text:
    E.J. BROOKS COMPANY, d/b/a Tyden-Brooks, Plaintiff-Counter-Defendant-Appellant-Cross-Appellee, v. CAMBRIDGE SECURITY SEALS, Defendant-Counter-Claimant-Appellee-Cross-Appellant.

    Docket Nos. 16-207-cv(L), 16-259-cv(XAP)
    August Term, 2016
    United States Court of Appeals, Second Circuit.
    Argued: November 14, 2016
    Decided: June 5, 2017

      DANIEL GOLDMAN (Kerri Ann Law, Claudia Pak, Sam Koch, on the brief), Kramer Levin Naftalis & Frankel LLP, New York, NY, for Plaintiff-Counter-Defendant-Appellant-Cross-Appellee.
    HOWARD SCHUB (Daniel J. Fetter-man, on the brief), Kasowitz, Benson, Torres & Friedman LLP, New York, NY, fqr Defendant-Counter-Claimant-Appellee-Cross-Appellant.
    Before: KEARSE, LOHIER, and DRONEY, Circuit Judges.

       The Clerk of Court is directed to amend the caption as set forth above.

   LOHIER, Circuit Judge:

Both parties challenge a judgment of the United States District Court for the Southern District of New York (Preska, then C.J.) following a jury trial. At trial, plaintiff E.J. Brooks Company, d/b/a TydenBrooks (“TydenBrooks”), largely prevailed in its claims against defendant Cambridge Security Seals (“CSS”) and three former TydenBrooks employees (with whom Ty-denBrooks thereafter settled) for misappropriation of trade secrets, unfair competition, and unjust enrichment under New York law. This case principally involves questions of New York law relating to whether a plaintiff asserting these claims can recover damages measured by the costs the defendant avoided rather than the losses the plaintiff sustained by virtue of the misappropriation and unfair competition. On appeal, the parties agree that there is no decision of the New York State courts to which we can confidently point to decide whether the defendant’s avoided costs are a permissible measure of damages for these claims. Nor, in our view, have the New York courts clearly answered a second question that we are asked to consider, namely, whether prejudgment interest under section 5001(a) of New York’s Civil Practice Law and Rules (“CPLR”) is mandatory where a plaintiff recovers, if appropriate, damages as measured by the defendant’s avoided costs.

For these reasons, the appeal and cross-appeal present two damages-related questions that have not been resolved by the New York Court of Appeals and implicate significant New York State interests. As we reject CSS’s other challenges, the resolution of these two questions may dispose of this appeal. Accordingly, we affirm the judgment as to liability, reserve decision as to damages, and certify the following two questions to the New York Court of Appeals:

1. Whether, under New York law, a plaintiff asserting claims of misappropriation of a trade secret, unfair competition, and unjust enrichment can recover damages that are measured by the costs the defendant avoided due to its unlawful activity.
2. If the answer to the first question is “yes,” whether prejudgment interest under New York Civil Practice Law and Rules § 5001(a) is mandatory where a plaintiff recovers damages as measured by the defendant’s avoided costs.

BACKGROUND

TydenBrooks is the largest manufacturer of plastic security seals in the United States. CSS was founded in 2010 and began manufacturing plastic security seals at the end of 2011. As relevant here, in 2012 TydenBrooks filed this lawsuit against CSS and former TydenBrooks employees who went to work for CSS, accusing them of misappropriation of trade secrets, civil conspiracy, unfair competition, and unjust enrichment, all in violation of New York law.

At trial, TydenBrooks claimed that CSS had copied and profited from Tyden-Brooks’s automated process for manufacturing plastic security seals, which are used to detect and prevent tampering with containers and other products. In support of its claim, TydenBrooks introduced evidence that it treated the process as a trade secret. That contention was vigorously disputed by CSS, which sought to introduce evidence that TydenBrooks’s manufacturing process was neither secret nor unique. The jury ultimately found that CSS was liable for misappropriation of a trade secret, unfair competition, and unjust enrichment.

The issue of damages proved to be thornier. TydenBrooks initially sought recovery of its lost profits and sales and disgorgement of CSS’s gross profits. It later abandoned those theories, electing instead to pursue an “avoided costs” theory in which damages are calculated as the total costs CSS avoided by not developing its own manufacturing process. To support its avoided costs theory at trial, TydenBrooks relied primarily on the testimony of its damages expert, Dr. Robert Vigil. Dr. Vigil estimated that, as a result of its misappropriation of the manufacturing process, CSS saved between $6.1 million and $12.2 million in costs—or $7.8 million to $16.6 million when he included costs associated with employee benefit payments. In his calculations, Dr. Vigil assumed that CSS’s capital cost savings equaled the capital costs that TydenBrooks incurred-to develop its own machines in the first instance. For its part, CSS did not introduce any expert trial testimony relating to damages and elected instead to rely on its cross-examination of Dr. Vigil. On cross-examination, Dr. Vigil acknowledged that he tried but failed to calculate CSS’s profits because the “profit information from [CSS] was not sufficient.”

At TydenBrooks’s request, the District Court instructed the jury that Tyden-Brooks sought damages on each of its claims “based on the defendants’ avoided costs.” It explained that the jury would have to compare “actual costs incurred by the defendant ... with the costs it would have incurred to produce the same products without the use and knowledge of [TydenBrooks’s] manufacturing process.” The District Court also instructed the jury that it should consider three factors in measuring damages: (1) whether CSS “realized savings in research and development costs, including the time and resources typically devoted to researching and developing a new manufacturing process,” (2) whether CSS “gained a competitive advantage in being able to bring its plastic indicative security seals to market earlier than competitors,” and (3) whether CSS “realized any savings in [its] operating costs, including savings from the avoidance of certain labor expenses and from increased productivity resulting from the efficiencies of the [misappropriated] manufacturing process.”

On May 4, 2015, the jury rendered a verdict in favor of TydenBrooks and awarded it $3.9 million in total damages against CSS: $1.3 million each for three of TydenBrooks’s four claims under New York law (misappropriation of trade secrets, unfair competition, and unjust enrichment). The District Court entered judgment on the verdict against CSS in the amount of $3.9 million on May 13, 2015. The following day, TydenBrooks moved to amend the judgment to include prejudgment interest from February 11, 2011 to May 13, 2015 at nine percent per annum under sections 5001 and 5004 of the CPLR. In December 2015 the District Court denied TydenBrooks’s motion, noting that the jury was specifically instructed that “[djamages are assessed from the date of the misappropriation and/or unfair use through the date on which the verdict is given.” In the District Court’s view, that instruction provided “a clear reason to believe that the jury’s damage award was intended to compensate Plaintiff for injuries suffered during the same time period that an award of prejudgment interest would otherwise account for.” As a result, the District Court concluded, “to award [TydenBrooks] additional interest for that prejudgment period ... would constitute a windfall double recovery.”

This appeal and cross-appeal followed.

DISCUSSION

1. Damages and Avoided Costs

As noted, the District Court instructed the jury that TydenBrooks sought damages on each of its claims “based on the defendants’ avoided costs,” which required the jury to compare “actual costs incurred by the defendant ... with the costs it would have incurred to produce the same products without the use and knowledge of [TydenBrooks’s] manufacturing process.” Joint App’x 918-19. CSS argues that it was error to instruct the jury that damages could be calculated based on CSS’s “avoided costs.” It insists that New York law rejects such a measure of damages if the plaintiffs losses and the defendant’s profits are themselves calculable.

We have recognized that the profit unjustly received by a defendant in trade secret cases is “an appropriate measure of damages under New York law.” Softel, Inc. v. Dragon Med. & Sci. Commc’ns, Inc., 118 F.3d 955, 969 (2d Cir. 1997) (citing David Fox & Sons, Inc. v. King Poultry Co., 23 N.Y.2d 914, 298 N.Y.S.2d 314, 246 N.E.2d 166 (1969)). We have also recognized that “[t]he amount of damages recoverable in an action for misappropriation of trade secrets” may alternatively “be measured ... by the plaintiffs losses,” although we have said this without specifically referencing New York law. A.F.A. Tours, Inc. v. Whitchurch, 937 F.2d 82, 87 (2d Cir. 1991). And in those trade secret cases where measuring either the defendant’s profits or the plaintiffs losses is too hard or speculative, we have approved the concept of a “reasonable royalty award” that “attempts to measure a hypothetically agreed value of what the defendant wrongfully obtained from the plaintiff.” Vt. Microsystems, Inc. v. Autodesk, Inc., 88 F.3d 142,151 (2d Cir. 1996).

Even the “avoided costs” measure of damages finds some support in New York law. A century ago in New York Bank Note Co. v. Hamilton Bank Note Engraving & Printing Co., the New York Court of Appeals suggested that awarding the plaintiff the amount of costs saved by the defendant as a result of its wrongful use of a proprietary device might reflect an appropriate measure of damages under some circumstances. 180 N.Y. 280, 295-97, 73 N.E. 48 (1905). There, the plaintiff, New York Bank Note Company, had been awarded all of the profits of the defendant, who had used New York Bank Note’s proprietary printing press in breach of a contract. Recognizing that such an award would hand a windfall to New York Bank Note because not all of defendant’s profits “necessarily or presumptively proceeded]” from the use of the proprietary press, the Court of Appeals concluded that “the plaintiff was entitled to recover^] not the profit made by the defendant ..., but the profit that company made from the use of the restricted presses.” Id. at 295-96, 73 N.E. 48. The Court of Appeals then remanded with instructions that New York Bank Note be awarded only “the difference between the cost of printing on the [proprietary] presses and the cost of printing by other means or devices open to the defendant.” Id. at 297, 73 N.E. 48. But New York Bank Note involved a contract claim, not claims of misappropriation of trade secrets or unfair competition.

Our own Court also appears to have endorsed a course similar to the District Court’s avoided costs approach in a contract case. In Matarese v. Moore-McCormack Lines, we affirmed an award of damages under New York law based on a calculation of costs avoided by the defendant. 158 F.2d 631, 635-37 (2d Cir. 1946). There, an agent of the defendant promised the plaintiff one third of the savings that the defendant would accrue from using the plaintiff’s devices, which were designed to help the defendant’s stevedores load and unload cargo more safely and efficiently. We concluded that the defendant was liable under a theory of unjust enrichment for its failure to pay, and we approved the district court’s jury instructions permitting the jury to award damages based on the “reasonable value of the use of the devices and the reasonable value of the services rendered by the plaintiff.” Id. at 635 (quotation marks omitted). The value to the defendant, we stated, included savings in the form of lower labor costs, insurance premiums, storage costs, and material costs. Id. at 635-36. But because Matarese involved a claim of unjust enrichment in the context of a specific promise to pay the equivalent of accrued savings, its utility in resolving this case is limited.

Recognizing that neither Matarese nor New York Bank Note fully answers the question before us, TydenBrooks urges that we turn to the Restatement (Third) of Unfair Competition (the “Restatement”) to determine how the New York Court of Appeals would decide the damages question in this case. Relying expressly on Matarese, the Restatement commends using the amount of avoided Costs as a measure of damages in unfair competition cases where “the benefit derived by the defendant consists primarily of cost savings, such as when the trade secret is a more efficient method of production.” Restatement § 45 cmt. f & Reporters’ Note to cmt. f (1995); see also id. cmt. d. Although we recognize that comments d and f of Section 45 in particular appear to support the avoided costs approach, we cannot say with certainty that those provisions of the Restatement accurately describe New York law with respect to calculating damages in trade secret and unfair competition cases. We note that the New York Court of Appeals has never even cited the Restatement, while the Appellate Division has cited it only four times, in ways that are not helpful to our resolution of this appeal. See N. State Autobahn, Inc. v. Progressive Ins. Grp. Co., 102 A.D.3d 5, 953 N.Y.S.2d 96, 103, 106 (2d Dep’t 2012); Mann ex rel. Akst v. Cooper Tire Co., 33 A.D.3d 24, 816 N.Y.S.2d 45, 52 (1st Dep’t 2006); Pullman Grp., LLC v. Prudential Ins. Co., of Am., 288 A.D.2d 2, 733 N.Y.S.2d 1, 2 (1st Dep’t 2001); Wiener v. Lazard Freres & Co., 241 A.D.2d 114, 672 N.Y.S.2d 8, 15 (1st Dep’t 1998). Ten New York Supreme Court decisions have cited the Restatement, all for propositions irrelevant to the damages question at issue here. We therefore have little if any reason to think that New York has incorporated the Restatement’s black letter or comments into its law on trade secrets or unfair competition.

In short, neither our Court nor the New York courts appear to have approved the specific type of award in this case—that is, the costs that CSS avoided by using TydenBrooks’s manufacturing process. To the contrary, New York courts have suggested that the measure of damages in trade secret cases, even when measured by reference to a defendant’s profits, should correspond to a plaintiffs losses as a means of compensation. See Epstein Eng’g, P.C. v. Cataldo, 124 A.D.3d 420, 1 N.Y.S.3d 38, 39, (1st Dep’t 2015); Suburban Graphics Supply Corp. v. Nagle, 5 A.D.3d 663, 774 N.Y.S.2d 160, 163-64 (2d Dep’t 2004); Hertz Corp. v. Avis, Inc., 106 A.D.2d 246, 485 N.Y.S.2d 51, 54 (1st Dep’t 1985); Am. Elecs., Inc. v. Neptune Meter Co., 30 A.D.2d 117, 290 N.Y.S.2d 333, 335 (1st Dep’t 1968). Assuming New York requires that trade secret damages bear some connection to the plaintiffs losses, it is not apparent to us that assessing damages based on the defendant’s avoided costs satisfies the requirement. Whether avoided costs can be a measure of damages in trade secret cases under New York law presents, then, an unresolved policy decision “that the New York Court of Appeals is better situated than we are to make.” Caronia v. Philip Morris USA, Inc., 715 F.3d 417, 450 (2d Cir. 2013) (quotation marks omitted).

2. Prejudgment Interest

TydenBrooks appeals the District Court’s denial of its motion to amend the judgment to include prejudgment interest pursuant to section 5001(a) of the CPLR. “New York law does not permit the trial court to exercise any discretion where a party is entitled to such interest as a matter of right.” New England Ins. Co. v. Healthcare Underwriters Mut. Ins. Co., 352 F.3d 599, 603 (2d Cir. 2003) (quotation marks omitted). “However, New York law also provides that where there is a possibility that the jury award already allowed interest, no further prejudgment interest can be recovered on the verdict.” Trademark Research Corp. v. Maxwell Online, Inc., 995 F.2d 326, 342 (2d Cir. 1993).

In response to TydenBrooks’s motion to amend the judgment, the District Court concluded that prejudgment interest was not required because the jury’s award already compensated TydenBrooks for the entire pre-verdict period. To be sure, prejudgment interest was not specifically mentioned in the trial testimony, on the verdict form, or during the jury instructions. Nor was there any other concrete basis in the record to suggest that the jury included such interest. Cf. Bamira v. Greenberg, 295 A.D.2d 206, 744 N.Y.S.2d 367, 369 (1st Dep’t 2002). Nevertheless, the District Court relied on its instruction that the jury should assess damages “from the date of the misappropriation and/or unfair use through the date on which the verdict is given.” Joint App’x 919. According to the District Court, that instruction told the jury to award damages accrued up through the date of the verdict, leaving no need for an additional award of prejudgment interest.

As relevant here, section 5001(a) uses language suggesting that prejudgment interest is mandatory in cases involving misappropriated property: “Interest shall be recovered upon a sum awarded because of ... an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property.” N.Y.C.P.L.R. § 5001(a) (emphasis added); see Mallis v. Bankers Tr. Co., 717 F.2d 683, 695 (2d Cir. 1983) (“Courts applying § 5001(a) have without qualification awarded interest as a matter of right whenever any tortious conduct causes pecuniary damage to tangible or intangible property interests.”). Notwithstanding the mandatory language of the statute, some New York courts appear to have forged an exception to mandatory prejudgment interest to prevent windfalls in favor of plaintiffs. See Bamira, 744 N.Y.S.2d at 369 (explaining that purpose of prejudgment interest is “to make the aggrieved party whole” and vacating interest award because it “would constitute a windfall double recovery”); Kaiser v. Fishman, 187 A.D.2d 623, 590 N.Y.S.2d 230, 234 (2d Dep’t 1992) (“The award of interest is founded on the theory that there has been a deprivation of use of money or its equivalent and that the sole function of interest is to make whole the party aggrieved. It is not to provide a windfall for either party.”); see also Julien J. Studley, Inc. v. Gulf Oil Corp., 425 F.2d 947, 949 (2d Cir. 1969) (describing section 5001 as “New York’s latest effort to enforce the policy enunciated by Chief Judge Cardozo in Prager v. New Jersey Fid. & Plate Glass Ins. Co., 245 N.Y. 1, 5-6, 156 N.E. 76 [] (1927), that ‘[i]nterest must be added if we are to make the plaintiff whole’ ”).

Here, as we have explained, Tyden-Brooks received damages based on CSS’s avoided costs rather than losses Tyden-Brooks suffered. The damages award did not purport to compensate TydenBrooks “for the loss of the use of money [it was] entitled to receive.” Kassis v. Teachers’ Ins. & Annuity Ass’n, 13 A.D.3d 165, 786 N.Y.S.2d 473, 474 (1st Dep’t 2004). So it is not clear that TydenBrooks was entitled to recover in a way that “tak[es] into account the time value of money.” W. (quotation marks omitted). The jury charge appeared to reflect this understanding: the District Court instructed the jury to make TydenBrooks whole by assessing damages up through the date of the verdict. Under an avoided costs theory of damages, in which the award to TydenBrooks is measured in terms of costs that CSS did not pay rather than in terms of money TydenBrooks lost, any prejudgment interest award could well constitute a windfall because TydenBrooks was not deprived of the use of those avoided costs.

In a case in which the damages awarded are not clearly compensatory under New York law, we find it hard to square the mandatory language of section 5001 with the import of the New York decisions, cited above, that suggest that prejudgment interest under the statute is not mandatory where a windfall is the likely result. Here, too, we think that resolving whatever tension exists between the statutory language of section 5001(a), the New York State court decisions, and the propriety of avoided costs as a measure of damages is better left to the New York Court of Appeals.

CERTIFICATION

Second Circuit Local Rule 27.2 permits us to certify to the New York Court of Appeals “determinative questions of New York law [that] are involved in a case pending before [us] for which no controlling precedent of the Court of Appeals exists.” N.Y. Comp. Codes R. & Regs. tit. 22, § 500.27(a); see also N.Y. Const. art. VI, § 3(b)(9). “In deciding whether to certify a question, we consider: (1) the absence of authoritative state court interpretations of [the law in question]; (2) the importance of the issue to the state, and whether the question implicates issues of state public policy; and (3) the capacity of certification to resolve the litigation.” Georgitsi Realty, LLC v. Penn-Star Ins. Co., 702 F.3d 152, 158 (2d Cir. 2012) (quotation marks omitted). Here, each factor favors certification as to each of the questions.

First, as we have explained, no state appellate court has grappled with whether New York law permits a plaintiff asserting claims of misappropriation of a trade secret, unfair competition, and unjust enrichment to recover damages that are measured by the costs the defendant avoided due to its unlawful activity. Nor has any New York State appellate court held that there are exceptions to section 5001(a)’s mandatory language in cases where damages are not meant to be compensatory. This factor weighs heavily in favor of certification: “ ‘New York has a strong interest in deciding the issue certified rather than having the only precedent on point be that of the federal court, which may be mistaken.’ ” Carney v. Philippone, 332 F.3d 163, 172 (2d Cir. 2003) (quoting Great N. Ins. Co. v. Mount Vernon Fire Ins. Co., 143 F.3d 659, 662 (2d Cir. 1998)).

Second, issues relating to New York State law governing the protection of trade secrets, the form of remedy for victims of misappropriation, and the availability of prejudgment interest entail careful policy judgments. A New York court should determine in the first instance which of these policy judgments ought to prevail. See Sealed v. Sealed, 332 F.3d 51, 59 (2d Cir. 2003).

If on certification the New York Court of Appeals determines that avoided costs are an inappropriate measure of damages in trade secret cases, we would be required to vacate the judgment and remand for further proceedings, thereby ending the appeal. See Chauca v. Abraham, 841 F.3d 86, 95 (2d Cir. 2016). On the other hand, if the New York Court of Appeals were to conclude that avoided costs may appropriately be assessed in this case and that prejudgment interest under section 5001(a) of the CPLR is not required, we would affirm, the District Court’s judgment, having rejected CSS’s other challenges. In short, certification here has the “capacity to resolve this litigation.” Caronia, 715 F.3d at 449.

CONCLUSION

For the foregoing reasons, we AFFIRM the District Court’s judgment as to liability, RESERVE decision as to damages, and CERTIFY the following two questions to the New York Court of Appeals:

1. Whether, under New York law, a plaintiff asserting claims of misappropriation of a trade secret, unfair competition, and unjust enrichment can recover damages that are measured by the costs the defendant avoided due to its unlawful activity.
2. If the answer to the first question is “yes,” whether prejudgment interest under New York Civil Practice Law and Rules § 5001(a) is mandatory where a plaintiff recovers damages ■ as measured by the defendant’s avoided costs.

In certifying these questions, we understand that the New York Court of Appeals may reformulate or expand the certified questions as it deems appropriate.

It is hereby ORDERED that the Clerk of this Court transmit to the Clerk of the New York Court of Appeals a certificate in the form attached, together with a copy of this opinion and a complete set of briefs, appendices, and the record filed by the parties in this Court. This panel will retain jurisdiction to decide the case once we have had the benefit of the views of the New York Court of Appeals or once that court declines to accept certification. Decision is RESERVED.

CERTIFICATE

The foregoing is hereby certified to the Court of Appeals of the State of New York pursuant to Second Circuit Local Rule 27.2 and New York Codes, Rules, and Regulations title 22, § 500.27(a), as ordered by the United States Court of Appeals for the Second Circuit.

      . Federal jurisdiction was initially premised on TydenBrooks's claims under the federal Lanham Act. The Lanham Act claims were dismissed by stipulation of the parties in 2015.

      . CSS challenges the District Court's preclusion of certain evidence at trial that, according to CSS, supported its position that the trade secret at issue in this case was not valuable. Because we conclude that the District Court did not commit evidentiary "errors that were a clear abuse of discretion that were clearly prejudicial to the outcome of the trial,” we reject each of these challenges. Marshall v. Randall, 719 F.3d 113, 116 (2d Cir. 2013) (quotation marks omitted). First, CSS argues that the District Court erred in excluding four financial documents that, it claims, showed that TydenBrooks believed it did not own valuable trade secrets. But the District Court properly determined that the documents had no probative value without expert testimony to explain them, which CSS declined to provide. Second, the District Court did not err in limiting CSS’s direct examination of a lay witness engineer because the engineer did not personally develop or work with the specific manufacturing process at issue and had not been qualified as an expert witness. See United States v. Garcia, 413 F.3d 201, 215 (2d Cir. 2005). Third, even assuming that it was error for the District Court to exclude internal documents and emails that, CSS argues, show TydenBrooks’s directors expressing doubts about its manufacturing process, we conclude the error was harmless. We have reviewed all of CSS's remaining challenges to evidentiary rulings, jury instructions, and the damages award that are not encompassed by the certified questions, and we conclude that they are without merit.

      . Dr. Vigil’s estimate of the labor costs savings derived from the calculations of yet another TydenBrooks expert who determined the time savings that CSS enjoyed because it did not have to pay employees to develop the machines from scratch.

      . A more recent Supreme Court decision asserted (in a footnote) that the Restatement "has been incorporated into New York’s trade secrets law,” but cited for support an Appellate Division case, Wiener, that itself merely refers to the Restatement’s definition of a trade secret, not to incorporation. Zylon Corp. v. Medtronic, Inc., No. 650523/08, 2015 WL 1779010, 2015 N.Y. Misc. LEXIS 1276 (N.Y. Sup. Ct. Apr. 17, 2015) (citing Wiener, 672 N.Y.S.2d at 15).


source: Caselaw Access Project

author: POOLER, Circuit Judge:

license: Public Domain

text:
    Janet PRUTER, Raymond Marques, John Artates, Elizabeth Ayala, Ursula Biloschaetzke, Diane Blake, Mireille Boyd, Margo Brady, Irene Bullard, Cheryle Cannon, Rhonda Chang-Schoknecht, Lisa Marie Comalli, Vernedia Crawley, Susan Dearing, Gudrun Devito, Tammy Durant, Pamela Eccles, Christine Erdodi, Margaruite Everly, Suzanne K. Fleisher, Margaret Fogg, Donna Fritz, Patricia George, Martha Jane Gibson, Claudia Goddard, Paul Graham, Bobbi S. Griffey, Kimberly Griffith, Linda Griffiths, Edward T. Hartnack, III, Elizabeth Heffernan, Patricia Herron, Troen Hulett, Vanessa Hynes, Charles I. Irby, Maureen Jepson-Zar, Benedict Johnson, Donna Korman, Lonise Larbig, Kelly Lavik, Arthur Lee, Barbara Lekich, Ann Llyod, Karen L. Lowe, Hassine Manai, Dale Martin McNulty, Bernard Mcphail, Jerome Meadows, Beverly Monte, Mary Stephanie Moore, Penelope Moore, Miriam Denoris Moultrie, Gerda Mueller, Ramiro A. Murillo, Irmgard Neukamm, Stephen Ouellet, Denise D. Parker, Alain Poulenard, Sharon Pratt, Gregory Ramirez, David Rathert, Mary Yuen Rathert, Linda Chaney Rice, Gary J. Rodrigues, Virginia Saxton, Olaf Schoknecht, Sherry Severn, Arlene Shaw, Wencke A. Shishido, Byron Shuford, Kevin S. Smith, Susan Spackman, Rhonda Spencer-Sams, Julie E. Stone, Stephanie Suganuma, Christine A. Tittiger, Kenneth F. Tomlinson, Michael Touzard, Patricia B. Tunney, Douglas Turich, Olivia L. Vaden, Yvonne Florence Verlicchi, Bonita Shaw Wells, Kater Westerman-Schmid, Hermine Whalon, Pamela Witbro, Nicholas Wright, Plaintiffs-Appellants, v. LOCAL 210’S PENSION TRUST FUND, Local 210, International Brotherhood of Teamsters, Defendants-Appellees.
    Docket No. 16-733-cv
    August Term, 2016
    United States Court of Appeals, Second Circuit.
    Argued: November 8, 2016
    Decided: June 6, 2017

      ARTHUR Z. SCHWARTZ, Advocates for Justice, Chartered Attorneys, New York, NY, for Plaintiffs-Appellants.
    MYRON D. RUMELD, Proskauer Rose LLP (Anthony S. Cacace, on the brief), New York, NY, for Defendant-Appellee Local 210’s Pension Trust Fund.
    ANDREW S. HOFFMAN, Hoffman & Associates, New York, NY, for Appellee Local 210, International Brotherhood of Teamsters.
    Before: CABRANES, POOLER, and PARKER, Circuit Judges.
   POOLER, Circuit Judge:

Plaintiffs, former employees of World Airways, Inc., appeal from the February 8, 2016 memorandum and order of the United States District Court for the Southern District of New York (Torres, /.) dismissing their complaint seeking damages for fraud, breach of contract and violation of an employee benefit plan. Prefer v. Local 210’s Pension Tr. Fund, No. 15 Civ. 1153 (AT), 2016 WL 908303 (S.D.N.Y. Feb. 8, 2016). We agree with the district court that plaintiffs’ state law claims arise under the Railway Labor Act (“RLA”), 45 U.S.C. § 151, et seq., and are thus preempted. As those claims bear a close resemblance to claims brought pursuant to the Employee Retirement Income Securities Act (“ERISA”), however, we find it appropriate to borrow and apply the three-year statute of limitations set forth in Section 1113 of ERISA rather than the six-month limitations period the district court borrowed from Section 10(b) of the National Labor Relations Act (“NLRA”), 29 U.S.C. § 160(b). Our holding is consistent with our precedents “re-jectfing] the argument that uniformity among borrowing limitations is needed among all labor cases” since suits against unions “encompass[ ] many varieties of actions.” Phelan v. Local 305 of United Ass’n of Journeymen, 973 F.2d 1050, 1059 (2d Cir. 1992). We therefore VACATE the district court’s dismissal of the RLA claims brought against Local 210 and REMAND for further consideration of that claim consistent with this opinion. We AFFIRM the district court’s opinion in all other respects.

BACKGROUND

Plaintiffs are former employees of World Airways, Inc. and participants in Local 210’s Pension Trust Fund (the “Fund”). The Fund provides pension benefits to participants and beneficiaries pursuant • to an employee benefit plan (the “Plan”). The Plan is a multiemployer plan within the meaning of section 3(1) of ERISA, 29 U.S.C. § 1002. Pension benefits are paid based on service credits. Service credits are generally earned based on an employee’s years of covered service, that is, service for a contributing employer while an employee is a participant in the Plan. Service credits may also be awarded based on past credited service, which is a credit for an employee’s periods of covered service with an employer that predate the employer joining the Plan. The Plan also allows for the cancellation of past service credits if (1) the participant’s employer is no longer a participating employer in the Plan and (2) cancelling the past service credits is in the interest of preserving the Fund’s actuarial soundness. The Plan grants the Fund’s trustees (the “Trustees”) “the exclusive right, power, and authority, in their sole and absolute discretion, to administer, apply[,] and interpret the Plan,” and “to decide all matters arising in connection with the operation or administration of'the Plan.” App’x at 83 § 10.1.

Until 1996, World Airways employees were represented for collective bargaining purposes by the International Brotherhood of Teamsters Local 732. The collective bargaining agreement between the World Airways and Local 732 provided that Plaintiffs were to be enrolled in World Airway’s retirement plan (the “Target Benefit Plan”). World Airways was obligated to pay 1.8 percent of each employee’s gross annual salary into the Target Benefit Plan.

In 1996, Local 732 merged with the International Brotherhood of Teamsters Local 210, after which Plaintiffs were represented by Local 210. In the spring of 1996, Local 210 took over negotiations with World Airways for a new collective bargaining agreement. Plaintiffs allege that, as part of those negotiations, Local 210 offered to replace the Target Benefit Plan with the Plan. Plaintiffs allege that Local 210 promised them that (1) World Airways would be required to make a monthly contribution for post-1996 service and for past service time after participants completed a five-year vesting period; and (2) Local 201 would assume all pension liability for past service credit if World Airways could not or would not fund the Plaintiffs’ past service credits.

A June 17, 1996 letter sent from the Local 210 negotiating team to Local 210 members, including Plaintiffs, stated in relevant part:

PENSION AND PENSION VESTING GUARANTEE
[International Brotherhood of Teamsters] Demand:
The [Tjarget [B]enefit [P]lan provided by [World Airways] is woefully inadequate and must be replaced. It operates on the assumption that the money contributed by [World Airways] will earn 8% interest and it has consistently failed to do so. [World Airways] refused to take on the financial burden that would provide each of us with a decent retirement.
We are very pleased to advise that Local 210 offers retirement plans for its members where the employer does not have sufficient funds or is unwilling to commit the necessary cash to provide a viable retirement. Local 210 has designed a federally insured, 100% funded, “defined benefit plan” to which [World Airways] will provide monthly contribution with a 100% past service credit after a 5 year vesting period. This will provide an extraordinary improvement in our benefit from today’s level.
This is possible because, while [World Airways] will never contribute enough money to have purchased the benefit for us, our Union (and the members of our local who will vote to accept us into their plan) are willing to accept the liability to protect and make a long term commitment to represent us.

App’x at 109.

In a July 9, 1996 letter to all Local 210 members on reaching a new agreement, Local 210’s trustee-agent stated:

I would like to explain to you the depth of commitment this Local union has for its new members. With the approval of Secretary-Treasurer Angelo Martin, this Local created a new Pension Plan for the employees at World Airways. This plan which I negotiated into your contract, gives Pension credit to all members back to the date of hire, after vesting. In other words if you have worked for the company for ten (10) years to date, and you work another five (5) years, at retirement you will receive $600.00 per month for life.
This Pension Plan has a cost to the Union of over $700,000.00 which we are willing to pay to secure a better tomorrow for our new members.

App’x at 112.

Plaintiffs allege that, as a result of these representations, they agreed to ratify the collective bargaining agreement, switch to the Plan, and accept a lower amount of wage increases in return for payments into the Fund by World Airways. Plaintiffs, who all have five years of post-1996 work credit with World Airways, allege that each was “advised, on numerous occasions, that he or she had been given past-service credit,” and that, as a result, “each was to receive 100 percent of their service credit for the years before World began to contribute to the Plan.” App’x at 121-22. Plaintiffs also allege that World Airways made “contributions between 1996 and 2001 over and above what they were obligated to pay for post-1996 pension credit for each of the Plaintiffs, so that by 2001 they had funded the pre-1996 service credits and turned them into ‘future’ service credits under the terms of the [] Plan.” App’x at 33 ¶ 109.

World Airways filed for bankruptcy protection in 2012. Once it entered bankruptcy, World Airways ceased to be a contributing member of the Fund and was assessed withdrawal liability pursuant to ERISA in excess of $18 million. World Airway’s withdrawal liability was discharged in bankruptcy.

In December 2012, the Fund’s trustees (the “Trustees”) voted to cancel the past service credits of World Airways’ employees, including Plaintiffs, pursuant to the terms of the Plan that vests the Trustees with discretion to act in the interests of preserving the actuarial soundness of the Fund. That language vests the Trustees with broad authority to “cancel the past service credits in the interests of preserving the Fund’s actuarial soundness.” App’x 90-91 § 14.5(b). On remand, the district court need not reconsider the Plaintiffs’ arguments related to whether the Trustee had authority to cancel credits under the Plan’s terms.

The Trustees told Plaintiffs that neither World Airways, nor any other party, had funded the pre-1996 service credits. Plaintiffs, through counsel, asked to review the record of contributions from World Airways to the Fund, but the request was denied. Plaintiffs allege that the cancellation of credits from before 1996 drastically reduced their monthly pension benefit.

The Trustees informed Plaintiffs that the Fund’s third-party administrator verified that World Airways did not make any contributions for service prior to 1996. The Trustees asked Plaintiffs to submit any documentation that supported their claim that past service credits had, in fact, been funded. Plaintiffs submitted a letter to the Fund on May 8, 2013 stating that:

We are not saying that contributions were made prior to 1996. We are saying that after 1996, World made extra contributions to cover the pre-1996 period. Every member of the union’s negotiating team confirms that this was the arrangement.

App’x at 130. On June 5, 2013, the Trustees advised Plaintiffs that the Fund’s actuary conducted another examination of the contribution records of the Fund and determined that World did not make extra contributions to fund the pre-1996 service credits. The Trustees again asked Plaintiffs if they had any “documentation or evidence to substantiate their allegations that additional contributions were made on their behalf’ by World Airways. App’x at 131-32. Plaintiffs’ counsel responded that Plaintiffs were relying on “discussion with flight attendants who served on Local 210’s negotiating committee, and who discussed the agreement with World, in making our assertions. The Fund and its actuaries would have the details, which is why we would want to meet.” App’x at 133.

The Trustees made a final determination denying Plaintiffs’ claims on June 14, 2013, relayed via counsel:

I have advised you that the actuary for Local 210’s Pension Plan (“Plan”) has reviewed the files and contributions made on behalf of the World Airways (‘World”) flight attendants and has found no evidence that would support your claim that additional contributions were made to fund the past service credits for the flight attendants. The contributions received by the Plan are consistent with future credits only. Since your clients have no evidence to sustain their claim and the Plan’s documents indicate that no additional or enhanced payments were made to fund past service credits, my client sees no point in meeting with your clients to discuss this matter.
As for your question as to whether your clients have exhausted their administrative appeals, I have no way of responding to that query. You have advised me you have over forty (40) clients. I do not know their identities or where they are in the administrative process.

App’x at 134-35.

Plaintiffs then brought the instant suit. Their complaint alleges that the Trustees violated the terms of the Plan by cancel-ling past service credits earned by Plaintiffs and that Local 210 committed fraud and breach of contract by promising to fund the service credits and then reneging on that promise. The Fund and Local 210 moved to dismiss, and the district court granted their motions. The district court determined that Plaintiffs’ breach of contract and fraud claims were preempted by the RLA and thus were subject to a six-month statute of limitations. Pruter, 2016 WL 908303, at *3. It dismissed the claims against Local 210 as time barred by a six-month statute of limitation. Id. The district court also dismissed the claim against the Fund on the ground that the decision to remove the past service credits was not arbitrary and capricious. Id. at *2. This appeal followed.

DISCUSSION

“We review de novo a district court’s dismissal of a complaint for failure to state a claim, accepting all factual allegations in the complaint as true and drawing all reasonable inferences in plaintiffs’ favor.” Freidus v. Barclays Bank PLC, 734 F.3d 132, 137 (2d Cir. 2013); Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

I. Preemption of State Law Claims by the Railway Labor Act

Plaintiffs first argue that the district court erred in finding that their state law claims alleging fraud and breach of contract against Local 210 were preempted by the RLA because they do not seek to enforce, interpret, or otherwise challenge the ratification process or collective bargaining agreement. We disagree and hold that their state law claims were preempted. The RLA preempts potentially conflicting state causes of action even if the state law does not actually conflict with the federal law and regardless of the nature of the state law claim, whether it be tort, contract, or a specialized labor statute. Lindsay v. Ass’n of Prof'l Flight Attendants, 581 F.3d 47, 57-60 (2d Cir. 2009). The RLA explicitly governs bargaining concerning pay or working conditions. See 45 U.S.C. § 152. State law claims relating to “conduct during collective bargaining negotiations” are also preempted. Lindsay, 581 F.3d at 59-60 (explaining “that the imposition of additional state liability ... would upset the ‘balance of power’ established by the RLA and ‘frustrate effective implementation of the Act’s processes’ ” (internal citation and brackets omitted)); see also Cooper v. TWA Airlines, LLC, 349 F.Supp.2d 495, 507-08 (E.D.N.Y. 2004) (“[S]tate law claims that are ‘mere refinements’ of the duty of fair representation are preempted.”). Plaintiffs’ claims against Local 210 implicate representations made during the process of negotiating and ratifying the collective bargaining agreement. The district court, therefore, correctly found those claims preempted by the RLA.

II. Applying a Three-Year Statute of Limitations

The RLA does not specify the statute of limitations applicable to a claim for breach of the duty of fair representation. “In such situations we do not ordinarily assume that Congress intended that there be no time limit on actions at all; rather, our task is to ‘borrow’ the most suitable statute or other rule of timeliness from some other source.” DelCostello v. Int’l Bhd. of Teamsters, 462 U.S. 151, 158, 103 S.Ct. 2281, 76 L.Ed.2d 476 (1983). In DelCostello, the Supreme Court borrowed-the six-month statute of limitations period in Section 10(b) of the National Labor Relations Act (“NLRA”) and applied it to hybrid lawsuits, in which a party brings claims against both an employer and a union. Id. at 169-72, 103 S.Ct. 2281. An example of a hybrid lawsuit is one in which employees sues their employer alleging a breach of the collective bargaining agreement and sue the union alleging a breach of its duty of fair representation by mishandling the ensuing grievance or arbitration proceeding. Id. at 170, 103 S.Ct. 2281. Our Court extended DelCostello by borrowing Section 10(b)’s six-month limitations for duty of fair representation claims where such claims “directly implicated the collective bargaining relationship.” Phelan v. Local 305 of United Ass’n of Journeymen, 973 F.2d 1050, 1060 (2d Cir. 1992); see also Haerum v. Air Line Pilots Ass’n, 892 F.2d 216, 219 (2d Cir. 1989) (applying six-month limitations period to duty of fair representation claim based on the union’s failure to file a grievance on, or renegotiate the issue of, pilot seniority). The district court here relied on Haerum when it applied a six-month limitations period to Plaintiffs’ claims without any further analysis, but Haerum interpreted claims brought under Labor Management Reporting and Disclosure Act (“LMRDA”), 29 .U.S.C. § 411 et. seq., which is not the statute at issue here.

Unlike the claims in Phelan, the claims in this appeal do not “directly implicate the collective bargaining relationship” and thus require a different approach., Phelan, 973 F.2d at 1060. We previously recognized that “[t]he problems in choosing the proper statute to borrow are compounded in the labor area,” and thus we must “analyze [each] labor case on its facts before choosing which limitations period to borrow.” Id. at 1058-59 (citing Reed v. United Transportation Union, 488 U.S. 319, 109 S.Ct. 621, 102 L.Ed.2d 665 (1989) (noting that the “Supreme Court has rejected the argument that uniformity among borrowing limitations is needed among all labor cases ... ”)). Moreover, “where (1) a federal rule of limitations clearly provides a closer analogy than state alternatives, and (2) the federal policies at stake and the practicalities of the litigation render the federal limitation ‘a significantly more appropriate vehicle for interstitial lawmaking,”’ we borrow the limitations period from federal law. Id. at 1058.

Here, Plaintiffs seek to hold Local 210 to a pledge they allege the union made, namely, a promise that if World Airways failed to fund the past service credits, Local 210 would fund those credits so that union members did not lose pension benefits because of the switch from the Target Benefit Plan to the Plan. Plaintiffs urge us to find that their claims most resemble a claim for pension benefits asserted under ERISA such that the appropriate statute of limitations to borrow is the three-year period set forth in Section 1113(2) of ERISA applies. We agree.

The Third Circuit took a similar approach in Adams v. Gould Inc., which involved a settlement the union reached with the employer over collectively bargained pension benefits. 739 F.2d 858 (3d Cir. 1984). Briefly, the Adams plaintiffs— all former employees—alleged that the employer and union entered into a settlement agreement that failed to comply with an arbitrator’s award regarding the benefits. Id. at 861. The Adams plaintiffs alleged a violation of the collective bargaining agreement by the employer and a breach of the union’s duty of fair representation. Defendants argued that the action was barred by the six-month statute of limitations contained in Section 10(b) of the NLRA. Id. at 866. The Third Circuit disagreed, finding the claims more akin to a pension claim implicated by ERISA such that borrowing the three-year limitations period in Section 1113(2) better furthered the federal policies at stake. Id. at 867.

In particular, the Adams Court noted that a hybrid lawsuit, such as the one at issue in DelCostello, “normally involves an issue that is intertwined with the day-today relationship between management and labor. Speed and finality in the resolution of disputes are the most relevant policies in those situations.” Id. at 867. “In pension dispute[s], however, that policy is less relevant.” Id. “The absence of an effect on their day-to-day working environment also makes it far more likely that employees will not be aware of their grievance immediately. These factors favor the application of a longer period of limitations.” Id.

We adopt an approach similar to that of the Third Circuit. Since the claims at issue here do not touch on the relationship between an employer and the union, but instead touch on the relationship between the employee and the union, the longer limitations period in ERISA is the appropriate period to borrow:

We believe that there is a distinction between the implication of delay in resolving disputes over pension contribution issues and the implications of delay in resolving disputes over terms of a collective bargaining agreement that affect the day-to-day operations of a business. We also believe that this distinction justifies the use of a different limitations period.

Id.; see also Phelan, 973 F.2d at 1061 (holding Section 10(b) limitations period did not apply to claim alleging a breach of the union’s constitution because “[r]esolution of claims concerning breach of a union constitution that do not relate to formation of a collective bargaining agreement [do] not have a direct and immediate impact on union-management relations”).

We recognize that the Seventh Circuit declined to follow Adams, stating it was reluctant to apply different statutes of limitations to duty of fair representation claims that arise out of “the employment terms of collective bargaining agreements (and to the negotiations leading to them)” and to claims arising out of “the pension terms of the same agreements (arising from the same negotiations).” United Indep. Flight Officers, Inc. v. United Air Lines, Inc., 756 F.2d 1262, 1273 (7th Cir. 1985); see also Lea v. Republic Airlines, Inc., 903 F.2d 624, 633 (9th Cir. 1990) (adopting Seventh Circuit’s rationale in United Independent and applying a six-month limitation period to a hybrid RLA/ ERISA claim).

Contrary to the Seventh Circuit, our Circuit previously endorsed choosing the appropriate statute of limitations to borrow based on the facts of a particular case, rather than applying a single limitations period to all labor claims. See Phelan, 973 F.2d at 1060-61. As discussed above, Plaintiffs here seek to hold Local 210 accountable for promises they allege Local 210 made to employees whom they represented in negotiations over their pensions. We believe this situation is different from plaintiffs who seek to challenge or enforce the terms of a collective bargaining agreement against the employer, as occurred in Adams. Accordingly, a three-year ERISA statute of limitations should be applied.

Applying the three-year ERISA statute of limitations allows Plaintiffs to bring suit within three years of “the earliest date on which the plaintiff had actual knowledge of the breach.” 29 U.S.C. § 1113(2). The Plaintiffs discovered the past service credits were not funded in December 2012, when the Fund cancelled their credits. Plaintiffs sued in February 2015, thus making their claims timely.

III. Whether Local 210’s Promise is Enforceable

Local 210 argues in the alternative that, even if Plaintiffs’ claims are timely, Plaintiffs do not set forth a legally sufficient cause of action because federal law bars the union from making such contributions to the Fund on behalf of the Plaintiffs. Local 210 argues that under the terms of the trust agreement governing the Fund and pursuant to Section 302(c)(5) of the Labor Management Relations Act, 29 U.S.C. § 401, contributions to the Fund may only be made by employers on behalf of employees. Thus, it argues, Local 210 could not legally fulfill the alleged promise and Plaintiffs’ claims should be dismissed.

The district court did not address this argument, and we decline to do so for the first time here. Even assuming a payment by Local 210 into the Fund is not permissible, other remedies may be available to Plaintiffs. See, e.g., App’x at 36 (including in prayer for relief a demand that Local 210 pay directly to Plaintiffs monies in an amount that compensates Plaintiffs for the lost past service credits). We leave this issue for consideration by the district court in the first instance.

IV. Plaintiffs’ ERISA claim against the Fund

Finally, Plaintiffs challenge the district court’s dismissal of their claim against the Fund, brought' pursuant to Section 502(a)(1)(B) of ERISA, on the ground that the actions of the Trustees were arbitrary and capricious. Pruter, 2016 WL 908303, at *2. Plaintiffs argue the district court erred in dismissing the claim because the Trustees failed to present the district court with an adequate administrative record. We disagree.

The administrative record “properly consists of the evidence before the entity that decided the claim when that decision was rendered.” Allison v. Unum Life Ins. Co., No. cv 04-0025, 2005 WL 1457636, *9 (E.D.N.Y. 2005); see also Ocampo v. Bldg. Serv. 32B-J Pension Fund, 787 F.3d 683 (2d Cir. 2015) (rejecting a challenge to the administrative record in an ERISA case); Miles v. Principal Life Ins. Co., 720 F.3d 472, 486 (2d Cir. 2013). All of the information considered by the Trustees is contained in the exhibits to the complaint and in the documents attached as exhibits to the declaration submitted by the Fund in support of its motion to dismiss. There is no requirement that the administrative record be collated in a particular fashion or that it be produced via affidavit. So long as the district court is provided with all of the information considered by the Trustees in making their decision, the requirement for an administrative record is satisfied.

Plaintiffs also argue that the administrative record is incomplete because a letter stating that the Trustees had an actuary confirm that the required contributions were not made by either World Airways or Local 210 does not suffice. Plaintiffs argue that they were told then-past service credits were fully funded, and that the Fund must demonstrate that is not true. However, a plaintiff bears the burden of demonstrating entitlement to ERISA benefits. Miles v. Principal Life Ins. Co., 720 F.3d 472, 488 (2d Cir. 2013). Plaintiffs here lack any evidence that the requisite payments were made. The Trustees undertook an investigation and found no evidence to support Plaintiffs’ claims. Plaintiffs were afforded multiple opportunities to supplement the administrative record with evidence to support their claim to benefits under the Plan, and failed to do so. Accordingly, the district court did not err in dismissing the ERISA claim against the Fund.

CONCLUSION

For the reasons set forth above, we VACATE the district court’s dismissal of Plaintiffs’ RLA claims against Local 210, AFFIRM the district court’s dismissal of the Plaintiffs’ ERISA claims against the Fund, and REMAND for further consideration of Plaintiffs’ remaining claims consistent with this opinion.

      . We, like the district court, construe Plaintiffs’ claim against the Fund as a claim brought to enforce the right to benefits under a pension plan pursuant to Section 502(a)(1)(B) of ERISA. See Pruter, 2016 WL 908303, at *2 n.2.