Ellis v. Fidelity Management Trust, 883 F.3d 1

Background

Plaintiffs (Ellis and Perry), participants in Barnes & Noble's 401(k), sued Fidelity Management Trust Co. under ERISA for breach of the duties of loyalty and prudence in managing the plan's stable value fund (Managed Income Portfolio, MIP).
Stable value funds typically hold high-quality fixed-income securities, use a crediting rate, and rely on "wrap" insurance to guarantee book value subject to contract terms; wrap providers often impose portfolio guidelines favoring safety (e.g., treasuries).
After the 2007–08 crisis, wrap capacity contracted and several MIP wrap providers threatened to exit; Fidelity negotiated wrap coverage and shifted MIP allocations toward shorter-duration, safer instruments, which preserved capital but produced lower returns than many competitors.
Plaintiffs alleged Fidelity agreed to overly conservative wrap terms to lock up wrap capacity and exclude competitors (to grow Fidelity's AUM), and that Fidelity was imprudent in choosing conservative benchmarks and asset allocations.
The district court denied dismissal, certified a class, then granted summary judgment for Fidelity after discovery, finding plaintiffs offered only speculative evidence; the First Circuit affirmed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Fidelity breached ERISA duty of loyalty by seeking wrap coverage in ways that favored Fidelity over participants	Fidelity sought to secure wrap capacity by agreeing to overly conservative guidelines to exclude competitors and grow Fidelity's assets — motive was self-dealing	Fidelity sought wrap coverage to protect MIP participants amid real market risk; pursuit of wrap and conservative allocations aligned with participant interests	No breach — plaintiffs produced no competent evidence that Fidelity acted to prefer its own interests over participants; theory was speculative and illogical given market facts
Whether Fidelity violated duty of prudence by (a) aggressively pursuing wrap on the terms it did	Aggressive pursuit and terms were imprudent and harmed returns	Pursuing wrap under market conditions was a reasonable response; no evidence Fidelity accepted excessive or unreasonable terms	No breach — plaintiffs failed to identify evidence of imprudent alternatives or specific unreasonable decisions
Whether Fidelity violated duty of prudence by choosing a conservative benchmark and allocations (too conservative)	Benchmark and allocations were unduly conservative and depressed returns	Conservative benchmark disclosed; fund's primary goal was capital preservation, and conservatism is consistent with that objective	No breach — selecting a conservative, disclosed benchmark for a capital-preservation product is not per se imprudent; plaintiffs' claim relies on hindsight
Whether failure to take corrective action when returns lagged was imprudent	Fidelity failed to act to improve MIP returns despite underperformance	Managers considered and increased risk allocations over time; no specific imprudent omission identified	No breach — plaintiffs identified no particular unreasonable act/omission; evidence showed iterative risk adjustments

Key Cases Cited

Vander Luitgaren v. Sun Life Assurance Co. of Canada, 765 F.3d 59 (1st Cir. 2014) (fiduciary may receive incidental benefits so long as it does not place its own interests ahead of beneficiaries)
Donovan v. Bierwirth, 680 F.2d 263 (2d Cir. 1982) (trustees must act with an eye single to the interests of participants; liability where trustees plainly favored corporate interests)
Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment standard where nonmoving party fails to produce evidence on an essential element)
Bunch v. W.R. Grace & Co., 555 F.3d 1 (1st Cir. 2009) (prudence under ERISA judged by conduct ex ante, not results/hindsight)
Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5 (1st Cir. 1990) (summary judgment inappropriate where nonconjectural evidence supports dispute)