Source: http://openjurist.org/107/f3d/147/ream-v-e-frey
Timestamp: 2016-02-13 23:48:48
Document Index: 85164018

Matched Legal Cases: ['§ 1291', '§ 1331', '§ 502', '§ 1132', '§ 3', '§ 1002', '§ 404', '§ 1104', '§ 502', '§ 1132', '§ 502', '§ 502', '§ 1132', '§ 409', '§ 1109', '§ 502', '§ 502', '§ 502', '§ 502', '§ 502', '§ 1132', '§ 502', '§ 502', '§ 502', '§ 502', '§ 502', '§ 502', '§ 404', '§ 404', '§ 1104', '§ 404', '§ 106', '§ 173', '§ 502', '§ 502']

107 F3d 147 Ream v. E Frey | OpenJurist
107 F. 3d 147 - Ream v. E Frey HomeFederal Reporter, Third Series107 F.3d
107 F3d 147 Ream v. E Frey 107 F.3d 147
65 USLW 2559, 20 Employee Benefits Cas. 2657,Pens. Plan Guide (CCH) P 23931S
Jeffrey REAM,v.Jeffrey E. FREY; Fulton Bank; Laurie L. Frey;Fulton Bank, Appellant.
No. 96-1339.
Argued Jan. 13, 1997.Decided Feb. 14, 1997.
Gerald S. Berkowitz (argued), Malvern, PA , for Appellee.
Fulton Bank (the "Bank") appeals from a grant of summary judgment by the district court in favor of appellee Jeffrey Ream on April 1, 1996. Ream brought suit against the Bank alleging that it breached its fiduciary duty by resigning as plan trustee and transferring to Jeffrey Frey, the plan administrator and the principal in Ream's employer, the assets of an Employee Retirement Income Security Act of 1974 ("ERISA") pension fund plan which Frey subsequently converted and used for his own purposes. This appeal raises questions concerning the scope of the fiduciary duties of a plan trustee under ERISA when the trustee is resigning. We have jurisdiction pursuant to 28 U.S.C. § 1291 as this appeal is from a final order of the United States District Court for the Eastern District of Pennsylvania. This case arises under ERISA, and thus the district court had subject matter jurisdiction pursuant to 28 U.S.C. § 1331 and ERISA § 502(e)(1) and (f), 29 U.S.C. § 1132(e)(1) and (f).
A "person is a fiduciary with respect to a plan," and therefore subject to ERISA fiduciary duties, "to the extent" that "he exercises any discretionary authority or discretionary control respecting management" of the plan, or "has any discretionary authority or discretionary responsibility in the administration" of the plan. ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A). Fulton Bank was the trustee of the plan. As described in the Plan Document, "the Trustee/Custodian shall have the authority and discretion to manage and govern the Fund to the extent provided in this instrument." App. at 250. Clearly, this provision evidences an express allocation of discretionary authority to Fulton Bank as trustee. Further, the Plan Document holds the trustee liable only to the extent that "it is judicially determined that the Trustee/Custodian has failed to exercise the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character with like aims." Id. These words are the very ones used in ERISA to describe fiduciary duties. ERISA § 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B). There is thus no question but that under the plan, Fulton Bank was intended to be and was a fiduciary with all of its corresponding duties and responsibilities and, indeed, it does not contend otherwise.
Fulton Bank argues that the Supreme Court in Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 139, 105 S.Ct. 3085, 3089, 87 L.Ed.2d 96 (1985), an action under ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2), precluded an ERISA beneficiary from recovering damages on his own behalf from an ERISA fiduciary for breaches of fiduciary duty. Thus, the Bank contends "that remedies for an alleged breach of fiduciary duty under ERISA must enure to the benefit of the entire [p]lan or to all plan participants." Br. at 19. Accordingly, in its view Ream cannot maintain this action as he is seeking relief for himself. In a sense, of course, this may be a strange argument for the Bank to make. Ream unquestionably does have standing to bring an action on behalf of the plan, and it is entirely possible that such an action would have resulted in a greater judgment against the Bank than the judgment Ream recovered as the Bank sent Frey all of the plan's assets, not just those reflecting Ream's interest. ERISA § 502(a)(2).
In any event, as Ream points out, the Supreme Court in Varity Corp. v. Howe, --- U.S. ----, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996), held that in some circumstances beneficiaries could make personal recoveries from an ERISA fiduciary for breach of fiduciary obligations. In Varity, the Court agreed with our decision in Bixler v. Central Pennsylvania Teamsters Health and Welfare Fund, 12 F.3d 1292 (3d Cir.1993), that ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), authorizes lawsuits for individualized equitable relief for breach of fiduciary obligations.4 As the Court explained in Varity, "one can read § 409 [29 U.S.C. § 1109] [which establishes liability for breach of fiduciary duty] as reflecting a special congressional concern about plan asset management without also finding that Congress intended that section to contain the exclusive set of remedies for every kind of fiduciary breach." Varity, --- U.S. at ----, 116 S.Ct. at 1077. The Court found this reading "consistent with [ERISA] § 502's overall structure" which provides two "catchalls" which "act as a safety net, offering appropriate equitable relief for injuries caused by violations that § 502 does not elsewhere adequately remedy." Id. at ---- - ----, 116 S.Ct. at 1077-78. The Supreme Court did caution, however, that in fashioning "appropriate" equitable relief, courts should "keep in mind the special nature and purpose of employee benefit plans, and ... respect the policy choices reflected in the inclusion of certain remedies and the exclusion of others." Id. at ----, 116 S.Ct. at 1079 (citations and internal quotation marks omitted). Where Congress otherwise has provided for appropriate relief for the injury suffered by a beneficiary, further equitable relief ought not be provided.
The Court in Varity distinguished Russell, explaining that Russell was confined to suits under ERISA § 502(a)(2) and did not limit the relief available under ERISA § 502(a)(3) which permits "appropriate equitable relief" to "redress any act or practice which violates any provision of this title." Varity, --- U.S. at ----, 116 S.Ct. at 1076 (internal quotation marks omitted). Ream, like the plaintiffs in Varity, has no alternative means of recovering for his losses. In Varity, the plaintiffs were no longer members of the plan and therefore had no "benefits due [them] under the terms of [the] plan." Varity, --- U.S. at ----, 116 S.Ct. at 1079; see also ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B). Nor could they proceed under ERISA § 502(a)(2) because that provision does not allow for individual recovery. See Russell, 473 U.S. at 144, 105 S.Ct. at 3091. Thus, to recover the plaintiffs in Varity had to rely on ERISA § 502(a)(3) which provides for "other appropriate equitable relief," a reliance the Court found justified as there was no ERISA-related purpose for denying a remedy.
Ream is in a position similar to that of the plaintiffs in Varity and he, too, should have a remedy under ERISA § 502(a)(3). He suffered a direct, clearly defined personal loss from the Bank's conduct. Furthermore, this is not a case in which an individual plan beneficiary charges a fiduciary with a breach of fiduciary duties with respect to a functioning plan. In that situation it might be inappropriate to permit a beneficiary to seek personal relief as a recovery by the plan effectively would make the beneficiary whole. We emphasize, therefore, that a court must apply ERISA § 502(a)(3)(B) cautiously when an individual plan beneficiary seeks "appropriate equitable relief."5 Such caution would be consistent with the concerns the Supreme Court expressed in Varity about a court being too expansive in granting relief. Varity, --- U.S. at ----, 116 S.Ct. at 1079.
120 Cong.Rec. 15737 (1974) (Comments of Sen. Williams when introducing the Conference Report), reprinted in (1974) U.S.C.C.A.N. 5177, 5186. This excerpt evidences Congress' intention to impose on ERISA fiduciaries a strict code of conduct to protect adequately pension and welfare plan assets. Allowing an ERISA trustee to escape liability after disregarding the interests of plan beneficiaries would undermine Congress' intent. Thus, this case falls squarely within the category of cases the Supreme Court envisioned as necessitating a broad reading of ERISA § 502(a)(3). The district court was correct in allowing Ream, an ERISA beneficiary, to bring an action seeking individual relief under ERISA § 502(a)(3) against Fulton Bank, an ERISA fiduciary, for breach of its fiduciary duties.
As a fiduciary, Fulton Bank had the duty to perform its functions solely in the interest of the beneficiaries of the plan and "with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims." ERISA § 404(a)(1)(B). A fiduciary's duties under ERISA are based both on ERISA, particularly the prudent person standard as set forth in ERISA § 404, 29 U.S.C. § 1104, and on the common law of trusts. "Congress intended by § 404(a) to incorporate the fiduciary standards of trust law into ERISA, and it is black-letter trust law that fiduciaries owe strict duties running directly to beneficiaries in the administration and payment of trust benefits." Bixler, 12 F.3d at 1299 (quoting Russell, 473 U.S. at 152-53, 105 S.Ct. at 3095-96 (concurring opinion)).
The law of trusts, however, serves as no more than a guide for interpreting ERISA's provisions. "In some instances, trust law will offer only a starting point, after which courts must go on to ask whether, or to what extent, the language of the statute, its structure, or its purpose require departing from common-law trust requirements." Varity, --- U.S. at ----, 116 S.Ct. at 1070. This process is necessary because ERISA's standards and procedural protections partly reflect a congressional determination "that the common law of trusts did not offer completely satisfactory protection." Id. Congress passed ERISA, in part, to address the problem of exculpatory clauses in trust documents. See 120 Cong.Rec. 15737 (1974) (Comments of Sen. Williams when introducing the Conference Report), reprinted in (1974) U.S.C.C.A.N. 5177, 5186. Nevertheless, we have stated clearly that an ERISA fiduciary's duties do include the common law duties of trustees:
Acknowledging, as we do today, that ERISA's fiduciary duty section incorporates the common law of trusts, the appellate court found the duty to disclose material information 'is the core of a fiduciary's responsibility.' [Eddy v. Colonial Life Ins. Co., 919 F.2d 747, 750 (D.C.Cir.1990) ]. As set forth in the Restatement (Second) of Trusts, '[The Trustee] is under a duty to communicate to the beneficiary material facts affecting the interest of the beneficiary which he knows the beneficiary does not know and which the beneficiary needs to know for his protection in dealing with a third person.' Restatement (Second) of Trusts Section 173, comment d (1959). This duty to inform is a constant thread in the relationship between beneficiary and trustee; it entails not only a negative duty not to misinform, but also an affirmative duty to inform when the trustee knows that silence might be harmful.
Under traditional trust law, a trustee is permitted to resign in accordance with the terms of the trust, with the consent of the beneficiaries, or with a court's permission. See Glaziers and Glassworkers Union Local No. 252 Annuity Fund v. Newbridge Secs., Inc., 93 F.3d 1171, 1183-84 (3d Cir.1996); Restatement of the Law (Second) Trusts § 106. Most of the relevant case law, which involves trustees failing to comply with these requirements, suggests that a trustee may be liable for a breach of fiduciary duty for resigning without providing for a "suitable and trustworthy replacement." Friend v. Sanwa Bank California, 35 F.3d 466, 471 (9th Cir.1994) (concurring opinion). See Glaziers, 93 F.3d at 1183 ("Courts that have considered the issue have held that an ERISA fiduciary's obligations to a plan are extinguished only when adequate provision has been made for the continued prudent management of plan assets.").
Varity, --- U.S. at ---- - ----, 116 S.Ct. at 1073-74.
We need not decide today whether Fulton Bank could be liable merely because it did not notify the beneficiaries of the plan that the Company was delinquent in failing to make contributions. The issue of whether the Bank could be liable for that omission in itself is not before us as there are other, distinct factors supporting the district court's judgment holding the Bank liable. Furthermore, Ream's loss is not attributable to the Company's failure to make contributions. Moreover, we recognize that it might be unreasonably burdensome on a trustee to give notification to a large number of beneficiaries of every apparent shortcoming of an employer. We also realize that, while we have held that in some circumstances a fiduciary can be liable for failing to notify beneficiaries that an employer is not making required contributions to a plan, Rosen v. Hotel and Restaurant Employees and Bartenders Union, 637 F.2d 592, 600 (3d Cir.1981), a rule requiring in all cases that a fiduciary notify the beneficiaries when an employer is delinquent in contributions seems to be inappropriate. After all, the delinquency might be nothing more than a quickly remedied clerical oversight. As we pointed out with respect to an analogous situation in Glaziers:
We reversed and remanded the case for the district court to determine whether, in fact, the brokerage firm was a fiduciary. In our opinion we discussed the scope of fiduciary duties. We pointed out that "[u]nder the common law of trusts, a fiduciary has a fundamental duty to furnish information to a beneficiary." Id. at 1180. We criticized the brokerage firm because it "sat silently by knowing that the [plaintiffs] were placing their assets under" the departed employee's control. Id. at 1181. We cited with approval Restatement (Second) of Trusts § 173, comment (d) (1959), that a fiduciary can have an affirmative obligation to disclose material facts to a beneficiary which the beneficiary does not know but needs to know for his protection in dealing with a third person. Id. at 1181. We summed up by holding that if on the remand the fact-finder determined that the firm was an ERISA fiduciary it "had a duty to disclose to the [plaintiffs] any material information which it knew, and which the [plaintiffs] did not know, but needed to know for [their] protection." Id. at 1182. See also Barker v. American Mobil Power Corp., 64 F.3d 1397, 1403 (9th Cir.1995).
While the parties cannot rerun the course, and it is impossible to know exactly what steps the beneficiaries could or would have taken on the basis of that information, at a minimum they would have been able to attempt to negotiate with Frey for installation of a procedure to secure the funds. Failing that, we believe that they could have sought equitable relief under ERISA § 502(a)(3)(B) on behalf of the plan to the same end. Furthermore, we think it likely that a court would have recognized that placing the fund assets in Frey's hands would have posed a threat to the interests of the beneficiaries and thus have granted relief. In sum, therefore, we conclude that the Bank's breach of fiduciary duties led to Ream's loss and that the district court thus properly granted Ream summary judgment. Consequently, we will affirm its summary judgment.
In Bixler v. Central Pennsylvania Teamsters Health & Welfare Fund, 12 F.3d at 1298, we upheld the right of an individual beneficiary to recover from a fiduciary, pointing to the narrowness of the Supreme Court's holding in Russell, 473 U.S. 134, 105 S.Ct. 3085, 87 L.Ed.2d 96. We stressed ERISA's grounding in the law of trusts, and reiterated that "fundamental in the law of trusts is the principle that 'courts will give to beneficiaries of a trust the remedies necessary for the protection of their interests.' " (12 F.3d at 1299 (quoting Russell, 473 U.S. at 157, 105 S.Ct. at 3098 (concurring opinion)). In permitting a beneficiary to bring a direct action for breach of fiduciary duty against the trustees and administrators of an ERISA plan, we concluded that "[a]llowing an injured beneficiary recourse through the courts is, furthermore, essential to fulfilling the purpose of ERISA." Bixler, 12 F.3d at 1299
"Appropriate equitable relief" generally is limited to traditional equitable relief such as restitution and injunctions rather than money damages. Hein v. FDIC, 88 F.3d 210, 223-24 & n. 11 (3d Cir.1996). However, ERISA § 502(a)(3) does not "necessarily bar all forms of money damages." Id. at 224, n. 11. Here, though the district court seemed to treat Ream's complaint as one seeking money damages, Ream sought only to recover his vested interest in the plan which largely reflected his own contributions. See app. at 298. This relief, regardless of the language in the complaint, easily may be characterized as restitution and the Bank does not contend otherwise. See Howe v. Varity Corp., 36 F.3d 746, 756 (8th Cir.1994), aff'd, --- U.S. ----, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996)
But we emphasize that the Supreme Court has recognized that trust law does not control completely in the ERISA setting. Varity, --- U.S. at ----, 116 S.Ct. at 1070. Consequently, the Court has indicated that courts must create federal common law to flesh out the meaning of ERISA and effectuate fully its meaning and purpose