Glaziers and Glassworkers Union Local No. 252 Annuity Fund v. Newbridge Securities, Inc.

McKEE, Circuit Judge. We are upon called to determine scope

of the fiduciary duty owed a broker-dealer of securities under Employee Retirement Income Security Act of as amended (“ERISA”), 1104(a) § U.S.C. in the rather narrow presented circumstances ap- this peal. Various employee benefit funds sued Scott, Montgomery (“Janney”) Inc. * Gibson, The Honorable R. John Senior Appeals United of Circuit, Eighth for the sitting by desig- States Circuit Judge for the United States Court nation. Philadelphia offered to those superior in to disclose failure Janney’s alleging that area banks. employees Janney’s about one formation duty un Janney’s and June breach between point At some ERISA, fed 404(a) and under at Jan- Section President Lloyd der Vice became The district law. common increasingly state involved eral also ney. He became summary purposes Dur- investments. assumed and their court Funds with the advice, a “functional” Janney was Funds, judgment period, the ing that to Sec fiduciary pursuant invest- purpose” 73 CDs and other “limited a total purchased ERISA, 29 U.S.C. 3(21)(A)(ii) of value Janney. The total through tion ments liability $3,000,- 1002(21)(A)(ii), held excess of but was in investments these capacity extended Janney had in such Janney’s Since advice. investment only to its went on as time Funds contend invest nothing to do with alleged breach meetings of the routinely attended Lloyd granted sum advice, the district ment concerning trustees, advice offered Funds’ Janney and favor judgment mary to be strategy, and came overall investment com on each count against the consul- “investment Funds’ to as the referred Un and Glassworkers Glaziers See plaint. allege also that The Funds tant.” Fund, New et al. v. Annuity Local ion and recommend routinely Socket call al., Inc., F.Supp. Securities, et bridge being particularly as investment particular (E.D.Pa.1995). 948, 953-954 specific investment Funds’ to the well-suited Socket, rare was According to strategy. affirm we will that follow reasons For the advice. accept that Funds did that the fed- on summary judgment of grant grant claim, on June meeting reverse the held but At a law common eral claim, Lloyd appointing a motion passed on the summary judgment trustees of See to all funds.” consultant claim. financial “the common the state and relationship with at 6. His Appellee Brief of part from the gleaned can be Background Factual I. August meeting of the trustees’ minutes main- funds numerous plaintiffs are deci- “an investment 28, 1984, read: which and Glaziers of the Local 252 by tained adminis- by [Funds’] may be made sion Fund, (the Annuity Pen- Union Glassworkers from one trustee approval trator with Fund, Vaca- Fund, and Welfare Health sion Union], carry out and [Employer each side Fund), two Fund, Apprentice consultant, tion investment recommendations funds —Sean of those fiduciaries individual continued relationship This Lloyd.” Michael (collective- Rosenberg McGarvey and Martin satisfaction apparent for sometime are “Funds”). of the funds Each ly, the all concerned. by managed Plans Employee Benefit related in ear- began to thicken However, plot Funds Historically, the trustees. a board of investi- Janney began when of 1985 ly June investments majority of their limited the improprie- suspected Lloyd because gating deposit is- certificates federally-insured Lloyd investments. Lloyd’s personal ties that banks Philadelphia area by sued partner- to a payment to make failed had with. familiar trustees were Funds’ partner, and a limited was he ship in which tried had suspect that he Janney had come sown were instant suit of the The seeds tendering a payment late cover-up the Socket, Ad- the Funds’ Richard when fraudulently had been check cashier’s named employee ministrator, met a it had appearance to create altered Lloyd to introduced Lloyd. Socket Michael to ex- Lloyd failed presented. timely been and recommended trustees the Funds’ occurred, he but did actually plain Lloyd’s ad- what accept consider the trustees Lloyd’s deni- Despite deny wrongdoing. partic- was investments. Socket new vice on investiga- internal an al, Janney conducted by non-Phila- issued CDs ularly interested investi- completion Pending the tion. Lloyd was which banks delphia area meeting to a scheduled prior gation, interest rates of offered familiar Lloyd’s attorney, Janney informed Lloyd ters from Ascott Lloyd to Mr. with respect suspended. Thereafter, that he was past June to the payments. due 17, 1985, Janney informed attorney Upon learning this, personnel of that of its intent to discharge Lloyd. The follow- department Lloyd asked Mr. expla- an ing 18, 1985, morning, Lloyd June resigned nation. reported He timely them that Janney. payment had in fact been remitted him. In an effort to any question, resolve Mr. parties Each of the dispute to this put Lloyd was asked to furnish some evidence “spin” their own on the circumstances lead- payment. of that In May, present- late he ing Lloyd’s resignation. The argue ed Firm personnel copy of the face of Lloyd continued to pre- obfuscate and a Cashier’s Check in the amount of throughout varicate Janney’s investigation $9,980_ This showed a date of “2-21- thereby causing Janney to discharge him. 85” and the payee as Ascott Investment however, Janney, argues Lloyd was Corp. In this, consideration of our Firm resign forced to because he was unable to Ascott, contacted advised them of the high conform to the very standard of conduct copy, check and asked they review demanded of employees. their records. It subsequently was report- any event, Lloyd left, when ed them they were unable to find reported departure to the National Asso- any record of this check. Mr. (“NASD”) ciation of Securities Dealers asked to obtain copy of the reverse side required by the rules of that association. of that cheek which should have shown an Janney completed required “Uniform endorsement and thus establish whether Termination Notice for Industry Securities Ascott had in fact cashed the check. It Registration” form, and sent it to the NASD. was suggested also that he issue a stop Question No. 14 on that form asks: payment on the February cheek. On June Is there reason to 6,1985 believe that the Lloyd individ- Mr. purchase did a Cashier’s ual employed while or your associated with $9,980 Check for which was delivered to firm, may have provision violated any of Austin to payment cover the due for Feb- any securities regulation law or or ruary. agreement with rule any governmen- of Our firm then inquiries made at Fidelity agency tal or self-regulatory body, or en- Bank, where the check had been drawn gaged in any may conduct which be incon- ... After a records, search of their they just with equitable sistent and principles of notified us they could find no evidence trade? of a check 21,1985. dated February How- ever, based on (Joint their further 151a). review Appendix they at Janney answered identified that February “Yes,” check as one and included detailed narrative ex- which was actually May 21, drawn plaining that In part, answer. relevant Jan- ney’s explanation light of these included the following: appeared disclosures it May 21, that the 1985 check and the Feb- 1983, In November Lloyd Mr. purchased 21, ruary 1985 check were one and the one L.P., unit of Investors, Austin a real same. Moreover, there was an inference estate limited partnership, at a cost of May that the date have been al- $39,500. The of terms the partnership represent tered to a “2-21-85” date on the agreement called for annual contributions copy presented proof as of payment. to directly be remitted to Ascott Invest- (Joint 152a-153a). Appendix at

ment Corp. During the month of Febru- ary 1985 our Financial Depart- Services Janney did not inform the Funds of the ment became payment aware that the due circumstances surrounding Lloyd’s depar- February 1985 had not been received Instead, ture. Janney assigned a new ac- Partnership. It is procedure standard executive, count Pinheiro, Mitchell B. to to notified by be them in the event Lloyd’s accounts, of including the Funds’ ac- apparent late payment by any Janney’s of counts. 20, 1985, On June Pinheiro wrote a customers. Enclosed are a series of let- letter of introduction to Socket in which Pin-

H77 relationship ments, finally their terminated Lloyd only that the Funds informed heiro time, Lloyd However, by that Lloyd. representative. resigned as had $500,000 in excess Fund assets had stolen investigation its own conducted The NASD excess assets additional wasted and had resulted investigation Lloyd. That refer to Funds $2,000,000 in what Lloyd to of caution issuing a letter NASD investments.”2 and worthless “bizarre obliged that he him it reminded in which securities personal his own ensure to guilty numerous Lloyd pled Eventually, timely fashion.1 in a paid were transactions upon his fraudulent based offenses criminal plea, he admitted guilty Lloyd In his conduct. Meanwhile, Lloyd established customers, including the Janney. money from (“LSI”), leaving stealing upon Securities, Inc. forged Funds, covering the thefts Janney, the and Lloyd after left days Six their sentenced He was bogus transfer documents. and to him and to follow decided Lloyd regula- and other Once the SEC firm. Lloyd’s prison term new accounts its relat- approvals necessary regulatory LSI shut down tory authorities obtained ac- their transfer Funds to companies. he asked ed June On LSI. from counts not did Funds contend to transfer voted trustees Funds’ the circum- about offer Lloyd Janney to from accounts the Funds’ of fear departure out Lloyd’s stances However, the transfer new firm. this and Janney denies by Lloyd. being sued September made until sometime was not inform did that it not explains the Funds’ Janney transferred when of 1985 be- departure the circumstances (as cus- Bank National to Provident accounts suspicions only unproven it had cause Lloyd todian) final transfer pending argues Janney thus never admitted. instructions LSI, accordance with volunteering in not prudently “acted it did suggest Janney does Socket. innu- allegations and unproven customers trans- be were the accounts not know false.” have been endo, might well it transferred Lloyd when to LSI ferred Janney at 8. Brief of Sock- pursuant to Provident the accounts told Janney never et’s instructions. History. II. Procedural surrounding circumstances Funds of the Janney. complaint from Lloyd’s departure three count filed a Funds The fiduciary of breach Janney alleging against their accounts transferred the Funds After 404(a) ERISA of Section obligations under and type the LSI, expanded Funds the fiduciary duties of (Count I), breach and they permitted scope of investments common state and both federal under The relation- on their behalf. Lloyd make The respectively).3 (Counts III II and 1990, March, until Lloyd continued ship with fiduciary Janney was that claimed Funds LSI Lloyd and that learned Funds when the its Janney breached that and and, under SEC the investigation were under cir- the failing to disclose duty by invest- handling their of the over concerned interposed cross-claims defendants various repri- The level of is the lowest of A caution 1. Letter dis- indemnity and extensive and contribution for by the NASD. issued mand 1992, 4, the district covery began. On December collateral- fictitious the Lloyd had sold Funds 2. Equibank’s and granted accountants’ the court sold obligations. had also He mortgage ized sup- dismiss, to exercise and declined motions inap- legitimate, but were investments them cross- various jurisdiction over the plemental purposes. Funds’ propriate for the and Glassworkers against them. Glaziers claims Newbridge Annuity al. Fund et 252 Local Union against New- actions also filed Funds 3. The (E.D.Pa. Inc., al., Securities, F.Supp. 1191 823 et Securities, Inc., National and Provident bridge entered court 1993). Subsequently, the district addition, ac- another filed the Funds In Bank. against New- dismissing claims all an Order former present and of their against certain tion conclud- Finally, plaintiffs the as settled. bridge lungers, Socket, trustees, their accountants — trust- the Funds’ agreement with aed settlement Equibank, Inc. & Bacheler—and O’Connell Thus, remaining the ees and Provident. Thereafter, were consolidat- actions all Janney. against one is this action caption. “Newbridge” ed under 1178 evidence, Lloyd’s surrounding departure. allegations, sufficient not mere

cumstances they support position jury that had known of its for a The asserted reasonable Funds conduct, Lloyd’s they Coolspring would not have find for nonmovant. Stone about LSI, Supply, their accounts to Inc. v. transferred American States Ins. Life Cir.1993). Co., (3d 144, purportedly re- and incurred the losses 10 F.3d 148 Our pleadings were grant sulted. After the closed on appeal standard review an completed, Janney summary discovery judgment plenary. Id. at 146. summary judgment, filed for apply cross-motions We the same test the district court granted summary judg- initially, the district have should used Public Interest Janney.4 rejecting ment Funds’ Jersey Group Research New v. Powell Terminals, (3d theory, Inc., 64, the district court Duffryn stated: 913 F.2d Cir.1990), denied, cert. 498 U.S. today not address the We do issue (1991), S.Ct. 112 L.Ed.2d 1100 Janney is an ERISA whether light review the facts in the most favorable to of our conclusion the circum- party against summary judgment whom complained fall stances outside the Coolspring was entered. Supply, Stone Inc. any fiduciary relationship scope of Co., v. American States F.3d Ins. at may have existed between and the Life 146. Thus, any fiduciary obligation did Funds. encompass duty not to inform the Funds Lloyd. regarding Janney’s circumstances Mr. B. Failure to Disclose.

judgment on Count III as well. Id. law was Annuity room law. Id. at 953. ment to investment advice to the common law Janney may to “the ties, Glaziers and Glassworkers Union Local 252 1995). The district court regulatory Inc., Id. at granted Janney’s for the The court reasoned that substance pre-empted Fund, et al, have had claim) have application scheme of ERISA left no et Finally, on Count F.Supp. because it al. v. of the advice had because of granted summary judg- motion for ERISA, Funds, since of federal common Newbridge II concluded state any exposure (the was limited the district provided.” summary claim the (E.D.Pa. common Securi federal was a Janney’s that the Funds could establish that undisputed not recover. vice. vice’ nature sumed under the rubric of ‘investment ad- limited The Funds’ claims are Janney, but on their contention that sub- substance of the a named As noted Since it ^[*] investment undisputed above, fiduciary, the function it right individual any but held that Court the district court assumed to be advice ^[*] loss advice, its reasoned: did informed as providing based not liability ^[*] the Funds could performed; received from since was result from ^[*] was never must be that ad- it ^[*] ... ... we must conclude that com- events

III. Discussion plained of fall scope outside the of the fiduciary duty Janney have owed to A. STANDARD OF REVIEW. Funds, Janney the and that was under no Summary judgment proper only duty to relate to the the Funds genuine where there is no of material issue concerning Lloyd. Mr. fact for the fact-finder to decide. Fed. F.Supp. at 953. 56(c). R.Civ.P. In order to demonstrate the fact, genuine Accordingly, existence of a begin issue of material a we with of discussion it is supply the burden of the nonmovant scope any fiduciary obligation to the of 4. The two-year Funds also filed a to motion amend their state law fraud claim was barred the complaint plead to them a governing allow to state com- statute of limitations tort claims. Gla against Janney. mon law fraud claim dis- The and Glass Workers Local ziers Union No. 252 amendment, Fund, Scott, holding trict Annuity Janney Montgomery court did not allow the et al. Inc., et al., (E.D.Pa.1994). that the amendment would be futile because the 155 F.R.D. 97 3(21)(A)(ii) [i.e., of [ERISA] Howev- U.S.C. owed to the Funds. may have been 1002(21)(A)(ii) paragraph, only is, ] this if: to of owed er, scope the because type (I) extent, upon dependent plan the to the person Such renders advice some has, briefly we must fiduciary prop- to the or other status one as value securities Janney may have a fidu- to erty, become or makes recommendation as the how discuss however, in, so, purchasing, investing not in- or doing advisability we do ciary. selling property; was not a or other was or securities suggest to tend Funds sus- fiduciary, any (ii) loss the or directly person either or indirect- Such by anything did or any was caused (e.g., through together tained or affili- ly with ate)— no The court made to do. district failed finding no finding on those issues (A) control, discretionary authority Has or reasoning. On re- necessary given its pursuant agreement, or whether mand, to prop- be able court will district arrangement understanding, or with re- if Jan- develop a record and determine

erly selling spect purchasing or securities or relationship to was that of ney’s plan; for property other or Funds can fiduciary, and to what extent the (B) para- any described in Renders advice causation. establish (c)(l)(I) regular a graph this section on plan a mutual pursuant to the basis ways acquire fidu There are three arrangement understanding, agreement, or (1) being named ciary under ERISA: status otherwise, person or between such written fiduciary in instrument establish as plan fiduciary respect or a with plan, 29 employee U.S.C. ing the benefit plan, serve a that such services will (2) 1102(a)(2); being § named as decisions primary basis investment procedure specified plan in the pursuant to a assets, respect plan and that such with instrument, e.g., being appointed an invest person will render individualized invest- fiduciary duties to manager who has ment plan par- to the based on ment advice 1102(a)(2); § plan, 29 U.S.C. ward regarding plan such ticular needs (3) 1002(38); being § U.S.C. as, things, among other invest- matters provisions of 29 U.S.C. under strategy, portfolio policies or overall ment 1002(21)(A), person provides § plan in- composition, or diversification is a vestments. (i) he plan to a to the extent respect with (c)(1). 29 C.F.R. 2510.3—21 discretionary authority or any exercises Here, Janney agree both the Funds respecting manage- discretionary control only have a fidu- could become any exercises authori- ment such or ciary provisions U.S.C. management or ty respecting or control 1002(21)(A)(ii),i.e., Janney “rendered] (ii) assets, he disposition of renders invest- or compensation” for ... investment advice compensa- or advice for fee other ment to do “authority responsibility or so.” had indirect, any tion, respect or direct no discre- Funds admit plan, moneys property of such or or other “purchasing authority respect tionary any authority responsibility to do or has property” for selling or other or securities (iii) so, discretionary has authori- he “(A)” and, accordingly, alternative discretionary responsibility in the ty or Therefore, if was an not apply. does plan. of such administration fiduciary it invest- rendered ERISA 1002(21)(A). § 29 U.S.C. fee, acquired this status for a it ment advise correctly “(B)”. to court referred The district alternative under Labor that Department regulations Janney’s Duty. Scope of C. The “rendering clarify investment advice” regulation provides: The ERISA. part upon relied in district regulation, 29 C.F.R. Department a of Labor person to be render- A shall be deemed (FR-16), Janney’s § hold that to employee 2509.75-8 ing advice” to an “investment fiduciary was limited liability as a non-named meaning the of section plan, within benefit 1180 (B) may care, skill, any

to investment advice it have ren- prudence with the and dili- provides: regulation gence That dered. under the pre- circumstances then vailing prudent acting that a liability fiduciary man in a like of a who personal “The is capacity familiar fiduciary and with such generally is matters not a named limited would use in the an enterprise conduct of fiduciary or to functions which he she the of a like character and with like aims respect plan.” performs with Bacon, 1104(a). 404(a) 132, § Janney cites Blum v. 457 U.S. U.S.C. “Section [29 U.S.C. (1982) 2355, § understanding 1104] 102 72 L.Ed.2d 728 is S.Ct. the touchstone for scope object arguing regulation that this is entitled to of an fiduciary’s Pennsylvania deference. See Brief of duties.” Bixler v. substantial Central However, Fund, point. is at 20. that beside the Teamsters Health & 12 F.3d Welfare 1292, (Bd Cir.1993). Bixler, First, Janney suggests as it is not as clear we reit- alleged following pronouncement has no that the breach nexus erated of Jus- may duty owe. tice retained and Brennan in Massachusetts Mutual Life Russell, 134, belonging 153-54, Co. v. entrusted substantial assets Ins. 473 U.S. Although 3085, 3096, (1985): integrity Funds. and S.Ct. L.Ed.2d 96 “Con- 404(a) may § a honesty gress direct incorporate bear relation intended in gave, fiduciary ERISA, financial he it is un- caliber of advice standards of trust law into suggest integrity realistic to that a it is broker’s black-letter trust fiduciaries dispose running directly irrelevant how he she will of owe strict duties to benefi- another have payment assets of been entrusted to ciaries the administration and care, custody Bixler, that broker’s and control. Sec- trust benefits.” 12 F.3d at 1299. 404(a) ond, Thus, Janney’s assuming position even “although section a articulating] merit, regard fiduciary duties, this has this case does not number of is not exhaus- require also, respect States, us choose between for an tive.” Id. See Central South- hand, agency’s expertise one and af- east and Southwest Areas Pension Fund v. fording Inc., de 570, novo on the other. Transport, review 29 Central 472 U.S. (FR-16) 2833, 2840, (1985) C.F.R. 2509.75-8 does not 105 S.Ct. estab- 86 L.Ed.2d 447 principle lish a (“Congress universal allows for no upon relied the common law of exceptions. merely exposure It general states that trusts to scope ‘define the of [trust- ” fiduciary “generally an unnamed limit- ees’ and authority other fiduciaries’] and re- performs. ”). ed to the functions it sponsibility’ We must any liability determine whether trusts, Under common law of so should be restricted under circum- these duty has a fundamental to furnish that, stances. We although, excep- conclude beneficiary. to a duty “This general produce tions to this rule often inform is a constant thread in the relation results that would be both unworkable and ship trustee; beneficiary between it en unfair, this is not case.5 such a negative tails not duty not to misin 404(a) form, Section of ERISA defines the duty but also an affirmative to inform as owes follows: when the might trustee knows that silence be Bixler, also, discharge shall harmful.” at his duties with 1300. See Globe Co., respect to a in the Woolen Co. v. interest Utica Gas and Electric (1918) (“A participants 224 N.Y. and beneficiaries and— N.E. beneficiary, (A) plunge about to into a ruinous purpose for the exclusive of: dealing, may betrayed course of be silence (I) providing participants benefits to word.”). well spoken as beneficiaries; their (ii) defraying the expenses reasonable The Funds contend that the evidence administering plan; shows knew repre- (and example, illegal) 5. For be plan it would unfair to the Unisys documents. See Corp. In Re Janney misrepresentations hold liable for of an Litigation, Retiree Medical "ERISA” Benefit contrary (3d. Cir.1995), denied,-U.S. administrator that were to F.3d 1255 cert. -, unambiguous rights an (1996). reservation of clause in 116 S.Ct. 134 L.Ed.2d 470

H81 beneficiary. The a to the limited between payment about his sentation (Second) false, Janney provides: that Restatement Trusts was partnership a Lloyd had that altered strongly suspected duty a to trustee] is under communi- [The his tracks. to cover negotiable instrument beneficiary cate the material facts af- to that had no Janney suggests it Although now beneficiary fecting the interest of the doing sur- Lloyd’s wrong own proof beneficiary which he does not knows covering up for have been that he mised beneficiary know which the to needs sister, Janney gave to the information a protection dealing know for his with a Lloyd’s integ- clearly establishes NASD person.6 third best, Yet, Janney sat was, suspect. rity at (Second) of Trusts com- Restatement silently knowing that the Funds were (1959). d. ment Lloyd’s control. placing their assets request never held that a We have Funds, Janney’s reasons According to the precedent a a to such re is condition careful, a nothing to with doing had do so known to the gardless of the circumstances consideration of what prudent, or reasoned fiduciary. contrary, To it is clear point They to best for the Funds. was to can circumstances known Sander, Janney a exec- deposition Rudolph obligation give rise to this affirmative even utive, if he asked instructive. When as beneficiary. request by the “[T]he absent a important for have thought it “would been duty to disclose material information ‘is Lloyd Mr. was to know that the accounts ” Bixler, fiduciary’s responsibility.’ core a respond- he in this kind of conduct” involved Indeed, infor 12 F.3d at 1300. absent such ed: mation, beneficiary may have no reason somebody suspicion I a did If have suspect inquiry into to that it should make didn’t, something wrong and feels he he a If may appear to be routine matter. what that, in our ... customer [a] and I tell Janney fiduciary, Funds’ was a failure man suspicion that this opinion, we have a request concerning Lloyd’s de impinges it something wrong and has done Janney bearing no on parture has whether ability living, a I he to make think it owed the Funds not breached duties very good good, have a case had volunteering the information. against us. So which side that would Second, it had Janney argues that never you to be on? like to determine what sufficient information This, argue, at Appendix 269a. it was not Funds needed to know because the information Janney withheld shows regula- Lloyd violated securities certain out gave Funds that it to the NASD from the Janney. he tions or the law when left Since sued, its being a concern for of a fear of Lloyd’s transgression pertained only to his being. well own affairs, Janney personal maintains business discharged it him he did not Janney prevail seeks to on two theories. ” “ Janney First, very high de- Janney hold if it ‘act in a standard’ would have us at employees. a its Brief fiduciary, Funds’ failure to make mands of was fully Lloyd refusal to about 8. insists that specific request for information pay- of the late any obligation explain the circumstances somehow alleviated not that standard. Refined to disclose the ment did meet would have otherwise had essence, no Janney argues that there was very needed in order its information the Funds circum- reason to tell the about the prudently their affairs. Such conduct Lloyd’s departure or to surrounding beneficiary stances hoist the result would the informa- that the Funds needed contrary estab- believe petard, its own it is well dealings relationship protect its tion itself principles governing the lished stranger Janney, ipso re- is facto argue it Although might there is no one allow quired provide information to merely an sufficient person” as “third here Moreover, Janney itself. beneficiary, an the Funds to deal with agent we do not find such us, be can viewed argument compelling. required under the facts before LSI If though Lloyd's company. person third even to deal arm the Funds with sufficient information only unsupported was Lloyd, there would believe to be the best interest of the appear not suspicion beneficiary misconduct that did to disclose. any clients’ accounts. to involve Here, Janney provided to information assertion, Janney’s Contrary to we believe certainly Lloyd’s which NASD called charac- genuine a issue of material fact that there is However, integrity question. ter and into we fiduciary duties. concerning the breach NASD, not do dismiss the fact that the after Janney a gave the NASD detailed narrative being supplied by with that information Jan- Lloyd supports an inference that altered that ney investigation, its own after chose appear payment cheek make it that to only relatively reprimand to issue a minor to duly Lloyd sufficiently made. com- been Thus, certainly Lloyd. it is conceivable that discharge to promised Janney intended the Fund would have transferred assets to however, dispute, is a him. There concern- Lloyd Janney even if had made a disclosure ing materiality Janney’s motivations and the Nevertheless, to the Fund. we conclude that not From of the information volunteered. Janney’s failure to an disclose creates issue Janney’s Lloyd’s depar- characterization of of fact as to whether it acted with the exer-

ture, a could conclude finder fact “care, skill, prudence diligence,” cise If, any duty. there was no breach 404(a), not, required if Section wheth- contrast, the Funds’ characterization of the Lloyd’s subsequent er failure to sodo caused prevails, a of fact proper- events finder could loss. Janney’s ly falls conclude conduct within (Second) that, In summary, the boundaries of the Restatement we hold on remand, d forth if of Trusts comment set above. the fact-finder determines that Moreover, Janney might we fiduciary, believe it come was an ERISA then Jan- responsibility ney, fiduciary, as an duty under such should come as ERISA had a years ago surprise Janney. no Over 80 disclose to the Funds material informa knew, Judge which explained: Cardozo tion it and which the Funds did know, protec not but needed to know for its aloof, The trustee is free stand while tion. Whether the information contained in act, equitable if others all is and fair. He report the NASD is that kind of material duty cannot rid himself of warn and Janney, which the exercise of denounce, improvidence op- if there or “care, skill, prudence diligence,” was re pression, surface, apparent either on the 404(a) quired by Section to disclose is a surface, lurking beneath the but visible to question factual to be determined the fact practiced eye. his obligations finder. The well established en Co. v. Utica & Electric Globe Woolen Gas requires demic the law of nothing trusts Co., If Janney at 380. was a N.E. fidu- less. ciary, “practiced eye” not turn its could self-interest, turning eye its while a blind Relationship. D. Duration of The beneficiary. interests its course, not, do hold

We that one departure may who have attained a status before the Funds transferred its accounts to thereby obligation an has to disclose all de will obligations LSI of all relieve personnel tails of fiduciary. its decisions that to the Funds if was a As impact upon dealings suming arguendo somehow the course of became an Rather, beneficiary/client. August when duty legal beneficiary has a to the disclose the Funds’ trustees named their in facts, consultant, material known to the those fidu vestment we believe ERISA fidu ciary beneficiary, duty law, ciary but unknown to and the law of trusts it in beneficiary protec corporates, must know for its own require duty scope tion. The of that to disclose is disclose material information continue be 404(a), governed by yond departure. ERISA’s Section and is If found to abe fidu fiduciary, ciary, Janney defined what a reasonable realistically argue exer cannot cising “care, skill, prudence diligence,” role, despite prior fiduciary its it can disa-

H83 Janney manage- agreement undertook under the sound all duties ensure vow provide regular a for a fee to advice on basis Nor the assets.7 does of the Funds’ ment as primary to the Funds that would “serve a activity occurred little investment fact respect decisions with basis for investment Lloyd’s resignation and time the of between plan assets” and “render individualized Provi- the Funds’ accounts to transfer of the plan regarding the investment advice to such Janney’s fiduciary status. from detract dent policies ... matters as investment or strate- established, status, not de- Fiduciary once gy, portfolio compositions, diversi- overall or solely of investment on the amount pendent ty plan of investments.” The Funds came to activity. relationship Janney only a have such with fiduciary relationships While Lloyd Lloyd. of their faith in When particular, generally, and under ERISA Janney, it left became uncertain whether that parties in the sense that the are consensual and, relationship shortly would continue having voluntarily relationship a must enter thereafter, the Funds to utilize ceased the characteristics, once a fiducia stipulated the Janney way. services of in the same Accord- exists, fiduciary the duties ry relationship fiduciary ingly, the status of under necessarily arising it do not terminate ERISA, predicated solely which was on that a is made to dissolve when decision relationship, applicable the ceased. Under that have considered relationship. Courts law, however, Janney’s principle of trust fidu- that an ERISA fiducia the issue have held ciary duty to the of advise information plan extinguished a are ry’s obligations to they protection for their own contin- needed made adequate provision has been only when (the ued at least until someone Funds them- management of prudent the continued advisor) under- selves or another investment Kaleidoscope, v. plan assets. See Chambers took exercise the function that Trust, Inc., 650 Sharing Plan and Profit Thus, president. a performed as vice (N.D.Ga.1986); 359, 369 Pension F.Supp. of point at when advised Greene, Corp. Guaranty 570 Benefit engaging Funds’ intention of new (W.D.Pa.1983), 1483, aff'd, 727 F.Supp. 1488 fiduciary, Janney firm a retained a fiducia- as denied, (3d Cir.), cert. 469 U.S. F.2d 1100 ry duty to material disclose (1984); 820, 92, 105 S.Ct. 83 L.Ed.2d 38 possession concerning information then in its Bank, Ilsley & 485 Freund v. Marshall Lloyd’s conduct. (W.D.Wis.1979). F.Supp. 635 This obli holding Our that a to dis fiduciary obligations gation to ensure close material extend be component a to be met is of will continue yond Lloyd’s departure support finds 404(a)(1)(B) imposed by of prudence Section of the traditional common law trusts. Under (“a 1104(a)(1)(B) ERISA, § fiducia 29 U.S.C. trusts, a trustee cannot reheve himself discharge ... ry shall his duties with simply by trust of duties under the or herself skill, care, ... prudence diligence willing conveying the assets to another trust capacity acting man like prudent II to serve. & Wil Wakeman Scott Austin employ”). familiar with such matters FRANKLIN THE LAW OF TRUSTS FrATCHER, liam 369; Greene, Chambers, F.Supp. at 570 1987). resignation § A trustee’s (4th ed. Freund, 1497-98; F.Supp. at F.Supp. at i.e., only, circumstances is valid three resigns permission when the trustee court, case, fiduciary with the consent all appropriate In this relation existed, all, with the if of an accordance ship at as the result beneficiaries purchase or securities on behalf such ac- sale of 7. We do not mean to intimate ordinary plan as a simply held in the course business quired because it status broker, pursuant to instructions of a busi- dealer ... assets in the normal course of its Funds' plan, Depart- respect ..." 29 to such ness a broker-dealer securities. However, 2510.3-21(d). i.e., where it es- regulations, C.F.R. the "stockbroker ment of Labor acquired exemption”, preclude finding broker-dealer of a re- tablished fiduciary status, longer broker-dealer is no lationship under ERISA where broker-deal- protection "stockbroker ex- relationship employee afforded the with an benefit er's "executing] emption.” transactions for consists Assoc., 260-62, the trust. 508 U.S. terms of S.Ct. The Law of Tkusts (1993). Further, 2071, 124 resigning § trustee is not 161 L.Ed.2d liability manage- for his or her relieved Funds, According the the to the trust until he or she has account- ment of Janney provided on the NASD form indi- trust’s ed to a court for the administration. Lloyd improperly cates that handled his own also, 106.1; e.g., § see The of TRusts Law investments, fraudulently altered a commer- Estate, 27, 235 Pa. A. re 83 687 Nixon’s cial instrument and lied If about actions. (1912) (“The rule general is that trustee fiduciary, if was a its conduct arising from himself liabilities relieve fiduciary would otherwise be a breach of the submitting from a trust relation ad- duties, may Lloyd’s depar- it not hide behind jurisdiction to of the trust the ministration consequences from ture shield it the of its court.”). actions. Although these common law rules guarantee help proper the continued ad Duty IV. Common Law trust, they ministration of the are not com argue: The [they] “to the extent do pletely workable in the ERISA context. For statutory against Janney have a not claim provide example, not a court ERISA does for ERISA, they do such have a claim accounting procedure resigning for a fiducia either under federal common law or under ry. Nonetheless, purpose underlying state common law.” See Brief inquiry. principles those is relevant to our earlier, at 39. As noted the district court “the ... There are times when law of trusts granted Janney’s summary judg- motion for inform, necessarily will not but will deter ment as to both Accordingly, theories. we outcome, interpret an mine the effort to turn our attention to the Funds’ claims for fiduciary Varity Corp. ERISA’s duties.” v. — relief under federal and state common law.

Howe, -, U.S.-, 1065, 116 S.Ct. (1996). 1070, In such 134 L.Ed.2d 130 case, common of trusts the “start is A. Federal Common Law

ing go point, after which courts must on to Congress has authorized federal whether, extent, language ask or to what courts to common in create law certain in statute, structure, purposes of the its or its stances. Textile Workers v. Union Lincoln require departing from common law trust Mills, 448, 456-57, 918, 353 U.S. 77 S.Ct. requirements.” Id. (1957). (as 1 L.Ed.2d 972 However “protects employee pen noted) ERISA court correctly learned district we do by setting other ... sions and benefits forth Congress’ so to further filling intent fiduciary general applicable certain duties gaps specific legislation. management pension nonpen of both Congress both Since authorized and ex- Howe, Varity plans.” Corp. sion benefits pects that the courts will create a common — at-, U.S. S.Ct. at 1070. There ERISA, law under we need look for a fore, apply [ERISA’s when “we specific congressional intent create the case, particular of a section] the facts remedy Instead, inquiry at issue. is

we underlying remain mindful of ERISA’s judicial whether right creation of a purposes.” Unisys Savings In re Plan Liti ‘necessary this fill instance is in intersti- (3d Cir.1996). gation, 74 F.3d tially or statutory otherwise effectuate the protection which ERISA intended afford pattern large Congress enacted private pension plans and benefit would be if an vitiated ERISA able to

simply away plan Fund, walk under the Plucinski v. I.AM. National Pension (3d Cir.1989). presented circumstances to us here. An F.2d We find ERISA “not in terms is defined of no such Accordingly, interstices here. we formal trusteeship, but functional terms of affirm the grant Janney’s district court’s authority”. control and summary Hewitt judgment Mertens v. motion for on Count II.

H85 (3d Hospital, 995 F.2d town Memorial Common Law B. State Cir.1993), aptly does describe how state law 514(a) pre-empts of ERISA Section to an Plan. wrote: relates ERISA We they may laws insofar as “any all State now benefit nection with normal sense Shaw v. ‘relates to’ 96-97, (1983). or hereafter 103 S.Ct. plan.” 29 The district Delta Air an or reference employee 2890, U.S.C. relate to Lines, Inc., court held that phrase, if it has a con 2900, 77 L.Ed.2d 490 benefit to such a 1144(a). any employee 463 plan, in the U.S. “A law plan.” state 85, A restrictions it creates are benefit existence rule of specifically special ^[******] plans, law relates of such treatment, designed if plan. singles to an predicated if affect out such rights employee on the plans if it by pre-empted law claim was common inquiry, This not end our however. does granted Janney’s mo ERISA and therefore may preempted A state of law be even rule judgment on summary that claim. tion for though it has no such direct nexus with premised preemption its The district court plans if ERISA its effect is to dictate or its that the state law claim holding on belief plans restrict the choices of ERISA of the Funds’ involved the administration benefits, structure, regard report- to their plans. Glaziers and pension and benefits administration, allowing if ing and or Annuity Local 252 Union Glassworkers impair to have such rules would states Securities, al., Fund, et Newbridge et al. ability simultaneously plan of a to function (“Indeed, at this Court F.Supp. 877 954-955 in a of states. number breach of plaintiffs has that a held F.2d at 1192-1193. duty relating to the administration claim remand, If, plan brought under on that employee an benefit the district finds fiduciary, preempted by Janney ERISA. Accord not an ERISA state law is was subjected to that law claim should be ingly, conclude Funds’ Funds’ state we must very fiduciary duty analysis may claim is It breach of United Wire. [state law] ”). event that is preempted ERISA.... well be that even fiduciary, the claim not an state law ERISA court’s The Funds contend that district may plan to an ERISA and be relate an finding dependent upon is ini- preemption However, preempted. if is not found an finding tial was ERISA fidu- fiduciary, is still room be an ERISA there If, however, Janney ultimately ciary. is not may duty Janney argue fiduciary, an the Funds found to be ERISA Funds arises under have toward the argue its state law claim does not “relate to”, does “relate but state not is, employee plan benefit and that it to” an plan. That an “affects and involves” ERISA case, therefore, In preempted. not is, may relate to the the state law claim not simply claim be a “common- state law at employee plan of an benefit administration place”, “run-of-the-mill state law claim” may example, For successful- all. which, although “affecting involving” an duty ly argue that there is a pre-empted by plan ERISA is not ERISA. and a stockbroker arises between client Mackey Agency v. Lanier & See Collection by Janney’s breached and that the 825, 833, 2182, Service, 486 108 S.Ct. U.S. failure disclose. (1988). short, 100 L.Ed.2d 836 press state law can continue its cannot, Thus, juncture, at this either we Janney. against claim prevent trying to show the Funds from preempted hold its claim not is to the Funds’ state law is We believe there merit law that the state law claim Although no as a matter of preemption argument. there is course, preempted. impossible it be Of bright line between a claim which “affects or without, their at the for the Funds demonstrate an ERISA involves” (even if time, plan, preempted is not “relating to” an our claim same however, finding Wire, fiduciary); an ERISA opinion in Metal and Machine United Fund, court after be made the district et v. Morris should al. Health Welfare finding makes a status accountant, as a its lawyer, its corporate di- Janne/s fiduciary under ERISA. owns, rector of a company it plumber. or its SLOVITER, Before: Judge, Chief Finally, if the district court finds that state STAPLETON, GREENBERG, SCIRICA, law claim is not pre-empted, it will then have COWEN, NYGAARD, ALITO, ROTH, if determine the claim is time-barred as LEWIS, McKEE, Judges, Circuit Janney contends. See Zimmer v. Gruntal & GIBSON, Senior Judge*. Circuit Co., Inc., (W.D.Pa. F.Supp. 1989) (“breach fiduciary duty is tortious subject year conduct and to two statute of SUR PETITION FOR REHEARING period, 5524(7)”). limitations 42 Pa.C.S.A. Sept. petition for rehearing filed appellee V. in the above entitled case having been sub- reasons, For foregoing we will affirm mitted to judges who participated in the grant summary judgment in favor of decision this court and to all other avail- II, on Count the federal common law able judges circuit of the regular circuit claim, and will grant reverse the summary service, active judge no who concurred in

judgment I, in favor of on Count having decision rehearing, asked for claim, III, ERISA and on Count the state majority of the circuit judges of the circuit claim, proceed- remand for further regular active service not having voted for ings opinion. consistent this rehearing by bane, petition rehearing is denied. STAPLETON, Judge, Circuit concurring: join I opinion of the court. I write

separately I would resolve the issue preempts whether ERISA a state law that impose

would a fiduciary duty of disclosure Gregory BEAVER, under the circumstances Warren of this ease. Petitioner-Appellant, The district court properly addressed legal issue, resolved that its resolution will not by be affected development further E. THOMPSON, Charles Warden, record, and, in the interest of conserv- Respondent-Appellee. ing judicial resources, I provide district court with the benefit of our view on No. 95-4003. that issue. United States Court of Appeals, Applying the principles that we reviewed Fourth Circuit. Wire, United I would hold that if Janney Argued an Sept. 1995. § 1002(21)(A),a imposing state law a fiducia- Aug. Decided ry duty of disclosure on it would not be preempted by ERISA, ERISA. by spelling

out who is a respect plan to a

and its participants, defines the area of fed-

eral concern in preemption required.

Beyond area, I would hold that a state continue,

can generally applicable law, prescribe duties, fiduciary or other- wise, owed broker, to a plan just its

way continue, it can by a generally applicable

law, prescribe duties to a owed

* As Rehearing Only. to Panel

Case Details

Case Name: Glaziers and Glassworkers Union Local No. 252 Annuity Fund v. Newbridge Securities, Inc.

Court Name: Court of Appeals for the Third Circuit

Date Published: Aug 28, 1996

Citation: 93 F.3d 1171

Docket Number: 95-1175, 95-1215 and 95-1283

Court Abbreviation: 3rd Cir.