Opinion ID: 781284
Heading Depth: 2
Heading Rank: 2

Heading: The Madsen Policy

Text: 23 On June 3, 1993, Findco and the Frankford Trust Company, Trustee, F.B.O. the R.J. Srein Corp. Profit Sharing Plan, entered into a Participation Agreement for a 100% interest in an insurance policy issued by American National Insurance on the life of J. Lloyd Madsen. (JA 1575.) Daly signed the Agreement as trust officer for the Profit Sharing Plan; Srein signed on behalf of the Plan. As instructed by Srein, acting in his capacity as Plan Administrator, Frankford paid $62,500 from the Profit Sharing Plan for the investment in the Participation Agreement. (JA 711, 716.) As a result of the assignment of random numbers to the Agreements, Frankford had no ability to determine whether more than one customer of the bank invested in a Participation Agreement for the same viatical settlement contract. (JA 25.) 24 The terms of the Madsen Agreement were essentially the same as those set forth in the Chamness Agreement. It obligated Madsen to assign to Findco ownership of the policy on his life and Findco to obtain an insurance change form from American National naming it and the Srein Profit Sharing Plan as beneficiaries of the policy. Findco, as with the Chamness policy, failed to name the Srein Plan as beneficiary. Again, Frankford assigned the Participation Agreement a random number and placed it in its vault. (JA 25.) Sixteen months later, on October 28, 1994, Frankford was also serving as trustee for the Stephan Matt Richards' retirement plan (Richards' Plan) with Daly serving as the trust officer. On that date, on instructions from that Plan, Frankford paid $23,030 of the plan's funds to purchase a 28% interest in the same Madsen policy with respect to which it held the Srein Plan Participation Agreement. (JA 403.) Daly signed the Richards' Participation Agreement as Trustee, FBO Stephen M. Richards. (JA 397.) Although Frankford, and specifically Daly, was the trustee for both plans, the District Court found that due to the sixteen and a half month gap between the two purchases and the fact that the agreements did not have preexisting numbers assigned to them since they were unregistered investments, Frankford did not recognize the two purchases of the same policy. (JA 16.) 25 On May 29, 1995, Lloyd Madsen died; American National promptly delivered to Silverman $27,499, the policy proceeds for Frankford Trust Co. FBO S.M. Richards... & Findco, Inc., Craig Silverman, assignee. (JA 409.) Silverman forwarded to Frankford the American National check designating it for the Richards' Plan. (JA 407.) Frankford Trust did not recognize that these proceeds related to the same Madsen policy, in which the R.J. Srein Corp Profit Sharing Plan had taken a 100% interest. (JA 27.) Daly deposited the check into the Richards' Plan account; the Srein Plan received none of the proceeds of the Madsen policy. Moreover, as in the Chamness case, Frankford continued to list the Madsen policy as an asset of the Srein Profit Sharing Plan and continued to charge it fees until 2001. (JA 118-119.) During the pendency of the trust relationships, Frankford charged the Srein plans approximately $7,000 in trustee fees based on the value of the Chamness and Madsen Participation Agreements. (JA 1014, 1021.) 26 In early 1997, Srein, having had no return on his six pre-1993 personal investments in Participation Agreements for viatical policies as well as those made by the Plans for which Frankford was trustee, became suspicious of Silverman and Findco. After some investigation, Srein discovered that Silverman had been selling Participation Agreements for investments in the same viatical policies to more than one investor. Ultimately, in June 1997, Srein and Frankford jointly sued Silverman, Findco, and Findco's escrow agent for fraud. Srein won a judgment in excess of two million dollars. However, by that time, Findco and the other defendants were insolvent and the judgment uncollectible. Srein then instituted the instant action against Frankford in the District Court. 27 After a trial on the merits a jury returned a special verdict that defendant was negligent causing $566,000 in damage to plaintiffs (a $66,000 loss by the Profit Sharing Plan for the Madsen policy and $500,000 for losses by Srein from personal viatical investments) but that Srein's negligence was a seventy percent contributory cause of the losses. Applying the Pennsylvania Comparative Negligence Act, 4 the District Court rendered a judgment for defendant on the negligence claim. 28 That court also ruled, consistently with the verdict of the jury serving in an advisory capacity, that Frankford was not a fiduciary because it was a directed trustee. Emphasizing that Frankford had exercised no discretion and provided no investment advice, the District Court entered judgment for defendant on the ERISA claim. 29 On appeal, Appellants argue that Frankford functioned as a fiduciary within the meaning of 29 U.S.C. § 1002(21)(A)(i) of ERISA because, as trustee, it exercised authority and control over the management and disposition of the ERISA plans' assets. 5 Appellants also contend that the district court erred when it applied Pennsylvania contributory negligence laws to the common law claims.