United States District Court, D. Massachusetts
JAMES ELLIS and WILLIAM PERRY, individually and as representatives of a class of similarly situated persons, Plaintiffs,
FIDELITY MANAGEMENT TRUST COMPANY, Defendant.
MEMORANDUM & ORDER
WILLIAM G. YOUNG DISTRICT JUDGE.
class action, James Ellis (“Ellis”) and William
Perry (“Perry”), representing a class of
similarly situated individuals (collectively, the
“Plaintiffs”), contend that Fidelity Management
Trust Company (“Fidelity”) mismanaged the
Fidelity Group Employee Benefit Plan Managed Income Portfolio
(the “Portfolio”), breaching its fiduciary duties
pursuant to the Employee Retirement Income Security Act of
1974 (“ERISA”) section 404(a), 29 U.S.C. §
1104(a). Fidelity here moves for summary judgment, asserting
that the Plaintiffs fail to establish a breach of either the
duty of loyalty or the duty of prudence. Taking all
reasonable inferences in the Plaintiffs' favor, the
Plaintiffs do not carry their burden to set forth evidence to
establish a fiduciary breach. Thus, this Court grants
Fidelity's motion for summary judgment.
December 11, 2015, Ellis and Perry filed a complaint against
Fidelity asserting a breach of fiduciary duty under ERISA
section 404(a), 29 U.S.C. § 1104(a). Compl., ECF No. 1.
Following this Court's denial of a motion to dismiss,
Order, ECF No. 43; Def.'s Mot. Dismiss Compl., ECF No.
21, Fidelity answered the complaint, Def.'s Answer
Pls.' Class Action Compl. (“Answer”), ECF No.
December 14, 2016, this Court granted Ellis and Perry's
unopposed motion to certify a class, Pls.' Mot. Class
Certification, ECF No. 64; Def.'s Mem. Resp. Pls.'
Mot. Class Certification 6, ECF No. 78, of “[a]ll
participants in defined contribution employee pension benefit
plans within the meaning of ERISA § 3(2)(A), 29 U.S.C.
§ 1002(2)(A), who invested in the [Portfolio] from
January 1, 2010 until the time of trial.” WGY Order 1,
ECF No. 80. The Court allowed this class to pursue the
Plaintiffs' investment management claim, deeming their
excessive fees claims waived. Id. at 1-2, 1 n.1.
now moves for summary judgment. Def.'s Mot. Summ. J., ECF
No. 97. The parties have briefed the issues and submitted
statements of facts. Pls.' Mem. Opp'n Def.'s Mot.
Summ. J. (“Pls.' Opp'n”), ECF No. 119;
Pls.' Statement Disputed Material Facts Opp'n Def.
Fidelity Management Trust Company's Mot. Summ. J., and
Pls.' Resps. Fidelity's Statement Undisputed Material
Facts Supp. Mot. Summ. J. (“Pls.' Statement
Facts”), ECF No. 120; Def.'s Mem. Supp. Mot. Summ.
J. (“Def.'s Mem.”), ECF No. 98; Def.'s
Reply Supp. Mot. Summ. J. (“Def.'s Reply”),
ECF No. 130; Statement Undisputed Material Facts Supp. Def.
Fidelity Management Trust Company's Mot. Summ. J.
(“Def.'s Statement Facts”), ECF No. 99; Def.
Fidelity Managements Trust Company's Resp. Pls.'
Statement Disputed Material Facts (“Def.'s Resp.
Facts”), ECF No. 131.
Portfolio is a stable value fund (“SVF”).
Pls.' Statement Facts 33 ¶ 26; Def.'s Statement
Facts ¶ 26. SVFs are one of the most conservative
options in which 401(k) plan participants can invest,
Pls.' Statement Facts 28 ¶ 5; Def.'s Statement
Facts ¶ 5, usually holding a portfolio of high-quality,
diversified fixed income securities, Pls.' Statement
Facts 28 ¶ 7; Def.'s Statement Facts ¶ 7. SVFs
also make use of wrap contracts, Pls.' Statement Facts 28
¶ 7; Def.'s Statement Facts ¶ 7, a form of
insurance coverage that guarantees withdrawing investors the
book value of their investment if the SVF has been exhausted,
subject to certain exceptions. Pls.' Statement Facts 29
¶ 13; Def.'s Statement Facts ¶ 13. Wrap
contracts include investment guidelines that impose
limitations on the composition of the SVF's underlying
portfolio of investments, Pls.' Statement Facts 31 ¶
20; Def.'s Statement Facts ¶ 20, and do not
guarantee that investors will earn a return on the principal
that they invest, Pls.' Statement Facts 32 ¶ 25;
Def.'s Statement Facts ¶ 25. Breaches of wrap
contract guidelines can result in termination of coverage.
Pls.' Statement Facts 44 ¶ 70; Def.'s Statement
Facts ¶ 70.
is the trustee of the Portfolio, Pls.' Statement Facts 2
¶ 6; Def.'s Resp. Facts ¶ 6, and has primary
responsibility for the Portfolio's administration and the
prudent investment of Portfolio assets, Pls.' Statement
Facts 2 ¶ 7; Def.'s Resp. Facts ¶ 7.
Fidelity's management fee for the Portfolio is derived
from the amount of assets under management
(“AUM”). Pls.' Statement Facts 3 ¶ 13;
Def.'s Resp. Facts ¶ 13.
Portfolio is governed by the Declaration of Separate Fund
(“DSF”). Pls.' Statement Facts 33 ¶ 30;
Def.'s Statement Facts ¶ 30. The DSF states that the
Portfolio's primary investment objective is
“‘seek[ing] the preservation of capital as well
as . . . provid[ing] a competitive level of income over time
consistent with the preservation of capital, '”
Pls.' Statement Facts 2 ¶ 8, 34 ¶ 31;
Def.'s Statement Facts ¶ 31; Def.'s Resp. Facts
¶ 8, and that Fidelity must “use its best efforts
to maintain a stable net asset value of $1.00 per unit,
” Pls.' Statement Facts 34 ¶ 32; Def.'s
Statement Facts ¶ 32.
and Perry each invested in the Portfolio through the Barnes
& Noble 401(k) Plan. Pls.' Statement Facts 36 ¶
41; Def.'s Statement Facts ¶ 41. Ellis invested in
the Portfolio from 2009 to 2015, while Perry invested in the
Portfolio between 2009 and 2013. Compl. ¶ 12; Answer
The Portfolio's Benchmark
portfolio performance benchmark loosely shapes SVF
investors' expectations about the risks and returns that
the portfolio manager will take when investing fund assets,
Pls.' Statement Facts 37 ¶ 49; Def.'s Statement
Facts ¶ 49, but does not limit the types of investments
a fund can make -- in fact, fund managers at times invest in
securities that are not included in the fund's benchmark,
Pls.' Statement Facts 38 ¶ 50; Def.'s Statement
Facts ¶ 50.
used the Barclay's Government/Credit Bond Index 1-5 A
(“1-5 G/C Index”) or better as a benchmark to
manage the Portfolio throughout the class period. Pls.'
Statement Facts 12 ¶ 52; Def.'s Resp. Facts ¶
52. The DSF also states that the Portfolio's assets
“will be managed to approximate the interest rate
sensitivity of the [1-5 G/C Index].” Pls.'
Statement Facts 34 ¶ 33; Def.'s Statement Facts
¶ 33. “Interest rate sensitivity” is the
weighted average duration of the securities in a portfolio.
Pls.' Statement Facts 35 ¶ 34; Def.'s Statement
Facts ¶ 34. The longer the duration of a fixed income
security, the more that its market value would generally be
expected to change in response to changes in interest rates.
Pls.' Statement Facts 35 ¶ 34; Def.'s Statement
Facts ¶ 34. Typically, long-term bonds have greater
interest rate risk than short-term bonds, and an interest
rate change will have a greater effect on the price of
long-term bonds than short-term bonds. Pls.' Statement
Facts 38 ¶ 52; Def.'s Statement Facts ¶ 52.
Fidelity's stable value portfolio managers believe that
interest rate changes are generally unforeseeable; thus they
typically strive to keep the duration of each SVF within a
band around the fund's benchmark. Pls.' Statement
Facts 39 ¶ 56; Def.'s Statement Facts ¶ 56.
and during the class period, Fidelity periodically explored
changing the Portfolio's benchmark and regularly
conducted quantitative analyses of potential alternative
benchmarks, including their risks and the impacts changing
the benchmark could have on the Portfolio's returns,
duration, market-to-book ratio, and tracking error
volatility. Pls.' Statement Facts 40 ¶ 57;
Def.'s Statement Facts ¶ 57. The stable value
portfolio managers evaluated both more and less aggressive
benchmarks, but consistently decided to retain the 1- 5 G/C
Index as the Portfolio's benchmark. Pls.' Statement
Facts 41 ¶¶ 59-60; Def.'s Statement Facts
The Portfolio's Management Process
portfolio manager (“PM”) evaluates potential
investments and investment strategies, and makes investment
decisions for Fidelity's SVFs. Pls.' Statement Facts
47 ¶ 79; Def.'s Statement Facts ¶ 79. A
portfolio's designated PM has final decision-making
authority with respect to that portfolio's holdings, but
works with other PMs to make investment decisions. Pls.'
Statement Facts 47 ¶ 81; Def.'s Statement Facts
¶ 81. Fidelity's PMs sit next to each other on
Fidelity's fixed income trading floor, where they have
informal conversations about investment strategies and ideas
amongst themselves, as well as with other investment
professionals. Pls.' Statement Facts 49 ¶¶
86-87; Def.'s Statement Facts ¶¶ 86-87.
Portfolio's investment decisions use Fidelity's
analytics and take into account the information provided by
numerous teams, Pls.' Statement Facts 62 ¶ 116;
Def.'s Statement Facts ¶ 116, including the
fundamental research team, Def.'s Statement Facts ¶
94, and the fixed income trading team, id. ¶
fundamental research team provides a ground-up approach to
credit research -- constructing Fidelity's own rating for
nearly every counterparty with which Fidelity transacts,
id. ¶ 91 -- and adds a top-down aspect to the
process by integrating sector and macroeconomic research,
id. ¶ 92. The team is comprised of around forty
fixed income fundamental research analysts with various
specialties. Id. ¶¶ 89-90. The analysts
provide quantitative and qualitative research on various
topics, such as an in-house assessment of the
creditworthiness of issuers, details regarding particular
debt offerings, events and conditions that could affect the
performance of different asset classes, statistical analyses,
and information about general macroeconomic events or
conditions. Id. ¶ 89. The research team
routinely summarizes this research into research notes,
id. ¶ 93, which the PMs review on a regular
basis to learn about the market and assess investment ideas,
id. ¶ 94.
team of fixed income traders identifies opportunities for the
PMs to purchase or sell fixed income securities, evaluates
whether those opportunities are priced appropriately, and
executes trades. Id. ¶¶ 95-97. The team is
made up of about twenty traders with various specialties.
Id. ¶¶ 95-96. Fidelity's PMs and other
fixed income professionals host a daily morning meeting on
the trading floor to discuss overnight events and market
movements and present potential investment opportunities.
Id. ¶ 98.
senior management monitors and oversees the processes and
judgments of the PMs with respect to potential investments
and investment strategies. Id. ¶ 103. The PMs
meet with Christine Thompson, Chief Investment Officer for
Fidelity's bond group, every six weeks or so to review
the PMs' decision-making, id. ¶ 131, and
discuss the funds' performance and flows, risk
positioning, sector allocation, duration positioning, and
other issues, id. ¶¶ 133-34. Fidelity also
oversees its SVFs through the Trust/Investment Oversight
Committee (“TIC”), which exercises the powers of
the Board of Directors with respect to supervision of the
trust activities of Fidelity, including the management of
Fidelity's SVFs. Pls.' Statement Facts 70 ¶ 135;
Def.'s Statement Facts ¶ 135. The TIC reviews
Fidelity's SVFs at least twice per year, at meetings
where at least one PM is on hand to present. Pls.'
Statement Facts 71 ¶ 138; Def.'s Statement Facts
¶ 138. The discussions cover, inter alia,
performance, risk, investment strategy, benchmarks,
investment guidelines, asset allocation, wrap capacity, and
compliance with ...