Beauty Time, Inc. Beauty Makers, Inc. & R. Richard Riso v. Vu Skin Systems, Inc. Bjv Dpm Skin Systems, Inc. & Marion M. Vujevich

ALITO, Circuit Judge,

dissenting:

In this action, plaintiffs asserted a claim for fraud under the Lanham Act. Since the Lanham Act does not specify a statute of limitations for such a claim, we look to the state statute of limitations that applies to an analogous state law cause of action. It is undisputed that the applicable statute of limitations here is the two-year bar for fraud actions contained in 42 Pa.C.S. § 5524(7) and that this limitations period begins to run at the time the fraudulent act is completed. It is also undisputed that, in evaluating whether § 5524(7) bars plaintiffs’ fraud claim, we borrow Pennsylvania’s tolling mies. Thus far I am in agreement with the majority.

My disagreement with the majority lies in its choice of tolling rules. The majority holds that the “discovery rule,” under which the statute of limitations is tolled “until the plaintiff learns or reasonably should have learned through the exercise of due diligence of the existence of the claim,” applies to fraud claims. Maj. Op. at 148. As I read the Pennsylvania cases, however, the statute of limitations for a fraud claim is tolled only if the tortfeasor, after carrying out the concealment inherent in the tort, committed additional acts of concealment. Turtzo v. Boyer, 88 A.2d 884, 885 (Pa.1952). Because plaintiffs do not even argue that defendants committed any such acts, plaintiffs cannot obtain the benefit of tolling under Pennsylvania law, and their Lanham Act fraud claim is time-barred.

I.

The Pennsylvania Supreme Court has squarely held that “[i]n an action based upon a fraud” the statute of limitations is tolled only if “such fraud has been actively concealed by the wrongdoer.” Turtzo, 88 A.2d at 885 . As the court explained, “fraud or concealment in the original transaction” is insufficient to extend the time for filing *151 suit; “to excuse delay of the injured party in asserting his rights there must be an independent act of fraud or concealment which misled or prevented discovery.” Id. This proposition was established as a matter of Pennsylvania law as early as 1901, Smith v. Blackley, 198 Pa. 173 , 47 A. 985 (1901), and has been repeatedly reaffirmed in recent years. Northampton Cty. Area Community College v. Dow Chemical, U.S.A., 566 A.2d 591, 599 (Pa.Super.1989) (“If the party committing fraud is also guilty of some acts of concealment or deception which hide[ ] from the plaintiff that he has a cause of action, then the statute will run from the time discovery of the alleged fraud is made, or in the exercise of reasonable diligence should have been made.”), aff'd, 528 Pa. 502 , 598 A.2d 1288 (1991) (per curiam); In re Estate of Doerr, 388 Pa.Super. 474 , 565 A.2d 1207, 1211 (1989) (“[A] cause of action arising from fraud is complete when the transaction has ended[;] ... the statute of limitations begins to run at once, unless discovery is prevented by active eoncealment.”)(emendations in original) (quotation omitted). Accord In re Thorne’s Estate, 344 Pa. 503 , 25 A.2d 811, 815 (1942); Dalzell v. Lewis, 252 Pa. 283 , 97 A. 407, 408-09 (1916); In re McKay, 110 B.R.764, 767 (Bankr.W.D.Pa. 1990).

In Smith v. Blackley, the Pennsylvania Supreme Court reviewed the precedents at length and discussed two competing views of tolling in actions for fraud. The court explained:

It is said, in general, that in cases of fraud the statute runs only from discovery, or from when, with reasonable diligence, there ought to have been discovery. But a distinction is made in regard to the starting point between fraud completed and ending with the act which gives rise to the cause of action and fraud continued after-wards in efforts or acts tending to prevent discovery. On this distinction there are two widely divergent views. It is held, on the one hand, that the fraud, though complete and fully actionable, operates as of itself a continuing cause of action until discovery; while, on the other hand, it is held that, when the cause of action is once complete, the statute begins to run, and suit must be brought within the prescribed term, unless discovery is prevented by some additional and affirmative fraud done with that intent.

Id. 47 A. at 985 (emphasis added). The court unambiguously aligned itself with the latter view, declaring that “[w]e regard the distinction as sound, well marked, and in harmony with the spirit and letter of the statute.” Id. 47 A. at 987 . The court observed that a tolling rule that delayed the running of the statute in all cases of fraud until discovery of the fraud would be incompatible with the settled rule that a cause of action for fraud accrues upon consummation of the fraud.

The cases which hold that, where fraud is concealed, or, as sometimes added, conceals itself, the statute runs only from discovery, practically repeal[ ] the statute pro tanto. Fraud is always concealed. If it was not, no fraud would ever succeed. But, when it is accomplished and ended, the rights of the parties are fixed. The right of action is complete.

Id.

In other words, the Pennsylvania Supreme Court reasoned as follows: The statute of limitations for fraud claims embodies a legislative judgment that, at least in typical cases, the plaintiff should begin suit within the specified period after the fraud occurs. Since the legislature presumably realized that some concealment is inherent in fraud, the legislature presumably realized as well that there will typically be some lag time between the occurrence of the fraud and its discovery by the victim. Thus, the legislature presumably took this typical lag time into account in framing the statute of limitations in the first place and it is therefore not appropriate for the courts to recognize a tolling rule to account for this sort of typical lag time. Only when there is the a typical lag time that results from subsequent acts of concealment is such a tolling rule appropriate.

The majority opines that it would be “inexplicable]” for Pennsylvania to apply the liberal discovery rule to other tort claims and to subject fraud claims to a different, tougher tolling rule. Maj. Op. at 144. See also Maj. *152 Op. at 147 (it “makes no sense” to say that a victim of fraud who does not discover the fraud during the two-year limitations period cannot recover unless the defendant actively concealed the fraud subsequent to its completion). I disagree.

While I might well agree that the majority’s tolling rule represents sound public policy, it does not seem to me to be the rule that Pennsylvania has adopted, and I certainly do not think that Pennsylvania’s apparent choice is either “inexplicabl[e]” or irrational. In my view, the foregoing discussion and excerpt from Smith v. Blackley reveal why fraud claims might be viewed as requiring different treatment. Causes of action for fraud are unique in that they always involve concealment. In contrast, only a minority of actions for other torts involve conduct that was concealed from the victim at the time it was committed. An individual cause of action for personal injury, for example, is distinguished from the norm when it is alleged that the tortious conduct was concealed and that the plaintiff was unable to discover it until a subsequent time. Thus, in Ayers v. Morgan, 397 Pa. 282 , 154 A.2d 788 (1959), the court held, notwithstanding the two-year statute of limitations, that the plaintiff could maintain his suit against a surgeon who had negligently failed to remove a sponge from the plaintiffs intestines following surgery nine years earlier. Since the statute of limitations was designed for the paradigmatic personal injury case in which the plaintiff becomes aware of the injury at the time when the defendant performs the tortious act, it would be unfair and “illogical” to apply it to a case in which the plaintiff “does not know, and cannot know, for example, that a surgeon has negligently left a rubber tube in his body.” Id. 154 A.2d at 789 .

The same rationale applies to other causes of action. In Lewey v. H.C. Frick Coke Co., 166 Pa. 536 , 31 A. 261 (1895), the plaintiff sued the defendant in trespass, contending that it had intruded onto his lands and stolen coal from beneath the surface. As in Ayers , the court emphasized that the plaintiff had no way of knowing that the invasion and theft were taking place, since “[h]e [could not] be present in the interior of the earth.” Id. 31 A. at 263-64 . Many trespasses, like many personal injuries, are immediately apparent to a diligent plaintiff, but this particular trespass was not. Therefore, while in the usual trespass case the statute of limitations begins running upon commission of the trespass, “the statute runs against an injury committed in or to a lower stratum from the time of actual discovery, or the time when discovery was reasonably possible.” Id. 31 A. at 264 . 1

In contrast, since fraud always involves an element of concealment, something more is needed to distinguish a particular fraud claim from the norm. Accordingly, while the presence of concealment in a particular personal injury case might provide a sufficient reason to toll the statute in that case, under the reasoning of the Pennsylvania Supreme Court, something more, namely, an independent act of concealment, is required for tolling in a fraud case. This reasoning might lead one to question the wisdom of the legislature’s enactment of a two-year statute of limitations for fraud claims. But it goes without saying that we are bound to apply the law of Pennsylvania whether or not we think it wise.

*153 In my view, the foregoing clearly establishes that, at least at the time of Turtzo , it was the law in Pennsylvania that the fraud statute of limitations was tolled only upon a showing that the defendant engaged in affirmative acts of concealment, independent of the original fraud. The majority concludes that, at the present time, “there is no such general rule in Pennsylvania,” and indeed holds the precise opposite: “when the underlying claim sounds in fraud, the statute of limitations is tolled by the tortious conduct, without any further action by the wrongdoer, until the fraud should have been discovered by the plaintiffs.” Maj. Op. at 146-47. In reaching this conclusion, the majority distinguishes the cases I have cited and relies upon some recent cases (mostly not decisions of the Pennsylvania Supreme Court) that create some ambiguity regarding the current state of Pennsylvania law with respect to the requirement of fraudulent concealment independent of the original fraud. 2

I acknowledge that the eases have not been free from ambiguity in confirming the vitality of the rule dating from Smith v. Blachley. But the important point is that the Smith v. Blachley rule has never been repudiated by the Pennsylvania Supreme Court or Superior Court. Nor do I see any clear evidence in the state appellate decisions that the Pennsylvania Supreme Court would overrule Smith v. Blachley if given the chance. At least without far stronger evidence than we now have, I am not willing to predict such a result.

II.

Accordingly, it seems to me that under Pennsylvania law, as it now stands, a different showing is required to toll the statute of limitations for fraud claims, § 5524(7), than for other types of claims. While the statute is tolled for most tort claims if the plaintiff, “despite the exercise of due diligence, is unable to know of the existence of the injury and its cause,” Bohus v. Beloff, 950 F.2d 919, 924 (3d Cir.1991), the statute is tolled for a fraud claim only if the defendant actively conceals the completed fraud. Since plaintiffs here do not even contend that defendants committed any independent acts of concealment, I would hold that plaintiffs cannot avail themselves of tolling under the Pennsylvania law governing fraud actions. Here, as in Turtzo , “[ajssuming, as alleged, there were fraud in the execution of the affidavit[ ][in connection with the re-registration application], there was no independent act of fraud or concealment which misled plaintiff[s] or prevented discovery.” 88 A.2d at 886 (emphasis in original) (quotation omitted). See also Smith, 47 A. at 987 (“It is true that the defendant obtained the money, as the jury have found, by a scheme of the grossest fraud and deception, and used all possible efforts to prevent plaintiffs from finding out the truth; but all these were in the transaction itself and prior to its consummation.”). Absent tolling, it is undisputed that plaintiffs’ Lanham Act fraud claim is barred by § 5524(7)’s two-year statute of lim *154 itations. I would therefore affirm the district court’s dismissal of plaintiffs’ Lanham Act fraud claim. 3

. Contrary to the majority’s implication, Lewey is poor authority for the application of the discovery rule to fraud causes of action for the additional reason that the court in Lewey actually held only that "the equitable rule that the statute shall run only from discovery, or a lime when discovery might have been made, should be applied by courts of law” confronted with claims for equitable relief. Id. 31 A. at 264 . I do not dispute that “[glenerally, courts have followed the old chancery rule adopted by the United States Supreme Court that when a party 'has been injured by fraud and remains in ignorance without any fault or want of diligence or care on his part, the bar to the statute does not begin to run until the fraud is discovered, though there be no special circumstances or efforts on the part of the party committing the fraud to conceal it from the knowledge of the other party.’ ” Maj. Op. at 144 (quoting Holmberg v. Armbrecht, 327 U.S. 392, 397 , 66 S.Cl. 582, 585, 90 L.Ed. 743 (1946)). But that principle is explicitly a principle of equity, and it is thus applicable only to claims inequity. Here, it is not contended that plaintiffs’ Lanham Act fraud claim sounds in equity. The majority’s reliance on Holmberg is thus unsound.

. In fact, several of the cases cited by the majority are at best ambiguous in their support of its conclusion. In Bickell v. Stein, 291 Pa.Super. 145 , 435 A.2d 610 (1981), the court stated that the "doctrine of fraudulent concealment appears somewhat narrower than the discovery rule, because it requires a showing that defendant himself prevented plaintiff from discovering the facts by acts of deception which were independent of the acts giving rise to [the] cause of action.” Id. 435 A.2d at 612 n. 3(emphasis added). It is true that the court then went on to note its opinion that the doctrine of fraudulent concealment had been "relaxed,” id., but the case hardly stands clearly for the holding announced by the majority. The same is true of Knuth v. Erie-Crawford Dairy Coop. Ass'n, 463 F.2d 470 , 482 (3d Cir.1972), where we in fact held that "the governing standard” was whether there was "an affirmative, independent act of concealment.” While in Sheet Metal Workers, Local 19 v. 2300 Group, Inc., 949 F.2d 1274, 1280 (3d Cir.1991), we did hold the statute of limitations tolled because of "inherent fraud” in the "self-concealing" false statements in the defendant’s certifications that it was making the required benefit fund contributions, the fraudulent concealment (the certifications) was in fact independent of the wrong sued upon (the failure to pay the contributions). Finally, the majority relies on Pocono Int’l Raceway, Inc. v. Pocono Produce, Inc., 503 Pa. 80 , 468 A.2d 468 (1983). The court in Pocono, however, only discussed the discovery rule as a prelude to finding that the plaintiff’s claim was time-barred in any event because it could have learned of its injury through the exercise of reasonable diligence. Id. 468 A.2d at 471 . In addition to the cases cited by the majority, see Deemer v. Weaver, 324 Pa. 85 , 187 A. 215, 216 (1936).

. I agree with the majority's affirmance of the dismissal of plaintiffs' state law dilution and infringement claims. Plaintiffs have not appealed the dismissal of the remainder of their federal claims, so I would affirm the district court's decision not to exercise supplemental jurisdiction over plaintiffs’ other state law claims once all of their federal claims had been dismissed.