J. Geils Band Employee Benefit Plan v. Smith Barney Shearson, Inc.

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 95-1699

J. GEILS BAND EMPLOYEE BENEFIT PLAN, ET AL.,

Plaintiffs - Appellants,

v.

SMITH BARNEY SHEARSON, INC., ET AL.,

Defendants - Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Robert E. Keeton, U.S. District Judge]

Before

Torruella, Chief Judge,

Bownes, Senior Circuit Judge,

and Stahl, Circuit Judge.

Thomas J. Butters, with whom Cullen & Butters was on brief

for appellants.
Barry Y. Weiner, with whom Christopher P. Litterio, William

E. Ryckman and Shapiro, Israel & Weiner, P.C. were on brief for

appellees.

February 20, 1996

TORRUELLA, Chief Judge. Appellants, the J. Geils Band
TORRUELLA, Chief Judge

Employee Benefit Plan (the "Plan"), and Stephen Bladd (the

"Trustee"), John Geils, Jr., Richard Salwitz and Seth Justman

(the "Participants"), brought this suit alleging fraud and breach

of fiduciary duty under the Employment Retirement Income Security

Act of 1974 ("ERISA"), 29 U.S.C. 1001 et seq. (1994), in

connection with certain investment transactions made by Appellees

in 1985, 1986 and 1987. The district court granted the motion

for summary judgment brought by Appellees, Smith Barney Shearson

("Shearson"), Matthew McHugh, and Kathleen Hegenbart, on the

grounds that Appellants' claims are time barred under ERISA's

six-year statute of limitations. For the following reasons, we

affirm.

FACTUAL AND PROCEDURAL BACKGROUND
FACTUAL AND PROCEDURAL BACKGROUND

The following facts are summarized in the light most

favorable to Appellants, the party opposing summary judgment.

Barbour v. Dynamics Research Corp., 63 F.3d 32, 36 (1st Cir.

1995).

The Plan, also known as T & A Research and Development,

Inc., was formed as a pension and profit sharing plan for the

employees of the J. Geils Band and, as a common plan and trust,

it is subject to ERISA. In April of 1985, Bladd as the Plan's

Trustee1 opened accounts for the Plan with Shearson Lehman

Brothers, Inc., a registered broker-dealer and a member firm of

1 The record shows that prior to serving as the Plan's trustee,
Bladd had no significant financial background or experience.

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both the National Association of Securities Dealers (NASD) and

the New York Stock Exchange (NYSE). This appeal stems from

Shearson's management between 1985 and 1990 of the Plan's account

and, specifically, its purchase of three limited partnerships

(the first in June of 1985, the second in September of 1985, and

the third in June of 1987) and execution of a "bond swap" in May

of 1986.

The Plan's accounts were handled by Hegenbart, a

Shearson employee who acted as the Plan's stock broker from 1985

until Appellants transferred the accounts from Shearson in 1990.

McHugh, a Shearson branch manager, supervised the accounts.

Hegenbart would make a recommendation, and if Appellants accepted

it and executed an order, she would receive a commission. If the

recommendation was not accepted, she would not receive any

compensation from Appellants. While Appellants communicated to

Hegenbart that they knew very little about financial management

or investment, Appellants retained decision-making authority over

the Plan accounts. At no time was Hegenbart given power of

attorney or discretionary authority over the accounts.

Upon opening the Plan's accounts, Hegenbart sold the

securities transferred to it and one month later, in June of

1986, purchased over $500,000 of long-term zero coupon bonds

("CATS"), Shearson-managed mutual funds, and certificates of

deposit. In May of 1986, Appellants swapped the CATS purchased

in 1985 for other bonds upon Hegenbart's recommendation. The

bond swap resulted in an overall loss to the Plan and generated

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over $90,000 worth of commissions -- $32,000 for the bonds

purchased in 1985 and $61,000 for their sale in May of 1986, and

the subsequent purchase of the new bonds. The Plan was charged

commissions of about 3.5% for the sale of the CATS purchased in

1985, 3.5% for the 1986 sale, and approximately 6% for the 1986

purchase of the new CATS.

Between 1985 and 1987, Appellants purchased a total of

$165,000 worth of three Shearson-packaged limited partnership

interests. The first was purchased in June of 1985, for

$100,000. On or about the purchase date, Bladd, as Trustee, and

Justman executed a Subscription Agreement under penalty of

perjury. According to this agreement, they acknowledged, inter

alia, that (i) they received the prospectus; (ii) there was not

expected to be a public market for their investment; and (iii)

there were risks involved, which the prospectus disclosed.

Appellants were sent prospectuses which similarly disclosed risks

involved when they purchased $40,000 worth of the second limited

partnership interest in September of 1985, and when they

purchased $25,000 of the third in June of 1987.

Each of the Participants, including Bladd as Trustee,

received monthly statements, as did Justman's accountant, Nick

Ben-Meir ("Ben-Meir"). The monthly statements disclosed the

transactions which occurred during the particular month as well

as a summary of the Plan's portfolio but did not separately break

out the amount of commissions charged. The monthly statements

listed the "face amount" of the limited partnerships, but not the

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market value. As of January 1986 they included the following

statement: "The face amount does not necessarily reflect current

market value." Appellants also received quarterly "Portfolio

Reviews," which consisted of two documents: (i) a chart setting

forth the Plan's portfolio, including the investment, date of

purchase, amount invested, current market value, and yield, among

other information; and (ii) an investment pyramid showing the

relative safety of each investment and its market value,

including the total account value. Unlike the monthly

statements, the record shows that the portfolio review dated

October 1988 lists as the market value what was actually the face

amount of the interests in the limited partnerships. In the May

1990 portfolio review, the limited partnerships are listed in the

"amount invested" column, with two of them appearing with

undefined subtractions for "ROC" which exceed $19,000; the

corresponding "market value" column is blank. Bladd, as Trustee,

also received letters from McHugh as early as June of 1985 in

which he offered both to help him review the Plan's investment

objectives and results obtained and to discuss how Shearson could

be of greater assistance.

While Ben-Meir did not receive the statements with the

purpose of reviewing Hegenbart's investment decisions, the record

shows he did review some potential investments as early as May of

1986. In October of 1988, Justman received a letter from Ben-

Meir regarding an analysis of Justman's portfolio. In the

letter, Ben-Meir communicated that he had exchanged "some

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extremely sharp words" with Hegenbart regarding some of the

figures shown in the analysis, particularly with respect to the

limited partnership interests. The letter stated that all of

them are worth "far below their cost" and "strongly advise[d]

[Justman] not to enter into any more of these types of

investments," because the "'loading' charges (fees and

commissions off the top), together with their continuingly

reduced value for tax purposes . . . make them unattractive . . .

." (Emphasis in original). Ben-Meir then expressed that

"[d]espite [Hegenbart's] repeated statements to me that she only

has your best interest at heart, my instincts say otherwise, and

I would urge you, once again, to request and obtain an accounting

of the fees and commissions earned by Shearson and her as a

result of her placing you in all these [l]imited [p]artnerships."

Finally, the letter closed with the recommendation that "[i]f you

decide to continue using [Hegenbart] to manage your portfolio,

that's okay, but you should clearly change the amount of

discretion you have been allowing, so that no purchases or sales

are made without your complete review of all proposals and

direction."

In late July to August 1990, the Plan accounts were

transferred from Shearson. Some time thereafter, the Plan's new

broker informed Bladd that the limited partnerships were

unsuitable for investors desiring safety and were worth less than

the amount reflected in the latest review, confirming Ben-Meir's

October 1988 observations. Between the summers of 1991 and 1992,

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internal Shearson "activity reports" produced during arbitration

proceedings brought by Justman against Shearson2 revealed

information regarding the excessive commissions, also confirming

Ben-Meir's observations. Appellants maintain that they only

learned of the Plan's losses resulting from the bond swap in

January of 1994, when they were informed by counsel whom they had

retained in October of 1992.

Pursuant to an agreement between the parties to

arbitrate disputes, Appellants commenced arbitration proceedings

with the NASD by filing a Uniform Submissions Agreement dated

August 20, 1993, seeking recovery for alleged breaches of

fiduciary duty by Appellees. On motion by the Appellees, the

NASD Director ruled on May 15, 1994, that virtually all of the

claims were ineligible for arbitration under Section 15 of the

NASD Code of Arbitration Procedure, because all trades giving

rise to the claims occurred more than six years prior to the

filing of the arbitration in August of 1993.

On October 7, 1994, Appellants filed the civil action

below. In their complaint, Appellants allege that Appellees

violated their purported fiduciary duty3 to the Plan under ERISA

2 In that proceeding, Seth Justman v. Shearson Lehman Hutton and

Kathleen Hegenbart, NASD No. 90-02937, Justman sought damages as

a result of alleged unlawful actions resulting in large losses.
The NASD docket reveals that these proceedings were commenced on
October 19, 1990 and closed on June 3, 1992.

3 Appellees' motion for summary judgment also argued that the
claims were barred because Appellees were not fiduciaries under
ERISA. The district court did not rule on this issue. For
purposes of this appeal, we assume, without deciding, that
Appellees were under a fiduciary duty. See Maggio v. Gerard

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with respect to the three limited partnership interests and the

"bond swap." Appellants contend the following: (i) that these

transactions were unsuitable for the Plan and were inconsistent

with its investment objectives; (ii) that Hegenbart, in order to

obtain higher commissions, made fraudulent statements to induce

the Participants, whom she knew were unsophisticated investors

relying on her investment advice, into making these transactions;

and (iii) that in connection with the bond swap Appellees charged

commissions grossly exceeding the rate Hegenbart had represented

would be charged. Appellants subsequently filed a motion

compelling arbitration of all claims or, in the alternative,

staying arbitration pending adjudication by jury trial of non-

arbitrable claims. In response, Appellees filed an answer and

counterclaim for declaratory judgment, opposition to Appellants'

motion, and a motion for summary judgment as to the complaint and

counterclaim. Pending disposition of these motions, Appellants

requested review of the decision by the Director of the NASD. On

January 10, 1995, the arbitration panel affirmed the Director's

decision. On May 9, 1995, the district court entered a

memorandum and interlocutory order by which Appellees' summary

judgment motion was granted. The district court concluded that

Freezer & Ice, Co., 824 F.2d 123, 129 (1st Cir. 1987) (finding no

need to resolve merit of allegations that uncles and brothers, as
fellow shareholders in a close corporation, owed plaintiff a
fiduciary duty). For a recent discussion of ERISA and, in
particular, whether ERISA authorizes suits for money damages
against nonfiduciaries who knowingly participate in a fiduciary's
breach of duty, see J. Mertens v. Hewitt Associates, U.S.

, 113 S. Ct. 2063 (1993).

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Appellants' claims were time-barred under ERISA's six-year

statute of limitations on the grounds that, under the fraudulent

concealment doctrine as applied in this Circuit, Appellants had

been placed on inquiry notice -- by their receipt of the

prospectuses and monthly statements -- more than six years before

commencing their cause of action. After voluntary dismissal of

Appellees' counterclaims without prejudice, the court entered a

final judgment on June 23, 1995. This appeal followed.

STANDARD OF REVIEW
STANDARD OF REVIEW

We review a district court's grant of summary judgment

de novo and, like the district court, review the record in the

light most favorable to the non-moving party. See, e.g.,

Barbour v. Dynamics Research Corp., 63 F.3d 32, 36-37 (1st Cir.

1995); Woods v. Friction, 30 F.3d 255, 259 (1st Cir. 1994). Our

review is limited to the record as it stood before the district

court at the time of its ruling. Voutour v. Vitale, 761 F.2d

812, 817 (1st Cir. 1985), cert. denied, 474 U.S. 1100 (1986).

Summary judgment is appropriate when "the pleadings, depositions,

answers to interrogatories, and admissions on file, together with

the affidavits, if any, show that there is no genuine issue as to

any material fact and that the moving party is entitled to a

judgment as a matter of law." Fed. R. Civ. P. 56(c). A material

fact is one which "has the potential to affect the outcome of the

suit under the applicable law." Nereida-Gonz lez v.

Tirado-Delgado, 990 F.2d 701, 703 (1st Cir. 1993). If the moving

party demonstrates that "there is an absence of evidence to

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support the non-moving party's case," the burden shifts to the

non-moving party to establish the existence of a genuine material

issue. FDIC v. Municipality of Ponce, 904 F.2d 740, 742 (1st

Cir. 1990) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 325

(1986)). Thus, the nonmovant bears the burden of placing at

least one material fact into dispute once the moving party offers

evidence of the absence of a genuine issue. Darr v. Muratore, 8

F.3d 854, 859 (1st Cir. 1993); see also Celotex Corp., 477 U.S.

at 322 (1986) (stating that Fed. R. Civ. P. 56(c) "mandates the

entry of summary judgment, ... upon motion, against a party who

fails to make a showing sufficient to establish the existence of

an element essential to that party's case, and on which that

party will bear the burden of proof at trial."). In other

words, neither "conclusory allegations, improbable inferences,

and unsupported speculation," Medina-Mu oz v. R.J. Reynolds

Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990), nor "[b]rash

conjecture coupled with earnest hope that something concrete will

materialize, is []sufficient to block summary judgment." Dow v.

United Bhd. of Carpenters, 1 F.3d 56, 58 (1st Cir. 1993).

DISCUSSION
DISCUSSION

Resolution of this appeal requires that we determine

whether the ERISA statute of limitations, which is codified at 29

U.S.C. 1113,4 applies to bar Appellants' action. Section 1113

4 Section 1113 provides as follows:

No action may be commenced under this
subchapter with respect to a fiduciary's
breach of any responsibility, duty, or

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requires that Appellants commence their action within six years

from the date of the last transaction giving rise to their claim,

unless they demonstrate "fraud or concealment," in which case

they must commence their action within six years from the date

they discover the breach.

The first step requires us to determine "the date when

the last action which constituted a part of the breach or

violation" occurred -- one of a number of temporal determinations

to be made. 29 U.S.C. 1113(1)(A). Here, the purported

violations in connection with the limited partnership interests

occurred in June of 1985, September of 1985, and June of 1987,

obligation under this part, or with
respect to a violation of this part,
after the earlier of--

(1) six years after (A) the date
of the last action which
constituted a part of the breach of
the violation, or (B) in the case
of an omission, the latest date on
which the fiduciary could have
cured the breach or violation, or
(2) three years after the
earliest date on which the
plaintiff had actual knowledge of
the breach or violation;

except that in the case of fraud or
concealment, such action may be
commenced not later than six years
after the date of discovery of such
breach or violation.

29 U.S.C. 1113 (1994). We note that Section 1113 was amended
by Congress both in 1987 and in 1989. Neither of these
amendments, however, have any bearing on this appeal.

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and those made in connection with the bond swap occurred in May

of 1986.5

The second requires us to determine when the cause of

action was commenced. The district court assumed, without

deciding, that NASD Code 18(a) tolls the statute of limitations

in this case. The district court concluded that August 20, 1993,

the date on which Appellants filed the Uniform Submission

Agreement with the NASD,6 should serve as the date marking

commencement of the action. The district court reasoned that

even by using that date, which was more favorable to the

Appellants, the purported violations -- in June of 1985,

September of 1985, May of 1986 and June of 1987 -- nonetheless

occurred more than six years earlier. Neither party disputes

this reasoning on appeal and, because it has no bearing on the

outcome, we adopt without further comment the district court's

use of August 20, 1993 as the date the action was commenced.

5 Appellants state in their brief that the last alleged
commission overcharges occurred in December 15, 1988. Appellees
contend that the last commissions were charged in June 1987. Our
review of the record indicates that there was a commission charge
on June 24, 1987 for (what appears to be) about $1,200. The only
evidence we can find of commission charges in 1988 is a March 2,
1988 entry corresponding to a distribution where the initials
"CLP" appear in the "commissions" column. We do not find this
alone to be sufficient evidence supporting resolution of this
"dispute" in favor of Appellants.

6 Section 18(a) of the NASD Code of Arbitration Procedure
provides that "where permitted by applicable law, the time
limitation which would otherwise run or accrue for the
institution of legal proceedings shall be tolled where a duly
executed Submission Agreement is filed by Claimants."

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Because Appellants filed the action below more than six

years after the last transaction giving rise to the alleged

violations, we turn next to the question of whether the "fraud or

concealment" exception applies to toll the limitations period.

Appellants argue that it does, and that the district court erred

when it held to the contrary. The interpretation of the fraud or

concealment clause of Section 1113 is one of first impression for

this Circuit. We address the various issues this question raises

in turn.

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A. Fraudulent Concealment and the Proper Discovery
A. Fraudulent Concealment and the Proper Discovery
Standard under Section 1113
Standard under Section 1113

The first issue involves a determination of when the

limitations period begins to run in cases of fraud or concealment

under Section 1113. Resolution of this question requires us to

decide what standard -- objective or subjective -- is to be

applied when determining the "date of discovery." As the

district court noted, other circuits have interpreted Section

1113 to incorporate the federal doctrine of "fraudulent

concealment," which operates to toll the statute of limitations

until the plaintiff in the exercise of reasonable diligence

discovered or should have discovered the alleged fraud or

concealment. See Larson v. Northrop Corp., 21 F.3d 1164, 1172-74

(D.C. Cir. 1994) (Campbell, J., sitting by designation) (holding

that Section 1113's fraud or concealment exception incorporates

the common law fraudulent concealment doctrine); Martin v.

Consultants & Administrators, Inc., 966 F.2d 1078, 1093-96 (7th

Cir. 1992) (same); Schaefer v. Arkansas Medical Society, 853 F.2d

1487, 1491-92 (8th Cir. 1988) (same); see also Bailey v. Glover,

88 U.S. 342, 349 (1875) (discussing fraudulent concealment

doctrine).

After noting the approach followed in Larson and

Martin, the district court concluded that, even if we were to

hold that Section 1113 could be tolled by showing something less

than "fraudulent concealment," Appellants would still not

prevail. In reaching its conclusion, the district court reasoned

that in light of our interpretation of the fraudulent concealment

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doctrine as applied to limitation periods contained in the

Securities Exchange Act of 1933 and 1934, Appellants will have

failed to meet their burden of production alleging facts of fraud

or concealment if Appellees show that Appellants were on inquiry

notice of the alleged violations more than six years before the

filing date. See Kennedy v. Josephthal & Co., 814 F.2d 798, 802-

03 (1st Cir. 1987) (holding that plaintiffs are on notice where

there are "sufficient storm warnings to alert a reasonable person

to the possibility that there were either misleading statements

or significant omissions involved") (quoting Cook v. Avien, Inc.,

573 F.2d 685, 697 (1st Cir. 1978)). The district court found

that Appellants were on "discovery" or "inquiry" notice more than

six years prior to August 20, 1993, due to their receipt of the

prospectuses and monthly statements Appellees sent them. Thus,

it was because the district court found that the documents

received by Appellants contained "sufficient storm warnings,"

which would have alerted them to the possibility of fraud had

they acted with reasonable diligence, that it concluded

Appellants failed to carry their burden of production regarding

the issue of fraud or concealment.

In challenging the decision below, Appellants argue

that the district court erred in its construction of Section 1113

when it applied the objective standard under the fraudulent

concealment doctrine. Specifically, Appellants contend that

because Section 1113 involves breaches of fiduciary duty, the

term "discover" used in connection with fraud or concealment

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should mean that the six-year limitation period begins to run

only when Appellants, who are unsophisticated investors,

subjectively gained knowledge that their fiduciary made material

misrepresentations to them. In support of this argument,

Appellants point to the plain language of Section 1113 and to the

fact that Congress did not include the phrase "knew or should

have known." In addition, they maintain that adopting a

subjective standard comports with Congress' mandate that ERISA be

liberally construed to protect pension beneficiaries and to

ensure the highest standards of fiduciary conduct. See 29 U.S.C.

1001(a), (b). In this regard, they contend that the

Congressional mandate is not properly served by requiring that

participants heed storm warnings and exercise reasonable

diligence where affirmative acts of fraud and concealment are

alleged. Finally, Appellants insist that if some standard of

reasonable diligence is to be applied, then, at a minimum,

traditional factors used in assessing reasonable diligence -- the

existence of a fiduciary relationship, the nature of the fraud,

the opportunity to discover the fraud, the subsequent acts of

defendants, and the sophistication of the plaintiffs -- should be

considered before granting summary judgment. See Maggio, 824

F.2d at 128; Cook, 573 F.2d at 697.

As always, we begin with the relevant statutory

language. Section 1113's tolling provision provides that "in the

case of fraud or concealment, such action may be commenced not

later than six years after the date of discovery of such breach

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or violation." 29 U.S.C. 1113. As the District of Columbia

Circuit recently noted, this is the only provision in Section

1113 for delaying the accrual of the limitations period until the

date of discovery. See Larson, 21 F.3d at 1172. By its very

language, then, Section 1113 explicitly incorporates the federal

common law "discovery rule," which postpones the beginning of the

limitation period from the date when the plaintiff is injured to

the date the injury is discovered. Cada v. Baxter Healthcare

Corp., 920 F.2d 446, 450 (7th Cir. 1990). As we noted when

interpreting the statute of limitations contained in Section 13

of the Securities Act of 1933, which is applicable to Section

12(2) of that Act, "the doctrine of fraudulent concealment is the

common law counterpart of the 'discovery' standard prescribed by

13 to limit actions brought under 12(2)." Cook, 573 F.2d at

695; see Anixter v. Home-Stake Production Co., 939 F.2d 1420,

1434 n.18 (10th Cir. 1991) (citing Cook for this proposition).

We concluded in Cook that the running of Section 13 was triggered

by the very same considerations used to determine when the cause

of action accrues and when the statute is tolled under federal

common law. Cook, 573 F.2d at 695; see Holmberg v. Armbrecht,

327 U.S. 392, 397 (1946) (holding that equitable doctrine of

fraudulent concealment is read into every federal statute of

limitations). We find that Section 1113's discovery rule is

almost identical to that of Section 137 and perceive no reason

7 Section 13 provides in pertinent part:

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why we should not follow Cook's approach and hold that Section

1113 also incorporates the fraudulent concealment doctrine.8

Moreover, we have yet to encounter a convincing argument as to

why we should part company from those circuits which have already

addressed this issue and have concluded that Section 1113 indeed

incorporates the fraudulent concealment doctrine. See Larson, 21

F.3d at 424-25; Martin, 966 F.2d at 1093; Schaefer, 853 F.2d at

1491-92; see also Barker v. American Mobil Power Corp., 64 F.3d

1397, 1401-02 (9th Cir. 1995) (noting with approval that other

circuits have so held).9

No action shall be maintained to enforce
any liability created under Section . . .
[12(2)] of this title unless brought
within one year after the date of
discovery of the untrue statement or the
omission, or after such discovery should
have been made by the exercise of
reasonable diligence . . . .

15 U.S.C. 77m (1994).

8 In reaching this decision, we have taken into account the
different policies underlying, and protections afforded by, the
Securities & Exchange Acts of 1933 and 1934 and ERISA. Absent
statutory or other Congressional directive, we find no reason why
our interpretation of the statutes of limitations should not be
guided by the same approach.

9 Where courts differ is on how "in the case of fraud or
concealment" should be construed, specifically whether it
includes both so-called "self-concealing wrongs" as well as
"active concealment" that is separate from the underlying
wrongdoing. See generally Martin, 966 F.2d at 1093-96, 1101-04

(Posner, J., concurring); Radiology Center, 919 F.2d at 1220-21;

see also footnote 16 infra. Resolution of this appeal does not

require us to make a definitive determination as to which side of
this dialogue we adhere. We merely note for the moment that
because the fraudulent concealment doctrine as applied in this
Circuit includes both categories, see, e.g., Kennedy, 814 F.2d at

802, and the fact that there is nothing in the language of
Section 1113 to suggest otherwise, we are inclined to think that

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Next, with respect to the scope of "discovery" in the

fraud or concealment exception, we believe that the term

encompasses both actual and constructive discovery. As the

Seventh Circuit noted in Martin, Congress knew how to require

"actual knowledge," and did so for the three-year limitations

period under Section 1113(2). Holding that the fraud or

concealment exception extends the limitations period to six years

from the date of actual discovery would conflict with the fact

that the preceding three-year period runs from the date of

"actual knowledge." In addition, incorporating the notion of

constructive discovery comports with the general requirement

under the fraudulent concealment doctrine that there be a showing

of reasonable diligence before tolling is allowed.10 Martin,

966 F.2d at 1096; Maggio, 824 F.2d at 127-28; Kennedy, 814 F.2d

at 802; Cook, 573 F.2d at 695.

We turn, lastly, to the appropriate standard to be

applied when determining the "date of discovery." As we

emphasized in Maggio, whether a plaintiff should have discovered

the alleged fraud "is an objective question" requiring the court

to "determine if the plaintiff possessed such knowledge as would

alert a reasonable investor to the possibility of fraud."

the scope of Section 1113's incorporation of the fraudulent
concealment doctrine includes both. See Martin, 966 F.2d at

1094-95.

10 There is authority that reasonable diligence is not required
in cases of active concealment. See, e.g., Martin, 966 F.2d at

1096 nn.19, 20, 1098; Lewis v. Herrmann, 755 F. Supp. 1137, 1148

(N.D. Ill. 1991).

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Maggio, 824 F.2d at 128 (citing Cook, 573 F.2d at 697). We are

unpersuaded by Appellants' insistence that by adopting such an

objective standard we will undercut ERISA's goals regarding the

protection of pension benefits. First, Appellants' argument

seems to ignore the plain language of Section 1113 explicitly

calling for a "discovery" standard, which has been interpreted to

employ a "known or should have known" standard. See United

States v. James Daniel Good Property, 971 F.2d 1376, 1381 (9th

Cir. 1992).

Second, while this inquiry is an "objective" question,

the determination of whether a plaintiff actually exercised

reasonable diligence is a more subjective one. In making that

assessment, we "focus[] upon the circumstances of a particular

case, including the existence of a fiduciary relationship, the

nature of the fraud alleged, the opportunity to discover the

fraud, and the subsequent actions of the defendants." Maggio,

824 F.2d at 128; Kennedy, 814 F.2d at 803 (stating that "the

exercise of reasonable diligence is determined 'by examining the

nature of the misleading statements alleged, the opportunity to

discover the misleading statements, and the subsequent actions of

the parties'") (quoting Cook, 573 F.2d at 696). We believe that

because we engage in a "subjective" inquiry when assessing the

exercise of reasonable diligence, ERISA's goals will not be

undercut by applying an objective standard when determining the

"date of discovery." Whatever apparent harshness that may result

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from application of the objective standard will be mitigated by

our consideration of those more subjective factors.

We also remind Appellants that "[a]lthough any statute

of limitations is necessarily arbitrary, the length of the period

reflects a value judgment concerning the point at which the

interests in favor of protecting valid claims are outweighed by

the interests in prohibiting the prosecution of stale ones."

Johnson v. Railway Express Agency, Inc., 421 U.S. 454, 463-64

(1975). Section 1113 explicitly time bars actions against

fiduciaries which are not commenced within six years of either

the date of the last transaction or, in the case of fraud or

concealment, the date of discovery. 29 U.S.C. 1113. In this

regard, we note that Section 1113 states "after the earlier of,"

not "after the later of," which makes it a more stringent statute

of limitations than, for example, ERISA's Section 1451(f).11

The protections Congress established under ERISA are clearly

11 Section 1451(f) provides that, "An action under this section
may not be brought after the later of--

(1) 6 years after the date on which the
cause of action arose, or

(2) 3 years after the earliest date on
which the plaintiff acquired or should
have acquired actual knowledge of the
existence of such cause of action; except
that in the case of fraud or concealment,
such action may be brought not later than
6 years after the date of discovery of
the existence of such cause of action.

29 U.S.C. 1451(f) (1994). In interpreting this statute, courts
have acknowledged that 1451(f)(2), but not 1451(f)(1),
incorporates a discovery rule. See Larson, 21 F.3d at 427.

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available to plaintiffs who do not let their rights pass them by.

Finally, we note further that none of the other circuit courts

which have interpreted Section 1113 have adopted a subjective

standard despite the fact that those cases, as here, involved

alleged breaches of fiduciary duty.12

In summary then, we hold that the fraud or concealment

tolling provision of Section 1113 incorporates the fraudulent

concealment doctrine, which operates to toll the statute of

limitations "where a plaintiff has been injured by fraud and

'remains in ignorance of it without any fault or want of

diligence or care on his part . . . 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.'" Holmberg, 327 U.S. at 397

(quoting Bailey, 88 U.S. at 348); see Maggio, 824 F.2d at 127.

Accordingly, in order to toll the limitations period under

Section 1113's fraud or concealment exception, Appellants must

demonstrate that "(1) defendants engaged in a course of conduct

designed to conceal evidence of their alleged wrong-doing and

that (2) [the plaintiffs] were not on actual or constructive

notice of that evidence, despite (3) their exercise of reasonable

diligence." Larson, 21 F.3d at 1172 (quoting Foltz v. U.S. News

12 While the parties did not cite to any legislative history, we
have not found much that is particularly helpful regarding
Congress' intent with respect to Section 1113. Accord, Larson,

21 F.3d at 1171; Radiology Center, 919 F.2d at 1221.

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& World Report, Inc., 663 F. Supp. 1494, 1537 (D.C. Cir.

1987)).13 Furthermore, it is Appellants' burden under Federal

Rule of Civil Procedure 9(b) to plead with particularity the

facts giving rise to the fraudulent concealment claim.

Plaintiffs' attempt to toll the statute will fail if the evidence

shows that they were on discovery notice of the alleged

violations of fiduciary duty more than six years before the

filing date. See Truck Drivers & Helpers Union, Local No. 170 v.

NLRB, 993 F.2d 990, 998 (1st Cir. 1993) (noting that the burden

of showing reasonable diligence normally falls on the party

seeking to toll the statute of limitations by alleging

affirmative acts of concealment under the doctrine of fraudulent

concealment). This Circuit has characterized the facts that

trigger discovery or constructive notice as "sufficient storm

warnings to alert a reasonable person to the possibility that

there were either misleading statements or significant omissions

involved." Cook, 573 F.2d at 697. While discovery does not

require that plaintiffs become fully aware of the nature and

extent of the fraud, it is these "storm warnings" of the

possibility of fraud that trigger their duty to investigate in a

reasonably diligent manner, and their cause of action is deemed

to accrue on the date when they should have discovered the

13 We adopt the formulation most recently reiterated by a member
of this Court in Larson, which sets forth a clear test and does

not differ in substance from our usual description of the
fraudulent concealment doctrine. See, e.g., Maggio, 824 F.2d at

127 (setting forth Bailey standard).

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alleged fraud. Maggio, 824 F.2d at 128.

B. Application of the Fraud or Concealment Exception
B. Application of the Fraud or Concealment Exception

Having set forth the applicable standard and relevant

considerations, we turn to the application of Section 1113's

fraud or concealment exception. In their complaint, Appellants

allege that Appellees engaged in a fraudulent trading scheme

comprising purchases of unsuitably high risk limited

partnerships, account churning, and commission overcharges.

Appellants contend that Appellees, in furtherance of their

scheme, made material oral and written misrepresentations

regarding the value and safety of the investments, the amount of

profit generated by the trades, and the amounts of commissions

charged.

For purposes of disposing of this appeal, we need not

make any specific findings regarding the issue of whether

Appellees committed or concealed the alleged fraud.

Nevertheless, we review the record in the light most favorable to

Appellants, the non-moving party, as we determine whether the

district court erred when it granted summary judgment based on

its conclusion that Appellants had not offered evidence from

which a reasonable juror could conclude that Appellants would not

have known, in the exercise of reasonable diligence, about

Appellee's alleged violations six years or more before August 20,

1993, i.e., on or before August 20, 1987. We discuss the

transactions in turn.

1. The Limited Partnerships
1. The Limited Partnerships

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A. The Alleged Misrepresentations and the
A. The Alleged Misrepresentations and the

Prospectuses
Prospectuses

With respect to the three limited partnerships

purchased in June 1985, September 1985, and June 1987

respectively, Appellants allege that Appellees violated their

fiduciary duty by orally misrepresenting the risks and the

suitability of the these investments. They contend that the

names14 of the limited partnership interests were deceptive

because they suggest safe and suitable pension investments. They

also maintain that the portfolio reviews substantiated

Hegenbart's misrepresentations so that Appellants were induced to

retain the interests. Even assuming that the titles were

"deceptive" and that the reviews were misleading, the record

shows that Appellants received prospectuses on or about the date

each of these interests were purchased. The prospectuses fully

disclosed the suitability requirements and risk factors and, when

read with reasonable diligence, plainly contradict the alleged

oral misrepresentations that these were low-risk investments.

Appellants have not alleged that any of the risk disclosures

contained in the prospectuses are fraudulent. Even viewing the

facts in the light most favorable to the Appellants, we find that

these disclosures provided them with sufficient storm warnings of

the alleged misrepresentations and the possibility of fraud.

Maggio, 824 F.2d at 129 (holding that financial data that

14 The names were "Balcor Pension Investors VI," "Commercial
Development Fund 85" and "Federal Insured Mortgage Investors II."

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contradicted what plaintiffs were led to believe provided

sufficient storm warnings); Kennedy, 814 F.2d at 801 (holding

that discrepancy between oral misrepresentations and an offering

memorandum constituted inquiry notice commencing limitations

period). Thus, we conclude that receipt of the prospectuses put

Appellants on discovery notice of the alleged misrepresentations

regarding the suitability and riskiness of the partnerships at or

around June of 1985, September of 1985 and June of 1987.

Appellants insist, however, that there are "numerous

disputed issues of material fact" regarding the limited

partnerships which were relevant on summary judgment. We find

only one relevant -- Appellants' contention that there is a

factual dispute as to whether they ever received the

prospectuses. Appellants bolster their position by pointing to

the fact that Appellees produced a subscription agreement, which

indicates receipt of a prospectus, for only one of the three

limited partnerships -- the first one, purchased in June of 1985.

They also rely on the affidavits submitted by Justman and Bladd

which deny the genuineness of their signatures on the

subscription agreement. Finally, they base the existence of a

disputed material fact on Bladd's third affidavit, in which for

the first time Bladd suggests that Appellees did not tell him

to read any prospecti relating to the
partnerships. In fact, I am certain that
I never received a prospectus from
Hegenbart before purchasing a limited

partnership on behalf of the Plan.

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Record Appendix, p. 145 (emphasis in original). Bladd also

states that he has "no recollection" of ever receiving a

prospectus and that his files do not contain copies of any

prospectuses.

As the district court found, Appellants' evidence is

insufficient to create a disputed issue of fact with respect to

whether they received the prospectuses. First, we note that

Bladd's third affidavit, dated February 15, 1995, is the first

instance in which Appellants dispute the argument that they were

on notice by receipt of the prospectuses. What is striking about

this is how late in the proceedings this occurred -- more than

one year after Appellees first raised the argument in their

November 30, 1994 memorandum in support of their motion for

summary judgment. Appellants did not dispute Appellees'

contention that they received prospectuses in either their

initial or supplemental filings in opposition to Appellees'

motion for summary judgment, nor in Bladd's first affidavit. The

first "contradiction" appears in Appellants' supplemental

memorandum, dated February 9, 1995, where the affidavits filed by

Justman and Bladd merely state that the signatures on the

subscription agreement are not their own. Guided by the

principle that when reviewing motions for summary judgment,

courts should "pierce the boilerplate of the pleadings and assay

the parties' proof in order to determine whether trial is

actually required," Rivera-Cotto v. Rivera, 38 F.3d 611, 613 (1st

Cir. 1994) (quoting Wynne v. Tufts Univ. Sch. of Medicine, 976

-27-

F.2d 791, 794 (1st Cir. 1992), cert. denied, U.S. , 113 S.

Ct. 1845 (1993)), we view with significant skepticism what

appears to be a last ditch effort to create a disputed fact where

none exists.

Second, and more importantly, Bladd's statements on the

issue of whether the prospectuses were received are merely

conjectural and, thus, not sufficient to sustain a finding that a

disputed issue exists. See Medina-Mu oz v. R.J. Reynolds Tobacco

Co., 896 F.2d 5, 8 (1st Cir. 1990) ("[T]he evidence illustrating

the factual controversy cannot be conjectural or problematic; it

must have substance in the sense that it limns differing versions

of the truth which a factfinder must resolve."). Not only does

Bladd's third affidavit fail to state that the prospectuses were

never provided or received, his lack of recollection is

insufficient to rebut Appellees' affidavit and the acknowledgment

of receipt evidenced by the subscription agreement. As the

district court found, we face Appellants' conjecture versus

Appellees' direct statement of fact. On this alone, the weight

of the evidence tips the scale in favor of Appellees; and, when

considered together with Bladd's statement that he did not find

any prospectuses after "he searched [his] files carefully," the

scale tips further in their direction. Bladd's statement simply

does not satisfy Appellants' burden of producing evidence that

they did not receive the prospectuses. Absent any evidence that

Bladd had either a set procedure for filing documents or that he

would file prospectuses if received, their mere absence from his

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files does not provide a factfinder with any reasoned basis to

believe either that because Bladd's files did not yield the

prospectuses he did not receive them or that his files would have

contained the prospectuses had they been received. Finally, as

the district court also noted, Bladd's affidavit only indicates

that he is certain that he did not receive any prospectuses

before the transactions. It does not contain any probative

evidence to dispute the fact that Appellants received

prospectuses some time on or around the purchase dates.

Thus, we conclude that because Appellants' evidence

lacks "substance in the sense that it [does] not limn[ ]

differing versions of the truth which a factfinder must resolve,"

id., the only reasonable inference a factfinder could reasonably

draw is that Bladd received the prospectuses for the limited

partnerships on or around the time when the transactions were

made. This, coupled with the sufficient storm warnings that the

prospectuses revealed, leads us to the conclusion that no

reasonable basis exists for a reasonable factfinder to find that

Appellants were not on discovery notice of the alleged

misrepresentations regarding the limited partnerships.

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B. The Alleged Concealment and the Monthly Statements
B. The Alleged Concealment and the Monthly Statements

Appellants also allege that Appellees concealed the

partnerships' market value by listing them at their purchase

price, rather than at their market value, in the monthly

statements. The district court found that the monthly statements

Appellants received did not conceal the market value of the

limited partnerships, because they listed the "face amount" and

included a statement that "the face amount does not necessarily

reflect the current market value." The district court concluded

that based on these undisputed facts Appellees did not conceal

the market value of these investments. We agree. Beginning in

January of 1986, Appellants were presented every month with a

reminder that the face amount did not reflect the market value.

A simple phone call inquiring about the market value would have

exposed the value and shed light on the wisdom of these

transactions. Cook, 573 F.2d at 696-98 (finding that plaintiffs

were on inquiry notice by receipt of ominous financial reports

contradicting oral assurances); Carluzzi v. Prudential

Securities, Inc., 824 F. Supp. 1206, 1211-13 (N.D. Ill. 1993)

(finding that legend on monthly statements which disclosed that

face value did not equal market value was sufficient to put

investors on notice); Holtzman v. Proctor, Cook & Co., 528 F.

Supp. 9, 14 (D. Mass. 1981) (finding that confirmation slips and

monthly statements should have alerted reasonable persons to the

possibility of account mismanagement). Thus, even assuming that

Appellees "concealed" the value of the limited partnership

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interests, Appellants were on discovery notice of the alleged

concealment as early as January 1986. Cook, 573 F.2d at 695

(holding that even where facts are fraudulently withheld a

plaintiff cannot be allowed to ignore the economic status of his

or her investment).

2. The Bond Swap
2. The Bond Swap

Appellants allege that Appellees misrepresented the

value of the 1986 bond swap transaction and that, contrary to the

district court's finding, "a simple reading" of the May 1986,

statement would not have alerted unsophisticated investors to the

possibly fraudulent nature of the transaction. We disagree. It

is undisputed that Appellants were provided with monthly

statements, which disclosed the transactions Appellants had

authorized Hegenbart to make. Simple arithmetic --

straightforward addition and subtraction -- reveals a discrepancy

of more than $68,000 between the debit attributable to the

purchase of the new bonds and their market value. This alone

should have alerted Appellants to the possibility that fraudulent

statements may have been made in connection with the bonds'

value. Thus, while Appellants maintain that they only became

aware of the losses resulting from the bond swap in January of

1994, we find that they received sufficient storm warnings in May

of 1986.

3. The Commissions
3. The Commissions

Appellants also allege that Hegenbart misrepresented

that Shearson's commission charges would be below the market rate

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and that they were overcharged commissions with respect to the

bond swap transaction. They contend that "the first notice that

[they] received of any possible wrongdoing regarding [the]

commissions" was during the summer of 1992, when Bladd was

informed that there may have been commission overcharges. We are

unpersuaded. As with the bond swap, the May 1986 statement

provided Appellants with sufficient storm warnings about the

possibility of excessive commissions. As the district court

found, the discrepancy between the debit and sale prices for the

bonds should have alerted Appellants to the possibility of

excessive commissions and prior misrepresentations regarding the

rate actually charged. These storm warnings were reinforced by

the thunderous sirens contained in Ben-Meir's October 17, 1988

letter "urg[ing] . . ., once again, to request and obtain an

accounting of the fees and commissions" (emphasis added).

Contrary to Appellants' contention, the fact that Appellees have

not contested the allegation of commission overcharging is

irrelevant for purposes of determining whether Appellant's claim

is barred by the statute of limitations. Nor is it relevant that

the monthly statement could have broken out the amount of

commissions charged, although such a practice would certainly

have been more helpful to Appellants. What is relevant, and

controlling for purposes of this appeal, is the date of

discovery. Here, that date is May 1986, which is more than six

years before the commencement of this action in August 1993.

4. Reasonable Diligence
4. Reasonable Diligence

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The storm warnings triggered Appellants' duty to

exercise reasonable diligence. Kennedy, 814 F.2d at 802; Cook,

573 F.2d at 696. Appellants contend, however, that the district

court erred when it required them to show reasonable diligence.

First, Appellants assert that because the alleged violations

involved active concealment, as opposed to self-concealing

wrongs, there is no requirement that Appellants show reasonable

diligence. See, e.g., Martin, 966 F.2d at 1096 nn. 19, 20

(noting that courts are divided as to whether the plaintiff must

show due diligence in cases of active concealment); Lewis v.

Herrmann, 775 F. Supp. 1137, 1148 (N.D. Ill. 1991) (noting that a

plaintiff's due diligence may be excused when a fiduciary with a

duty to disclose engages in active concealment). In this

Circuit, however, we have held that "[i]rrespective of the extent

of the effort to conceal, the fraudulent concealment doctrine

will not save a charging party who fails to exercise due

diligence, and is thus charged with notice of a potential claim."

Truck Drivers & Helpers Union, 993 F.3d at 998. As we noted

earlier, when the party seeking to toll the statute by fraudulent

concealment alleges affirmative acts of concealment, the burden

of showing reasonable diligence falls on that party. Id. Thus,

in this Circuit, by alleging affirmative acts of fraudulent

concealment Appellants are required to show due diligence. To

cover all of the bases, we note that we place the burden of

showing reasonable diligence on the defendant when the plaintiff

alleges that the statute is tolled by a self-concealing wrong,

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id., such that defendants "'have the burden of coming forward

with any facts showing that the plaintiff could have discovered .

. . the cause of action if he had exercised due diligence.'" Id.

(quoting Hobson v. Wilson, 737 F.2d 1, 35, (D.C. Cir. 1984),

cert. denied, 470 U.S. 1084 (1985)). Even placing this burden on

Appellees, Appellants' complaint will nonetheless be defeated.

Appellants were provided with sufficient information which

reveals, or at a minimum suggests, the possibility of the alleged

violations.

In the alternative, Appellants argue that, even if some

standard of reasonable diligence were applied, a district court

must take into account the traditional factors used in assessing

reasonable diligence before summary judgment is granted. Maggio,

824 F.2d at 128; Cook, 573 F.2d at 697. While we agree that the

traditional and "more subjective" factors are to be considered,

we disagree that they should affect the outcome of this appeal.

Stressing the subjective nature of the "reasonable diligence"

test, Appellants essentially argue that they acted in a

reasonably diligent manner in light of their unsophistication as

investors and their reliance on Appellees as their fiduciaries.

We remind Appellants that, although subjective factors

are taken into account, "the exercise of reasonable diligence

requires an investor to be reasonably cognizant of financial

developments relating to [their] investment, and mandates that

early steps be taken to appraise those facts which come to the

investor's attention." Cook, 573 F.2d at 698. Even assuming

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that Appellees owed Appellants a fiduciary duty, an investor

"must 'apply his common sense to the facts that are given to him

[or her]' in determining whether further investigation is

needed." Id. (quoting Cook, 573 F.2d at 696 n.24). While we

recognize, and are genuinely troubled by, the possibility that

the Participants were such unsophisticated investors that they

were not in a position to heed the storm warnings, the stark fact

remains that "it was [their] conduct, in accepting the fraudulent

misrepresentations and omissions as true, that allowed the

fraud." Kennedy, 814 F.2d at 803. This is what does them in.

As to the opportunity to discover the misleading nature

of Hegenbart's representations and the monthly statements, it

could not have presented itself more readily. The misleading

information was directly refuted by the plain text of the

prospectuses and simple arithmetic of the numbers on the monthly

statements. Both Hegenbart's representations about the limited

partnerships and the prospectuses' risk disclosures could not be

true. Logically, one or the other must have been false.

Similarly, while the monthly statements may have presented a

misleading "big picture," comparing two numbers (albeit on two

different pages) on the May 1986 statement revealed a significant

discrepancy in the bond swap figures. A minimal attempt to

resolve these contradictions -- for example, asking Ben-Meir,

Hegenbart or McHugh for an explanation or a more comprehensive

accounting -- should have uncovered the fraud or, at a minimum,

prompted Appellants to abandon (as Ben-Meir strongly recommended

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in 1988) their apparent "laissez-faire" approach. Kennedy, 814

F.2d at 803 (noting that any attempt to resolve contradictions

between oral misrepresentations and offering memorandum should

have uncovered the fraud or dissuaded plaintiffs from the folly).

Nor can the subsequent actions of the parties help

Appellants' case. Instead of making a minimal inquiry or

otherwise attempting to resolve the contradictions, Appellants

did absolutely nothing. Even assuming that Appellants did not

see the first storm warnings, "there were yet more dark clouds on

the horizon." Maggio, 824 F.2d at 128. We find that Ben-Meir's

letter of October 17, 1988, and Justman's 1990-1992 arbitration

proceedings (which produced documents regarding the excessive

commissions) should have brought Appellants to attention. Even

commencing this action in October of 1988, Appellants still had

until June of 1991 to bring suit for violations in connection

with the first limited partnership interest (purchased in June of

1985) and until September of 1991 for the second (purchased in

September of 1985). Even starting after October of 1991, they

still had until June of 1993 for the third limited partnership

interest (purchased in June of 1987) and, until May of 1992 for

the bond swap and the commissions. Appellants would not have

been time-barred on any of their actions had they acted in

October of 1988 upon the information before them.

In light of the foregoing, we believe that in this

situation even unsophisticated investors, such as Appellants

here, should have sought to learn more about the nature and

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content of the Plan's management. We believe that Appellants'

prolonged failure to investigate the possibility of fraudulent

conduct in light of the multiple storm warnings can hardly be

characterized as reasonable diligence. Unsophisticated or not,

plaintiffs cannot shroud themselves in ignorance or expect that

their unsophistication will thoroughly excuse their lack of

diligence or failure, here, to even inquire. To allow

unsophisticated investors to remain utterly ignorant in the face

of multiple warnings would render meaningless the due diligence

requirement. Requiring due diligence encourages plaintiffs to

take action to bring the alleged fraud to light, grants some

sense of repose to defendants, and assures that evidence

presented on the claim will be fresh. Brumbaugh v. Princeton

Partners, 985 F.2d 157, 162 (4th Cir. 1993) (stating that merely

bringing suit after the scheme has been laid bare does not

satisfy the due diligence requirement when there have been prior

warnings that something was amiss).

Lastly, Appellants argue that because reasonable

diligence is factually based, it should not ordinarily be decided

on summary judgment. Cook, 573 F.2d at 697. However, "even

assuming the question of reasonable diligence is ordinarily to be

decided by the trier of fact, where no conflicting inferences can

be drawn from the testimony an appeals court may make its own

determination." Id.; see Sleeper v. Kidder, Peabody & Co., 480

F. Supp. 1264, 1266 (D. Mass. 1979) (noting that although the

issue of reasonable diligence is factually based, it may be

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determined as a matter of law where the underlying facts are

admitted or established without dispute), aff'd mem., 627 F.2d

1088 (1st Cir. 1980). Here, the district court properly granted

summary judgment because there is nothing on the record to

support an inference that Appellants were reasonably diligent.

III. CONCLUSION
III. CONCLUSION

For the foregoing reasons, the district court's grant

of summary judgment is affirmed.
affirmed

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