FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MASSACHUSETTS [Hon. William G. Young, U.S. District Judge]
Garrett W. Wotkyns, with whom Schneider Wallace Cottrell
Konecky Wotkyns LLP was on brief, for appellants.
Jonathan D. Hacker, with whom Brian D. Boyle, Gregory F.
Jacob, Meaghan VerGow, Bradley N. Garcia, O'Melveny &
Myers LLP, John J. Falvey, Jr., Alison V. Douglass,
and Goodwin Procter LLP were on brief, for appellee.
Kayatta, Circuit Judge, Souter, Associate Justice,
and Selya, Circuit Judge.
KAYATTA, Circuit Judge.
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.
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).
were participants in the Barnes & Noble 401(k) plan,
which allowed participants to allocate their savings 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").
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,  the insurance provider will cover the
difference. Because the entity providing the wrap insurance
hopes it will not have to make good 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.
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. 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.
wake of the 2007-2008 financial crisis and the ensuing
economic decline, Fidelity fund managers expressed concern
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.
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 asset-backed securities) and
toward treasuries and other cash-like or 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
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
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 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 ...