Barchock v. CVS Health Corporation
886 F.3d 43
1st Cir.2018Background
- Plaintiffs (participants in CVS’s 401(k) plan) sued CVS, the Benefits Plan Committee, and Galliard under ERISA § 404 for breach of the duty of prudence, alleging the plan’s stable value fund was invested too heavily in cash or cash-equivalents (2010–2013).
- The CVS stable value fund’s objective (per Form 5500) was to preserve capital while producing returns higher than money market funds; Galliard was the fund manager.
- Complaint alleged Galliard allocated roughly 27%–55% of the fund to another fund invested primarily in cash equivalents, reducing duration and depressing returns relative to industry norms.
- Plaintiffs relied on a Stable Value Investment Association survey (2011–2012 means ~5–10% cash) and academic studies showing stable value funds historically outperformed money market funds, arguing Galliard’s allocation was a radical departure from industry practice and financial logic.
- District Court dismissed under Rule 12(b)(6) for failure to state an ERISA imprudence claim (impermissible hindsight second-guessing); plaintiffs appealed and the First Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether alleging a fund was invested ‘‘too much’’ in cash (departing from industry means) states an ERISA imprudence claim | Barchock: A ‘‘radical’’ departure from industry allocation norms and the financial logic of stable value investing plausibly shows imprudence without more contextual facts | Galliard/CVS: Allegations show the fund met its disclosed conservative objective; departure from mean alone is hindsight second-guessing and insufficient to plead imprudence | Held: Dismissed — deviation from industry averages and labels alone, without contextual allegations about the fiduciary’s decision-making or circumstances, is not a plausible ERISA imprudence claim |
| Whether industry survey means (5–10% cash) suffice to show the fund was a ‘‘severe outlier’’ | Plaintiffs: Survey means and alleged allocations let court infer Galliard was an outlier and imprudent | Defendants: Means without distributional context don’t show outlier status or that choices lacked reason; survey ranges overlap plaintiffs’ figures | Held: Dismissed — survey means alone do not plausibly establish imprudence or that fiduciary process was flawed |
| Whether allegations about general financial logic (stable value funds outperform money markets) supply the missing context | Plaintiffs: Academic studies and general logic allow inference that high cash allocation was imprudent when liquidity needs were limited | Defendants: Those studies don’t prescribe specific cash thresholds; plaintiffs offer no principled rule for when liquidity becomes ‘‘too much’’ | Held: Dismissed — plaintiffs failed to identify a coherent standard or factual context showing why the challenged allocations were imprudent |
| Whether monitoring claims against CVS and the Committee survive if manager claim fails | Plaintiffs: CVS defendants failed to monitor Galliard despite anomalous allocation | Defendants: Monitoring claims depend on a viable substantive imprudence claim against the manager | Held: Dismissed — monitoring claims fail because the underlying imprudence claim was not plausible |
Key Cases Cited
- Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014) (prudence inquiry depends on circumstances prevailing when fiduciary acted; context-specific analysis required)
- Bunch v. W.R. Grace & Co., 555 F.3d 1 (1st Cir. 2009) (Prudent Man Rule focuses on fiduciary conduct, not results; no hindsight review)
- Abbott v. Lockheed Martin Corp., 725 F.3d 803 (7th Cir. 2013) (description of stable value funds; related litigation addressed imprudence claims after fuller factual development)
- DiFelice v. U.S. Airways, Inc., 497 F.3d 410 (4th Cir. 2007) (prudence cannot be judged solely with hindsight)
- Donovan v. Cunningham, 716 F.2d 1455 (5th Cir. 1983) (Prudent Man Rule is a test of conduct, not results)