Kaplan v. Morgan Stanley & Co., Inc., No. 08-099.

• Docket Nº: No. 08-099.
• Citation: 2009 VT 78, 987 A.2d 258
• Case Date: July 28, 2009

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.

[987 A.2d 260]

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

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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

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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....