Kaplan v. Morgan Stanley & Co., Inc.

• Decision Date: 28 July 2009
• Docket Number: No. 08-099.,08-099.
• Citation: 2009 VT 78,987 A.2d 258
• Parties: Kenneth G. KAPLAN, Nancy Kaplan, Christopher McHugh, Steven Stewart and Edwin Webster v. MORGAN STANLEY & COMPANY, INC., Rebecca Graddock and Town of Stowe.
• Court: Vermont Supreme Court

987 A.2d 258

2009 VT 78

Kenneth G. KAPLAN, Nancy Kaplan, Christopher McHugh, Steven Stewart and Edwin Webster v. MORGAN STANLEY & COMPANY, INC., Rebecca Graddock and Town of Stowe.

No. 08-099.

Supreme Court of Vermont.

July 28, 2009.

Motion for Reargument Denied September 8, 2009.

Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

ENTRY ORDER

¶ 1. Plaintiffs are employees of the Town of Stowe Police Department who decided to convert from a defined-benefit to a defined-contribution retirement plan in September 1997. Nearly ten years later, plaintiffs filed this lawsuit against Morgan Stanley & Company, Inc., the company that handled investments for the new retirement plan, its local representative, Rebecca Graddock, and the Town, alleging that plaintiffs lost substantial retirement benefits as a result of defendants' fraudulent omissions and misrepresentations concerning the plan's nature and performance. The trial court dismissed the complaint as untimely, and plaintiffs appealed, contending that the court erred in: (1) ruling that the cause of action accrued in December 1997, when plaintiffs received materials summarizing the elements of the new plan; and (2) rejecting their assertions of equitable tolling and equitable estoppel. We affirm.¹

¶ 2. The facts as alleged in the complaint may be summarized as follows. Plaintiffs had participated in the Town's defined-benefit retirement plan for municipal employees, called VMERS-C, for periods ranging from eight to twenty-six years. As described in their complaint, the VMERS-C plan guaranteed plaintiffs a lifetime retirement pension based on years of service, up to a maximum of fifty percent of the average of their highest three consecutive years of compensation. Under the plan, plaintiffs with twenty years of service were entitled to retire at the fifty-percent rate at the age of fifty-five. The plan included an automatic cost-of-living adjustment, an optional death benefit for the retiree's spouse, and an in-service death benefit.

¶ 3. In September 1997, the Town offered plaintiffs and other Town employees the voluntary option to switch from VMERS-C to a defined-contribution plan which later came to be known as the Town Plan. Defined-contribution plans typically provide an individual investment account for each participant, and benefits are based, in part, on the amount contributed and investment gains and losses. Unlike defined-benefit plans, therefore, benefits are not guaranteed but will vary based on investment performance. In addition, a defined-contribution plan generally requires a significantly higher rate of funding to accumulate account balances comparable in annuity value to a guaranteed benefit payable at age fifty-five. Cost-of-living adjustments are generally not standard under defined-contribution plans, as they are with defined-benefit plans, and death benefits also differ.

¶ 4. In September 1997, plaintiffs met individually with a representative of Morgan Stanley, defendant Rebecca Graddock, to discuss their retirement plan options. Plaintiffs allege that Ms. Graddock concealed critical information and made misrepresentations at those meetings. Specifically, plaintiffs allege that Ms. Graddock concealed that VMERS-C guaranteed specific benefits irrespective of the investment performance of its assets and the Town Plan did not, so that investment losses would reduce benefits. Plaintiffs allege that Ms. Graddock made misrepresentations that certain plaintiffs could comfortably retire at a specific age under the Town Plan: that the rate of return on assets in the Town Plan would be double or more the rate for assets in VMERS-C; that certain plaintiffs would have retirement income from the Town Plan that exceeded fifty percent of their income at retirement; that one of the plaintiffs would never have to touch the principal in the Town Plan because earnings would exceed $35,000 per year; that there was no death benefit under VMERS-C, but there was under the Town Plan: and that, on death, the money in VMERS-C was lost, but all the money put into the Town Plan was still available. Based on the information provided by Ms. Graddock, the plaintiffs decided at that time to leave VMERS-C and join the Town Plan. A few months later, in December 1997, plaintiffs received a Summary Plan Description (SPD) describing the new Town Plan. Several years later, in July 2001, plaintiff Christopher McHugh, a Town police officer, began to research the differences between the Town Plan and VMERS-C. In the first half of 2002, officer McHugh discovered for the first time the key differences between the two plans and reported these to the other plaintiffs. Plaintiffs were unaware of the differences before this time.

¶ 5. Shortly thereafter, in July 2002, the Town signed a labor contract with the Stowe Police Officers' Association that included a new defined-benefit retirement plan, VMERS-D. The new plan offered several advantages, including a retirement option at age fifty with full benefits and more generous death benefits. Upon inquiring about joining the plan, however, plaintiffs learned that switching from the Town Plan would cause them to lose years of service. Plaintiffs eventually joined VMERS-D, or rejoined VMERS-C, and were able to "buy back" some—but not all—of their years of service, with the result that they will have to work longer to obtain the maximum retirement benefit, resulting in significant monetary losses.

¶ 6. Plaintiffs filed the instant lawsuit in July 2007, alleging that, in failing to disclose certain key differences between the defined benefit and the Town Plan, and in making misrepresentations, defendants breached fiduciary duties, committed fraud, committed negligent misrepresentation and violated the Consumer Fraud Act. Defendants moved to dismiss the complaint based, in part, on the six-year statute of limitations applicable to civil actions. 12 V.S.A. § 511. Following additional briefing, the court granted the motion, ruling that "the facts asserted in the Complaint ... indicate that the Plaintiffs reasonably should have discovered the differences ... in the various plans by December 1997" when they received the SPD. Although the SPD did not identify specific investment risks and rates of return, the court ruled that the SPD conveyed information sufficient to lead a reasonable person to conduct further inquiry and put them on notice of potential economic injury. Plaintiffs have appealed from the order of dismissal.

¶ 7. The standards governing a Vermont Rule of Civil Procedure 12(b)(6) motion to dismiss are well settled. A motion for failure to state a claim may "not be granted unless it is beyond doubt that there exist no facts or circumstances that would entitle the plaintiff to relief.'" Bethel v. Mount Anthony Union High Sch. Dist., 173 Vt. 633, 634, 795 A.2d 1215, 1217 (2002) (mem.) (quoting Amiot v. Ames, 166 Vt. 288, 291, 693 A.2d 675, 677 (1997)). In reviewing the disposition of such a motion, "this Court assumes that all well pleaded factual allegations in the complaint are true, as well as all reasonable inferences that may be derived therefrom." Id. The question on review is whether the bare allegations of the complaint are sufficient to state a claim, and "[s]ince averments of time and place are material for testing the sufficiency of a complaint, defenses based on a failure to comply with the applicable statute of limitations are properly raised in a motion to dismiss." Id.; accord Fortier v. Byrnes, 165 Vt. 189, 193, 678 A.2d 890, 892 (1996) (holding that, consistent with federal authority interpreting the identical federal rule, the "defendant could properly raise the limitations defense in a motion to dismiss"). There is no dispute here that plaintiffs' claims are subject to the standard six-year statute of limitations applicable to civil actions. 12 V.S.A. § 511. Nor is there any dispute concerning the general principles governing accrual of actions under that section. As we have explained:

[A] cause of action is generally said to accrue upon the discovery of facts constituting the basis of the cause of action or the existence of facts sufficient to put a person of ordinary intelligence and prudence on inquiry which, if pursued, would lead to the discovery. Thus, the statute of limitation begins to run when the plaintiff has notice of information that would put a reasonable person on inquiry, and the plaintiff is ultimately chargeable with notice of all the facts that could have been obtained by the exercise of reasonable diligence in prosecuting the inquiry.

Agency of Natural Res. v. Towns, 168 Vt. 449, 452, 724 A.2d 1022, 1024 (1998) (quotations and citations omitted). Thus, the question before us is whether plaintiffs were on inquiry notice of the true facts about the Town Plan, and its comparison to VMERS-C, by July of 2001.

¶ 8. Just as there is no dispute over the applicable legal principles, there is also no dispute over the critical fact that plaintiffs received a copy of the SPD in December 1997. It was this event, as noted, which the trial court found to have triggered the statute of limitations and rendered plaintiffs' complaint—filed several years after expiration of the six-year period—untimely. Although plaintiffs challenge this conclusion, we find the trial court's reasoning to be essentially sound. Federal law routinely requires SPDs of the kind issued in this case by the Town in its capacity as the retirement plan administrator under the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461. See 29 U.S.C. § 1022(a) (company must furnish its employees with summary plan description of any employee benefit plan).² As courts have noted, "the statute contemplates that the summary will be an employee's primary source of information regarding employment benefits, and employees are entitled to rely on the descriptions contained in the...