transaction, the complexity of the legal claim and the egregiousness of the alleged violation." Martin, 966 F.2d at 1086.
As stated in the statute, it is "knowledge of the breach or violation" that is key. 29 U.S.C. § 1113(2). See also Martin, 966 F.2d at 1086. Where the breach of duty precedes harm or injury, and there is actual knowledge of the breach, the statute still runs from the time of knowledge of the breach, not from the time the plaintiff gains actual knowledge of injury. Larson v. Northrop Corp., 305 U.S. App. D.C. 416, 21 F.3d 1164, 1171 (D.C. Cir. 1994). See also Wolin, 83 F.3d at 853, 855 (dictum). Defendants argue that knowledge (acquired by reading the April 24 letter) that defendants were planning to engage in the challenged transaction starts the clock running because that is knowledge of the breach, whereas consummating the transaction on June 12 was merely the date injury occurred. The present case, however, is distinguishable from those cases where the breach preceded the harm. In Larson and Wolin, and the cases discussed therein, the statute began running when transactions, which constituted breaches of duty, were consummated. In those cases, injury followed at a later date when the investments involved in the transactions began to lose money. Here, no transaction was consummated until June 12.
Even if the decision to engage in a transaction at a future date can mark the beginning of the statutory period for a § 1104 or § 1106 violation,
reading the April 24 letter would not mark the beginning of the statutory period. The April 24 letter only informed participants who read it that the trustees were considering the transaction. There is no evidence that any plaintiff was informed, prior to May 27, 1992, that the trustees had approved the transaction. Also, the letter informed the participants that a price of $ 85.75 was being considered, but that another appraisal would be conducted before a price would be determined. The new appraisal is dated June 1 and there is no evidence that any participant was ever informed of the completion or results of the appraisal then or prior to that date. There can be no knowledge of a violation without knowledge of the actual transaction price. Selling the stock is not a violation; only selling the stock at a price below its fair value can constitute a violation. This is even true of the § 1106 violation, which contains an exception for self-dealing in employer securities as long as the sale is for "adequate consideration" and other requirements are satisfied. See 29 U.S.C. § 1108(e). Moreover, even if class members had knowledge by May 26, 1992 that the sale would be at the $ 85.75 price, there is no evidence that Montgomery or any other class member had knowledge that the shares were actually worth more. Cf. Harris Trust & Savings Bank v. Salomon Brothers, Inc., 1996 U.S. Dist. LEXIS 8485, 1996 WL 341365 *19 (N.D. Ill. June 18, 1996). As the Zweifler appraisal and plaintiffs' complaints about it show, determining the value of the shares required certain knowledge of corporate assets and a certain level of analysis. There is no evidence that Montgomery, or any other class member, had such knowledge. To the contrary, Montgomery's deposition indicates it was his understanding in April 1992 that $ 85.75 was a fair value and he was afraid the ESOP shares would be repurchased at a lower price. Additionally, as to the § 1106 claim, the letter mentions the Davis family owned the other shares but does not mention that defendant Davis was one of the trustees or that he was participating in the ESOP's decision on the sale. While Montgomery apparently was aware Davis was a trustee, there is no evidence that other class members also had such knowledge.
For the foregoing reasons, Montgomery and the other class members did not have actual knowledge of a breach of fiduciary duty prior to May 27, 1992. Therefore, their ERISA claims are not untimely pursuant to § 1113(2). It is therefore unnecessary to consider plaintiffs' alternative argument that there is also a derivative claim on behalf of the ESOP
and that only the six-year period can apply to that claim. See Struble v. New Jersey Brewery Employees' Welfare Trust Fund, 732 F.2d 325, 338-39 (3d Cir. 1984).
Plaintiffs move to amend their complaint to add a fiduciary duty claim under Delaware corporate law. They contend that defendants, as directors of Aetna Plywood, breached their fiduciary duties to shareholders by repurchasing the ESOP stock at a low price, thus favoring those shareholders (the Davis family) who owned the other stock. Defendants oppose the amendment on a number of grounds. They contend they would be unduly prejudiced by permitting an amendment at this time. They also contend that a cognizable claim is not stated because (a) the claim is untimely; (b) any injury to plaintiffs was caused by the sale of the shares (which was done by the trustees), not by the purchase of the shares; (c) there is no fiduciary duty owed to shareholders to repurchase stock at the highest possible price; and (d) no pre-filing demand was made on the directors as is required for a derivative suit.
Defendants' contention that they would be unduly prejudiced by adding the claim this late in the litigation is without merit. The key issue will still be whether a fair price was paid for the shares. To the extent there are any pertinent facts regarding the directors' conduct not yet disclosed in discovery, they would be facts within the control of defendants. It would be plaintiffs who might be prejudiced by undisclosed facts, not defendants. No additional discovery will be permitted by plaintiffs.
It is alleged that the directors approved the purchase for the $ 85.75 price and that this price was less than the fair market value. It is also alleged that the trustees of the ESOP and directors of the corporation were the same people and that defendant Davis, one of the directors, was the one that benefited from the transaction.
Defendants do not dispute that the amendment would relate back to the original filing of this action on May 30, 1995. Both sides agree that the three-year limitation period contained in 10 Del. Code § 8106 would apply. Defendants present a copy of a corporate resolution dated May 5, 1992 deeming it to be in the best interest of the corporation to repurchase the stock at a price no less than $ 85.75. As previously set forth, though, the transaction was not consummated until June 12, 1992, an action that was subsequently confirmed by the directors in a resolution dated August 10, 1992. The June 12, 1992 consummation of the sale, not the May 5, 1992 resolution, begins the running of the limitation period. See Dofflemyer v. W.F. Hall Printing Co., 558 F. Supp. 372, 379 (D. Del. 1983) (statute on breach of fiduciary duty claim began to run when merger was consummated, not when directors took prior action); Kaufman v. Albin, 447 A.2d 761, 763-64 (Del. Ch. 1982) (statute on breach of fiduciary duty claim began to run when tender offer was accepted, not at earlier date when directors passed resolution approving tender offer). The May 30, 1995 filing of this action was within three years after the June 12, 1992 completion of the transaction.
Defendants also challenge the claim on its merits.
When directors of a Delaware corporation are on both sides of a transaction, they are required to demonstrate their utmost good faith and the most scrupulous inherent fairness of the bargain. . . . The requirement of fairness is unflinching in its demand that where one stands on both sides of a transaction, he has the burden of establishing its entire fairness, sufficient to pass the test of careful scrutiny by the courts.