaintiffs whole and to

prevent unjust enrichment. Holmes, 213 F.3d at 132.

Alternatively, relying on a denial-of-benefits case, Barrett

argues that because his commissions were reasonable, there

was no unjust enrichment. The argument misapprehends the

nature of the ERISA violation for which he was found liable.

Section 406(b) enumerates per se harms, the commission of

which is itself a wrong, irrespective of the reasonableness of

the ill-gotten profits. The mere fact of Barrett‘s knowing

participation in the § 406(b) violation indicates that, to some

extent, both Barrett and Tri-Core were unjustly enriched by

their self-dealing. For the same reason, Barrett‘s final

argument — that he did not act wrongfully — is baseless.

53

Neither parties‘ objections to the prejudgment interest

rate are persuasive. We have emphasized that, in reviewing a

District Court‘s assignment of prejudgment interest, ―what

matters is . . . whether its balancing of the equities amounted

to an abuse of discretion.‖ Id.; see also Restatement (Second)

of Trusts § 207(1), at 468 (―Where the trustee commits a

breach of trust and thereby incurs a liability for a certain

amount of money with interest thereon, he is chargeable with

interest at the legal rate or such other rate as the court in its

sound discretion may determine[.]‖). The District Court

thoughtfully weighed the interests in making the plaintiffs

whole and in avoiding Barrett‘s unjust enrichment. Its

application of a modest prejudgment interest rate was not an

abuse of discretion.

3.

Finally, the plaintiffs contend that they are entitled to

attorneys‘ fees and costs. ERISA provides that a ―court in its

discretion may allow a reasonable attorney‘s fee and costs of

action to either party.‖ 29 U.S.C. § 1132(g)(1). The Supreme

Court construes this provision to permit a district court to

award fees and costs to any party that has achieved ―‗some

degree of success on the merits.‘‖ Hardt v. Reliance Standard

Life Ins. Co., 130 S. Ct. 2149, 2158 (2010) (quoting

Ruckelshaus v. Sierra Club, 463 U.S. 680, 694 (1983)). Once

satisfied that a party has met that threshold standard, the court

must consider the following policy factors in determining

whether to award fees and costs:

(1) the offending parties‘ culpability or bad

faith; (2) the ability of the offending parties to

satisfy an award of attorneys‘ fees; (3) the

deter[r]ent effect of an award of attorneys‘ fees

against the offending parties; (4) the benefit

conferred on members of the pension plan as a

whole; and (5) the relative merits of the parties‘

position.

Ursic v. Bethlehem Mines, 719 F.2d 670, 673 (3d Cir. 1983).

We review a challenge to a district court‘s allocation of

counsel fees and costs for abuse of discretion. MacPherson v.

54

Employees‘ Pension Plan of Am. Re-Ins. Co., 33 F.3d 253,

256 (3d Cir. 1994).

The District Court considered each of the discretionary

factors before denying the plaintiffs‘ request for fees and

costs. In the court‘s view, Barrett was minimally culpable

when compared with Redfearn, the mastermind behind EPIC,

and Tri-Core, the entity that breached its fiduciary duties. In

addition, the court found, imposition of fees would have

negligible deterrent effect, many of the plaintiffs‘ claims

lacked merit, and the case conferred no benefit on the plans,

for the plans were inoperative by the close of the trial.

Weighing against those considerations, the court reasoned,

was Barrett‘s ability to satisfy a fee award. Because this

factor did not counterbalance the other four, however, the

court declined to award fees and costs under § 1132(g)(1).

The plaintiffs contest the District Court‘s application

of the Ursic factors to the factual record. While they construe

the evidence differently, they fall short of establishing that the

District Court abused its discretion in balancing the factors.

The court thoughtfully considered each factor, and its

characterization of the evidence is well founded in the record.

We will affirm its denial of attorneys‘ fees and costs.

V.

The plaintiffs mount a number of challenges to rulings

made by the District Court with respect to the civil RICO and

common law breach of fiduciary duty claims. The jury

returned a verdict in favor of Barrett on the former and the

plaintiffs on the latter. For the reasons that follow, we will

vacate the verdict on the RICO claim and remand for retrial.

We will affirm in all other respects.

A.

The plaintiffs‘ principal objection to the District

Court‘s rulings in the jury trial involves the jury charge on the

civil RICO claim against Barrett. After the parties rested, the

court determined that it would instruct the jury not to consider

evidence concerning Barrett‘s receipt of commissions in its

assessment of the RICO claim. App. 7707-08; 7769. We

55

review the propriety of this instruction for abuse of discretion.

United States v. Dobson, 419 F.3d 231, 236 (3d Cir. 2005);

Livingstone v. N. Belle Vernon Borough, 91 F.3d 515, 524

(3d Cir. 1996).

The RICO statute provides a civil cause of action to

―[a]ny person injured in his business or property by reason of

violation of section 1962 of this chapter.‖ 18 U.S.C. §

1964(c). Section 1962, which contains RICO‘s criminal

provisions, makes it ―unlawful for any person employed by or

associated with any enterprise . . . to conduct or participate,

directly or indirectly, in the conduct of such enterprise‘s

affairs through a pattern of racketeering activity or collection

of unlawful debt.‖ 18 U.S.C. § 1962(c). The Supreme Court

has distilled the provision into four components: ―(1) conduct

(2) of an enterprise (3) through a pattern (4) of racketeering

activity.‖ Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496

(1985).32

―Racketeering‖ may include mail or wire fraud under

18 U.S.C. §§ 1341 and 1343. See 18 U.S.C. § 1961(1). The

plaintiffs based their RICO claim on these predicate offenses.

The elements of mail and wire fraud are (1) a scheme or

artifice to defraud for the purpose of obtaining money or

property, (2) participation by the defendant with specific

intent to defraud, and (3) use of the mails or wire

transmissions in furtherance of the scheme. United States v.

Riley, 621 F.3d 312, 329 (3d Cir. 2010); United States v.

Yusuf, 536 F.3d 178, 187-88 & n.14 (3d Cir. 2008). Thus,

the plaintiffs maintained that Barrett was associated with Tri-

Core, an enterprise, and participated in its pattern of

committing mail and wire fraud through a specific scheme to

defraud.

The plaintiffs‘ theories as to what constituted Tri-

Core‘s ―scheme to defraud‖ had a chameleonic quality

throughout the proceedings. By the time of trial, they had

32

The complaint initially asserted five RICO claims alleging

separate theories of enterprise. By the time of trial, the claims

were narrowed to the single theory that Tri-Core operated as

an enterprise within the meaning of RICO. Barrett does not

challenge this characterization of Tri-Core on appeal.

56

settled on four general formulations of the alleged scheme:

(1) Barrett and Tri-Core misled the plaintiffs into

participating in EPIC in order to generate grossly excessive

compensation for themselves; (2) Tri-Core and Barrett misled

them into participating in EPIC by concealing the

commissions they would receive; (3) Tri-Core and Barrett

misled them into participating in EPIC by misrepresenting the

tax benefits and drawbacks of the plan; and (4) Tri-Core and

Barrett misled them into participating in EPIC by

misrepresenting the existence of a reserve fund and the

accessibility of conversion credits. The plaintiffs encouraged

the District Court to charge the jury that it could find any one

of the alleged schemes constituted a scheme to defraud.

Before charging the jury, however, the District Court

announced that it would limit the jury‘s consideration of both

theories involving Barrett‘s receipt of commissions. That is,

it would not permit the jury to find a scheme to defraud based

on the plaintiffs‘ first or second theory. Accordingly, the

District Court instructed the jury:

You should know that I will be deciding the

issues plaintiffs have raised regarding the

defendants‘ commissions. You‘ve heard a lot

of questions about how much and when and so

forth and so on. All right. Those issues you

will not be deciding one way or another. So

you should disregard all testimony regarding

the commissions received by the defendant.

You will concentrate on the other issues raised

by the plaintiffs.

App. 7769. In place of the commissions theories, the District

Court instructed, the jury could rely only on the following to

determine whether the plaintiffs established a scheme to

defraud:

The plaintiffs allege that Barrett committed the

following racketeering acts; that defendant

Barrett used the mails to further a fraudulent

scheme or artifice to sell insurance through

misrepresentations which involved preparing

promotional materials that contain[ed]

57

affirmative misrepresentations, and omitted to

disclose material information, the sending of

money through the mails and the distributions

of money in the form of contributions and

otherwise to defraud plaintiffs and others

regarding the tax benefits of an employee

welfare benefit plan.

App. 7775-76. The plaintiffs objected and argued that by

paring down the instruction and taking from the jury the

question of whether excessive or concealed commissions

amounted to a scheme to defraud, the District Court

―eviscerated‖ their RICO claim. Reply Br. 24.33

We begin by considering the plaintiffs‘ objection to

the excision of the excessive compensation theory from the

jury charge. The District Court did not instruct the jury to

decide if Barrett and Tri-Core extracted excessive

commissions because it believed the plaintiffs presented no

evidence that Tri-Core and Barrett‘s commissions were

excessive by industry standards. The court reasoned that ―the

amount of the commissions in this case . . . cannot be

characterized,‖ and the plaintiffs‘ failure to adduce any such

evidence left nothing for the jury to consider. App. 7707-08.

On appeal, the plaintiffs protest that there was

―overwhelming‖ evidence that the commissions were

excessive. Reply Br. 21. But they fail to identify a single

item of evidence from which a juror could conclude that Tri-

Core and Barrett misrepresented information in order to

generate unreasonably high compensation.34 Nor does our

33

Barrett argues in passing, and without legal citation, that it

was ―necessary to instruct the jury to disregard commissions

evidence since the district court would be considering that in

connection with the ERISA claim.‖ Barrett Br. 25. We see

no reason, however, why the plaintiffs cannot recover under

both ERISA and RICO for harms derived from Tri-Core and

Barrett‘s receipt of commissions from Commonwealth. It

bears repeating that ERISA § 502(a)(3) allows for only

equitable relief. The civil RICO statute (18 U.S.C. §

1964(c)), on the other hand, authorizes treble damages.

34

The plaintiffs‘ only argument in this regard is: ―Barrett‘s

commissions were clearly excessive based on the facts that

58

review of the record reveal a basis on which a jury could find

Tri-Core and Barrett‘s compensation disproportionately high

compared to relevant industry standards. In light of this

failure of proof, the District Court did not abuse its discretion

in refusing to instruct the jury to consider whether Barrett

generated excessive commissions as part of a scheme to

defraud.

The District Court‘s excision of the concealed

compensation theory from the jury charge presents a more

difficult issue. We have not located any explanation in the

record for the court‘s decision not to permit the jury to

consider the theory. Nor has Barrett pointed us to any basis

for the decision. Concealment of material facts in order to

obtain money through such concealment, the plaintiffs

correctly argue, may constitute fraud under 18 U.S.C. §§

1341 and 1343. United States v. Bryant, 655 F.3d 232, 249

(3d Cir. 2011). Indeed, we have explained that the mail fraud

statute ―‗has been expansively construed to prohibit all

schemes to defraud by any means of misrepresentation that in

some way involve the use of the postal system.‘‖ United

States v. Olatunji, 872 F.2d 1161, 1166 (3d Cir. 1989)

(quoting United States v. Boffa, 688 F.2d 919, 925 (3d Cir.

1982)). There was conflicting evidence at trial about whether

Tri-Core and Barrett made sufficient disclosures to the

plaintiffs about the source and quantity of their compensation.

And there was an adequate evidentiary basis on which a jury

could find that Tri-Core and Barrett were not truthful about

their commissions. Under the circumstances, it was an abuse

of discretion for the District Court to refuse to instruct the

jury that this evidence could constitute a scheme to defraud

under the mail and wire fraud statutes.35

they were undisclosed; that they were significantly greater

than the amounts that the Plaintiffs anticipated Barrett would

receive; and that they were disproportionate to not only the

amount of time that Barrett devoted to the Plaintiffs but also

to the value of his services.‖ Reply Br. 22. These facts have

nothing to do with whether they were excessive by industry

standards.

35

The plaintiffs also argued to the District Court that PTE 84-

24 imposed on Barrett a separate duty to disclose information

to them about his commissions. App. 7682. The District

59

The District Court‘s refusal to charge the jury on the

concealed commissions theory was not harmless error. See

28 U.S.C. § 2111 (requiring reviewing courts to issue

judgment ―without regard to errors or defects which do not

affect the substantial rights of parties‖). In instructing the

jury to disregard the mountain of evidence pertaining to Tri-

Core and Barrett‘s commissions, the court withdrew a large

swath of the case from the jurors‘ deliberations. We question

whether any jury could separate the commissions testimony

from the rest of the case. Testimony concerning the

plaintiffs‘ knowledge of Barrett and Tri-Core‘s commissions

was intertwined with testimony concerning the scheme in

general. We cannot know whether the instruction to ignore

testimony on commissions infected the jury‘s consideration of

the plaintiffs‘ other scheme-to-defraud theories. At a

minimum, though, it is not ―highly probable‖ that the

instruction did not affect the plaintiffs‘ substantial rights. See

McQueeney v. Wilmington Trust Co., 779 F.2d 916, 923-27

(3d Cir. 1985). We therefore we will vacate the jury‘s verdict

on the RICO claim and remand for retrial.36

B.

The plaintiffs next challenge the damage award on the

breach of fiduciary duty claim. They objected to the award in

their motion for a new trial, which was denied by the District

Court. We review the denial of a motion for a new trial for

abuse of discretion. Thabault v. Chait, 541 F.3d 512, 532 (3d

Cir. 2008).

The plaintiffs‘ argument is premised on the jury‘s

alleged confusion with respect to the verdict form. The

District Court initially handed the jury a simple verdict form

Court rightly understood PTE 84-24 as supplying an

exemption from liability for prohibited transactions under

ERISA rather than an independent duty to disclose. See App.

7815.

36

Because we have ordered a new trial on the RICO claim,

we need not consider the plaintiffs‘ argument that statements

made by Barrett‘s counsel at summation prejudiced the jury‘s

resolution of the claim.

60

with one line to fill in damages for each group of plaintiffs.

The following day, the court provided the jury with an

optional supplemental verdict form that broke down the

damages for each group of plaintiffs into several line items.

Over the course of its deliberations, the jury asked the court a

question, in writing, about the form. Ultimately, its verdict

sheet listed one damages sum for each cluster of plaintiffs,

not broken into component parts.

The plaintiffs moved for a new trial on the basis that

the verdict form was inconsistent and that the jury awarded

insufficient damages. The District Court denied the motion

on the merits and noted that, in any event, the plaintiffs did

not timely object to the form of the verdict sheet. On appeal,

the plaintiffs contend that because the jury did not fill in the

supplemental verdict form, they are entitled to a new trial.

The argument is not well taken. The jury was under no

obligation to fill out the supplemental form, and the District

Court was correct to point out that the plaintiffs‘ failure to

object timely rendered the argument waived. We conclude

that the District Court did not abuse its discretion in declining

to upset the jury‘s verdict on the breach of fiduciary duty

claim.

C.

The plaintiffs next contend that the District Court

lacked a legal basis for instructing the jury to apportion

liability. New Jersey law permits a tortfeasor to request

apportionment of damages among multiple responsible

parties. N.J. Stat. Ann. § 2A:15-5.2. An apportionment

instruction may be given if the trial court determines, ―as a

matter of law, [that] the jury is capable of apportioning

damages.‖ Campione v. Soden, 695 A.2d 1364, 1375 (N.J.

1997). ―The absence of conclusive evidence concerning

allocation of damages will not preclude apportionment by the

jury[.]‖ Id. Rather, the trial court need only determine

―whether there is any rational basis for the jury to conclude

that the respective fault of each defendant can be

apportioned.‖ Baglini v. Lauletta, 768 A.2d 825, 838 (N.J.

Super. App. Div. 2001). An instruction may be given even if

the other tortfeasors have settled with the plaintiff, are

deceased (like Redfearn), or have declared bankruptcy (like

61

Tri-Core). Young v. Latta, 589 A.2d 1020, 1021 (N.J. 1991).

These permissive standards reflect New Jersey‘s policy of

favoring apportionment among responsible parties. See

Boryszewski ex rel. Boryszewski v. Burke, 882 A.2d 410,

423 (N.J. Super. App. Div. 2005).

Barrett requested that the jury apportion damages

between himself and Tri-Core and Redfearn, both absent

defendants, for the breach of fiduciary duty claim. He had

previously asserted a cross-claim against Tri-Core and

Redfearn for negligence. In Barrett‘s view, a portion of the

plaintiffs‘ harm was attributable to Tri-Core and Redfearn‘s

negligent misrepresentations about EPIC‘s tax consequences.

Over the plaintiffs‘ objection, the District Court gave the

instruction. The jury ultimately divided responsibility evenly

between Barrett and Tri-Core/Redfearn (treated as one

entity), thus halving the damages recoverable from Barrett.

The plaintiffs maintain that neither Tri-Core nor

Redfearn could be found liable for negligently

misrepresenting the tax risks of EPIC. This argument, we

conclude, is meritless. As an initial matter, we find no error

in the District Court‘s legal conclusions. To prove negligent

misrepresentation, a party must establish ―‗[a]n incorrect

statement, negligently made and justifiably relied on, [that]

may be the basis for recovery of damages for economic loss .

. . sustained as a consequence of that reliance.‘‖ Singer v.

Beach Trading Co., 876 A.2d 885, 890-91 (N.J. Super. Ct.

App. Div. 2005) (quoting McClellan v. Feit, 870 A.2d 644,

650 (N.J. Super. Ct. App. Div. 2005)); see also Restatement

(Second) of Torts § 552 (1965). Material omissions, too, can

support liability for negligent misrepresentation if a party has

a duty to disclose. Karu v. Feldman, 574 A.2d 420, 426 (N.J.

1990). The District Court concluded that Tri-Core and

Redfearn, the architects of EPIC, had a duty to disclose

known tax risks by virtue of their special relationship with the

plaintiffs, ascertainable and predictable members of the class

of potential investors in the plan. See People Express

Airlines v. Consol. Rail Corp., 495 A.2d 107, 112 (N.J.

1985). We agree. It was foreseeable that the plaintiffs would

rely on their representations about the integrity of the claimed

tax benefits.

62

We also find no error in the District Court‘s conclusion

that the record disclosed a rational basis upon which a jury

could deem Tri-Core and Redfearn partially responsible for

the plaintiffs‘ loss. Trial testimony supplied a sound

evidentiary predicate for the conclusion that Tri-Core and

Redfearn made affirmative misrepresentations or material

omissions on which the plaintiffs justifiably relied to their

detriment. Tri-Core and Redfearn created the brochures and

marketing materials used by Barrett to promote EPIC,

materials that trumpeted the tax benefits of EPIC plans while

disguising their unsteady grounding in the tax code. All the

while, Tri-Core and Redfearn knew that there was doubt

about the deductibility of the contributions made under the

scheme. The plaintiffs knew that Tri-Core and Redfearn were

the architects of EPIC and reasonably accepted their

representations as made by experts peddling a secure

investment vehicle. As we have explained, New Jersey law

sets a low bar for the quantum of evidence needed to obtain

an instruction on comparative fault. See Boryszewski, 882

A.2d at 418. In light of this standard, the District Court

properly granted Barrett‘s request to apportion damages for

the breach of fiduciary duty claim.

D.

Finally, the plaintiffs contend that the District Court

erred in granting Barrett judgment as a matter of law on their

claim for punitive damages under N.J. Stat. Ann. § 2A:15-5.9

et seq. Our review of an order granting judgment as a matter

of law is plenary. Lightning Lube, Inc. v. Witco Corp., 4

F.3d 1153, 1166 (3d Cir. 1993). The plaintiffs maintain that

the evidence adduced at trial was sufficient to permit the jury

to consider whether Barrett‘s breach of fiduciary duty

warranted punitive damages. We disagree. Trial testimony

did not disclose clear and convincing evidence that Barrett

acted with actual malice or with wanton and willful disregard

of harm in recommending EPIC to the plaintiffs. N.J. Stat.

Ann. § 2A:15-5.12.

VI.

We wish to commend the District Court on its

exemplary handling of this difficult matter. For the reasons

63

discussed, we will affirm its judgments in all respects but

three. We will vacate the District Court‘s partial grant of

summary judgment in favor of Barrett regarding plaintiffs‘

state law claims to the extent that they allege that Barrett

misrepresented the existence of a reserve fund, the

availability of conversion credits, and the nature of his

commissions before adoption of the EPIC plans and remand

for further proceedings consistent with this opinion. We will

vacate the jury‘s verdict on the plaintiffs‘ RICO claim and

remand for retrial consistent with this opinion. And, insofar

as it held the Universal Mailing and Alloy Cast plaintiffs‘

ERISA claims time-barred, we will vacate the District Court‘s

partial grant of Barrett‘s motion to amend the judgment and

remand for further proceedings.

64