In Re: Mushroom

• Court: Court of Appeals for the Third Circuit
• Decided: August 24, 2004
• Docket: 02-3754
• Status: Published

Opinion

Opinions of the United 2004 Decisions States Court of Appeals for the Third Circuit

8-24-2004

In Re: Mushroom Precedential or Non-Precedential: Precedential

Docket No. 02-3754

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2004

Recommended Citation "In Re: Mushroom " (2004). 2004 Decisions. Paper 357. http://digitalcommons.law.villanova.edu/thirdcircuit_2004/357

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova University School of Law Digital Repository. It has been accepted for inclusion in 2004 Decisions by an authorized administrator of Villanova University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu. PRECEDENTIAL JONATHAN H. GANZ; PINCUS VERLIN HAHN UNITED STATES & REICH, P.C.; COURT OF APPEALS PINCUS REICH HAHN FOR THE THIRD CIRCUIT DUBROFF & GANZ, P.C.; ____________ MODELL PINCUS HAHN & REICH, P.C.; No. 02-3754 PINCUS VERLIN BLUESTEIN ____________ HAHN & REICH, P.C.; ASTOR WEISS & NEWMAN; IN RE: RAWLE & HENDERSON; MUSHROOM TRANSPORTATION CONTINENTAL BANK; COMPANY, INC., ERWIN L. PINCUS; Debtor RICHARD L. HAHN; PACE REICH; JEROME J. VERLIN; JEOFFREY BURTCH; ANDREW F. NAPOLI; MUSHROOM TRANSPORTATION RONALD BLUESTEIN; CO., INC.; HERMAN P. WEINBERG; PENN YORK REALTY DAVID N. BRESSLER; COMPANY, INC.; ALLEN B. DUBROFF ROBBEY REALTY INC.; TRUX ENTERPRISES; Jeoffrey Burtch, Trustee in TEAMSTERS PENSION TRUST Bank ruptcy of M ushroom FUND OF PHILADELPHIA; Transportation Company, Inc., CHARLES J. SCHAFFER, JR.; successor to Robbey Realty, Inc., WILLIAM J. EINHORN; Penn York Realty Company, Inc., RAYMOND A. HUBER; and Trux Enterprises, Inc. and HUBERT C. DIETRICH; successor to Michael Arnold, ROBERT J. EWANCO; former trustee in bankruptcy, WILLIAM D. GROSS; Mushroom Tran sportation THOMAS R. JOHNSTON; Company, Inc., Robbey Realty, JOSEPH P. SANTONE; Inc., Penn York Realty Company, WILLIAM J. DILLNER, JR.; Inc., and Trux Enterprises, Inc., the JAMES H. HUTCHINSON, JR.; Teamsters Pension Trust Fund of JOHN P. O’CONNOR; Philadelphia and Vicinity, Charles ANTHONY R. SIMONES; J. Schaffer, Jr., in his official FREIGHT DRIVERS & HELPERS capacity as a fiduciary, by his LOCAL 557 PENSION FUND; successor in office, William J. DANIEL L. SANDY Einhorn, Raymond A. Huber, Herbert C. Dietrich, Robert J. v. Ewanco, William D. Gross, Thomas R. Johnston, Joseph P. Santone, William J. Dillner, Jr., Kent Cprek (Argued) James H. Hutchinson, Jr., John P. Jennings Sigmond O’Connor and Anthony R . 510 Walnut Street, 16 th Floor Simones, Trustees of the Western The Penn Mutual Towers Pen nsylvania, Teamsters and Philadelphia, PA 19106-3683 Employers Pension Fund or their Attorney for A ppella nts, successors, and Freight Drivers & Mushroom Transportation Co., Helpers Local 557 Pension Fund Inc.; Penn York Realty Co., Inc.; and Daniel L. Sandy, a fiduciary, or Robbey Realty, Inc.; Jeoffrey L. his successor and any other named Burtch; Trux Enterprises, Inc.; or deemed plaintiff, substituted Freight Drivers & Helpers Local plaintiff (by virtue of his office) or 557 Pension Fund; and Daniel L. other successor, Sandy

Appellants (Per Clerk’s Order of 2/4/03) Vincent P. Szeligo ____________ Wick, Streiff, Meyer, Metz & O’Boyle 1450 Two Chatham Center On Appeal from the Pittsburgh, PA 15219-3427 United States District Court for the Attorney for Appellants, William J. Eastern District of Pennsylvania Einhorn; Raymond A. Huber; (D.C. No. 99-cv-03144) Hubert C. Dietrich; Robert J. District Judge: Ewanco; William D. Gross; Honorable Eduardo C. Robreno Thomas R. Johnston; Joseph P. ____________ Santone; William J. Dillner, Jr.; James H. Hutchinson, Jr.; John P. Argued May 27, 2004 O’Connor; and Anthony R. Simoes

Before: SCIRICA, Chief Judge, FISHER and ALARCÓN,* Circuit Judges. Pace Reich (Argued) 726 Meetinghouse Road (Filed: August 24, 2004) Elkins Park, PA 19027 Attorney for Appellees, Pincus, Verlin, Hahn & Reich, P.C.; Pincus, Reich, Hahn, Dubroff & * Ganz, P.C.; Pincus, Verlin, The Honorable Arthur L. Alarcón, Bluestein, Hahn & Reich, P.C.; and Senior Judge, United States Court of Pace Reich Appeals for the Ninth Circuit, sitting by designation.

2 Andrew F. Napoli Ernest J. Bernabei, III (Argued) Hochberg, Napoli & Diamond Harvey, Pennington, Cabot, 1608 Walnut Street, 14 th Floor Griffith & Renneisen Philadelphia, PA 19103 1835 Market Street Attorney for Appellees, Pincus, Eleven Penn Center, 29th Floor Verlin, Hahn & Reich, P.C.; and Philadelphia, PA 19103 Andrew F. Napoli Attorney for Appellee, Herman P. Weinberg

Edward I. Swichar (Argued) Blank Rome Allen B. Dubroff One Logan Square Jaffe, Friedman, Schuman, Philadelphia, PA 19103 Nemeroff, Applebaum & McCaffery Attorney for Appellee, 7848 Old York Road, Suite 200 Continental Bank Elkins Park, PA 19027 Attorney for Appellee, Allen B. Dubroff Laura S. Clare Skadden, Arps, Slate, Meagher & Flom One Rodney Square ____________ P.O. Box 636 Wilmington, DE 19899 OPINION OF THE COURT Attorney for Appellee ____________ Edwin L. Pincus FISHER, Circuit Judge. This appeal requires us to consider Richard L. Hahn a bankruptcy debtor-in-possession’s ability 321 Clairemont Road to invoke the discovery rule to toll the Villanova, PA 19085 statutes of limitations on the debtor’s Attorney for Appellee, claims arising out of its lawyer’s Richard L. Hahn embezzlement of estate funds. The bankruptcy and district courts here found that despite the lawyer’s embezzlement Arthur W. Lefco (Argued) and non-disclosure of such embezzlement Marshall, Dennehey, Warner, to his client, the debtor, the debtor could Coleman & Goggin not, as a matter of law, establish that it 1845 Walnut Street, 16 th Floor acted with reasonable diligence in ferreting Philadelphia, PA 19103 out the embezzlement that formed the Attorney for Appellee, basis of its causes of action. Jerome J. Verlin

3 Because we believe that the “Appellants”), instituted claims in two decisions below establish a policy that adversary proceedings against Continental fosters lawyers’ abuse of their fiduciary Bank,1 Pincus, Verlin, Hahn & Reich, P.C. relationships with their clients, and fail (“PVHR”) 2 (the law firm with which Ganz adequately to protect the justifiable was a partner), and various of PVHR’s reliance of clients on their lawyers’ probity i n d i v id u a l s h a r e h o l d er l a w y e rs and trustworthiness, we will reverse and ( c o l le c t i v e l y “ D e f e n d a n t s ” a n d remand for further proceedings concerning “Appellees”), seeking to hold them liable the applicability of the discovery rule to for the consequences of Ganz’s the debtor’s claims against its lawyer’s law embezzlement. firm and the law firm’s individual MTC and its related subsidiaries shareholders. We will affirm the grant of and entities filed petitions under Chapter summary judgment in Continental Bank’s 11 of the Bankruptcy Code on June 24, favor, however, on the alternative ground 1985. The bankruptcy court ordered that that Pennsylvania’s Uniform Fiduciaries the petitions of the related entities be Act, which immunizes banks from liability jointly administered. By virtue of the arising out of good faith transfers of funds, Chapter 11 petitions, Mushroom became shields Continental from liability because the debtor-in-possession, and remained it transferred the eventually embezzled such until December 1990, when the funds in good faith to an authorized bankruptcy was converted to a Chapter 7 recipient, the debtor’s lawyer. We will proceeding. The events relevant to this also affirm the grant of summary judgment appeal occurred during the Chapter 11 in favor of Continental and the debtor’s law firm on the breach of fiduciary duty claims under ERISA. I. Background 1 PNC Bank, N.A., Continental’s The claims in this appeal arise out successor, advocates C ontinen tal’s of the embezzlement of funds belonging to position in this appeal. Because the events the bankruptcy estates of Mushroom in question occurred prior to the Transportation Company, Inc. (“MTC”) succession, we will refer to the bank and related debtor companies, Robbey defendant as Continental throughout this Realty, Inc., Penn York Realty Company, opinion. Inc., Trux Enterprises, Inc. and Leazit, Inc. 2 Mushroom also brought suit (collectively “Mushroom”) by Jonathan against a number of additional law firms Ganz, legal counsel to the bankruptcy who are successors of PVHR. Because the estates. Mushroom, through its trustee, identities of these additional firms are and various pension plans and their immaterial to our resolution of this appeal, adm inistrators (the “Pension Plan we will refer only to PVHR as the law firm Plaintiffs”) (together with the trustee, defendant.

4 bankruptcy, prior to the Chapter 7 Arnold anticipated a “further reduction” in conversion. his (Arnold’s) involvement in the bankruptcy proceedings by March of 1987. Mushroom retained the services of Ganz responded to Arnold’s letter by PVHR, through Ganz, to provide legal correspondence dated February 17, 1987, representation during the course of the which stated that Continental held bankruptcy proceedings. Within six approximately $986,000 “in various months of the filing of the Chapter 11 escrow accounts,” and that PVHR held petitions, Mushroom ceased operations additional funds for the final real estate and began to liquidate assets. On February settlements in “escrow accounts.” 27, 1986, the bankruptcy court appointed Michael C. Arnold, MTC’s executive vice In June 1987, Continental and presid ent, “Special Liq uidatio n PVHR, as counsel to Mushroom, entered Consultant” to assist in the liquidation, and into a bankruptcy court-approved payment Mushroom proceeded under his leadership stipulation (the “Stipulation”), which Ganz to liquidate a significant portion of assets. signed on behalf of PVHR as “Counsel to Debtors.” The Stipulation provided for the Mushroom allocated a large repayment of the balance of the debt owed percentage of the liquidation proceeds to to Continental from the funds held in the satisfying a substantial debt owed to escrow account at Continental. Once Continental, a secured creditor who held a Mu shro om satisfied its debt t o perfected security interest in all of Continental, the Stipulation required Mushroom’s assets. On June 16, 1986, Continental to turn over any remaining following repayment of some of the debt funds in the escrow account to PVHR, “to to Continental, the bankruptcy court, with be held in escrow for the benefit of the the consent of the parties, authorized the Debtor’s estate... . ” In September 1987, at opening of an escrow account at Ganz’s urging, the bankruptcy court Continental to hold the balance of excused Mushroom from the statutory proceeds generated from the sale of requirement to file monthly operating Mushroom’s assets not yet paid to statements. Continental. Pursuant to the Stipulation, and In a letter to Ganz dated February following satisfaction of the debt owed to 12, 1987, Arnold informed Ganz that he it, Continental issued a $200,000 (Arnold) and Robert B. Cutaiar, MTC’s treasurer’s check dated July 21, 1987, president, were handling the day-to-day payable to Ganz, “Council [sic] for Debtor operations of the debtors. The letter in Possession.” On August 3, 1987, requested an accounting of the proceeds of Continental deposited the remaining one of Mushroom’s realty sales and a $766,624.49 balance into an escrow report of Mushroom’s assets held by account at Continental that had been Continental, and informed Ganz that opened by Ganz under the name of MTC,

5 with Jonathan Ganz, c/o PVHR, as escrow about the amount and location of the agent for Mushroom. funds. Between August 3, 1987 and April In January 1992, the bankruptcy 26, 1988, Ganz misappropriated more than court approved the subs tantiv e one-half million dollars of the transferred consolidation of MTC and its related funds. In the interim, Arnold had entities, at which time Arnold was contacted Ganz on several occasions prepared to distribute the proceeds from inquiring about the transferred funds. In the sale of Mushroom’s assets. Arnold late 1987 or early 1988, Arnold requested called Ganz to request that Ganz start from Ganz an accounting of the liquidating the certificates of deposit and Mushroom estate’s assets. Ganz escrow accounts he had said were held on responded by sending Arnold a copy of the behalf of Mushroom by PVHR, but Stipulation in a February 2, 1988, received no response. At the end of correspondence. Arnold replied on February 1992, the United States Trustee February 19, 1988, writing that Ganz’s advised Arnold that Ganz was reportedly response – merely sending a copy of the involved in the defalcation of other Stipulation – “[did] not clear up the bankruptcy estates he had served as legal problem of how much is being held and by counsel. Acting upon this information, whom.” Arnold’s correspondence also set Arnold subsequently learned that Ganz had forth his estimates of the assets remaining absconded with the Mushroom funds based on Mushroom’s records and other under Ganz’s control. numbers, and asked Ganz to confirm the II. The Adversary Actions numbers. On October 5, 1992, Arnold, by There appears to have been some now the trustee (hereinafter the “Trustee”)3 oral communication between Arnold and following Mushroom’s conversion to Ganz following the February 19, 1988, Chapter 7 bankruptcy, filed adversary correspondence in which Ganz assured action no. 92-1043 (the “First Adversary Arnold “that the assets were invested in Action”) on behalf of Mushroom against passbook certificates of deposit at various Ganz and PVHR. Arnold later moved to banks... .” Ganz testified that in this amend his complaint to add Continental as communication, he told Arnold that “there a defendant; the bankruptcy court granted were funds in an approximate amount – I the motion, but refused to relate the wouldn’t recall the exact number – and amendment back to the date of the original they were in CDs and we were holding them. I was holding them.” It is undisputed that Arnold failed to request 3 Arnold resigned as trustee on written confirmation of, or otherwise January 23, 1995, and was replaced by the attempt to verify, Ganz’s representations current trustee, Jeoffrey Burtch, on March 15, 1995.

6 complaint. The bankruptcy court also assets); and Count VIII (by the Trustee and denied Arnold’s motion to add PVHR’s Pension Plan Plaintiffs against PVHR and individual shareholders as defendants, and Continental, alleging breach of fiduciary refused to allow the Pension Plan Plaintiffs duty under § 1109(a) of ERISA as to join the action as plaintiffs.4 Arnold, custodians of plan assets). joined by the Pension Plan Plaintiffs who Defendants moved for summary had been prohibited from joining as judgment on all counts in both adversary plaintiffs in the First Adversary Action, actions. Defendants argued that all of the filed a second adversary action, no. 94- claims were barred by the applicable 0003 (the “Second Adversary Action”), on statutes of limitations and laches, and January 3, 1994. Continental and PVHR argued that the Together, the virtually identical ERISA claim was legally insufficient complaints in the two adversary actions because neither was a fiduciary within the advanced eight claims against Ganz, meaning of the relevant ERISA provision, PVHR, PVHR’s individual shareholders, 29 U.S.C. § 1109(a). and Continental, seven5 of which are the In separate opinions dated August subject of this appeal: Count I (by the 24, 1998 and October 1, 1999, the Trustee against PVHR and Ganz, seeking bankruptcy court granted summary turnover of estate property); Count II (by judgment in favor of all Defendants. The the Trustee against PVHR, alleging breach bankruptcy court found that the applicable of fiduciary duty as escrow agent); Counts statutes of limitations and laches principles III and V (by the Trustee against under Pennsylvania law barred the Continental, alleging breach of fiduciary Trustee’s turnover and common law duty for releasing property to Ganz, and claims, and that Mushroom had failed to wrongful conversion of estate property); e xe rcise re a sona ble dilige nc e in Count VI (by the Trustee against PVHR uncovering these claims so as to toll the and Continental, alleging breach of statutes of limitations and preclude laches. contract for violating the Stipulation); Moreover, the bankruptcy court concluded, Count VII (by the Trustee against PVHR’s neither Continental nor PVHR were individual shareholders, alleging negligent fiduciaries susceptible to suit under failure to ensure preservation of client ERISA. On appeal, the district court 4 Arnold filed the amended affirmed on essentially the same bases complaint in the First Adversary Action on relied upon by the bankruptcy court. May 27, 1994. 5 Count IV, raising a conversion claim against Ganz only, is not at issue in this appeal.

7 III. Appellate Jurisdiction intention to appeal the unspecified order is apparent and the opposing party is not Continental suggests that we lack prejudiced and has a full opportunity to appellate jurisdiction over the district brief the issues.” Id. (citation omitted). In court’s disposition of Appellants’ appeal in determining whether a notice encompasses the Second Adversary Action because an unspecified order, we follow a “policy Appellants failed to specify in their notice of liberal construction of notices of appeal the district court’s order supposedly ... where the intent to appeal an disposing of the Second Adversary Action. unmentioned or mislabeled ruling is There is no question that Appellants’ apparent and there is no prejudice to the notice of appeal does not unmistakably adverse party.” Nationwide Mut. Ins. Co. indicate an intention to appeal from both v. Cosenza, 258 F.3d 197, 202 n. 1 (3d Cir. of the district court’s orders affirming the 2001) (citations omitted). bankruptcy court’s disposition of the two adversary actions. The notice specifies Despite the notice’s failure to only the district court’s order dated specify the order entered September 6, we September 4, 2002, and entered by the will exercise appellate jurisdiction over clerk on September 5, 2002, which both orders for several reasons. First, the affirmed the bankruptcy court’s August caption of the notice references the 1998 order; the notice fails to specify the bankruptcy court docket numbers for both district court’s order dated September 4, adversary actions, reflecting an intent to 2002, and entered by the clerk on appeal the district court’s disposition of September 6, 2002, which affirmed the the bankruptcy court’s rulings in both bankruptcy court’s October 1999 order. actions. Moreover, the body of the notice identifies all plaintiffs and defendants in “When an appeal is taken from a both of the adversary actions as Appellants specified judgment only or from a part of and Appellees, respectively. Because the a specified judgment, the court of appeals claims in both adversary actions are acquires thereby no jurisdiction to review virtually identical, and were disposed of by other judgments or portions thereof not so the district court based on the same specified or otherwise fairly to be inferred reasoning, Appellees cannot contend that from the notice as intended to be presented they are prejudiced by having to address an for review on the appeal.” Lusardi v. appeal concerning the district court’s order Xerox Corp., 975 F.2d 964, 972 (3d Cir. entered September 6. 1992) (quoting Elfman Motors, Inc. v. Chrysler Corp., 567 F.2d 1252, 1254 (3d Guided by our “liberal policy” in Cir. 1977)). But we may exercise construing notices of appeal, we conclude appellate jurisdiction over an order not that the notice of appeal adequately specified in a notice of appeal where communicates Appellants’ intent to appeal “there is a connection between the the district court’s order entered specified and unspecified order, the September 6, and find no prejudice to

8 Appellees from an exercise of our even if the claims were federal, state law jurisdiction over that order. We will would supply the applicable statutes of therefore exercise appellate jurisdiction limitations pursuant to the Supreme over both of the district court’s orders Court’s directive that “when Congress has entered in this matter. failed to provide a statute of limitations for a federal cause of action, a court ‘borrows’ IV. Standards of Review or ‘absorbs’ the local time limitation most We apply plenary review to a analogous to the case at hand.” Lampf, district court’s grant of summary judgment Pleva, Lipkind, Prupis & Petigrow v. and assess the record using the same Gilbertson, 501 U.S. 350, 355 (1991) standards for summary judgment employed (citations omitted). This borrowing by the district court. Farrell v. Planters principle applies equally to federal Lifesavers Co., 206 F.3d 271, 278 (3d Cir. common law actions. Oneida County, 2000) (citation omitted). Summary N.Y. v. Oneida Indian Nation of New judgment is appropriate where the moving York State, 470 U.S. 226, 240 (1985). party can demonstrate “that there is no Along with state statutes of limitations, a genuine issue as to any material fact and borrowing court “must also borrow from the moving party is entitled to judgment as state law the relevant tolling principles.” a matter of law.” Fed. R. Civ. P. 56(c). Island Insteel Systems, Inc. v. Waters, 296 We must view the evidence in the light F.3d 200, 210 n. 4 (3d Cir. 2002) (citations most favorable to the non-movant, omitted). “draw[ing] all reasonable inferences in The Court in Oneida Indian Nation favor of the non-moving party.” Fields v. pointed out that borrowing would be Thompson Printing Co., Inc., 363 F.3d impermissible where the borrowed state 259, 265 (3d Cir. 2004) (citation omitted). limitations period interfered with federal V. Discussion policies. Oneida Indian Nation, 470 U.S. at 240. See also Island Insteel Systems, A. What law supplies the statutes of Inc., 296 F.3d at 207 (“if borrowing an limitations applicable to the analogous statute of limitations from state common law claims? law would ‘frustrate or interfere with the As a preliminary matter, the Trustee implementation of national policies,’ submits that because the estate’s claims courts must look to federal law for an arise out of the wrongful transfer and analogous limitations period”) (citations subsequent embezzlement of a bankruptcy omitted). The Trustee directs us to no estate’s escrowed funds, they are governed authority suggesting that application of by a federal common law of bankruptcy. state statutes of limitations to the common The bankruptcy court noted that whether law claims here – common law claims or not the Trustee’s claims were state or asserted post-bankruptcy petition and federal in nature was unimportant because based on post-petition wrongdoing –

9 frustrates any national policy in effecting statutes of limitations, we must assess the the administration and reorganization of a accuracy of those which they applied. In bankruptcy estate. To the contrary, the short, the bankruptcy and district courts Bankruptcy Code itself imposes a two-year correctly held that various two-year limitations period on post-petition claims statutes of limitations governed Counts II seeking to avoid post-petition transfers of and III (breach of fiduciary duty), V property of the bankruptcy estate. See 11 (wrongful conve rsion) and V II U.S.C. § 549(d). Thus, the suggestion that (negligence) in each adversary proceeding, imposing state-law limitations periods of and that a four-year statute of limitations two or more years on common law claims period governed Count VI (breach of asserted post-petition, and based on post- contract). 7 Maillie v. Greater Delaware petition misconduct, interferes with federal bankruptcy principles – where the Bankruptcy Code itself imposes a two-year 7 The bankruptcy and district courts limitations period on certain post-petition also correctly concluded that the ERISA claims based on post-petition misconduct breach of fiduciary duty claim in Count – is simply without merit. We therefore VIII was subject to the six-year statute of agree with the bankruptcy and district limitations set forth in 29 U.S.C. § courts that state law, specifically 1113(1). Neither court found that the Pennsylvania law,6 supplies the statutes of statute had run on this claim. There is no limitations applicable to the Trustee’s question that the statute of limitations had common law claims. not yet expired as to the ERISA claim B. The applicable statutes of against PVHR, as it was set forth in the limitations and laches principles original complaint filed in 1992. It is not so clear, however, whether the statute of Having determined that the limitations had run on the ERISA claim bankruptcy and district courts correctly against Continental, which was first chose to apply (or borrow) Pennsylvania’s advanced in the amended complaint filed on May 27, 1994. Since the bankruptcy court refused to relate the claims against 6 Given that Pennsylvania is the Continental back to the date of the original forum state, and has the most extensive complaint, there is an argument that the contacts with the litigants and the facts at six-year limitations period applicable to issue in this litigation, it is the proper the ERISA claim had expired by the date source of the applicable statutes of of the filing of the amended complaint. limitations and laches principles. Gluck v. Because we agree with the bankruptcy and Unisys Corp., 960 F.2d 1168, 1179-80 (3d district courts that neither PVHR nor Cir. 1992) (applying general rule that Continental are fiduciaries subject to suit statute of limitations should be borrowed under 29 U.S.C. § 1109, we need not from forum state). resolve whether the statute of limitations

10 Valley Health Care, Inc., 628 A.2d 528, The Bankruptcy Code does not impose a 532 (Pa. Commw. 1993) (breach of statute of limitations on turnover claims fiduciary duty); Bednar v. Marino, 646 arising under these provisions. In re A.2d 573, 578 (Pa. Super. 1994) Midway Airlines, Inc., 221 B.R. 411, 458 (conversion); 42 Pa.C.S.A. § 5524(2) (Bankr. N.D. Ill. 1998) (“Bankruptcy Code (citation omitted) (negligence); 42 does not contain a statute of limitations for Pa.C.S.A. § 5525(a) (breach of contract). turnover actions pursuant to § 542”); In re Bookout Holsteins, Inc., 100 B.R. 427, The bankruptcy and district courts 432 (Bankr. N.D. Ind. 1989) (same); In re also correctly determined the laches De Berry, 59 B.R. 891, 898 (Bankr. principles governing the turnover claim. E.D.N.Y. 1986) (same). Because turnover The turnover claim set forth in Count I claims are equitable in nature, see Walker arises under 11 U.S.C. §§ 542 and 543.8 v. Weese, 286 B.R. 294, 299 (D. Md. 2002) (turnover claim “fairly characterized bars Appellants’ ERISA claim against as an equitable claim”); In re Warmus, 252 Continental. B.R. 584, 587 (Bankr. S.D. Fla. 2000) (turnover claims, “firmly rooted in 8 11 U.S.C. § 542(a) provides that: protecting and preserving property of the [estate], ... are clearly and uniquely Except as provided in subsection equitable claims under the Bankruptcy (c) or (d) of this section, an entity, Code”) (citations omitted); In re Kabler, other than a cus tod ian, in 230 B.R. 525, 526 (Bankr. E.D.N.C. 1999) possession, custody, or control, (“Turnover is an equitable remedy”), they during the case, of property that the are subject to laches. Algrant v. Evergreen trustee may use, sell, or lease under Valley Nurseries Ltd. Partnership, 126 section 363 of this title, or that the F.3d 178, 186 n. 3 (3d Cir. 1997) (“An debtor may exempt under section action brought in equity is governed by the 522 of this title, shall deliver to the doctrine of laches.”) (citing Russell v. trustee, and account for, such Todd, 309 U.S. 280, 287 (1940)). See also property or the value of such Erkins v. Bryan, 785 F.2d 1538, 1543 property, unless such property is of (11th Cir. 1986) (“Policies underlying the inconsequential value or benefit to creation of federal equitable claims are not the estate.

11 U.S.C. § 543(b)(1) provides that: or profits of such property, that is (b) A custodian shall– in such custodian’s possession, (1) deliver to the trustee any custody, or control on the date that property of the debtor held by or such custodian acquires knowledge transferred to such custodian, or of the commencement of the case[.] proceeds, product, offspring, rents,

11 well served by applying rigid limitations; estate property. Section 549(a) claims are therefore, federal courts considering subject to § 549(d), which provides that § federal equitable claims should rely on 549(a) claims “may not be commenced equitable principles.”) (citing Holmberg v. after the earlier of – (1) two years after the Armbrecht, 327 U.S. 392, 395 (1946)). date of the transfer sought to be avoided; or (2) the time the case is closed or “The party asserting laches as a dismissed.” 11 U.S.C. § 549(d). The defensive bar must establish (1) an Trustee’s turnover claim targets a post- inexcusable delay in bringing the action petition transfer of funds by Continental to and (2) prejudice.” United States Fire Ins. Ganz. Section 549(a) expressly creates a Co. v. Asbestospray, Inc., 182 F.3d 201, cause of action by which to seek avoidance 208 (3d Cir. 1999) (citations omitted). of post-petition transfers, a cause of action “To establish prejudice, the party raising clearly analogous to the turnover claim laches must demonstrate that the delay here. Consequently, Great Atlantic & caused a disadvantage in asserting and Pacific Tea Co. dictates that we consult the establishing a claimed right or defense; the statute of limitations applicable to a § mere loss of what one would have 549(a) claim – the two-year period set otherwise kept does not establish forth in § 549(d) – in determining whether prejudice.” Id. (citation omitted). While to shift to the Trustee the burden of statutes of limitations do not directly apply proving excusable delay and the absence to equitable claims such as the turnover of prejudice. claim, a limitations period on an analogous claim for legal relief is highly relevant to a C. Did Mushroom fail as a matter of laches analysis. As we said in E.E.O.C. v. law to exercise reasonable Great Atlantic & Pacific Tea Co., 735 F.2d diligence in uncovering Ganz’s 69 (3d Cir. 1984), “[i]f a statutory embezzlement? limitations period that would bar legal The bankruptcy and district courts relief has expired, then the defendant in an correctly found that, absent application of action for equitable relief enjoys the tolling principles, the common law tort and benefit of a presumption of inexcusable contract claims accrued no later than delay and prejudice. In that case, the August of 1987, when Continental burden shifts to the plaintiff to justify its completed the transfer of funds to Ganz delay and negate prejudice.” 735 F.2d at per the Stipulation. The bankruptcy and 80 (citations omitted). district courts further concluded correctly The bankruptcy and district courts that the limitations period on the claim at concluded that the claim at law analogous law analogous to the turnover claim – to the Trustee’s turnover claim arises relevant to a laches analysis under Great under 11 U.S.C. § 549(a), which creates a Atlantic & Pacific Tea Co. – began to run cause of action in a trustee to avoid an no later than April 26, 1988, the date on unauthorized post-petition transfer of

12 which Ganz completed his embezzlement January-February 1992, when Arnold and of the transferred funds. Mushroom first discovered Ganz’s defalcation of the funds. The bankruptcy The Trustee’s primary argument 9 and district courts held that, as a matter of against the application of the statutes of law, Mushroom (through Arnold and limitations and laches is that the discovery Cutaiar) failed to exercise due diligence in rule and/or equitable tolling suspended the superintending Ganz’s oversight of the running of the statutes of limitations (and funds, and therefore could not invoke thereby precluded the onset of laches) until either the discovery rule or equitable tolling to preserve its claims against all 9 Defendants. For the reasons that follow, The Trustee also contends that we find that there are genuine issues of Continental and PVHR were trustees of an material fact concerning Mushroom’s express trust (the escrow bank account), reasonable diligence for the fact-finder to and that since causes of action against such determine. trustees do not accrue until the trust is “repudiated,” the limitations periods Under Pennsylvania’s discovery should not have begun to run until rule, the statute of limitations will not November-December 1992, when Arnold begin to run until “the plaintiff reasonably first made a demand on Ganz for tender of knows, or reasonably should know: (1) estate property in the escrow account. The that he has been injured, and (2) that his district court correctly rejected this injury has been caused by another party’s contention. Pennsylvania law makes clear conduct.” In re TMI Litig., 89 F.3d 1106, that the key element in a trust is that the 1116 (3d Cir. 1996) (quoting Cathcart v. trustee possesses legal title to property. Keene Indus. Insulation, 471 A.2d 493, Schellentrager v. Tradesmens Nat’l Bank 500 (Pa. Super. 1984)) (internal quotation & Trust Co., 88 A.2d 773, 774 (Pa. 1952). marks omitted). The discovery rule will None of the relevant documents (including only toll the statute of limitations where the Stipulation) reflects any intent to the plaintiff shows that he or she has convey title in Mushroom’s funds to exercised “‘reasonable diligence’ in Continental or PVHR. Rather, the ascertaining the existence of the injury and Stipulation rendered Continental and its cause.” Bohus v. Bellof, 950 F.2d 919, PVHR escrow agents w ho, under 925 (3d Cir. 1991). Pennsylvania law, did not acquire legal Similarly, equitable tolling will title to Mushroom’s funds. Paul v. suspend the running of the statute of Kennedy, 102 A.2d 158, 159 (Pa. 1954) limitations “(1) where the defendant has (under escrow arrangement, legal title actively misled the plaintiff respecting the remains in a depositor until a condition plaintiff’s cause of action; (2) where the precedent is satisfied) (citations omitted). plaintiff in some extraordinary way has Accordingly, this argument is without been prevented from asserting his or her merit.

13 rights; or (3) where the plaintiff has timely includes the “‘duty to protect and conserve asserted his or her rights mistakenly in the property in its possession for the benefit of wrong forum.” Oshiver v. Levin, creditors.’” In re Marvel Entertainment Fishbein, Sedran & Berman, 38 F.3d 1380, Grp., Inc., 140 F.3d 463, 474 (3d Cir. 1387 (3d Cir. 1994) (citations omitted). 1998) (citation omitted). Thus, there is no Like the discovery rule, equitable tolling question that Mushroom, acting through its requires the plaintiff to demonstrate “that representatives Arnold and Cutaiar, had a he or she could not, by the exercise of fiduciary duty to protect and maximize the reasonable diligence, have discovered estate’s assets. essential information bearing on his or her This duty formed the foundation for claim.” Id. at 1390 (citation omitted). the bankruptcy and district courts’ In assessing the finding that reasonable diligence analysis. Indeed, the Mushroom failed as a matter of law to bankruptcy and district courts essentially exercise reasonable diligence for purposes equated the fiduciary duty to safeguard of the discovery rule and equitable tolling, assets with the duty of reasonable we are guided by the general rule that such diligence and, finding a breach of the determinations are typically within the former, therefore found a breach of the jury’s province unless “the facts are so latter. Moreover, the courts held, clear that reasonable minds cannot Mushroom could not escape the statutory differ ... .” Melley v. Pioneer Bank, N.A., fiduciary duty to protect and maximize by 834 A.2d 1191, 1201 (Pa. Super. 2003) delegating such duty to legal counsel, (citation omitted). During the time of where the delegation amounted to an Ganz’s defalcations, Mushroom was in abdication of that duty. The district court Chapter 11 bankruptcy, and was therefore explained its distinction between a debtor-in-possession. See 11 U.S.C. § permissible delegation and impermissible 1101(1). As we recently pointed out, “[i]n abdication: Chapter 11 cases where no trustee is Although delegation of duties is appointed, [11 U.S.C.] § 1107(a) provides o n e t h i n g , a b d i c a ti o n o f that the debtor-in-possession, i.e., the responsibility is quite another. In debtor’s management, enjoys the powers this case, the debtors not only that would otherwise vest in the “delegated” to Ganz the duty to bankruptcy trustee. Along with those collect the funds generated from the powers, of course, comes the trustee’s sale of assets, deposit them into the fiduciary duty to maximize the value of the escrow account pursuant to an bankruptcy estate.” Official Committee of order of the court, and transfer the Unsecured Creditors of Cybergenics Corp. funds to the law firm account to be v. Chinery, 330 F.3d 548, 573 (3d Cir. maintained pending further order of 2003) (en banc). The debtor-in- the Bankruptcy Court, but rather possession’s fiduciary duty to maximize they surrendered totally their

14 obligation to oversee the funds embezzled by Ganz. The district liquidation of the estate or to court found that summary judgment in the supervise, even in the most bank’s favor on the issue of reasonable relaxed fash ion, the diligence and the statute of limitations was activities of a retained inappropriate for several reasons. First, professional. The the court noted, delegation of debtor duties Bankruptcy Code – including those performed, or intended commands the debtor in to be performed, by Ganz here – is possession (or the trustee) to perfectly appropriate under, and indeed be the captain of the debtor encouraged by, the Bankruptcy Code. ship. See 11 U.S.C. § 1108. Accordingly, “a reasonable debtor in Wh ile the debto r in p o s s e s s io n w o u l d , i n ce r t a in possession may assign to circumstances, entrust the care of liquid others specific duties, it may assets to a court-appointed lawyer.” Id. at not surrender the helm and 403 (citation omitted). Therefore, “there is let the debtor ship sail under no legal basis to conclude that the someone else’s captaincy. delegation of core trustee duties to court- appointed counsel for the estate by a Burtch v. Ganz (In re Mushroom Transp. debtor in possession is per se sufficient to Co., Inc.), 282 B.R. 805, 825 (E.D. Pa. show that the debtors in possession failed 2002) (footnote omitted). Because to exercise due diligence.” Id. Mushroom abdicated its statutory duty to preserve the estate’s assets, the bankruptcy The district court then reviewed the and district courts held, it could not record and found that “in light of the fact possibly demonstrate reasonable diligence that reliance on counsel is inherent in the for purposes of the discovery rule. Id. bankruptcy code, ... the bankruptcy court invaded the province of the fact finder by In Burtch v. Security Pacific Bank depreciating the evidence that could Oregon (In re Mushroom Transp. Co., persuade a trier of fact that a reasonable Inc.), 247 B.R. 395 (E.D. Pa. 2000), a person in the circumstances of the related case involving the same facts Mushroom debtors in possession would respecting Ganz’s embezzlement and have relied on counsel and consequently Mushroom’s oversight, Judge Reed of the failed to discover the thefts by Ganz until District Court for the Eastern District of a later date.” Id. at 404. Several aspects Pennsylvania reached a conclusion on of the record led the court to this reasonable diligence and the statute of conclusion. First, the distribution of estate limitations directly contrary to the one assets was not an issue from early 1986 reached by the bankruptcy and district through August 1988 (when Ganz had courts here. There, the Trustee filed completed his embezzlement) because the various claims against one of the banks bankruptcy proceedings were focused on that had allegedly received some of the

15 motions to consolidate. Rather, Arnold of administration.” Boldt v. United States and Cutaiar devoted their energies to Trustee (In re Jenkins), 130 F.3d 1335, priority claims, which, according to 1340 (9th Cir. 1997) (citations and internal Arnold, were the source of major quotation marks omitted). A fact-finder uncertainty concerning Mushroom’s could thus conclude that Mushroom’s financial condition. Second, Arnold’s decision to entrust its lawyer, Ganz, with inquiries to Ganz in February 1988 could the task of safeguarding its assets was have led a reasonable trier of fact to within the bounds of reasonableness. conclude that Arnold’s efforts went Still further, the bankruptcy court beyond abdication of the debtor’s duty to had issued two orders in June and preserve the estate’s assets and in fact September of 1987 entrusting Mushroom’s constituted reasonable diligence for assets to Ganz. The June 1987 order purposes of the discovery rule. Finally, the approved the Stipulation pursuant to which bankruptcy court’s two orders in June and Mushroom’s assets were to be turned over September 1987 provided Ganz with to Ganz to hold in escrow. In Arnold’s nearly exclusive control over Mushroom’s view, the June 1987 order prompted him to assets and removed any mechanism by believe that Mushroom’s assets were being which the court could monitor use of those “invested in accordance with the special funds. In the district court’s, a reasonable rules applicable to bankruptcy.” The fact-finder could find that a reasonably September 1987 order granted Ganz’s diligent person in these circumstances motion to excuse M ushroom from filing would have acted precisely as Mushroom operating reports otherwise required by the and its Trustee did here. Bankruptcy Code. In Arnold’s view, the We find much of Judge Reed’s September 1987 order gave him “no analysis persuasive. First, the Bankruptcy reason to expect that the absence of such Code contemplates and encourages the reporting indicated that a lawyer had retention of professionals by debtors to absconded with escrow funds... .” Just as facilitate a Chapter 11 reorganization. they in fact appeared to lead Arnold to Section 327 states that “the trustee [and, believe that the assets were safe and there therefore, the debtor in possession], with was no need to monitor them closely, these the court’s approval, may employ one or orders could have led a reasonable person more attorneys ... to represent or assist the to believe that there was no need to trustee in carrying out the trustee’s duties monitor them on his or her own. under this title.” 11 U.S.C. § 327(a). The In addition to these aspects of Judge Code also provides for the compensation Reed’s analysis, and perhaps most of such attorneys. 11 U.S.C. § 329. These importantly, we find highly relevant the provisions reflect Congress’s desire “to fact that the genesis of this action is encourage trustees to delegate their duties Ganz’s abuse of his fiduciary, lawyer- where such delegation would lower costs client relationship with Mushroom, an

16 abuse which very well could have caused is in prohibits the principal from Mushroom to relax its vigilance in uncovering the fraud. Furthermore, overseeing the execution of the duties it the fiduciary, because of his delegated to Ganz. Neither Judge Robreno position of trust, would have an nor Judge Reed expressly mentioned the affirmative duty to the principal to principle manifesting itself in decisions disclose the fraud. Absent a from courts in this circuit (and numerous disclosure, the fiduciary commits other state and federal courts) that where an act of continual covering up of the wrongdoing underlying causes of the fraud. action has been perpetrated by a fiduciary Id. at 403. The court noted that letters sent to the detriment of its principal, this fact by counsel for the creditors to the trustee militates strongly against summary urging the trustee to investigate matters judgment on the issue of whether the pertaining to the purloined funds might principal (here Mushroom) exercised have imposed a duty to inquire upon the reasonable diligence in failing to discover trustee, but “whether or not the letters the fiduciary’s malfeasance within the imposed a duty upon the trustee to applicable statutes of limitations. investigate is a question of fact, which Many judges in this Circuit have must be resolved by a trier of fact.” Id. recognized the impact of a fiduciary The District Court for the Eastern relationship, and abuse of that relationship District of Pennsylvania subsequently by the fiduciary, on a discovery rule addressed Schw artz in Gurfein v. analysis. In Schwartz v. Pierucci, 60 B.R. Sovereign Group, 826 F. Supp. 890 (E.D. 397 (E.D. Pa. 1986), the trustee asserted Pa. 1993). Plaintiffs, investors and claims against a bank in an effort to partners in real estate limited partnerships, recover funds improperly drawn by brought fraud, breach of fiduciary duty and principals and officers of the debtor from related claims against some of their the debtor’s account at the bank. The general partners and related entities. In district court denied the bank’s motion for response to defendants’ statute of su m m a ry judgment, rejecting its limitations defense, plaintiffs argued that contention that the statute of limitations because defendants were plaintiffs’ barred certain of the claims against it. fiduciaries, plaintiffs’ causes of action did Specifically, the court found that the not accrue until they acquired actual officers’ wrongful conduct tolled the knowledge of their injury. The district applicable limitations period, reasoning court found that we had not yet that: “recognized an exception to the discovery Where a fiduciary commits an act rule in the fiduciary-defendant context.” of fraud against his principal, the Id. at 918. Nonetheless, he acknowledged statute of limitations will be tolled, that “[t]he existence of a fiduciary since the very position the fiduciary relationship is relevant to the question of

17 when a cause of action accrued. Because To require a principal to engage in of a fiduciary’s unique position of trust, aggressive oversight of its the presence of a fiduciary relationship fiduciary’s conduct is to deny the would be pertinent to the question of when very essence of a fiduciary a plaintiff’s duty to investigate arose.” Id. relationship. at 919 n. 31 (citing, inter alia, Schwartz). Id. at 935 (citation omitted and first two The Eastern District recognized the alterations and emphasis supplied) .10 relevance of a fiduciary relationship to a discovery rule/reasonable diligence 10 analysis in Rubin Quinn Moss Heaney & The Eastern District is by no Patterson, P.C. v. Kennel, 832 F. Supp. means alone in subscribing to this view: 922 (E.D. Pa. 1993). The plaintiff law numerous courts have enunciated a similar firm sued one of its partners who had approach. See, e.g., Rieff v. Evans, 630 misappropriated client funds. The N.W.2d 278, 290 (Iowa 2001) (statute defendant asserted a limitations defense to tolled where plaintiff proves that “a plaintiff’s breach of fiduciary duty claim. confidential or fiduciary relationship exists The district court held that the discovery between the person concealing the cause rule preserved the breach of fiduciary duty of action and the aggrieved party, claim largely because of the fiduciary combined with proof that defendant relationship existing between the firm and breached the duty of disclosure”) (citation its partners. The court concluded that: and internal quotation marks omitted); Ray v. Queen, 747 A.2d 1137, 1142 (D.C. Given Defendant’s position as a 2000) (“In determining whether the fiduciary of the firm, and the plaintiff exercised reasonable diligence, complexity of the real estate the courts should consider, inter alia, transactions which gave rise to the whether there was a fiduciary relationship Real Estate Accounts, the Court between the parties.”) (citation omitted); concludes that Plaintiff did exercise Willis v. Maverick, 760 S.W.2d 642, 645 due diligence in its oversight of (Tex. 1988) (“The client must feel free to Defendant’s management of the rely on his attorney’s advice. Facts which accounts. ... First as an employee, might ordinarily require investigation and later as a partner, [Defendant] likely may not excite suspicion where a sought and was accorded in return fiduciary relationship is involved.”) the trust of [the firm’s] partners. (citation omitted); Hobbs v. Bateman Ironically, it is this type of very Eichler, 210 Cal. Rptr. 387, 404 (Cal. Ct. special relationship that enables a App. 1985) (“W here a fiduciary wayward fiduciary to engage in relationship exists, facts which ordinarily acts of concealment that “cause the require investigation may not incite [principal] to relax vigilance or suspicion ... and do not give rise to a duty deviate from the right of inquiry.” of inquiry....”) (citations omitted). Other

18 We should stress that we do not inquiry on the principal’s part into its hold here that the existence of a fiduciary, fiduciary’s behavior. lawyer-client relationship between Ganz Here, Mushroom, through Arnold, and Mushroom, and Ganz’s abuse of that questioned Ganz directly concerning the relationship, alone preclude judgment as a whereabouts of the transferred funds. matter of law in PVHR’s and its Arnold’s letter to Ganz set forth estimates shareholders’ favor. 11 But as the district of Mushroom’s assets based on court noted in Gurfein, “the presence of a Mushroom’s records and other numbers. fiduciary relationship would be pertinent According to Arnold, Ganz responded to to the question of when a plaintiff's duty to Ganz’s letter “that the assets were invested investigate arose.” 826 F. Supp. at 919 n. in passbook certificates of deposit at 31 (citation omitted). Ganz was no various banks... .” Ganz himself testified stranger to Mushroom and Arnold – he that he told Arnold that there was a certain was Mushroom’s lawyer, bound by amount of assets under his supervision, professional rules of ethics to the highest though he could not recall the exact duties of honesty and probity in his number he conveyed to Arnold. dealings with his client. As the cases discussed above illustrate, the existence of We do not suggest that Arnold’s a fiduciary relationship is relevant to a inquiries should serve as a model of discovery rule analysis precisely because it vigilance for similarly situated debtors-in- entails such a presumptive level of trust in possession. However, we believe that the the fiduciary by the principal that it may facts here – particularly the Bankruptcy take a “smoking gun” to excite searching Code’s encouragement that debtors-in- possession retain lawyers and other pr of e ssionals t o a s s ist in th e ir reorganization, and the existence of a courts have gone even further in holding lawyer-client relationship which Ganz that where there is a fiduciary relationship, employed to conceal his defalcations at his only the actual discovery of the client’s (and its creditors’) expense – wrongdoing starts the running of the create genuine factual issues for the fact- limitations period. See, e.g., Community finder concerning whether Arnold and Title Co. v. U.S. Title Guaranty Co., Inc., Mushroom exercised reasonable diligence 965 S.W.2d 245, 252 (Mo. Ct. App. 1998) in uncovering Ganz’s embezzlement. 12 (citations omitted). 11 At the same time, however, we 12 would not foreclose the possibility that in The bankruptcy and district courts some instances, the nature of a fiduciary found that laches barred the Trustee’s relationship might be such that the turnover claim solely because the statute of relationship alone would be sufficient to limitations on the analogous claim at law trigger application of the discovery rule. under 11 U.S.C. § 549(a) had expired,

19 We therefore, with the exception of limitations and laches, Continental has Continental,13 will reverse the grant of asserted numerous alternative grounds summary judgment in Appellees’ favor on supporting affirmance. Of course, we may the non-ERISA claims and remand with affirm the district court on grounds instructions to the district court to remand different from those relied on by the the non-ERISA claims to the bankruptcy district court. Kabakjian v. United States, court for further proceedings consistent 267 F.3d 208, 213 (3d Cir. 2001) (citation with this opinion. omitted). And we will affirm summary judgment in Continental’s favor because D. Is Continental entitled to summary Pennsylvania’s Uniform Fiduciaries Act judgment on the alternative ground (“UFA”) immunizes Continental from any that Pennsylvania’s Uniform liability flowing from its transfer of funds Fiduciaries Act shields it from to Ganz. liability? Continental bases its argument on § While PVHR and its shareholders 6361 of the UFA, which provides that: have advanced no arguments in support of affirmance beyond the statutes of A person who, in good faith, pays or transfers to a fiduciary any money or other property, which the creating a presumption of inexcusable fiduciary as such is authorized to delay and prejudice that the Trustee receive, is not responsible for the presumably did not rebut. Because we proper application thereof by the find here that the applicable statutes of fiduciary, and any right or title limitations have not expired as a matter of acquired from the fiduciary in law, we necessarily reverse the bankruptcy consideration of such payment or and district courts’ conclusion that the tr a nsfer is not inva lid in presumption of inexcusable delay and consequence of a misapplication by prejudice had arisen as to Appellees’ the fiduciary. laches defense, and remand as to laches as well. 7 P.S. § 6361. A payment or transfer of money “is done ‘in good faith,’ within the 13 Because we conclude in the meaning of this act, when it is in fact done following section that summary judgment honestly, whether it be done negligently or in Continental’s favor should be affirmed not.” Id. § 6351(2). on the alternative basis of the Pennsylvania In the leading case on § 6361, the Uniform Fiduciaries Act’s immunity Supreme Court of Pennsylvania held that provision, we decline to decide whether a bank in virtually the same position as the bankruptcy and district courts properly Continental could not be liable on a breach granted sum mary jud gm ent in of contract theory. See Robinson Continental’s favor on the basis of the Protective Alarm Co. v. Bolger & Picker, statutes of limitations.

20 516 A.2d 299 (Pa. 1986). There, a law to him will aid a breach of trust, firm opened an escrow account in its name then the bank will be held to have on behalf of its client, Robinson Protective acted in “bad faith.” Alarm. Three partners of the law firm Id. at 304 (citations omitted). executed the signature card for the account. One of these partners eventually Applying this view, the court noted embezzled hundreds of thousands of that the embezzling lawyer was a fiduciary dollars from the account. After as to the escrow funds in question, and was compensating Robinson for the embezzled empowered to receive them from the bank. funds, the law firm brought an action for After setting forth the purpose of § 6361 – indemnity or contribution against the bank. “to facilitate banking transactions by relieving a depositary of the responsibility The Court of Common Pleas of of seeing that an authorized fiduciary will Philadelphia County and the Pennsylvania use entrusted funds for proper purposes” – Superior Court both held that the bank, by the court concluded that “[t]o apply a not obtaining endorsements prior to theory which would hold a payor liable for redeeming certificates relating to the a minuscule and irrelevant departure from account, had violated the redemption the prescribed procedure, where he has provisions set forth on the certificates, and acted honestly in releasing money to a had thereby committed a breach of known authorized fiduciary, without contract. The Pennsylvania Supreme knowledge of the latter’s intent to Court reversed, finding that § 6361 subsequently embezzle those funds, would shielded the bank from liability because it clearly not contribute to the smooth flow disbursed funds from the account to the of commerce sought to be achieved by the embezzling lawyer in good faith. The UFA.” Id. “Indeed,” the court continued, court began its analysis by distinguishing “in the absence of contrary knowledge on “good faith” in this context from “bad the depositary’s part, it [the bank] is faith”: entitled, if not bound, to presume that a Even a failure to inquire under fiduciary will properly apply funds suspicious circumstances will not released to him.” Id. at 304-05 (citations negate “good faith,” unless the omitted). failure to do so is due to a Here, the Trustee has not directed deli berate desire to eva de us to any evidence in the record knowledge because of a belief or demonstrating that Continental acted in fear that inquiry would disclose a bad faith in transferring the funds to Ganz, vice or defect in the transaction. nor could we locate any on our own. The Conversely, if a bank has Trustee does suggest, however, that knowledge that a fiduciary intends Continental is not entitled to the UFA’s to appropriate trust funds to his immunity because only PVHR itself, not own use, and that to release funds

21 Ganz, was authorized to receive the “Pennsylvania courts define apparent transferred funds. Section 6361 requires authority as that authority which, although that the transfer at issue be made to a not actually granted, the principal fiduciary who “as such is authorized to knowingly permits the agent to exercise, or receive” the transfer before one can be holds him out as possessing.” D & G immunized from liability for making the Equip. Co., Inc. v. First Nat’l Bank of transfer. Continental naturally contends Greencastle, 764 F.2d 950, 954 (3d Cir. that “Ganz was a fiduciary authorized to 1985) (citing, inter alia, Revere Press, Inc. receive the funds at issue[,]” pointing to v. Blumberg, 246 A.2d 407, 410 (Pa. admissions in the complaints that “at the 1968)). “Apparent authority can exist only time of the transfer of the funds, Ganz was to the extent that it is reasonable for the a member of PVHR and acted as legal third party dealing with the agent to representative of M ushroom.” Moreover, believe the agent is authorized.” Id. at 954 Continental continues, “it is undisputed (citation omitted). “The test for that Ganz was the only signatory on behalf determining whether an agent possesses of PVHR on the Stipulation and signed as apparent authority is whether ‘a man of counsel of record for Mushroom.” ordinary prude nce, d iligence and discretion would have a right to believe The Stipulation required that the and would actually believe that the agent escrow funds be turned over “to Debtor’s possessed the authority he purported to counsel, Pincus, Verlin, Hahn & Reich, exercise.’” Universal Computer Systems, P.C., to be held in escrow for the benefit of Inc. v. Medical Svcs. Ass’n of Pa., 628 the Debtor’s estate....” The issue for us is F.2d 820, 823 (3d Cir. 1980) (citation whether this fact – that the Stipulation omitted). required Continental to turn the escrow funds over to PVHR, and not Ganz We find that the actions of PVHR – specifically – precludes affirmance on this holding Ganz out as one of the firm’s alternative basis because it creates a genuine issue of material fact concerning the applicability of § 6361. receive the funds on PVHR’s behalf. See Volunteer Fire Co. of New Buffalo v. We conclude that the undisputed Hilltop Oil Co., 602 A.2d 1348, 1351-52 facts of record demonstrate as a matter of (Pa. Super. 1992) (noting that acts of agent law that Ganz was authorized to receive can bind principal upon showing of the funds within the meaning of § 6361 “express authority directly granted by the because, as an agent of PVHR, he had at principal to bind the principal as to certain least apparent authority to do so.14 matters [ ] or implied authority to bind the principal to those acts of the agent that are necessary, proper and usual in the exercise 14 Indeed, a strong case could be of the agent’s express authority”) (citation made that Ganz had actual authority to omitted).

22 bankruptcy lawyers and permitting him to WL 96006, at *2 n. 7 (E.D. Pa. Feb. 24, handle Mushroom’s bankruptcy – would 1999) (breach of contract, breach of have led an ordinarily prudent bank in f id u c ia r y d u t y a n d n e g l ig e n c e ). Continental’s position to “have a right to Accordingly, we will affirm the grant of believe and [ ] actually believe that [Ganz] summary judgment in Continental’s favor possessed the authority” to receive the on all of the Trustee’s non-ERISA claims15 transferred funds on PVHR’s behalf. against it. Ganz himself signed the Stipulation on E. Are Continental and PVHR behalf of PVHR, giving Continental even fiduciaries within the meaning of more reason to believe that Ganz had 29 U.S.C. § 1002(21)(A)(i) so as to apparent authority to receive funds be susceptible to Appellants’ pursuant to the Stipulation. Thus, by breach of fiduciary duty claim transferring the funds to Ganz, Continental under 29 U.S.C. § 1109(a)? transferred the funds to one authorized to receive them within the meaning of § Appellants’ breach of fiduciary duty 6361. claim arises under 29 U.S.C. § 1109(a) of ERISA, which creates liability for “[a]ny The final issue is the scope of person who is a fiduciary with respect to a immunity the UFA confers on Continental. plan w ho br ea ch es an y of the There is no question that Continental’s responsibilities, obligations, or duties allegedly wrongful transfer of funds to imposed upon fiduciaries by this Ganz forms the basis of the Trustee’s non- subchapter[.]” 29 U.S.C. § 1109(a). A ERISA claims against it. In Robinson person is a fiduciary of an ERISA plan to Protective Alarm, the Pennsylvania the extent that such person “exercises any Supreme Court stated that “[t]here is discretionary authority or discretionary nothing on the face of [§ 6361], or in any control respecting management of such other provision of the UFA, that would plan or exercises any authority or control restrict the immunity from liability to suits respecting management or disposition of based on negligence – or preclude its its assets... .” 29 U.S.C. § 1002(21)(A)(i). applicability merely because a claim for recovery rests on a contract theory.” 516 The district court found that neither A.2d at 304. Following this dictate, Continental nor PVHR were fiduciaries Pennsylvania courts have applied § 6361 within the meaning of § 1002(21)(A)(i), to all manner of common law claims, and therefore that § 1109(a) did not apply including, pertinently, breach of contract, to them. We concur. In Board of Trustees breach of fiduciary duty, and conversion of Bricklayers & Allied Craftsmen Local 6 claims. See id. (breach of contract); Jones of New Jersey Welfare Fund v. Wettlin v. Van Norman, 522 A.2d 503 (Pa. 1987) (conversion); Harris v. Police & Fire Fed. 15 Credit Union, No. Civ. A. 98-5175, 1999 The Trustee did not assert its turnover claim against Continental.

23 Assocs., Inc., 237 F.3d 270 (3d Cir. 2001), lead us to conclude that Continental was we made clear that one need not have not a fiduciary within the meaning of § discretion in exercising authority or 1002(21)(A)(i). We therefore will affirm control over the man agem ent or the grant of summary judgment in disposition of plan assets in order to Continental’s favor on Appellants’ breach qualify as a fiduciary under § of fiduciary duty claim under ERISA. 1002(21)(A)(i). 237 F.3d at 274. We have not yet addressed whether Nonetheless, although we reversed the a law firm in PVHR’s position here district court’s grant of the defendant- constitutes a § 1002(21)(A)(i) fiduciary. bank’s motion to dismiss because the Appellants have not alleged, nor does the complaint had alleged the bank’s “day to evidence establish, that PVHR had any day responsibility to control, manage, legal right or discretion to dispose of hold, safeguard, and account for the Mushroom’s escrowed funds. Indeed, Fund’s assets and income[,]” id. at 275 Appellants’ amended complaint made (internal quotation marks omitted), we clear that the escrowed funds were to be stated that we were “inclined to agree that paid to the trustee on demand. The ERISA does not consider as a fiduciary an Stipulation provides that PVHR’s role with entity such as a bank when it does no more respect to the alleged “plan assets” (the than receive deposits from a benefit fund escrowed funds) was to hold them in on which the fund can draw checks.” Id. escrow for the benefit of the Mushroom (emphasis supplied). estate. Neither the allegations nor the We agree with the bankruptcy and evidence here suggest that Continental did district courts that in its role as holder of anything more than serve as the holder of Mushroom’s escrowed funds, PVHR assets placed there pursuant to the simply was not a fiduciary within the Stipulation. Our dictum in Wettlin meaning of § 1002(21)(A)(i). As noted Assocs., and the views of many of our above, many of our sister circuits have sister circuits, see Beddall v. State Street held that mere custody or possession over Bank & Trust Co., 137 F.3d 12, 20 (1st plan assets, without more, does not render Cir. 1998) (“mechanical administrative one a fiduciary. Beddall, 137 F.3d at 20; responsibilities (such as retaining the Southern Council of Indus. Workers, 83 assets and keeping a record of their value) F.3d at 968-69. Moreover, imposing are insufficient to ground a claim of ERISA fiduciary duties to the Pension Plan fiduciary status”) (citations omitted); Plaintiffs where PVHR already had clearly Southern Council of Indus. Workers v. d e f i n e d f i d u c ia r y d u t ie s u n d e r Ford, 83 F.3d 966, 968 (8th Cir. 1996) Pennsylvania law to both the debtor and all (lawyer “did not become a plan fiduciary merely by ... related control over the settlement proceeds”) (citation omitted),

24 of the debtor’s creditors 16 would place Appellants’ breach of fiduciary duty claim PVHR in a potentially conflicted position. under ERISA. Southern Council of Indus. Workers, 83 VI. Conclusion F.3d at 969 (recognizing potential “irreconcilable obligations” if ERISA For the foregoing reasons, we will fiduciary duties to plan imposed on reverse the grant of summary judgment in insurance company with fiduciary duties to favor of all Appellees except Continental its shareholders and clients) (citation on the non-ERISA counts, and remand omitted); Chapman v. Klemick, 3 F.3d with instructions to the district court to 1508, 1511 (11th Cir. 1993) (recognizing remand the non-ERISA counts to the potential conflict betw een ER ISA bankruptcy court for further proceedings fiduciary duties imposed on bank and consistent with this opinion; we will affirm bank’s fiduciary duties to shareholders and the grant of summary judgment in customers). This potential conflict further Continental’s favor on the non-ERISA militates against finding PVHR to be a common law counts on the alternative fiduciary under ERISA. Accordingly, we ground that the UFA immunizes also will affirm the grant of summary Continental from those counts; and we will judgment in PVHR’s favor as to affirm the grant of summary judgment in favor of Continental and PVHR on Appellants’ breach of fiduciary duty 16 claims under ERISA. As escrow agent and legal counsel to Mushroom, PVHR had fiduciary duties ________________________ under Pennsylvania law to the entire Mushroom estate, including the estate’s creditors. Knoll v. Butler, 675 A.2d 1308, 1312 (Pa. Commw. 1996) (“An ordinary escrow agreement creates a fiduciary relationship between the agent [the d e p o s i t o r y i n s ti t u ti o n ] a n d t h e transferor.”); Maritrans GP Inc. v. Pepper, Hamilton & Scheetz, 602 A.2d 1277, 1283 (Pa. 1992) (“Our common law imposes on attorneys the status of fiduciaries vis a vis their clients[.]”). Further, the Bankruptcy Code forbids counsel to the estate from holding any interest adverse to the estate. See 11 U.S.C. § 327(a). Continental also had fiduciary duties to the estate as an escrow agent, so the potential conflict rationale applies equally to it.