                                                                                                                           Opinions of the United
1997 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


2-14-1997

Ream v. Frey
Precedential or Non-Precedential:

Docket 96-1339




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                   UNITED STATES COURT OF APPEALS
                       FOR THE THIRD CIRCUIT


                            No. 96-1339


                            JEFFREY REAM

                                 v.

                   JEFFREY E. FREY; FULTON BANK;
                           LAURIE L. FREY

                            Fulton Bank,


         Appellant


         On Appeal from the United States District Court
            for the Eastern District of Pennsylvania
                     (D.C. Civ. No. 95-01827)


                      Argued January 13, 1997

         BEFORE:    SLOVITER, Chief Judge, and GREENBERG
                    and SCIRICA, Circuit Judges

                     (Filed: February 14, l997)


                                 Gerald S. Berkowitz (argued)
                                 625 B. Swedesford Road
                                 Swedesford Corporate Center
                                 Malvern, PA 19355

                                      Attorney for Appellee

                                 Michael A. Moore (argued)
                                 Barley, Snyder, Senft & Cohen
                                 126 East King Street
                                 Lancaster, PA 17602

                                      Attorneys for Appellant


                        OPINION OF THE COURT


GREENBERG, Circuit Judge.




                                 1
          Fulton Bank (the “Bank”) appeals from a grant of

summary judgment by the district court in favor of appellee

Jeffrey Ream on April 1, 1996.    Ream brought suit against the

Bank alleging that it breached its fiduciary duty by resigning as

plan trustee and transferring to Jeffrey Frey, the plan

administrator and the principal in Ream's employer, the assets of

an Employee Retirement Income Security Act of 1974 ("ERISA")

pension fund plan which Frey subsequently converted and used for

his own purposes.   This appeal raises questions concerning the

scope of the fiduciary duties of a plan trustee under ERISA when

the trustee is resigning.    We have jurisdiction pursuant to 28

U.S.C. § 1291 as this appeal is from a final order of the United

States District Court for the Eastern District of Pennsylvania.

This case arises under ERISA, and thus the district court had

subject matter jurisdiction pursuant to 28 U.S.C. § 1331 and

ERISA § 502(e)(1) and (f), 29 U.S.C. § 1132(e)(1) and (f).



                I. FACTUAL AND PROCEDURAL HISTORY

          The material facts are not in dispute.     See

Supplemental Appendix, Stipulation of Uncontested Facts

(“Stipulated Facts”).    Ream was an employee of JLC Construction

Co., Inc. (“Company”).    Stipulated Fact ¶ 3.   Effective January

1, 1989, the Company established the JLC Construction Company

Profit Sharing 401(k) Plan (the “plan”) under 26 U.S.C. § 401 et

seq.   The Company first established the plan pursuant to written

plan documents consisting of a Standardized Adoption Agreement




                                 2
and Basic Plan Document.1    Stipulated Fact ¶ 4.   Ream was a

participant in the plan with a 100% vested account.       Stipulated

Fact ¶ 3.    Fulton Bank, the designated plan trustee, deposited

all of the plan's funds in a trust account it maintained at the

Bank.

            In addition to designating Fulton Bank as plan trustee,

the Basic Plan Document designated the Company as the plan

administrator, and the Adoption Agreement designated Frey, the

sole shareholder of the Company, as the plan administrator on

behalf of the Company.    App. at 62-63.   The Plan Document also

specified the responsibilities of the administrator and the

trustee.    The administrator had the duties of establishing a

funding policy consistent with ERISA, determining and making

contributions to the plan, communicating with plan beneficiaries

and participants, and complying with ERISA and other governmental

reporting requirements.     Basic Plan Document § 11.1.   The

trustee's duties were limited to receiving contributions,

investing the contributions once received, and making

distributions in accordance with instructions from the Company.

Basic Plan Document § 11.2.     However, the Basic Plan Document

placed the responsibility solely on the Company to collect and

remit the contributions to the trustee.     Basic Plan Document §

3.3.    Further, the plan specifically allocated to the Company, as




1.     Fulton Bank, which also serves as plan trustee for other
pension plans and charges a fee for its services, provided all
plan documents to the Company. Stipulated Fact ¶ 7.




                                  3
the plan administrator, all other administrative duties required

by either applicable law or by the plan.

          The Plan Document specifically limited the liability of

the trustee.   Section 11.4 of the Plan Document, entitled

“Division of Duties and Indemnification,” exempted the trustee

from any guarantee “against investment loss or depreciation in

asset value, or [from any] guarantee [about] the adequacy of the

Fund to meet and discharge all or any liabilities of the Plan.”

However, the trustee could be liable for its actions “to the

extent it is judicially determined that the Trustee/Custodian has

failed to exercise the care, skill, prudence and diligence under

the circumstances then prevailing that a prudent person acting in

a like capacity and familiar with such matters would use in the

conduct of an enterprise of a like character with like aims.”

Furthermore, Section 11.4 stated that “[t]he duties and

obligations of the Trustee/Custodian shall be limited to those

expressly imposed upon it by this instrument or subsequently

agreed upon by the parties.   Responsibility for administrative

duties required under the Plan or applicable law not expressly

imposed upon or agreed to by the Trustee/Custodian, shall rest

solely with the Employer.”

          During Fulton Bank's tenure as trustee, the Company

sometimes would delay its remittance of employer contributions

for several months.   Fulton Bank then would call or write to the

Company to expedite remittance of the contributions.   The Company

caused the Bank additional difficulties because it was

uncooperative in providing the Bank with information regarding



                                4
the plan's administration.   Stipulated Fact ¶ 17.    By the spring

of 1993, the Company had failed to provide Fulton Bank with

employer matching contributions for 1992 and 1993.     The Bank sent

the Company letters “admonishing” it to pay over the monies and

warning that it would resign as trustee if salary deferral

remittances continued to be delinquent.     Finally, the Bank

forwarded a letter to Frey stating that it was resigning as

trustee pursuant to its prior correspondence and pursuant to

Article 15.6 of the Basic Plan Document.    See app. at 284,

Exhibit 6, app. at 286, Exhibit 7.     Article 15.6 provides that

the trustee may resign by written notice to the Company followed

by delivery of the fund assets to the Company's chosen successor

trustee.   If the Company failed to appoint a successor, the Bank

could deliver the assets to the Company which then would be

deemed the successor trustee.

           The Bank then attempted to contact the Company to

persuade it to appoint a successor trustee for the plan assets,

but Frey never responded to the Bank's repeated requests for an

appointment.   Stipulated Fact ¶ 23.    Thus, a successor trustee

never was appointed.   Ultimately, the Bank sent a letter to Frey

stating that unless Frey notified Fulton Bank of the successor

within 15 days, the Bank would issue a check to Frey and

designate him as the successor trustee in accordance with the

plan.   App. at 291.   Frey did not respond, and Fulton Bank sent

him a letter on October 5, 1993, informing him of the status of

the plan and forwarding the plan assets consisting of a check in

the amount of $53,008.15 and three promissory notes.     App. at



                                 5
293.    The Bank appointed Frey as the successor trustee of the

plan.    The check was payable to “Jeffrey Frey, successor Trustee

for the JLC Construction Co., Inc. Profit Sharing 401(k) plan.”

The check was endorsed “Jeffrey Frey” and honored by the Bank.

Frey subsequently converted all of the assets of the plan to his

own use.

            Ream's account balance in the plan at the end of 1992

was $13,829.92, and he continued to make weekly contributions to

the plan through 1993 totaling $1,180.80.     As we indicated, the

Bank sent Frey a check for $53,008.15, an amount exceeding Ream's

balance.    At oral argument counsel advised us that there were ten

to fifteen of other beneficiaries to the plan, but except for

Ream no beneficiary has brought any action against the Bank.

            On November 3, 1994, the Company filed for bankruptcy

under Chapter 7 of the Bankruptcy Code in the Eastern District of

Pennsylvania and shortly thereafter Ream demanded payment of his

plan assets from Frey.    Until this time, Ream was not aware that

Fulton Bank had transferred the plan assets to Frey, and neither

the Bank nor the Company ever had notified Ream of the delays in

payments to the plan, of Fulton Bank's intention to resign, or of

Fulton Bank's final resignation.     Ream's wife contacted Fulton

Bank after the Company filed for bankruptcy.     In response to her

inquiry as to why the trustee had not notified the plan

beneficiaries as to what had happened, the Bank responded that

“while we are not having cooperation from the Company, that did

not mean bad things were happening . . . .”     App. at 347.




                                 6
            By letter dated January 4, 1995, Frey acknowledged that

he owed Ream $16,206.00 pursuant to the plan and proposed paying

that money in installments.    App. at 346; Stipulated Fact ¶ 34.

Though Ream initially rejected this offer, instead instituting

suit against both Frey and the Bank for breach of fiduciary duty,

Ream later agreed to settle with Frey for $21,556.93.    However,

Frey paid only $18,556.93 to Ream before disappearing.    It

appears that the settlement figure exceeded the amount due Ream

under the plan because Frey owed him additional money on other

items.   App. at 306.

            This appeal concerns the $3,000.00 which Frey did not

pay to Ream plus interest owed to Ream as well as the substantial

attorney's fees that Ream has incurred.    Frey has been dismissed

from the suit as he is no longer within the jurisdiction and the

parties do not know his whereabouts.    Stipulated Fact ¶ 36.

            On cross-motions for summary judgment, the district

court held that Ream could recover damages on his own behalf for

a breach of fiduciary duty under ERISA, that Fulton Bank violated

its fiduciary duty by not acting as a prudent person when it

forwarded the plan assets to Frey who had a history of failing in

his fiduciary duties to the plan, and that Fulton Bank was liable

for Frey's subsequent breach of fiduciary duties because its own

failure to comply with the required standard of care enabled

Frey, a co-fiduciary, to convert the assets of the plan for his

own use.2   The court, however, dismissed Ream's common law tort

2. We need not reach the question of whether Fulton Bank is
liable as a co-fiduciary under ERISA § 405(a), 29 U.S.C. §
1105(a), inasmuch as we will affirm the district court judgment



                                 7
claims as preempted by ERISA - a holding he does not dispute on

this appeal.   Although it had reserved the issue of damages for

trial, based on the parties' stipulated agreement the court

entered a judgment against the Bank on April 15, 1996, in the

amount of $3,200.00 and awarded Ream $18,000.00 in attorney's

fees and costs.3   Fulton Bank then appealed.   We are undertaking

a plenary review of the district court's decision.



                           II. DISCUSSION

          A “person is a fiduciary with respect to a plan,” and

therefore subject to ERISA fiduciary duties, “to the extent” that

“he exercises any discretionary authority or discretionary

control respecting management” of the plan, or “has any

discretionary authority or discretionary responsibility in the

administration” of the plan.   ERISA § 3(21)(A), 29 U.S.C. §

1002(21)(A).   Fulton Bank was the trustee of the plan.   As

described in the Plan Document, “the Trustee/Custodian shall have

the authority and discretion to manage and govern the Fund to the

extent provided in this instrument.”   App. at 250.   Clearly, this

provision evidences an express allocation of discretionary

authority to Fulton Bank as trustee.   Further, the Plan Document


on the basis that the Bank violated its fiduciary duties as
trustee and the damages are the same whether the Bank is found
liable as trustee or as co-fiduciary.

3.     We note that Frey paid Ream all but $3,000.00 of the
settlement but Ream and the Bank stipulated his damages at
$3,200.00. We cannot explain this discrepancy. The Bank does
not challenge the amount of the attorney's fees and costs the
court awarded.




                                 8
holds the trustee liable only to the extent that “it is

judicially determined that the Trustee/Custodian has failed to

exercise the care, skill, prudence and diligence under the

circumstances then prevailing that a prudent person acting in a

like capacity and familiar with such matters would use in the

conduct of an enterprise of a like character with like aims."

Id.   These words are the very ones used in ERISA to describe

fiduciary duties.   ERISA § 404(a)(1)(B), 29 U.S.C. §

1104(a)(1)(B).   There is thus no question but that under the

plan, Fulton Bank was intended to be and was a fiduciary with all

of its corresponding duties and responsibilities and, indeed, it

does not contend otherwise.



             a. Recovery as an Individual Beneficiary

           Fulton Bank argues that the Supreme Court in

Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 139,

105 S.Ct. 3085, 3089 (1985), an action under ERISA § 502(a)(2),

29 U.S.C. § 1132(a)(2), precluded an ERISA beneficiary from

recovering damages on his own behalf from an ERISA fiduciary for

breaches of fiduciary duty.   Thus, the Bank contends "that

remedies for an alleged breach of fiduciary duty under ERISA must

enure to the benefit of the entire [p]lan or to all plan

participants."   Br. at 19.   Accordingly, in its view Ream cannot

maintain this action as he is seeking relief for himself.     In a

sense, of course, this may be a strange argument for the Bank to

make.   Ream unquestionably does have standing to bring an action

on behalf of the plan, and it is entirely possible that such an



                                 9
action would have resulted in a greater judgment against the Bank

than the judgment Ream recovered as the Bank sent Frey all of the

plan's assets, not just those reflecting Ream's interest.    ERISA

§ 502(a)(2).

          In any event, as Ream points out, the Supreme Court in

Varity Corp. v. Howe, 116 S.Ct. 1065 (1996), held that in some

circumstances beneficiaries could make personal recoveries from

an ERISA fiduciary for breach of fiduciary obligations.     In

Varity, the Court agreed with our decision in Bixler v. Central

Pennsylvania Teamsters Health and Welfare Fund, 12 F.3d 1292 (3d

Cir. 1993), that ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3),

authorizes lawsuits for individualized equitable relief for

breach of fiduciary obligations.4   As the Court explained in

Varity, “one can read § 409 [29 U.S.C. § 1109] [which establishes

liability for breach of fiduciary duty] as reflecting a special

congressional concern about plan asset management without also

finding that Congress intended that section to contain the

exclusive set of remedies for every kind of fiduciary breach.”


4.      In Bixler v. Central Pennsylvania Teamsters Health-
Welfare Fund, 12 F.3d at 1298, we upheld the right of an
individual beneficiary to recover from a fiduciary, pointing to
the narrowness of the Supreme Court's holding in Russell, 473
U.S. 134, 105 S.Ct. 3085. We stressed ERISA's grounding in the
law of trusts, and reiterated that “fundamental in the law of
trusts is the principle that ‘courts will give to beneficiaries
of a trust the remedies necessary for the protection of their
interests.’” 12 F.3d at 1299 (quoting Russell, 473 U.S. at 157,
105 S.Ct. at 3098) (concurring opinion)). In permitting a
beneficiary to bring a direct action for breach of fiduciary duty
against the trustees and administrators of an ERISA plan, we
concluded that “[a]llowing an injured beneficiary recourse
through the courts is, furthermore, essential to fulfilling the
purpose of ERISA.” Bixler, 12 F.3d at 1299.




                               10
Varity, 116 S.Ct. at 1077.   The Court found this reading

“consistent with [ERISA] § 502's overall structure” which

provides two “catchalls” which “act as a safety net, offering

appropriate equitable relief for injuries caused by violations

that § 502 does not elsewhere adequately remedy.”    Id. at 1077-

78.   The Supreme Court did caution, however, that in fashioning

“appropriate” equitable relief, courts should “keep in mind the

special nature and purpose of employee benefit plans, and . . .

respect the policy choices reflected in the inclusion of certain

remedies and the exclusion of others.” Id. at 1079 (citations and

internal quotation marks omitted).    Where Congress otherwise has

provided for appropriate relief for the injury suffered by a

beneficiary, further equitable relief ought not be provided.

           The Court in Varity distinguished Russell, explaining

that Russell was confined to suits under ERISA § 502(a)(2) and

did not limit the relief available under ERISA § 502(a)(3) which

permits “appropriate equitable relief” to “redress any act or

practice which violates any provision of this title.”    Varity,

116 S.Ct. at 1076 (internal quotation marks omitted).   Ream, like

the plaintiffs in Varity, has no alternative means of recovering

for his losses.   In Varity, the plaintiffs were no longer members

of the plan and therefore had no “benefits due [them] under the

terms of [the] plan."    Varity, 116 S.Ct. at 1079; see also ERISA

§ 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B).    Nor could they

proceed under ERISA § 502(a)(2) because that provision does not

allow for individual recovery.   See Russell, 473 U.S. at 144, 105

S.Ct. at 3091.    Thus, to recover the plaintiffs in Varity had to



                                 11
rely on ERISA § 502(a)(3) which provides for “other appropriate

equitable relief,” a reliance the Court found justified as there

was no ERISA-related purpose for denying a remedy.

          Ream is in a position similar to that of the plaintiffs

in Varity and he, too, should have a remedy under ERISA §

502(a)(3).   He suffered a direct, clearly defined personal loss

from the Bank's conduct.   Furthermore, this is not a case in

which an individual plan beneficiary charges a fiduciary with a

breach of fiduciary duties with respect to a functioning plan.

In that situation it might be inappropriate to permit a

beneficiary to seek personal relief as a recovery by the plan

effectively would make the beneficiary whole.   We emphasize,

therefore, that a court must apply ERISA § 502(a)(3)(B)

cautiously when an individual plan beneficiary seeks "appropriate

equitable relief."5   Such caution would be consistent with the

concerns the Supreme Court expressed in Varity about a court

being too expansive in granting relief.   Varity, 116 S.Ct. at

1079.




5.     “Appropriate equitable relief” generally is limited to
traditional equitable relief such as restitution and injunctions
rather than money damages. Hein v. FDIC, 88 F.3d 210, 223-24 &
n.11 (3d Cir. 1996). However, ERISA § 502(a)(3) does not
“necessarily bar all forms of money damages.” Id. at 224, n.11.
 Here, though the district court seemed to treat Ream's complaint
as one seeking money damages, Ream sought only to recover his
vested interest in the plan which largely reflected his own
contributions. See app. at 298. This relief, regardless of the
language in the complaint, easily may be characterized as
restitution and the Bank does not contend otherwise. See Howe v.
Varity Corp., 36 F.3d 746, 756 (8th Cir. 1994), aff’d, 116 S.Ct.
1065 (1996).




                                 12
          The legislative history of ERISA supports our view that

the personal recovery Ream obtained constituted “appropriate

equitable relief.”
     [ERISA] imposes strict fiduciary obligations on those
     who have discretion or responsibility respecting the
     management, handling or disposition of pension or
     welfare plan assets. The objectives of these
     provisions are to make applicable the law of trusts; to
     prohibit exculpatory clauses that have often been used
     in this field; to establish uniform fiduciary standards
     to prevent transactions which dissipate or endanger
     plan assets; and to provide effective remedies for
     breaches of trust.


120 Cong. Rec. 15737 (1974) (Comments of Sen. Williams when

introducing the Conference Report), reprinted in (1974)

U.S.C.C.A.N. 5177, 5186.    This excerpt evidences Congress'

intention to impose on ERISA fiduciaries a strict code of conduct

to protect adequately pension and welfare plan assets.    Allowing

an ERISA trustee to escape liability after disregarding the

interests of plan beneficiaries would undermine Congress' intent.

 Thus, this case falls squarely within the category of cases the

Supreme Court envisioned as necessitating a broad reading of

ERISA § 502(a)(3).    The district court was correct in allowing

Ream, an ERISA beneficiary, to bring an action seeking individual

relief under ERISA § 502(a)(3) against Fulton Bank, an ERISA

fiduciary, for breach of its fiduciary duties.



                     b. Breach of Fiduciary Duties

          The district court was also correct in finding that in

the circumstances of this case Fulton Bank breached its fiduciary

duties.   Ream claims that the Bank breached these duties in three




                                  13
distinct ways:    (1) by transferring the plan funds to Frey with

knowledge that: (a) the Company was failing; (b) the Company had

failed to make contributions for the two prior years; and (c)

Frey was neglecting his duties as plan administrator by failing

to communicate with the Bank or even to respond to its

correspondence; (2) by resigning as trustee without notifying the

beneficiaries that the Company was severely delinquent in making

employer contributions; and (3) by failing to notify the

beneficiaries that it had resigned as trustee and forwarded the

plan assets to Frey.   The district court held that Fulton Bank

breached its fiduciary duties because, aware that Frey was

failing in his fiduciary duties, it nevertheless sent the plan

assets to him.    In support of its finding, the district court

pointed to Frey's lack of cooperation in providing the Bank with

information necessary for the administration of the plan, to the

Company's consistent tardiness in paying and failure to pay both

employee and employer contributions, and to Frey's failure to

respond to the Bank's repeated attempts to have Frey appoint a

successor trustee and to remit loan payments.

          As a fiduciary, Fulton Bank had the duty to perform its

functions solely in the interest of the beneficiaries of the plan

and “with the care, skill, prudence, and diligence under the

circumstances then prevailing that a prudent man acting in a like

capacity and familiar with such matters would use in the conduct

of an enterprise of a like character and with like aims.”    ERISA

§ 404(a)(1)(B).    A fiduciary's duties under ERISA are based both

on ERISA, particularly the prudent person standard as set forth



                                 14
in ERISA § 404, 29 U.S.C. § 1104, and on the common law of

trusts.   “Congress intended by § 404(a) to incorporate the

fiduciary standards of trust law into ERISA, and it is black-

letter trust law that fiduciaries owe strict duties running

directly to beneficiaries in the administration and payment of

trust benefits.”     Bixler, 12 F.3d at 1299 (quoting Russell, 473

U.S. at 152-53, 105 S.Ct. at 3095-96) (concurring opinion)).

          The law of trusts, however, serves as no more than a

guide for interpreting ERISA's provisions.    “In some instances,

trust law will offer only a starting point, after which courts

must go on to ask whether, or to what extent, the language of the

statute, its structure, or its purpose require departing from

common-law trust requirements.”    Varity, 116 S.Ct. at 1070.   This

process is necessary because ERISA's standards and procedural

protections partly reflect a congressional determination “that

the common law of trusts did not offer completely satisfactory

protection.”   Id.   Congress passed ERISA, in part, to address the

problem of exculpatory clauses in trust documents.    See 120 Cong.

Rec. 15737 (1974) (Comments of Sen. Williams when introducing the

Conference Report), reprinted in (1974) U.S.C.C.A.N. 5177, 5186.

 Nevertheless, we have stated clearly that an ERISA fiduciary's

duties do include the common law duties of trustees:
     Acknowledging, as we do today, that ERISA's fiduciary
     duty section incorporates the common law of trusts, the
     appellate court found the duty to disclose material
     information 'is the core of a fiduciary's
     responsibility.' [Eddy v. Colonial Life Ins. Co., 919
     F.2d 747, 750 (D.C. Cir. 1990)]. As set forth in the
     Restatement (Second) of Trusts, '[The Trustee] is under
     a duty to communicate to the beneficiary material facts
     affecting the interest of the beneficiary which he
     knows the beneficiary does not know and which the



                                  15
     beneficiary needs to know for his protection in dealing
     with a third person.' Restatement (Second) of Trusts
     Section 173, comment d (1959). This duty to inform is
     a constant thread in the relationship between
     beneficiary and trustee; it entails not only a negative
     duty not to misinform, but also an affirmative duty to
     inform when the trustee knows that silence might be
     harmful.


Bixler, 12 F.3d at 1300.6

            Under traditional trust law, a trustee is permitted to

resign in accordance with the terms of the trust, with the

consent of the beneficiaries, or with a court's permission.      See

Glaziers and Glassworkers Union Local No. 252 Annuity Fund v.

Newbridge Secs., Inc., 93 F.3d 1171, 1183-84 (3d Cir. 1996);

Restatement of the Law (Second) Trusts § 106.   Most of the

relevant case law, which involves trustees failing to comply with

these requirements, suggests that a trustee may be liable for a

breach of fiduciary duty for resigning without providing for a

“suitable and trustworthy replacement.”   Friend v. Sanwa Bank

California, 35 F.3d 466, 471 (9th Cir. 1994) (concurring

opinion).   See Glaziers, 93 F.3d at 1183 ("Courts that have

considered the issue have held that an ERISA fiduciary's

obligations to a plan are extinguished only when adequate

provision has been made for the continued prudent management of

plan assets.").




6.     But we emphasize that the Supreme Court has recognized
that trust law does not control completely in the ERISA setting.
 Varity, 116 S.Ct. at 1070. Consequently, the Court has
indicated that courts must create federal common law to flesh out
the meaning of ERISA and effectuate fully its meaning and
purpose.




                                 16
          Here, there was no provision in the plan requiring the

trustee to notify plan participants of the Company's failure to

make contributions or of the trustee's intention to resign.     But

allowing a fiduciary to resign without notice to the plan

beneficiaries in a situation in which the fiduciary has

information indicating that the beneficiaries may need protection

because of the change of trustee would undermine the goals of

ERISA.   Thus, even if Fulton Bank's resignation complied with the

terms of the plan, it would be overly formalistic (and contrary

to the explicit statutory directives in ERISA) to hold that the

Bank's resignation in the circumstances here necessarily was

acceptable behavior for a fiduciary.

          Thus, Ream is correct in asserting that:     “[a]

fiduciary must satisfy ERISA's fiduciary standard of care, in

addition to whatever contractual duties may be set forth in the

plan documentation.”   Br. at 20.    The Supreme Court has

recognized expressly this broad duty of an ERISA fiduciary:
     There is more to plan (or trust) administration than
     simply complying with the specific duties imposed by
     the plan documents or statutory regime; it also
     includes the activities that are 'ordinary and natural
     means' of achieving the 'objective' of the plan.
     [Citation omitted.] Indeed, the primary function of
     the fiduciary duty is to constrain the exercise of
     discretionary powers which are controlled by no other
     specific duty imposed by the trust instrument or the
     legal regime. If the fiduciary duty applied to nothing
     more than activities already controlled by other legal
     duties, it would serve no purpose.


Varity, 116 S.Ct. at 1073-74.

          We need not decide today whether Fulton Bank could be

liable merely because it did not notify the beneficiaries of the




                                17
plan that the Company was delinquent in failing to make

contributions.   The issue of whether the Bank could be liable for

that omission in itself is not before us as there are other,

distinct factors supporting the district court's judgment holding

the Bank liable.   Furthermore, Ream's loss is not attributable to

the Company's failure to make contributions.   Moreover, we

recognize that it might be unreasonably burdensome on a trustee

to give notification to a large number of beneficiaries of every

apparent shortcoming of an employer.   We also realize that, while

we have held that in some circumstances a fiduciary can be liable

for failing to notify beneficiaries that an employer is not

making required contributions to a plan, Rosen v. Hotel and

Restaurant Employees and Bartenders Union, 637 F.2d 592, 600 (3d

Cir. 1981), a rule requiring in all cases that a fiduciary notify

the beneficiaries when an employer is delinquent in contributions

seems to be inappropriate.   After all, the delinquency might be

nothing more than a quickly remedied clerical oversight.      As we

pointed out with respect to an analogous situation in Glaziers:
          We do not, of course, hold that one who may
          have attained a fiduciary status thereby has
          an obligation to disclose all details of its
          personnel decisions that may somehow impact
          upon the course of dealings with a
          beneficiary/client. Rather, a fiduciary has
          a legal duty to disclose to the beneficiary
          only those material facts known to the
          fiduciary but unknown to the beneficiary,
          which the beneficiary must know for its own
          protection.

Glaziers, 93 F.3d at 1182.


          Glaziers, though clearly distinguishable on the facts,

nevertheless has a certain similarity to this case and is useful



                                18
as a precedent to us.    In Glaziers an employee of a brokerage

firm left the firm in circumstances of which the firm was aware

and which suggested that he was dishonest.     Prior to leaving the

firm's employ, the employee acted as the firm's representative to

the plaintiff employee benefits funds.     When the employee left

the firm's employ, the firm assigned a new executive to the

plaintiffs' accounts but did not inform the plaintiffs of the

circumstances surrounding the employee's departure.

Subsequently, at the plaintiffs' request, the firm transferred

the plaintiffs' funds through an intermediary to a new firm that

the departed employee had established, again without advising the

plaintiffs of the negative information regarding its former

employee.    The employee then wasted and stole the plaintiffs'

assets.   The plaintiffs sued the brokerage firm alleging, inter

alia, breach of fiduciary duty under ERISA.     The district court

granted summary judgment to the brokerage firm holding that if it

was a fiduciary it was only with respect to investment advice.

Thus the court concluded that the firm could not be liable as its

breaches of duty were unrelated to investment advice.

            We reversed and remanded the case for the district

court to determine whether, in fact, the brokerage firm was a

fiduciary.    In our opinion we discussed the scope of fiduciary

duties.     We pointed out that "[u]nder the common law of trusts, a

fiduciary has a fundamental duty to furnish information to a

beneficiary."    Id. at 1180.   We criticized the brokerage firm

because it "sat silently by knowing that the [plaintiffs] were

placing their assets under" the departed employee's control.       Id.



                                  19
at 1181.    We cited with approval Restatement (Second) of Trusts §

173, comment (d) (1959), that a fiduciary can have an affirmative

obligation to disclose material facts to a beneficiary which the

beneficiary does not know but needs to know for his protection in

dealing with a third person.    Id. at 1181.   We summed up by

holding that if on the remand the fact-finder determined that the

firm was an ERISA fiduciary it "had a duty to disclose to the

[plaintiffs] any material information which it knew, and which

the [plaintiffs] did not know, but needed to know for [their]

protection."    Id. at 1182.   See also Barker v. American Mobile

Power Corp., 64 F.3d 1397, 1403 (9th Cir. 1995).

            Here, Fulton Bank made no effort to ensure the

continued viability of the plan after its resignation.       The Bank

knew that the Company was having financial difficulties and that

it owed significant monies to the plan.    In a file memorandum

dated May 6, 1992, Geoffrey Platt, the Bank's Employee Benefit

Administrator, noted that the Company's controller told him that

the Company was "currently experiencing a severe cash flow

problem."    Platt also pointed out that Frey was late making his

own loan payments.    Thus, Platt recommended that the Bank discuss

resigning because of the Company's delay in remitting

contributions and its “prior history of slow remittance, and an

obvious cash flow problem.”    App. at 283.

            This knowledge of the Company's problems in conjunction

with Frey's failure to respond to the Bank's numerous attempts to

communicate about the future administration of the plan should

have led the Bank as a reasonably prudent trustee to recognize



                                  20
that turning over the assets to Frey posed a real threat to the

plan assets.     While the Bank suggests in its brief that it would

have had to have been clairvoyant to anticipate that Frey would

convert the funds, we think that ordinary common sense should

have warned it of this possibility.    Indeed, we cannot help but

wonder whether, when it turned over the plan's assets to Frey,

the Bank would have entrusted him with its own money.

          Overall, we think it is clear that the Bank failed to

act prudently in sending the plan assets to Frey and neglecting

to inform plan beneficiaries of the circumstances -- even when

the wife of one beneficiary called and asked specifically about

the situation.    While we do not hold that the Bank was required

to remain as plan trustee, we do hold that it could not appoint

Frey as the successor trustee and turn over the assets to him, at

least without giving the plan beneficiaries reasonable advance

notice that it intended to take these steps and advising the

beneficiaries of why it was resigning.    If it had given that

notice, the beneficiaries would have had the opportunity to take

steps to protect the plan assets.

          While the parties cannot rerun the course, and it is

impossible to know exactly what steps the beneficiaries could or

would have taken on the basis of that information, at a minimum

they would have been able to attempt to negotiate with Frey for

installation of a procedure to secure the funds.    Failing that,

we believe that they could have sought equitable relief under

ERISA § 502(a)(3)(B) on behalf of the plan to the same end.

Furthermore, we think it likely that a court would have



                                  21
recognized that placing the fund assets in Frey's hands would

have posed a threat to the interests of the beneficiaries and

thus have granted relief.   In sum, therefore, we conclude that

the Bank's breach of fiduciary duties led to Ream's loss and that

the district court thus properly granted Ream summary judgment.

Consequently, we will affirm its summary judgment.

           We caution, however, that our opinion is limited in

scope.   Certainly, a trustee may resign in accordance with the

terms of a plan.   Moreover, we do not hold that a resigning

trustee always must investigate a successor trustee.     Thus, this

case probably would have been different if the Bank had turned

the plan assets over to a reputable financial institution and the

assets thereafter were converted.     We also recognize that we

might have reached a different result if the Bank had made a full

disclosure to the beneficiaries of the circumstances leading to

its resignation before it resigned and the beneficiaries did not

take steps to protect the plan assets.     Consequently, we

emphasize that we affirm the district court because of the

convergence of the circumstances in this case that led to Ream's

loss.



                         III.   CONCLUSION

           In view of the aforesaid, the order for summary

judgment of April 1, 1996, will be affirmed.7


7.     The parties have treated the appeal as if it included an
appeal from the damages judgment entered April 15, 1996. Thus,
we effectively are affirming that judgment.




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