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James Ellis; William Perry v. Fidelity Management Trust Company
Case Number: 17-1693
Court: United States Court of Appeals for the First Circuit on appeal from the District of Massachusetts (Suffolk County)
Plaintiff's Attorney: Garrett W. Wotkyns
Defendant's Attorney: Jonathan D. Hacker, Brian D. Boyle, Gregory F. Jacobs, Meghan Vergow, Stancy N. Garcia, John F. Falvey, Jr. and Alison V. Douglass
Description: Plaintiffs James Ellis and
William Perry brought this certified class action under the
Employee Retirement Income Security Act of 1974 ("ERISA"),
alleging that Fidelity Management Trust Company, the fiduciary for
a fund in which plaintiffs had invested, breached its duties of
loyalty and prudence in managing the fund. Fidelity won summary
judgment and plaintiffs appealed. Because the district court
correctly concluded that plaintiffs failed to adduce evidence
necessary to proceed to trial, we affirm.
"On review of an order granting summary judgment, we
recite the facts in the light most favorable to the nonmoving
party" to the extent that they are supported by competent evidence.
Walsh v. TelTech Sys., Inc., 821 F.3d 155, 157–58 (1st Cir. 2016)
(quoting Commodity Futures Trading Comm'n v. JBW Capital, 812 F.3d
98, 101 (1st Cir. 2016)); see Burns v. State Police Ass'n of Mass.,
230 F.3d 8, 9 (1st Cir. 2000) (noting that competent evidence is
necessary to defeat summary judgment). We take these facts from
the parties' summary judgment filings in the district court and
from the record at large where appropriate. See Evergreen
Partnering Grp. v. Pactiv Corp., 832 F.3d 1, 4 n.2 (1st Cir. 2016).
Plaintiffs were participants in the Barnes & Noble
401(k) plan, which allowed participants to allocate their savings
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among an array of investment alternatives depending on their
objectives. Department of Labor regulations encourage employers
who create plans of this type to offer at least one relatively
safe investment vehicle, described as an "income producing, low
risk, liquid" investment. 29 C.F.R. § 2550.404c-
1(b)(2)(ii)(C)(2)(ii). A stable value fund is an example of such
an investment vehicle. In this instance, Barnes & Noble chose to
offer its employees a stable value fund run by Fidelity and known
as the Managed Income Portfolio ("MIP").
Three typical features of stable value funds are salient
here. First, a stable value fund generally consists of an
underlying portfolio of high-quality, diversified, fixed-income
securities. Second, a stable value fund generally utilizes a
"crediting rate" that takes into account gains and losses over
time and determines what amount of interest will be credited to
investors, and at what intervals this will occur. Third, a stable
value fund often utilizes "wrap insurance," a form of insurance
providing that, subject to exclusions, when a stable value fund is
depleted such that investors cannot all recover book value,1 the
insurance provider will cover the difference. Because the entity
providing the wrap insurance hopes it will not have to make good
1 "Book value" is the value of principal invested by each
participant, plus the interest credited to the participant as
determined by the crediting rate.
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on its promise, wrap contracts will often contain investment
guidelines imposing limitations on the composition of a stable
value fund's portfolio. For example, a wrap provider might demand
that a certain portion of a portfolio's underlying securities be
treasury bonds or similar investments that sacrifice higher
returns in favor of increased safety in preserving capital.
Fidelity described to putative investors the MIP's
investment objective as follows: "The primary investment
objective of the Portfolio is to seek the preservation of capital
as well as to provide a competitive level of income over time
consistent with the preservation of capital." As a benchmark, the
MIP used the Barclay's Government/Credit 1-5 A- or better index
("1-5 G/C index") throughout the relevant time period.2 On a
quarterly basis, Fidelity made available to all plans that offered
the MIP fact sheets disclosing investment allocations, current
crediting rate, investment durations, and the MIP's returns. More
than 2,500 employers, including several sophisticated Wall Street
employers, made the MIP available to their employees throughout
the class period.
In the wake of the 2007–2008 financial crisis and the
ensuing economic decline, Fidelity fund managers expressed concern
2 According to plaintiffs' expert, this index consists of
public government and corporate securities, rated A or better,
with maturities between one and five years.
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about the availability of wrap insurance for Fidelity's various
funds, including the MIP, going forward. For example, a 2009
PowerPoint noted a "[d]earth of new wrap capacity." During this
time period, several major wrap providers for the MIP, including
AIG, Rabobank, and at a later point, JP Morgan, forecasted an
intention to leave the wrap market. Further illustrating
Fidelity's concern is a 2011 e-mail from an attorney for Fidelity,
noting that JP Morgan had been "shed[ding]" wrap capacity, that
there were a "dwindl[ing]" number of new entrants into the wrap
market, and that Fidelity ran the risk of being "left out in the
cold" if the number of insurers of stable value funds was limited,
as he expected it to be. Ultimately, Fidelity secured sufficient
wrap coverage; certain providers either remained in the market or
transferred their wrap business to other entities and Fidelity
also obtained wrap coverage from a new source.
During the years covered by this lawsuit, the MIP fully
achieved its objective of preserving the investors' capital. The
rate of return earned by investors, however, lagged behind that of
many other stable value funds offered by competitors. The
immediate cause of these lower returns is undisputed: Fidelity
allocated MIP investments away from higher-return, but higher-risk
sectors (e.g., corporate bonds, mortgage pass-throughs, and assetbacked
securities) and toward treasuries and other cash-like or
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shorter duration instruments. While these allocations made the
MIP a safer bet and thus more attractive to wrap providers, they
also positioned the MIP less favorably in the event that markets
improved. Markets did improve, the added safety turned out not to
be required, and competitors whose investments were more
aggressive achieved both asset protection and higher returns. As
a result, Fidelity saw its assets under management and its market
share fall until 2014. It was not until 2015 that Fidelity managed
to achieve the approximate average returns realized by
competitors' stable value funds.
Of course, such is what occurs in most markets, and
certainly most investment markets. Fund managers make different
predictions about future market performance, and the differences
ultimately generate a distribution curve of returns as some funds
do better than others. Every year, by definition, one quarter of
funds fall into the bottom quartile and one quarter fall in the
top quartile, even if all fund managers are loyal to their
investors and prudent in their decisions.
Plaintiffs, though, say that something else was at work
here. They say that the MIP's relatively low returns as compared
to those of many other stable value funds were the result of
disloyalty and imprudence in violation of section 404(c)(1) of
ERISA. 29 U.S.C. § 1104(a)(1). While plaintiffs' precise
explanations for how this is so have moved throughout this
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litigation like a toy mole in an arcade game, the constant and
essential fact to which they point is Fidelity's conduct in
procuring wrap coverage for the MIP. Specifically, plaintiffs
claim that Fidelity agreed to overly conservative investment
guidelines in a failed effort to lock up all wrap coverage so that
its competitors would not be able to obtain such coverage, allowing
Fidelity to corner the stable value market and generate business
for its many other stable value funds even if the MIP suffered.
Additionally, plaintiffs argue that Fidelity was
imprudent in structuring and operating the MIP by being overly and
unnecessarily conservative. Specifically, a prudent Fidelity
would have (say plaintiffs) negotiated less restrictive wrap
guidelines, picked a more aggressive benchmark, and invested in
higher-risk, higher-return instruments.
The district court denied a motion to dismiss and
certified a class. After the parties completed an ample amount of
discovery, the district court found plaintiffs' arguments to lack
the evidentiary support needed to survive summary judgment. See
Ellis v. Fidelity Mgmt. Tr. Co., 257 F. Supp. 3d 117, 119 (D. Mass.
2017). This appeal followed.
On appeal, plaintiffs claim two distinct errors. First,
they contend that in evaluating their loyalty claim, the district
court applied the wrong standard, thus committing an error of law.
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Second, they submit that the district court impermissibly weighed
evidence at the summary judgment stage, where such weighing is
inappropriate. Had it credited their version of events, they say,
it would have found triable issues and denied summary judgment.
We consider each argument in turn.
The choice of the standard by which to evaluate a claim
is a question of law, which we review de novo. United States v.
Maldonado-Rivera, 489 F.3d 60, 65 (1st Cir. 2007). Here, the
district court stated that "ERISA . . . requires an ERISA fiduciary
to honor the duty of loyalty by 'discharging his duties with
respect to a plan solely in the interest of the participants.'"
Ellis, 257 F. Supp. 3d at 126 (quoting 29 U.S.C. § 1104(a)(1)
(brackets omitted)). The district court went on to cite our
decision in Vander Luitgaren v. Sun Life Assurance Co. of Canada,
765 F.3d 59 (1st Cir. 2014), for the proposition that "an
accompanying benefit to the fiduciary is not impermissible -- it
more simply 'require[s] . . . that the fiduciary not place its own
interests ahead of those of the Plan beneficiary.'" Ellis, 257 F.
Supp. 3d at 126 (alteration in original) (quoting Vander Luitgaren,
765 F.3d at 65).
Plaintiffs do not dispute that the district court
accurately quoted the statutory language. Nor do they expressly
contend that Vander Luitgaren does not set forth the controlling
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law. Instead, in their opening brief, plaintiffs devote much
attention to an opinion of the Second Circuit, Donovan v.
Bierwirth, 680 F.2d 263 (2d Cir. 1982). That opinion says that an
ERISA fiduciary's decisions "must be made with an eye single to
the interests of the participants and beneficiaries." Id. at 271.
Plaintiffs seem to read this phrase as meaning that a fiduciary
can only be motivated by a beneficiary's interests, even if that
interest aligns with the fiduciary's own interests. Plaintiffs
submit that the district court should have applied that reading of
Donovan and denied summary judgment because record evidence could
have supported the conclusion that Fidelity's operative motive was
to further its own interests.
This is all a bit of a puzzler because plaintiffs never
mentioned Donovan or the "eye single" language to the district
court. Moreover, in their reply brief, plaintiffs concede that
Donovan and Vander Luitgaren do not conflict. This of course
raises the question: How did the district court apply the wrong
standard by expressly relying on a recent opinion of this court
that does not conflict with plaintiffs' preferred earlier decision
of another court?
We agree with plaintiffs' reply brief that there is
actually no material difference relevant to this case between our
standard as articulated in Vander Luitgaren and the "eye single"
standard as actually applied in Donovan. This is not to say that
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either case (and certainly not Vander Luitgaren) would deem a
fiduciary liable for disloyalty merely because it took action aimed
at furthering an objective it shared with the beneficiaries.
Donovan involved plan trustees who committed themselves to use
plan assets to buy company stock without carefully considering
whether it was in the interest of plan participants to do so.
Indeed, the Second Circuit found it foreseeable that the purchase
would harm plan participants. The court found it "almost
impossible to believe that the trustees['] . . . motive . . . was
for any purpose other than blocking [a hostile tender offer]."
Donovan, 680 F.2d at 275. In other words, the trustees in Donovan
did precisely what Vander Luitgaren prohibits -- they placed
"[their] own interests ahead of those of the Plan beneficiary."
Vander Luitgaren, 765 F.3d at 65.3
In any event, for present purposes the question is
whether the district court employed the correct legal test in its
evaluation of the evidence. The foregoing should make it clear
that by quoting the statute and relying on the language and holding
of Vander Luitgaren, the district court did so. In so concluding,
we acknowledge a theoretical question posed in plaintiffs' brief
on appeal: What if a fiduciary whose interests are aligned with
3 For this reason, plaintiffs' claim that the Supreme Court's
unelaborated reference to Donovan in Pegram v. Herdrich, 530 U.S.
211, 235 (2000), provides no benediction for the interpretation
plaintiffs would have us glean from the case.
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the beneficiaries' interest takes action that a loyal but
indifferent fiduciary might well take, but does so only "with an
eye" toward the benefits that it will sustain? As a practical
matter, in most such circumstances it would be difficult to divine
such a parsing of motives given the aligned interests of the
fiduciary and beneficiaries. One might also posit that most
beneficiaries would prefer a trustee whose self-interests align
with their own, rather than one who is personally indifferent to
the beneficiaries' success. In any event, we need not venture
further into this abstract discussion because plaintiffs never
argued such a theory of loyalty below, contending only that
Fidelity was motivated by conflicting interests (which is indeed
the redoubt to which plaintiffs retreat in their reply brief). So
we turn now to whether the evidence justified a trial based on
"We review the district court's grant of summary
judgment de novo." Cherkaoui v. City of Quincy, 877 F.3d 14, 23
(1st Cir. 2017). A grant of summary judgment is proper only where
"there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law." Fed. R. Civ. P.
56(a). "A dispute is 'genuine' if the evidence about [the issues
in dispute] is such that a reasonable jury could resolve the point
in the favor of the non-moving party." Cherkaoui, 877 F.3d at 23–
- 13 -
24 (quoting Sanchez v. Alvarado, 101 F.3d 223, 227 (1st Cir. 1996)
(internal quotation marks omitted)). While this is not a high bar
to clear, we have also held that "[t]he test for summary judgment
is steeped in reality. . . . We have interpreted Rule 56 to mean
that the evidence illustrating the factual controversy cannot be
conjectural or problematic . . . . [S]ummary judgment may be
appropriate if the nonmoving party rests merely upon conclusory
allegations, improbable inferences, and unsupported speculation."
Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir.
1990) (internal quotation marks, citations, and brackets omitted).
We begin with the theory underlying plaintiffs' loyalty
claim. As best we can tell, it goes something like this: After
the financial crisis of 2007–2008 and during the market decline
thereafter, there was limited wrap capacity available on the
market. Fidelity, which stood to earn more money the greater the
total amount of its assets under management, swooped in to scoop
up as much wrap capacity as possible, agreeing to excessively
conservative guidelines in the process, in order to prevent
competitors from obtaining wrap insurance and thereby preventing
them from entering the stable value fund market. With fewer
competitors in the stable value fund market, Fidelity would
increase its assets under management and in turn increase the fees
it collected. Central to plaintiffs' theory is the allegation
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that Fidelity's "primary goal here was to prevent competitor access
to wrap capacity to enable Fidelity to grow, for example, its
separate account business [assets under management] at the expense
of competitors, not to secure wrap capacity for the MIP."
The most obvious problem for plaintiffs' argument is
that we, like the district court, have examined plaintiffs'
Statement of Disputed Facts and find no evidence that the MIP
itself did not face a threat of insufficient wrap coverage between
2009 and 2012. After a full round of discovery, plaintiffs adduced
no evidence to this effect, nor did their expert so conclude.
Plaintiffs point only to the fact that the MIP was "open to new
funds" during the period. Plaintiffs see this fact as leading to
the inference that Fidelity knew that the MIP was not going to
lose its existing wrap coverage, on the assumption that if it
risked the loss of such coverage, it would not leave the fund open
to new investors until that risk was eliminated. This is quite a
reach. A fund manager might easily perceive a need to find new
wrap coverage yet leave the fund open to new investors based on an
expectation that the manager will one way or another find new
coverage. Even if plaintiffs' touted inference might be reasonable
at the pleading stage and allow a case to survive a Rule 12(b)(6)
motion to dismiss, it becomes unreasonable when confronted with a
summary judgment motion after a full round of discovery producing
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undisputed proof that existing wrap providers were threatening to
exit the market in the wake of AIG's dance with failure.
Plaintiffs' theory of how Fidelity behaved disloyally
suffers from the added disability of making little sense. To
believe that Fidelity's competitors could be driven out of the
market due to Fidelity's capture of available wrap insurance, one
must also believe that wrap insurance at the relevant times was a
scarce and limited resource. Were that the case, though, it would
make no sense to posit that Fidelity had no reason to try hard to
secure new wrap coverage for the MIP if its existing suppliers
hinted at possible exit announcements. Conversely, if Fidelity
knew that the supply of wrap insurance was not finite, attempts to
purchase excessive quantities of it so as to deny competitors
access would be equally illogical; one cannot consume all of a
good where its quantity is effectively unlimited. Viewed thusly,
plaintiffs' theory of a loyalty breach based on aggressive pursuit
of wrap coverage requires that we infer that Fidelity embarked on
a course that was not only against both its interests and the
interests of its investors, but was also plainly illogical. Such
an inference, without more to support it, is too speculative to
carry a claim forward.
At oral argument, plaintiffs contended that there was a
third state of the world; namely, that wrap coverage was indeed a
finite good, but that Fidelity did not need to pursue it
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aggressively because other insurance products, suitable for the
MIP but not suitable for Fidelity's competitors, were available.
Plaintiffs pointed to guaranteed investment contracts, or GICs, as
an example. Thus, in plaintiffs' view, Fidelity's aggressive
pursuit of wrap coverage was both unnecessary to protect MIP
investors and consistent with attempts to freeze out Fidelity's
competitors. There are multiple problems with this argument, the
first being that plaintiffs did not raise it in their briefing
before the district court. See McCoy v. Mass. Inst. of Tech., 950
F.2d 13, 22 (1st Cir. 1991) ("It is hornbook law that theories not
raised squarely in the district court cannot be surfaced for the
first time on appeal.").4 Even if we were to consider the argument,
however, it would not persuade us. To succeed with this argument,
plaintiffs would need to convince a reasonable factfinder that
(a) GICs or other insurance products were an available and
appropriate option for the MIP and (b) the same insurance products
were not equally available to or appropriate for Fidelity's
4 In a letter filed with the court pursuant to Federal Rule
of Appellate Procedure 28(j), plaintiffs insist that they did, in
fact, raise this theory before the district court. In support of
their claim, however, plaintiffs point only to three separate
paragraphs from their Local Rule 56.1 statement, not to any portion
of their brief opposing summary judgment. It is not enough to
have offered some facts which could support a particular theory of
a case; a party must actually make an argument based on the facts.
Actual mention of GICs and other insurance products in their brief
or at oral argument before the district court was sparse to nonexistent.
Thus, we cannot say that this argument was raised in
the district court, let alone "squarely."
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competitors. The only portion of the record that plaintiffs'
counsel cited at oral argument in support of this new theory was
an e-mail from a Fidelity lawyer, which discusses a single
competitor, Galliard, and notes that Galliard is more willing to
use alternative insurance products than Fidelity is. But this email
says nothing about whether GICs or other insurance products
would have been an appropriate substitute for wrap coverage for
the MIP. It also undermines the second premise necessary for
plaintiffs' theory to succeed -- that competitors would be unable
to replace wrap coverage with GICs or other insurance products --
because the e-mail specifically states that the one competitor it
mentions does employ those products. Thus, even if we were
inclined to consider plaintiffs' new theory on appeal, it would
fail due to the lack of any competent evidence supporting it.
Perhaps recognizing the logical weakness of their
position, plaintiffs posit that the district court erred in
determining that though there was an "accompanying benefit" to
Fidelity, this benefit was not the motivator for Fidelity's
decision making. In plaintiffs' view, once the district court had
found evidence of an accompanying benefit, it was required to leave
to the trier of fact the decision as to whether this benefit was
incidental to Fidelity or in fact motivated Fidelity's decisions.
While we question the accuracy of plaintiffs' reading of the
district court decision, the simple point is that this argument
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merely repackages plaintiffs' position that their belatedly
proffered reading of Donovan as applied to aligned interests of
the fiduciary and beneficiaries should control. Having already
found that theory unpreserved, we leave it at that.
Plaintiffs offer one other claim that plausibly sounds
in the duty of loyalty: that because the MIP's portfolio managers
were compensated based on the degree to which performance exceeded
the benchmark, they had an incentive to keep the benchmark unduly
low. We can assume, for the sake of argument, that the bonus
structure was in fact based on the amount by which the fund's
returns exceeded the benchmark and that the benchmark was quite
We nevertheless balk at the notion that a fiduciary
violates ERISA's duty of loyalty simply by picking "too
conservative" a benchmark for a stable value fund. Such funds are
generally presented as one of the more conservative options for
investors who prefer asset preservation to the risk of pursuing
greater returns. A conservative benchmark for a fund that places
principal preservation as its primary goal warns the investor not
to expect robust returns, and aligns expectations and results in
a manner that is unlikely to harm or disappoint any investor who
selects the fund.
Plaintiffs' theory also ignores basic and obvious market
incentives. If Fidelity publishes a benchmark that implies no
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greater safety but lower returns than those implied by the
benchmarks published by competing funds, it risks losing out as
plan sponsors choose what options to offer plan participants. And
if Fidelity wants to increase compensation for its fund managers,
there are presumably many ways to do so without setting a lower
benchmark, a tactic that risks making a fund uncompetitive with
those offered by other companies.
The bottom line here is that Fidelity offered an
investment vehicle for conservative investors in the wake of the
2007-2008 market collapse, it published for its putative investors
a cautious and unambitious benchmark, and then it consistently
exceeded that benchmark. Unless we are to say that ERISA plans
may not offer very conservative investment options (such as money
market funds or treasury bond funds), then we cannot say that plans
may not offer different types of stable value funds, including
those that are intentionally and openly designed to be
conservative. If informed plans or their participants do not want
such funds, they will not select them over the innumerable options
In the end, far from inappropriately weighing evidence
against plaintiffs, the district court correctly held that
plaintiffs had presented no competent evidence at all to support
critical elements of their theory of the breach of the duty of
loyalty. Instead, plaintiffs relied on repeated speculation that
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sophisticated investment professionals behaved in a manner that
makes no sense. As a result, summary judgment was appropriately
granted on plaintiffs' loyalty claims.
In addition to their loyalty claims, plaintiffs also
pressed prudence claims in the district court. In large part,
these prudence claims are the loyalty claims dressed in prudence's
clothing, and thus suffer from the same overreliance on
unreasonable and unsupported speculation. Nonetheless, because it
is certainly possible for conduct to be loyal but imprudent, we
address each of these claims in their own guise.
ERISA requires a fiduciary to act "with the care, skill,
prudence, and diligence under the circumstances . . . that a
prudent [person] acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims." 29 U.S.C. § 1104(a)(1)(B). "The
test of prudence -- the Prudent [Person] Rule -- is one of conduct,
and not a test of the result of performance of the investment.
Whether a fiduciary's actions are prudent cannot be measured in
hindsight." Bunch v. W.R. Grace & Co., 555 F.3d 1, 7 (1st Cir.
2009) (brackets, internal quotation marks, and citations omitted).
Plaintiffs advance three theories of a violation of the duty of
prudence: (a) that it was imprudent to pursue wrap capacity as
aggressively as Fidelity did and agree to the terms Fidelity agreed
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to, (b) that Fidelity's use of the Barclays 1-5 G/C index as a
benchmark was imprudent, and (c) that it was imprudent not to take
corrective action in the face of returns that were lower than those
of competitor funds.
The first contention is easily dispensed with, largely
for the same reasons that the loyalty claim failed. Simply put,
there is no evidence: (a) that the array of prudent options
available in the relevant time period did not include aggressively
pursuing wrap insurance in the context of a potential decrease in
wrap providers, (b) that Fidelity took on any excess wrap
insurance, and (c) that Fidelity unreasonably passed over an
available better deal for its supply of wrap insurance. Absent
such evidence, plaintiffs' prudence claim fails to get out of the
starting blocks. See Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986) (holding that "there can be no genuine issue as to any
material fact" where there is "a complete failure of proof
concerning an essential element of the nonmoving party's case"
(internal quotation marks omitted)). While plaintiffs make much
of internal Fidelity communications describing the terms it agreed
to with JP Morgan as "overly stringent," this description cannot
carry the weight plaintiffs assign to it. That one party to a
transaction believes the terms to be "overly stringent" proves too
little unless there exists an alternative, more favorable option.
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Plaintiffs' second theory fares no better. They offer
no authority, and we are aware of none, holding that a plan
fiduciary's choice of benchmark, where such a benchmark is fully
disclosed to participants, can be imprudent by virtue of being too
conservative. It is undisputed that the MIP's returns exceeded
those of money market funds throughout the class period. Were
this case to proceed to trial, it is completely unclear by what
standard a jury could find a disclosed choice of benchmark to be
imprudent as "too conservative," particularly where plaintiffs
make no argument that offering more conservative investments (such
as money market funds) would constitute an ERISA violation. The
fact that plaintiffs on appeal criticize Fidelity for shying away
from asset-backed securities in the wake of the 2007–2008 market
collapse well demonstrates that plaintiffs' standard of prudence
relies on hindsight.
Plaintiffs' third and final theory -- that Fidelity
breached the duty of prudence by failing to take corrective action
to improve the MIP's returns -- fails as well, most fundamentally
for the second reason elucidated by the district court: that
plaintiffs have not identified any particular act or omission in
this regard that was imprudent. See Ellis, 257 F. Supp. 3d at 131
("Further, as Fidelity notes, the Plaintiffs do not point to any
specific decision violating the duty of prudence."). This failure
is particularly important given that, as plaintiffs' own expert
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admitted, the MIP's managers did consider and increase its risk
allocation throughout the class period. Plaintiffs did not specify
in the district court, and do not specify now, a minimum risk level
below which stable value funds for some reason cannot go.
Furthermore, as we have already noted, a prudence claim is
evaluated from the perspective of what a fiduciary reasonably knows
ex ante. See Bunch, 555 F.3d at 7. The district court was correct
in finding that, at bottom, plaintiffs lacked any evidence that
any of the decisions made by the MIP's managers were unreasonable
under the circumstances, particularly given that Fidelity had
introduced a wealth of undisputed evidence supporting the
conclusion that it engaged in an evaluative process prior to making
We pause, finally, to address plaintiffs' repeatedly
played trump card: the e-mail, discussed supra, from one of
Fidelity's in-house attorneys, written in March 2010. The e-mail
states, in relevant part, as follows:
It's not one thing with Galliard, it's
several. They probably are more diversified
than us. They're more willing to use every
tool available to them -- traditional GICs,
separate account GICs, Mutual of Omaha.
They're certainly more flexible than we are.
You'd think given our size and our resources
that we could do anything, but with us
everything has to be done our way. Galliard
can also afford to put deposits into cash
because their crediting rates don't suck. The
biggest difference between us and Galliard
though is that they care about this business
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in a way that we don't. Stable value matters
to them. We can talk all we want about how
we're the best (and in some ways we are), but
the fact is that while we were selling
everything in the meltdown our competitors
stuck to their guns. As a result, in many
cases they are better off than we are. When
capacity opens up (assuming it does), we might
get the first call, but Galliard won't be far
This e-mail has, in one way or another, anchored most of
plaintiffs' arguments throughout this case. Admittedly, it uses
colorful language, and surely -- as plaintiffs argue -- most
investors would not want to invest in a fund whose crediting rates
"suck." But this e-mail tells us much too little about whether
Fidelity breached its duties under ERISA. Rather, it shows a
Fidelity employee looking back in hindsight and noting that
Fidelity underperformed many competitors based on choices made in
response to the financial crisis. One can only imagine the mirrorimage
e-mails of regret Fidelity's competitors would have written
had the markets collapsed instead of rebounding. And as we have
made clear, hindsight regret cannot be the basis for an ERISA
claim. See id.
Because plaintiffs failed to adduce evidence sufficient
to proceed to trial on any of their theories of prudence, the
district court was correct to reject plaintiffs' prudence claims.
Outcome: Though the record in this matter is voluminous, the
essential issues are relatively straightforward. Plaintiffs
failed to adduce evidence after ample discovery that would have
provided reasonable, non-speculative support for their claims of
disloyalty or imprudence. The record shows, instead, an alignment
between the interests of Fidelity and the MIP participants, and an
investment strategy that lacked not prudence, but rather, a crystal
ball. The district court's grant of summary judgment is affirmed.