Opinion ID: 626153
Heading Depth: 4
Heading Rank: 2

Heading: Holloway's Liability

Text: The identification of plan assets is also important to the Secretary's breach of fiduciary duty claims against Holloway. It is undisputed that, as a trustee, Holloway was a named fiduciary, and thus was obligated to discharge her duties to the Fund 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. 29 U.S.C. § 1104(a)(1)(B). The Secretary primarily argues that Holloway failed to act prudently to prevent the improper diversion of Check 1 and Check 2 monies by PCI/NP and PCMG. The District Court did not address this argument, however, apparently because it concluded that Holloway did not breach any fiduciary duties owed to the Fund. Holloway contends that there was no evidence that Ms. Holloway acted in a way that caused the Fund to (i) fail to provide benefits to eligible participants or be underfunded, (ii) fail to defray costs, or (iii) fail to adhere to plan documents. That argument, however, only addresses some of the fiduciary duties enumerated in ERISA § 404(a), which is not an exhaustive list. [30] See Glaziers & Glassworkers Union Local No. 252 Annuity Fund v. Newbridge Sec., 93 F.3d 1171, 1180-81 (3d Cir. 1996). Rather, ERISA § 404(a) incorporates the fiduciary standards of trust law, of which several are relevant here. See id. at 1180. In particular, a trustee has a duty to maintain financial records and to preserve and protect the assets of the plan, including from diversion or embezzlement. See Restatement (Third) of Trusts §§ 76(2)(b), 83; Ream v. Frey, 107 F.3d 147, 156 (3d Cir. 1997). Because the District Court did not resolve the question of plan assets, it did not address the Secretary's arguments regarding the question of Holloway's knowledge of asset diversion or her corresponding duties, if any. Those arguments turn on close questions of fact regarding what Holloway knew and could reasonably be expected to know. In addition, a trustee must also take prudent precautions, such as by providing for a suitable and trustworthy replacement, to ensure that his resignation does not harm the Fund or its beneficiaries. See Ream, 107 F.3d at 154. Because the record does not indicate who replaced Holloway as trustee, it is unclear whether that person is suitable and trustworthy. Finally, when confronted with suspicious circumstances, a trustee may be required to investigate potential risks to a plan. See Chao v. Merino, 452 F.3d 174 (2d Cir. 2006). The record indicates that Holloway took several steps to rectify recordkeeping problems. The District Court failed, however, to address whether Holloway had a duty to investigate, how extensive an investigation would have been required, or whether an adequate investigation would have revealed the Fund's potential insolvency and/or the diversion of assets. If Holloway has breached any of these duties, as the Secretary contends, then she may be liable for any resulting loss of plan assets. [31] The Secretary's claims cannot be evaluated, however, without first determining whether any of the Check 1 or Check 2 monies were plan assets that Holloway was obligated preserve. Accordingly, as explained above, the District Court should make appropriate findings as to which, if any, of these monies were plan assets. If on remand the District Court finds that any of the monies retained by PCMG or PCI/NP were plan assets, it should then consider whether Holloway breached her fiduciary duties relating to those assets and is liable for any resulting losses to the plan. In considering Holloway's fiduciary duties, the District Court should resolve the relevant questions of fact, including those raised above.