                                                                                                                           Opinions of the United
2003 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


3-13-2003

Srein v. Frankford Trust Co
Precedential or Non-Precedential: Precedential

Docket 01-4516




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                                PRECEDENTIAL

                                         Filed March 13, 2003

           UNITED STATES COURT OF APPEALS
                FOR THE THIRD CIRCUIT


                          No. 01-4516


        RONALD J. SREIN and R. J. SREIN CORP.,
                                    Appellant
                                v.
              FRANKFORD TRUST COMPANY,
              n/k/a/ KEY TRUST COMPANY

                ON APPEAL FROM THE
       UNITED STATES DISTRICT COURT FOR THE
         EASTERN DISTRICT OF PENNSYLVANIA
               (Dist. Court No. 99-cv-2652)
   District Court Judge: The Honorable Robert F. Kelly

                Argued: September 12, 2002
       Before: ALITO and FUENTES, Circuit Judges,
            and OBERDORFER,* District Judge

               (Opinion Filed: March 13, 2003)




* The Honorable Louis F. Oberdorfer, Senior District Judge for the
District of Columbia, sitting by designation.
                             2


                      JAMES L. GRIFFITH (ARGUED)
                      JOHN P. HALFPENNY
                      STEVEN K. DILIBERTO
                      KLETT, ROONEY, LIEBER &
                       SCHORLING
                      18th & Arch Streets
                      Two Logan Square, 12th Floor
                      Philadelphia, PA 19103-2746
                      Counsel for Appellant
                      MARK D. BRADSHAW (ARGUED)
                      TODD R. BARTOS
                      Stevens & Lee
                      4750 Lindle Road
                      P.O. Box 11670
                      Harrisburg, PA 17108-1670
                      Counsel for Appellees


                OPINION OF THE COURT

OBERDORFER, District Judge:
  Plaintiffs’ appeal requires us to consider the liability of
the trustee of two retirement plans for common law
negligence and breach of fiduciary duty, if any, under the
federal Employee Retirement Income Security Act (“ERISA”),
29 U.S.C. § 1001, et seq. The District Court entered
judgment for defendant under Pennsylvania’s Comparative
Negligence law after a jury found plaintiff ’s contributory
negligence was greater than defendant’s negligence and also
found for defendant on the ERISA issue on the theory that
the trustee was not a fiduciary within the meaning of that
law. We reverse and remand.

    I.   FACTUAL AND PROCEDURAL BACKGROUND
  Resolution of this fact specific case requires extensive
exposition of them. Findings of the District Court and
undisputed evidence establish that:
  Ronald J. Srein is the sole stockholder and only employee
                                   3


of R.J. Srein Corporation. In the mid-1980’s, Srein had
created in the Corporation two ERISA qualified retirement
plans, a Money Purchase Pension Plan and Profit Sharing
Plan. In 1993 he sought to invest plan funds in
participation agreements on so-called “viatical settlement
contracts.” A viatical settlement contract is, in essence, an
investment in an insurance policy on the life of a terminally
ill insured. It allows “individuals diagnosed with potentially
terminal diseases . . . [to] obtain an immediate payment of
part of the face value of their insurance policy in exchange
for assigning all or part of the life insurance policy. This
enables the insured [also called “viators”] to obtain money
which would otherwise be unavailable to him until after his
death. When the insured passes away, the viatical
settlement company collects the policy proceeds, pays the
investor the money he advanced under the agreement and
the balance is divided between the investor and the
settlement company in accordance with their agreement.”
(Finding of Fact No. 3, JA 22.) To arrange these
investments, Srein engaged a broker, Craig Silverman and
Findco, Inc., to locate “viators” and, for a commission, to
negotiate investments in participation agreements.1 During
1992 and early 1993, Srein entered on his own account six
participation agreements for viatical settlement contracts
with Findco.
  Before February 1993 R. J. Srein Corporation engaged
Eagle Retirement and Investment Planning as Trustee of an
ERISA qualified Money Purchase Pension Plan. On
February 3 of that year, Srein sought to enter into a
participation agreement with Findco on behalf of that plan
for a 100% interest in an insurance policy issued by
Philadelphia Life Insurance Company on the life of one
Errol Chamness. However, Eagle “would not allow such
investments by retirement plans on which it was trustee
because such investments were not registered.” (JA 23.)
Learning of this impasse, Silverman referred Srein to

1. A “Participation Agreement” evidences the rights and duties of the
parties including payment to the insured, assignment of the policy to
and for the benefit of the investor and the obligation of the insurance
carrier to pay the proceeds to the broker for transmittal to the investor
after deduction of the commissions.
                                   4


Laraine Daly,2 a Frankford trust officer (hereinafter
sometimes referred to together as “Frankford”). Frankford
informed Srein that “Frankford Trust did not have any
rules against non-registered investments, such as
participation agreements in viatical settlement contracts,
being held in investment plans for which it acted as
trustee.” (JA 24.)3 Based on this representation Srein
agreed to move his retirement accounts to Frankford.
  Frankford then “facilitated setting up qualified ERISA
plans for R.J. Srein Corp. at Frankford Trust and
transferring assets from Eagle Retirement to Frankford
Trust. [Frankford] understood that Mr. Srein was moving
the R.J. Srein Corp. Plans to Frankford Trust for the
purpose of, among other things, investing in participation
agreements on viatical settlement contracts.” (Finding of
Fact No. 10, JA 24.)
   On February 11, 1993, Srein, the Corporation and
Frankford entered into five agreements that had the effect
of creating a new R.J. Srein Corp. Money Purchase Pension
Plan and a Profit Sharing Plan at Frankford. The new Plan
documents named Srein as both Participant and Plan
Administrator and designated Frankford the Plan trustee.
Daly, on behalf of the bank, acted as the trust officer for
both of the retirement plans. After creating the Plans, Srein
directed Eagle Retirement to liquidate the retirement plans
it held and to transfer their assets to Frankford. (JA 1217.)
  The Profit Sharing Plan Trust Agreement (“Trust
Agreement”) between Srein and Frankford as Trustee
declared that the Trustee shall “discharge [its] assigned
duties and responsibilities . . . with 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 and with like aims.” Trust
Agreement § 3.1(b). It continued, “at no time shall any part

2. Laraine Daly married prior to the trial and is now Laraine Beckman.
3. An unregistered investment is “a security not registered with the
Securities and Exchange Commission and therefore not sold publically
unless specific conditions are met.” BLACK’S LAW DICTIONARY 1377 (7th ed.
1999).
                              5


of the corpus or income of the Fund be used for, or diverted
to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries, or for defraying
reasonable expenses of administering the plan.” Id. at § 4.1.
  The Trust Agreement also provided with respect to
investment decisions that Frankford invest the funds of the
Plans:
    as directed in writing by the Participant [Srein] . . .
    which written directions shall be timely furnished to
    the Trustee by the Plan Administrator [also Srein]. In
    making any investment of the assets of the Fund, the
    Trustee shall be fully entitled to rely on such directions
    furnished by the Plan Administrator and shall be
    under no duty to make any inquiry or investigation
    with respect thereto. It is especially intended under the
    Plan and this Agreement that the Trustee shall have no
    discretionary authority to determine the investment of
    the assets of the Fund.
Profit Sharing Plan Trust Agreement § 2.1.
  Similarly, the Master Profit Sharing Plan stated:
    In making any investment of contributions under this
    § 6.3, the Trustee shall be fully entitled to rely on the
    written directions furnished by the Plan Administrator
    and shall be under no duty to make an inquiry or
    investigation with respect thereto. If the Trustee
    receives any contribution to the Trust that is not
    accompanied by written instructions directing its
    investment, the Trustee may hold or return all or a
    portion of the contribution uninvested without liability
    for loss of income or appreciation pending receipt of
    proper    investment    directions    from    the    Plan
    Administrator.
Master Profit Sharing Plan § 6.3(c). That Plan further stated
that “the assets of the Plan are held, administered and
managed by the Trustee [Frankford] in accordance with the
terms and conditions of the Trust Agreement,” § 1.1, and
that “the Trustee shall have the sole responsibility for the
administration of the trust and the management of the
assets held hereunder, as specifically provided in the Trust
                                6


Agreement.” Master Profit Sharing Plan § 10.1. The Master
Money Purchase Plan had identical language in § 11.1.
   In consideration for acting as trustee of the Corporation’s
Plans, Frankford was to be “compensated for its services in
accordance with its normal schedule of fees.” See Trust
Agreement § 5.1. Frankford charged fees based upon the
value of the assets held by the Plans. (JA 118.) As Daly
explained “all trust accounts were charged a fee. In the
case of employee benefit accounts, it would have been for
use of the prototype plan document, the — having a
financial institution as trustee . . . . It also, in Srein’s case,
because we were acting as a directed trustee, it involved
maintaining the security record, maintaining the document
in the vault and producing . . . monthly statements of
transactions and assets . . . .” (JA 1306.)
  During the pendency of the Trust relationship between
Frankford and the Plans, Srein entrusted to Frankford two
Participation Agreements; one representing an interest in
the Chamness policy and another in an insurance policy on
the life of one J. Lloyd Madsen.
  A.   The Chamness Policy
  On February 11, 1993, Srein, as Plan Administrator,
directed Daly to forward $72,500 from the Money Purchase
Pension Plan to Findco’s escrow agent, Neil Katim, to invest
in a Participation Agreement for a 100% interest in the
Chamness policy. As instructed, Frankford forwarded the
$72,500 to Findco’s escrow agent, who paid it to
Chamness. (JA 1569.) Pursuant to the Agreement,
Chamness conveyed the policy, including a right to its
proceeds to Findco.
  The Agreement’s terms required Findco to obtain an
insurance change of beneficiary form from Philadelphia Life
“naming the Escrow Account and the Participant as the
proportional, percentage, irrevocable beneficiaries of the
Policy . . . .” (JA 1569.) Findco failed to do so. Meanwhile,
Frankford placed the Agreement in its vault and assigned it
an “arbitrary, random number[ ]” because “the participation
agreements were not registered investments, [and] they did
not have pre-existing numbers assigned to them.” (JA 25.)
Then, on February 17, 1993, unbeknownst to either Srein
                             7


or Frankford, Findco entered into a second participation
agreement with D.P. Partnerships for a 100% interest in the
same Chamness policy. (JA 25.)
  After Chamness passed away, on August 31, 1994,
Philadelphia Life forwarded the proceeds of that policy to
Findco’s escrow agent. At Findco’s direction, the escrowee
divided the net proceeds from the Chamness policy between
D.P. Partnership and Findco (for its commission); Srein’s
Plan received nothing. (JA 738.) Nevertheless, Frankford,
apparently oblivious of Chamness’ death and the
distribution of the policy proceeds to D.P. Partnership,
continued to list the Chamness policy as an asset of the
Srein Money Purchase Plan and continued to charge the
Plan a trustee fee based upon the value of that asset
through the year 1999. (JA 119, 1123.)
  B.   The Madsen Policy
  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.)
  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
                             8


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.)
  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.)
  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
                                    9


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.
  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.
  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.
   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

4. Under the Pennsylvania Comparative Negligence Act a plaintiff is
entitled to a proportionate share of the damages only when his
contributory negligence does not exceed fifty percent. See Comparative
Negligence Act, 42 Pa. C.S. 7102(a).
5. 29 U.S.C. § 1002(21)(A) states that a person functions as an ERISA
fiduciary to the extent that “he exercises any discretionary authority or
discretionary control respecting management of such plan or exercises
any authority or control respecting management or disposition of its
assets, (ii) he renders investment advice for a fee or other compensation,
direct or indirect, with respect to any moneys or other property of such
plan, or has any authority or responsibility to do so, or (iii) he has any
discretionary authority or discretionary responsibility in the
administration of such plan (emphasis added).
                                 10


contend that the district court erred when it applied
Pennsylvania contributory negligence laws to the common
law claims.

                         II.   DISCUSSION
A.        The ERISA Claims
     1.    Standard of Review
   The parties disagree at the threshold about the proper
standard of review to apply to the District Court’s decision
that Frankford Trust was not an ERISA fiduciary. Plaintiffs
argue that the fiduciary status issue is a legal question that
we review de novo. Frankford conversely argues that the
issue before us presents a mixed question of law and fact
for which appellate courts review only the legal conclusions
de novo; factual findings survive unless clearly erroneous.
See Scully v. US WATS, 238 F.3d 497, 505 (3d Cir. 2001).
Here, Plaintiffs accept the underlying factual findings
regarding the agreements entered and actions taken by
Frankford pursuant to the Plan and Trust Agreements; they
dispute only whether or not the District Court properly
determined that those agreements and actions impose
fiduciary status on Frankford. Given that only legal issues
are raised on appeal, we review the district court’s legal
conclusion de novo. See id.; see also Hamilton v. Carell, 243
F.3d 992, 997 (6th Cir. 2001) (“Where the facts are not in
question, a party’s status as an ERISA fiduciary is purely a
question of law”); Libbey-Owens-Ford Co. v. Blue Cross &
Blue Shield Mut., 982 F.2d 1031, 1034 (6th Cir. 1993)
(whether a plan administrator is a fiduciary is a question of
law).
     2.    Frankford’s Fiduciary Status
  “ERISA ‘defines fiduciary not in terms of formal
trusteeship, but in functional terms of control and
authority over the plan . . . .’ ” Mertens v. Hewitt Assocs.,
508 U.S. 248, 262 (1993). ERISA creates liability for
breaches of fiduciary duty “to the extent” that a person
functions in a fiduciary capacity. 29 U.S.C. § 1002(21)(A);
see also Glaziers & Glassworkers Union Local No. 252 v.
Newbridge Sec., Inc., 93 F.3d 1171, 1180 (3d Cir. 1996).
                                    11


Fiduciary status attaches to a person managing an ERISA
plan under subsection (i) of § 1002(21)(A) if that person
exercises discretion in the management of the plan, or if the
person exercises any authority or control over the
management or disposition of the plan’s assets. See Bd. of
Trs. of Bricklayers and Allied Craftsmen Local 6 of New
Jersey Welfare Fund v. Wettlin Assocs. Inc., 237 F.3d 270,
273 (3d Cir. 2001). This Court recognizes that the
“significant difference between the two clauses [of
subsection (i)] is that discretion is specified as a
prerequisite to fiduciary status for a person managing an
ERISA plan, but the word ‘discretionary’ is conspicuously
absent when the text refers to assets.” Id.; see also IT Corp.
v. General Am. Life Ins. Co., 107 F.3d 1415, 1421 (9th Cir.
1997). It has been well said that “[f]iduciary status under
§ 1002(21)(A) is not an all or nothing concept . . . [A] court
must ask whether a person is a fiduciary with respect to
the particular activity in question.” Maniace v. Commerce
Bank of Kansas City, N.A., 40 F.3d 264, 267 (8th Cir 1994),
cert. denied, 514 U.S. 1111 (1995) (internal quotations
omitted).
  Here, we accept, as we must, the District Court finding
that Srein directed, and Frankford exercised no discretion
with respect to, the decisions to invest in the Participation
Agreements for the Madsen and Chamness policies. But it
is obvious that Srein did not direct the placement of the
several agreements in the Frankford vault without cross-
referencing one to the other, the assignment of random
numbers to the agreements, or the payment for and
acceptance of participation agreements for other Frankford
customers with respect to a policy already the subject of
one of R.J. Srein Corporation’s participation agreements.6

6. Frankford recognized that Srein is “sophisticated in commercial
finance matters”. (JA 1568.) In Srein’s informed, if not expert, opinion,
Frankford “should have had a mechanism to track the assets regardless
of what the assets were. And again that the representation to me that
they could administer X trustee [sic] for unregistered or unusual
investments should not, as far as I’m concerned doesn’t mitigate or
didn’t mitigate their responsibility to properly register or cross reference
those types of investments, whether they were mortgages, private stock
offerings, viatical contracts, its irrelevant. Assign a number to the asset
                                    12


Nor did Srein direct Frankford to accept and distribute to
the Richards’ plan twenty-eight percent of the proceeds of
the Madsen policy. Without inquiry or investigation,
Frankford came to know that Madsen died. Proceeds of the
policy on his life came into its possession. It was in
“control” of those proceeds and, for whatever reason,
erroneously distributed them to another of its customers.
That was, by any definition, the exercise of “control”7 (if not
“authority”) respecting “disposition of [plaintiff ’s] assets.” In
this case Frankford exercised direction over the Madsen
policy when it placed that asset in the Richards’ plan
account, and therefore, diverted the value of that asset from
the Srein Plan account.
  We conclude as a matter of law that the facts found by
the District Court establish that Frankford exercised
undirected “authority and control” over plaintiffs’ valuable
interests in the Madsen life insurance policy and therefore
functioned as a fiduciary with respect to the Srein Plan’s
interests in the Madsen policy.
  We find strong support for this conclusion in the Sixth
Circuit’s decision in Smith v. Provident Bank, 170 F.3d 609
(6th Cir. 1999). The Smith court found that a directed
trustee acted as an ERISA fiduciary to the extent that it
exercised control over plan assets. In that case, Provident
Bank, as trustee for two benefit plans, had no authority to
make investments for the plans unless directed to do so by
the plan fiduciary, Robert Stauter. In 1990, Stauter
instructed Provident to purchase approximately $10,000
worth of Ameritrust stock, and to hold that stock in trust
for the plan. As instructed, Provident made the purchase

and if it comes up in the system somewhere else than there’s a problem.
It’s like a registration of a bond.” (JA 1232.) Srein does not claim that
Frankford should have investigated and discovered the Findco fraud.
Srein explained that he believed Frankford should have known from
information in its own files and “alerted [him] to the fact that there had
been a double sale of one of the policies [he] had a double interest in [as
Plan Participant and Plan Administrator].” (JA 1233.)
7. “Control” is “the act or power of controlling; regulation; domination or
command,” and “controlling” is defined as “exercising restraint or
direction over.” Webster’s Unabridged Dictionary 442 (2d ed. 1998).
                              13


and recorded the stock acquired in the account for the
plan. A second trust client of Provident, the Catholic
Archdiocese of Cleveland, also instructed the bank to
purchase $10,000 worth of Ameritrust stock. Provident
failed to purchase the stock for the Archdiocese.
Subsequent to these transactions, Stauter removed
Provident as plan trustee and directed it to transfer the
plan’s assets to a new trustee, Society Bank. To “correct” its
original mistake, Provident placed the Ameritrust shares
into the account of the Archdiocese, and delivered to the
new trustee of the Stauter plans ten thousand dollars in
cash. The Smith court held that Provident functioned as
fiduciary for the Stauter plan when it removed the
Ameritrust shares from the plan account and placed them
elsewhere. Id. at 613-614.
   Defendant’s reliance on the Beddall and Maniace cases,
from the First and Eighth Circuits respectively, is
misplaced. In each of those cases the plaintiff attempted to
state a claim against the trustee bank for actions taken (or
not taken) clearly at the direction of another. In Maniace,
the plaintiffs charged that the defendant bank violated a
fiduciary duty to the plaintiff ’s Employee Stock Ownership
Plan because it improvidently retained a plan owned stock
as its value declined. See Maniace, 40 F.3d at 267. The
Maniace court explained that the bank was specifically
directed to retain employer stock in the ESOP plan by a
committee authorized to give such a direction. Therefore, it
had neither discretionary authority, nor control of that plan
asset. Id. Similarly, in Beddall v. State Street Bank & Trust
Co., 137 F.3d 12 (1st Cir. 1998), Plan documents placed in
an investment advisor responsibility for determining the
value of plaintiff ’s retirement plan assets. The First Circuit
concluded that the appointment of the investment advisor
divested the bank of any control or authority over the
valuation of the plan’s investments. Id. at 21.
  In reaching our conclusion we have considered whether
Frankford was a mere custodian of plan assets. We
recognize that “ERISA does not consider as a fiduciary an
entity such as a bank when it does no more than receive
deposits from a benefit fund on which the fund can draw
checks.” See, e.g., Wettlin, 237 F.3d at 275; see also Brandt
                              14


v. Grounds, 687 F.2d 895, 898 (7th Cir. 1982) (non-trustee
bank acting as mere custodian of funds not liable for failing
to prevent plan trustee’s embezzlement). However, in this
case, Frankford acted as more than a “plain vanilla”
custodian of assets. Frankford charged Srein a fee, in part,
for “having a financial institution act as trustee.” (JA 1306.)
As trustee, Frankford made representations to Srein
regarding its ability and willingness to manage plans
holding unregistered investments after the then-incumbent
trustee declined to do so. These factors, together with
Frankford’s actual control of the Madsen policy assets, lead
us to the conclusion that Frankford was more than a mere
custodian of assets performing only administrative and
ministerial duties.
   Neither Arizona State Carpenters Pension Trust Fund v.
Citibank, 125 F. 3d 715, 722 (9th Cir. 1997) nor Beddall,
cited by the dissent, require a different result. In each of
those cases the banks in question performed no more than
administrative responsibilities at the direction of a plan
trustee. Neither bank took on the responsibility of acting as
a trustee, directed or undirected, for the plan, nor solicited
business from the plaintiffs on the representation that it
was sufficiently able to perform such duties. Frankford’s
functions were not so limited. When, as here, a trustee
bank is entrusted with and performs duties to “control,
manage, hold, safeguard and account for [a] fund’s assets
and income,” it functions as a fiduciary under ERISA.
Wettlin, 237 F.3d at 275.
  Accordingly, we conclude that the District Court erred in
concluding that Frankford was not a fiduciary with respect
to the Madsen investment.
   A question remains as to whether Frankford was a
fiduciary with respect to the Chamness policy. On the one
hand, it took custody of the Chamness Participation
Agreement, gave it only a random number, maintained a
record of it on its books and collected fees long after the
insured died and the proceeds were distributed elsewhere.
However, Frankford did not exercise control over the Plan’s
Chamness investment to the extent that it did with respect
to the Madsen one. Moreover, Frankford had no duty “to
make any inquiry or investigation with respect” to whether
                                15


Chamness was alive. See Trust Agreement § 2.1. Nor did it
have “in-house” information (as it did with respect to the
Madsen investment) about the double sale of that policy to
the D.P. Partnership plan. We conclude that Frankford was
not a fiduciary with respect to the Chamness Participation
Agreement or the policy interest which it evidenced.
     3.    Breach of Fiduciary Duty
   ERISA imposes upon a fiduciary the duty to act “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(B). The District Court never
reached this fact intensive issue. Accordingly, we remand to
the district court the question of whether Frankford’s
actions, and inactions, with respect to the Madsen
investment amounted to a breach of fiduciary duty and, if
so, the consequences of the breach.
B.        Appellants’ Negligence Claim
  In addition to its claim for damages resulting from
Frankford’s breach of fiduciary duty, plaintiffs brought a
claim for negligence under Pennsylvannia law with respect
to Srein’s personal investments and those of the two plans.
The jury found that Frankford was negligent with respect to
the Madsen policy and for Srein’s personal investment
losses. (JA 538.) However, the jury found no negligence
with respect to Frankford’s role with respect to the
Chamness policy. (JA 540.) It further determined that Srein
suffered $566,000 in damages but that Srein was a 70%
cause of those damages. (JA 539.) The District Court
applied Pennsylvania’s Comparative Negligence Act to the
jury’s verdict and entered judgment for Frankford on the
negligence claims.
   Plaintiff moved for a new trial after judgment arguing,
first, that there was insufficient evidence to support a
finding that Srein was guilty of contributory negligence with
respect to his investment losses, and second, that the
District Court erred in failing to instruct the jury that,
under the Pennsylvania Comparative Negligence Act, a
finding that Srein was more than fifty percent at fault for
                                    16


his losses would require the court to enter a judgment in
favor of the defendant.8 The District Court denied that
motion.
  1.   Jury Instruction
   Plaintiffs’ claims for negligence were traversed by the
defense of contributory negligence. Under the governing
Pennsylvania Comparative Negligence Act, a verdict that a
plaintiff was more than fifty percent at fault requires the
trial court to enter a judgment for the defendant.
Pennsylvania courts have modulated the rule to the extent
of requiring a judge trying a case governed by
Pennsylvania’s law to include in a jury charge information
to that effect. See Peair v. Home Ass’n. of Enola Legion No.
751, 430 A.2d 665, 671 (Pa. Super. Ct. 1981).
   Here the District Court instructed the jury that “[i]f you
find that . . . the plaintiff was contributorily negligent and
that the plaintiff ’s contributory negligence was a
substantial factor in bringing about plaintiff ’s own harm,
the fact that the plaintiff was contributorily negligent will not
bar recovery by the plaintiff. But any damage sustained by
plaintiff will be diminished in proportion to the amount of
the negligence attributed to the plaintiff.” (JA 1133-34)
(emphasis added). Furthermore the judge never told the
jury that if it attributed fifty percent or more of the blame
for plaintiff ’s injury upon that plaintiff, the judge would
enter judgment for the defendant. This instruction was
plainly wrong for what it said, and for what it didn’t say.
Although plaintiff failed to object to the instruction and
omission before the court charged the jury, the plain error

8. On appeal plaintiffs also raise for the first time the argument that the
District Court erred in applying Pennsylvania’s Comparative Negligence
Act in this case because that Act applies only to “actions brought to
recover damages for negligence resulting in death or injury to person or
property . . . .” 42 Pa. Cons.Stat. Ann. § 7102(a). We have consistently
held that we will not consider issues that are raised for the first time on
appeal absent “compelling reasons.” Patterson v. Cuyler, 729 F.2d 925,
929 (3d Cir. 1984); see also Harris v. City of Philadelphia, 35 F.3d 840,
845 (3d Cir. 1994). Plaintiffs identified no such reasons and accordingly
we decline to address the contention.
                                   17


requires us to take cognizance of it and act. See Alexander
v. Riga, 208 F.3d 419, 426-27 (3d Cir. 2000).9
  2.   Sufficiency of Evidence
  We review for clear error the determination of the District
Court that there was sufficient evidence of contributory
negligence. See Scully v. US WATS, 238 F. 3d 497, 505 (3d
Cir. 2001). Srein, administrator of the Plans, was by all
accounts a sophisticated investor. He received periodic
reports about both his personal, and the Plans’, viatical
investments. Several years elapsed before he noticed that
these investments had not “matured.” It was not
unreasonable for the trier of fact, governed by a
comparative negligence law and instruction, to allocate
some blame to him.

                         III.   CONCLUSION
  We reverse the judgment of the District Court on the
plaintiffs’ negligence claim and remand for new trial. We
also reverse its decision that defendant was not a fiduciary
and remand the case for further consideration of plaintiffs’
claim that defendant breached its fiduciary duty with
respect to the plan’s interest in the Madsen policy.




9. However, we note that the defendant raised the question of whether
ERISA preempted the negligence claim during a pretrial conference
before the District Court. The District Court apparently failed to rule on
the contention. On remand it may wish to revisit the preemption issue
before it undertakes any new trial. See The 1975 Salaried Retirement
Plan For Eligible Employees of Crucible, Inc. v. Nobers, 968 F.2d 401, 406
(3d Cir. 1992), cert. denied, 506 U.S. 1086 (1993) (explaining that
preemption applies when a state law claim depends on the existence of
an ERISA plan).
                                   18


FUENTES, Circuit Judge, concurring and dissenting:
  I join all portions of the majority’s well-reasoned opinion
other than Part II, subsection (A)(2). I write separately
because I do not agree with the conclusion that Frankford
functioned as a fiduciary with respect to the Srein Plan’s
interest in the Madsen policy.1 Therefore, I respectfully
dissent from that portion of the majority’s decision.
  In establishing a retirement plan for R.J. Srein Corp.,
Ronald Srein, a college graduate, successful businessman,
and sophisticated investor, negotiated four separate
agreements with Frankford. According to the documents,
Srein had the authority to control and manage the
operation and administration of the Srein Plan. Indeed, he
was identified in the documents as both the “plan
administrator” and “plan fiduciary.” Frankford, on the other
hand, was authorized only upon written direction from
Srein to pay benefits and expenses from the Plan’s funds;
make investments on behalf of the Plan; and allocate
contributions under the Plan to the participants. Frankford
was identified as the “plan trustee.”
   I agree with the District Court that under the four Srein
Plan documents “the role of Frankford was of a limited
nature as Frankford was to exercise no investment
discretion, and Srein was solely responsible for selecting
the investments for the plans.” (D. Ct. Op. at pp. 4) I also
agree with the District Court’s observation that Frankford’s
intended role was that of directed trustee, rather than
fiduciary. Id. at 10-12.
   Notwithstanding the nature of the contractual duties set
forth in the Plan documents, the majority, citing Board of
Trs. of Bricklayers and Allied Craftsmen Local 6 of New
Jersey Welfare Fund v. Wettlin Assocs. Inc., 237 F.3d 270
(3d Cir. 2001), notes that an entity may be found to be a
fiduciary when it is entrusted with duties to “control,

1. The majority analyzed the two viatical investments made by the Srein
Plan through Frankford separately. I agree with the majority’s conclusion
that Frankford’s handling of the Chamness policy did not create
fiduciary status. I limit my comments, therefore, to the majority’s
analysis of Frankford’s handling of the Madsen policy.
                                    19


manage, hold, safeguard, and account for a fund’s assets
and income.” I note, however, that where the duties
entrusted to an entity are merely ministerial, fiduciary
status may be inappropriate. See Beddall v. State Street
Bank and Trust Co., 137 F.3d 12, 20 (1st Cir. 1998)
(“Without more, mechanical administrative responsibilities
(such as retaining the assets and keeping a record of their
value) are insufficient to ground a claim of fiduciary
status.”); Arizona State Carpenters Pension Trust Fund v.
Citibank, 125 F.3d 715, 722 (9th Cir. 1997) (“Having to
make a decision in the exercise of a ministerial duty does
not rise to the level of discretion required to be an ERISA
fiduciary.”).
   Here, as the District Court found, the evidence presented
leads to the conclusion that Frankford was entrusted with
duties that were merely ministerial. The Plan documents
stated that Frankford had no duty to make any inquiry or
investigation with respect to the instructions from Srein
and had no discretionary authority to determine
investments for the assets of the fund. It is clear that
Frankford was entrusted with less authority than the entity
in Wettlin in determining whether to disburse benefits. C.f.
Wettlin, 237 F.3d at 275 (“[T]he contract provides that
Wettlin is to ‘[r]eceive request for benefits from employees
and take appropriate action thereon,’ ” without clarifying
what action should be taken.). Accordingly, on the
spectrum of duties a bank might be entrusted to perform,
I agree with the District Court that Frankford’s duties were
closer to being a depository than a fiduciary.
  Nonetheless, I am mindful that a trustee’s actual exercise
of “any authority or control respecting management or
disposition of [a Plan’s] assets” could confer fiduciary status
under the definition set forth in 29 U.S.C. § 1002(21)(A)(i).2

2. The full definition of “fiduciary” provided in ERISA is as follows:
    [A] person is a fiduciary with respect to a plan to the extent (i) he
    exercises any discretionary authority or discretionary control
    respecting management of such plan or exercises any authority or
    control respecting management or disposition of its assets, (ii) he
    renders investment advice for a fee . . . or has any authority or
    responsibility to do so, or (iii) he has any discretionary authority or
    discretionary responsibility in the administration of such plan.
                                     20


The Supreme Court has observed that ERISA “defines
‘fiduciary’ not in terms of formal trusteeship, but in
functional terms of control and authority over the plan,
thus expanding the universe of persons subject to fiduciary
duties. . . .” Mertens v. Hewitt Assocs., 508 U.S. 248, 262
(1993) (emphasis supplied) (citations omitted); see also
Acosta v. Pacific Enterprises, 950 F.2d 611, 618 (9th Cir.
1991) (holding that it is a “person’s actions, not the official
designation of his role, [which] determine whether he enjoys
fiduciary status.”)
  The majority finds that Frankford exercised “undirected
control” (if not actual authority) over the Srein Plan assets
when it (1) deposited proceeds from the Madsen policy in
the Richards Plan; and (2) failed to develop an effective
record-keeping system for viatical investments. Based on
these findings the majority concludes that Frankford
functioned as a fiduciary.
   My disagreement on this point stems from my slightly
different interpretation of the second clause of subsection (i)
of 29 U.S.C. § 1002(21)(A). This clause confers fiduciary
status on those who exercise “any authority or control
respecting management or disposition of [plan] assets.” I
am aware that this clause, unlike the first, does not require
an exercise of discretion. See Wettlin, 237 F.3d at 272-73.
However, I think that the meaning of the determinative
words used requires a greater degree of responsibility than
was exercised by Frankford.3 In order to conclude that

3. As was set forth above, 29 U.S.C. § 1002(21)(A)(i) confers fiduciary
status on those who exercise “any discretionary authority or
discretionary control respecting management of such plan or exercises
any authority or control respecting management or disposition of its
assets.” The relevant definition of “exercise” as a verb (as it is used in the
second clause of subsection (i)) is “to put into action, practice, or use . . .
to discharge; perform.” Webster’s Unabridged Dictionary 677 (2d ed.
1998). The relevant definition of “authority” is “the power to determine,
adjudicate, or otherwise settle issues or disputes; jurisdiction; the right
to control, command, or determine, [or] . . . a power or right delegated
or given.” Id. at 139. The relevant definition of “control” as a noun is “the
act or power of controlling; regulation; domination or command.” Id. at
442. “Controlling” is defined as “exercis[ing] restraint or direction over.”
Id. “Management” is defined as “the act or manner of managing;
                                     21


Frankford acted as a fiduciary under the second clause of
subsection (i), there must be sufficient evidence that
Frankford used its power to direct or command the
handling or placement of either the Madsen policy
participation agreement or money in the Srein Plan
account.
  The majority finds sufficient the evidence that Frankford
deposited proceeds from the Madsen policy in the Richards
Plan account. I disagree that this evidence is sufficient to
confer fiduciary status. The Srein Plan owned a 100%
interest in the Madsen Policy and the Richards Plan owned
a 28% interest in the same policy. After Mr. Madsen died,
Frankford received proceeds from Findco on the Madsen
policy. Frankford deposited those proceeds in the Richards
Plan account. It did so because Findco designated them as
payable to that Plan. If Frankford had deposited proceeds
designated for the Srein Plan into the Richards Plan
account, that would be an example of control over Srein
Plan assets. But that is not what happened here. Srein
even testified that Frankford never directed money out of
the Srein Plan’s account without his consent.
   The majority finds that Frankford’s action in depositing
the Madsen policy proceeds in the Richards Plan account is
similar to the bank’s action in Smith v. Provident Bank, 170
F.3d 609 (6th Cir. 1999), which was sufficient to establish
fiduciary status. I disagree. In Smith, the bank corrected its
own accounting mistake by removing shares from one
account and moving them to another account on its own
initiative, thus demonstrating control over assets. 170 F.3d
at 612. Here, however, Frankford did not remove the
Madsen Policy from the Srein Plan and move it into the
Richards Plan. Frankford simply invested the Srein and
Richards Plans’ funds as directed by those Plans’
administrators and later deposited the Madsen policy

handling, direction, or control.” Id. at 1166. “Disposition” is defined as
“arrangement or placing . . . [or] final settlement of a matter.” Id. at 568.
Finally, “assets” are defined as “items of ownership convertible into cash;
total resources of a person or business, as cash, notes and accounts
receivable, securities, . . .” Id. at 125.
                               22


proceeds into the Richards Plan account upon receiving
them from Findco. It may well be that Frankford’s failure to
notice that both the Srein and Richards Plans owned an
interest in the Madsen policy was negligent, but it does not
demonstrate that Frankford exercised any control over
Srein Plan assets.
   The majority also finds that Frankford exercised
“undirected control” on the basis that it failed to develop an
effective record-keeping system for viatical investments.
Again, I disagree. The majority’s holding indicates that
Frankford’s failure to act has somehow risen to the level of
an exercise of authority or control. The bank’s failure to
act, at most, could be characterized as an omission
amounting to negligence, but I fail to see how it is an
exercise of authority or control. In any event, even if
Frankford had established a record-keeping system for
viatical investments, that action would not be an exercise of
“undirected control” over the management or disposition of
Srein Plan assets. See e.g. Beddall, 137 F.3d at 21 (“A
financial institution cannot be deemed to have volunteered
itself as a fiduciary simply because it undertakes reporting
responsibilities that exceed its official mandate.”); Arizona
State Carpenters Pension Trust Fund, 125 F.3d at 722
(“Preparing reports of account activities and determining
whether to use a particular format to inform the Trustees
of delinquencies do not amount to an assumption of control
or authority over the Trust Funds . . . .”). Therefore, the
failure to establish a record-keeping system is not evidence
of an exercise of authority or control either.
  I, therefore, dissent.

A True Copy:
        Teste:

                    Clerk of the United States Court of Appeals
                                for the Third Circuit
