Moitoso v. FMR LLC

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

___________________________________

)

KEVIN MOITOSO, TIM LEWIS, )

MARY LEE TORLINE, and SHERYL )

ARNDT, individually and as )

representatives of a class )

of similarly situated persons, )

and on behalf of the )

FIDELITY RETIREMENT SAVINGS PLAN, )

)

Plaintiffs, )

)

v. ) CIVIL ACTION

) NO. 18-12122-WGY

FMR LLC, FMR LLC FUNDED )

BENEFITS INVESTMENT COMMITTEE, )

FMR LLC RETIREMENT COMMITTEE, )

FIDELITY MANAGEMENT & RESEARCH )

COMPANY, FMR CO., INC., and )

FIDELITY INVESTMENTS INSTITUTIONAL )

OPERATIONS COMPANY, INC., )

)

Defendants. )

___________________________________)

YOUNG, D.J. March 27, 2020

MEMORANDUM & ORDER

I. INTRODUCTION

Kevin Moitoso, Tim Lewis, Mary Lee Torline, and Sheryl

Arndt (collectively, the “Plaintiffs”) are former employees of

FMR LLC or its affiliates and beneficiaries of the Fidelity

Employers’ defined contribution 401(k) retirement plan, the

Fidelity Retirement Savings Plan (the “Plan”). Pls.’ Fourth Am.

Compl., (“Compl.”) ¶¶ 1, 18-21, 46, ECF No. 77. They have

brought this lawsuit pursuant to 29 U.S.C. §§ 1132(a)(2)-(3) on

behalf of a certified class of former Fidelity employees, and on

behalf of the Plan itself, asserting breaches of fiduciary duty

in violation of the Employee Retirement Income Security Act of

1974 (“ERISA”), as amended, 29 U.S.C. § 1001 et seq.. Compl. ¶¶

15, 127-162; Stipulation and Order Regarding Class Certification

(“Class Cert.”), ECF No. 83

The Plaintiffs sued two groups of defendants (collectively,

the “Defendants” or “Fidelity”). Compl. ¶ 2. The first group

consists of the Plan’s named fiduciaries: FMR LLC, FMR LLC’s

Board of Directors, FMR LLC Funded Benefits Investment Committee

(“FBIC”), and FMR LLC Retirement Committee (“Retirement

Committee) (collectively, the “Plan Fiduciaries”). Id. ¶¶ 2,

22-28. The second group consists of the plan’s sponsor, FMR

LLC, and the non-fiduciaries Fidelity Management & Research

Company (“FMR”), FMR Co., Inc. (“FMRC”), and Fidelity

Investments Institutional Operations Company, Inc. (“FIIOC”)

(collectively, “Fidelity Entities”).1 Id. ¶¶ 2, 29-34.

The Plaintiffs first bring claims against the Plan

Fiduciaries for breach of the fiduciary duties of loyalty and

prudence in violation of ERISA § 404, 29 U.S.C. § 1104(a)(1)(A)-

1 The Defendants collectively will be referred to as

“Fidelity,” but will be referred to by their specific names when

this Court is analyzing the actions of a specific member of the

group.

(B), (D) (count I). Compl. ¶¶ 127-134. The Plaintiffs further

accused the Plan Fiduciaries of breaching the duty of

impartiality, in violation of 29 U.S.C. § 1104(a) (count II),

but later withdrew that claim without prejudice. Compl. ¶¶ 135-

141; Pls.’ Opp’n Defs.’ Mot. Summ. J. (“Pls.’ Opp’n”) 10, ECF

No. 154. The Plaintiffs also accuse the Plan Fiduciaries of

engaging in prohibited transactions with a fiduciary in

violation of 29 U.S.C. § 1106(b) (count III). Compl. ¶¶ 142-

147. The Plaintiffs charge FMR LLC with failure to monitor the

Plan Fiduciaries (count IV), id. ¶¶ 148-154, and seek from all

the Fidelity Entities equitable disgorgement of profits (count

V), id. ¶¶ 155-162. See 29 U.S.C. §§ 1109(a), 1132(a)(2)-(3).

Fidelity asserts as an affirmative defense that all of the

Plaintiffs’ charges are not only barred by a prior court-

approved class action settlement but are also time-barred.

Defs.’ Supp. Mem. Summ. J. (“Defs.’ Mem.”) 9-12, ECF No. 140.

Additionally, Fidelity argues that it has not violated any

fiduciary duties as matter of law. Id. at 13-20. The two

parties agreed to a case stated hearing on some (but not all)

issues, which this Court conducted on November 20, 2019.2 Joint

Letter from Pls.’ and Def.’s Regarding Nov. 7, 2019 Sum. J.

2 Through the case stated procedure, the parties waive trial

on a specified set of issues and the Court may render judgment

based on the undisputed facts in the record. See TLT Constr.

Corp. v. RI, Inc., 484 F.3d 130, 135 n.6 (1st Cir. 2007).

Proc. (“Case Stated Letter”), ECF No. 209; Electronic Clerk’s

notes, ECF No. 221.

Having heard the arguments of both sides, the Court now

rules that, on count I, Fidelity has breached its duty of

prudence by failing to monitor its mutual fund investments and

by failing to monitor recordkeeping expenses. Fidelity,

however, has not breached its duty of prudence by failing to

investigate alternatives to those mutual funds because a prudent

fiduciary would not be required to conduct those specific

investigations. Fidelity additionally has not breached its duty

of loyalty. On count III, Fidelity has not engaged in

prohibited transactions because its dealings with proprietary

products were no less favorable to the Plan as a whole than to

other shareholders of Fidelity funds.

Counts IV and V are both derivative of counts I and III.

Regarding count IV, this Court rules that FMR LLC is liable for

the breach of its duty to monitor the Plan Fiduciaries with

regards to their ongoing handling of the mutual fund investments

and recordkeeping expenses. On count V, the Plaintiffs may

recover from Fidelity Entities for any profits traceable to the

aforementioned breach of the fiduciary duty to monitor. At

trial, the Plaintiffs will bear the burden of proving the extent

of any losses, and Fidelity will bear the burden of proving that

any losses to the Plan were not caused by the lack of

monitoring. See Brotherston v. Putnam Invs., LLC, 907 F.3d 17,

35 (1st Cir. 2018).

A. Procedural History

The Plaintiffs first filed this suit On October 10, 2018,

Class Action Compl. 1, ECF No. 1, amending the complaint three

times. Am. Compl., ECF No. 31; Second Am. Compl., ECF No. 37;

Third Am. Compl., ECF No. 56. On May 2, 2019, the Plaintiffs

filed their fourth and final amended complaint. See generally

Compl. On September 6, 2019, the Plaintiffs filed a motion for

partial summary judgment, and the Defendants then cross-moved

for summary judgment. Pls.’ Mot. Partial Summ. J., ECF No. 135;

Defs.’ Mot. Summ. J., ECF No. 139. Prior to considering the

summary judgment motions, this Court entered a memorandum and

order denying the Plaintiffs’ request for a jury trial but

providing for the selection of an advisory jury. See Moitoso v.

FMR LLC, 410 F. Supp. 3d 320 (D. Mass. 2019). This Court then

heard oral arguments on summary judgment on November 7, 2019,

taking all matters under advisement, and setting a case stated

hearing for November 20, 2019. Electronic Clerk’s Notes, ECF

No. 218. At the November 20 hearing, this Court also took all

the matters under advisement. ECF No. 221; Tr. Case Stated Hr’g

(“Tr. Case Stated Hr’g”), ECF No. 222.

B. The Procedural Framework of this Decision: The Case

Stated

While the summary judgment motions were sub judice, the

parties proposed that the Court resolve some -- but not all --

of the issues as a case stated. Case Stated Letter. This case

stated hearing was based on stipulations by both parties that

there were no material facts in dispute on any issue except the

Defendants’ statute of limitations defense. Case Stated Letter

1. “Case stated hearings provide an efficacious procedural

alternative to cross motions for summary judgment.” Sawyer v.

United States, 76 F. Supp. 3d 353, 356 (D. Mass. 2015) (citing

Continental Grain Co. v. Puerto Rico Mar. Shipping Auth., 972

F.2d 426, 429 n.7 (1st Cir. 1992)). In a case stated decision

“the parties waive trial and present the case to the court on

the undisputed facts in the pre-trial record. The court is then

entitled to ‘engage in a certain amount of factfinding,

including the drawing of inferences.’” TLT Constr. Corp. v. RI,

Inc., 484 F.3d 130, 135 n.6 (1st Cir. 2007) (quoting United

Paperworkers Int’l Union Local 14 v. International Paper Co., 64

F.3d 28, 31 (1st Cir. 1995)).

At the case stated hearing this Court announced that it

would base its decision on the undisputed statements of facts

provided by both parties. Tr. Case Stated Hr’g 4; Pls.’ Local

R. 56.1 Statement Undisputed Material Facts (“Pls.’ SOF”), ECF

No. 137; Statement Undisputed Material Facts Supp. Defs.’ Mot.

Summ J. (“Defs.’ SOF”), ECF No. 141; Pls.’ Resp. Defs.’ SOF

Statement Material Facts Pursuant Local R. 56.1 (“Pls.’ Resp.

SOF”), ECF No. 153; Defs.’ Resp. Pls.’ SOF, (“Defs.’ Resp.

SOF”), ECF No. 167.

It is worth remarking that, in this Court’s experience,

case stated hearings usually involve but a modicum of fact

finding -- nothing more than the drawing of reasonable

inferences. Here, by converting the summary judgment record to

their case stated presentation the parties have provided the

Court with a plethora of affidavits characterizing the facts.

See D. Brock Hornby, The Business of U.S. District Courts, 10

Green Bag 2D 453, 462 (2007) (noting that much of the work of

the modern day judge consists of poring over affidavits and

other “facts” submitted by lawyers instead of holding trials).

This Court has independently drawn its own inferences from the

stipulated facts.

C. Factual Background

This case concerns the nature of the fiduciary duties that

Fidelity owes to the Plan, along with the current and former

employees that are beneficiaries of this Plan.

The Plan is a defined contribution plan within the meaning

of 29 U.S.C. § 1002(34) and qualified under 26 U.S.C. § 401 (a

“401(k) plan”). Pls.’ SOF ¶ 2; Compl. ¶ 46. FMR LLC is the

sponsor of the Plan, pursuant to 29 U.S.C. § 1002(16)(B). Pls.’

SOF ¶ 1. In defined contribution plans, fiduciaries curate

diversified investment options in which plan participants can

invest. Compl. ¶ 47; see 29 U.S.C § 1104(a)(1)(C). The Plan

allowed participants to invest in Fidelity funds, non-Fidelity

funds available through a self-directed brokerage account, and

two monitored options, the Portfolio Advisory Service at Work

account (“PAS-W”) and the Fidelity Freedom K Funds. See Decl.

Dave Rosenberg (“Rosenberg Decl.”), Ex. 56, Your Summary Plan

Description FID000137, ECF No. 142-56.

Fidelity’s Plan included more than 58,000 participants and

assets under management of approximately $17,000,000,000 as of

the end of 2016. Pls.’ SOF ¶ 4; Compl. ¶ 51. All members of

the class action are former Fidelity employees who were invested

in at least one fund available through the Plan. Id. ¶ 119

(describing precise parameters of certified class).

The current litigation is not the first class action

concerning this particular Plan. In 2013, a class of the Plan’s

beneficiaries alleged that Fidelity breached its fiduciary duty

of loyalty by offering only Fidelity mutual funds on the Plan,

failing to offer cheaper alternatives, and committing prohibited

transactions under ERISA. See id. ¶ 35 (citing Bilewicz v. FMR

LLC, et al., Class Action Compl., Civ. A. No. 13-10636, ECF No.

1 (D. Mass. 2013) (Casper, J.) (“Bilewicz”)). Plan participants

then filed a second lawsuit on January 7, 2014, alleging that

Fidelity had violated its fiduciary duties by paying excessive

recordkeeping fees. Defs.’ SOF ¶¶ 8-9 (citing Yeaw v. FMR LLC,

et al, Class Action Compl., Civ. A. No. 14-10035, ECF No. 1 (D.

Mass. 2014) (Casper, J.) (“Yeaw”)).

In October 2014, Judge Casper approved a settlement

agreement between Fidelity and the plaintiffs, consolidated

under Bilewicz. Order Approve Settlement Class Action,

Bilewicz, ECF No. 72. This settlement agreement required the

defendants to pay $12,000,000 into a common fund and rewrite the

plan document to provide more benefits and protections for Plan

members. See generally Bilewicz, Mem. Supp. Mot. Order, Ex. 1,

Class Action Settlement Agreement (“Bilewicz Settlement

Agreement” or “Settlement”), ECF No. 53-1.

All named plaintiffs in the current case were members of

the Bilewicz settlement class. Defs.’ SOF ¶ 12. All named

Defendants in this case were also defendants in the Bilewicz

litigation. Id. ¶ 29. As part of the Settlement, the Bilewicz

plaintiffs agreed to release the defendants from “any and all

claims, debts, demands, rights or causes of action, suits,

matters, and issue or liabilities whatsoever . . . including

both known Claims and Unknown Claims” in any way related to the

claims at hand in that litigation. Id. ¶ 30 (emphases deleted)

(citing Bilewicz Settlement Agreement § 3.3).

Following these settlement negotiations Fidelity announced

the First Amendment to the Plan Document, effective July 29,

2014 (“First Amendment”). Pls.’ SOF ¶ 9. Under this First

Amendment, Fidelity identified two “designated investment

alternatives” (“DIAs”), the Fidelity Freedom target date funds

(“Freedom Funds”), and the PAS-W, that would undergo full

fiduciary monitoring. Defs.’ SOF ¶¶ 55-57, 93. It also offered

beneficiaries of the Plan the option to invest in an array of

other Fidelity and non-Fidelity funds by specifically selecting

them through the Plan’s “open architecture” or “supermarket” of

fund offerings. Id. ¶ 53. Fidelity funds were available on

NetBenefits, the online platform previously used by Fidelity,

while participants could access the non-Fidelity funds by

creating an account on the separate, self-directed BrokerageLink

platform. Pls.’ SOF ¶¶ 10-11. The majority of the Plan assets,

at the time of filing, were invested in one of the non-DIA

Fidelity funds available through NetBenefits. Id. ¶ 16.

To address the issue of excessive recordkeeping costs, the

Settlement also required an update to the Plan’s existing

revenue credit system to create mandatory revenue-sharing with

Plan participants (“Revenue Credits”). Defs.’ SOF ¶ 121. This

Revenue Credit matches or exceeds the management fees and

revenue generated by Fidelity pursuant to its role administering

the various funds, which includes the cost of recordkeeping, and

is paid to the Plan at the end of each year. Id. ¶¶ 122, 126.

The Plan’s fiduciaries have said they did not monitor these

administrative costs, on the grounds that all administrative

expenses paid to Fidelity would be credited back to the Plan

through the Revenue Credits. Id. ¶ 128.

Former employees who had left Fidelity, though still

members of the Plan, do not receive any part of the Revenue

Credit, unless they were employed for a portion of a Plan year.

Pls.’ SOF ¶ 37. Before the implementation of the Revenue

Credit, Fidelity had provided a discretionary profit-sharing

contribution to the Plan account of each individual equivalent

to 10% of their compensation. Id. ¶ 35. After the Revenue

Credit’s implementation, Fidelity adopted a practice of flexing

the amount of discretionary profit-sharing based on the amount

returned to each account through the Revenue Credit, so the

total of the (mandatory) Revenue Credit and (discretionary)

profit-sharing remained at 10% of compensation per year. Id.

This leads the Plaintiffs to call the implementation of the

Revenue Credit an “accounting gimmick.” Id. ¶ 36 (quoting Decl.

Mark Thomson (“Thomson Decl.”), Ex. 18, Expert Report Marcia S.

Wagner (“Wagner Report”) ¶ 88, ECF No. 138-20).

II. ANALYSIS

As both parties have stipulated to the underlying facts in

this case, their conflict concerns the boundaries of the

fiduciary duty that Fidelity owes to the members of the Plan.

Fidelity believes that this Court need not reach any substantive

issues of fiduciary duty. It contends that the Plaintiffs are

essentially re-litigating the Bilewicz Settlement Agreement in

arguing that many of the Plan’s features (such as the Revenue

Credit) are themselves breaches of fiduciary duty, and that

their claims ought thus be denied under the principle of res

judicata. Defs.’ Mem. 5-8. Fidelity also points to the release

and covenant not to sue in the Settlement as covering all the

named Plaintiffs, asking that this Court find the Plaintiffs’

claims are covered by the language of the release. Id.3

The Plaintiffs primarily point to three places where they

allege Fidelity has breached its duties of prudence and loyalty.

First, the Plaintiffs contend that the Defendants breached their

duty to monitor funds in the plan outside the two DIAs. Compl.

¶¶ 101-103. The Plaintiffs argue this lack of monitoring

constitutes a violation of fiduciary duties because, for various

3 Fidelity further argues that both counts I and III are

time-barred because the Plaintiffs would have been required to

sue within three years of discovering the breach of fiduciary

duty. Defs.’ Mem. 9-12 (citing 29 U.S.C. § 1113(2)). The

statute of limitations under ERISA is based on an actual

knowledge standard, see generally Intel Corp. Inv. Policy Comm.

v. Sulyma, 140 S. Ct. 768, 776-77 (2020), and because the

parties did not stipulate to the underlying facts required to

make this actual-knowledge determination prior to the case

stated hearing, this Court will not address this statute of

limitation issue at this time. See Case Stated Letter.

reasons, the choice to include these specific funds was

imprudent. Id. ¶¶ 65-72, 76-103. Second, the Plaintiffs argue

that Fidelity had a duty to investigate alternatives to mutual

funds including stable value funds, collective trusts, and

separate accounts. Id. ¶¶ 68-71, 95-100. Third, the Plaintiffs

argue the Plan Fiduciaries had a duty to monitor and control

administrative expenses, and that the Revenue Credit system does

not adequately release them from this responsibility. Id. ¶¶

73-75, 104-116. On the whole, the Plaintiffs argue, the

Defendants inappropriately placed the interests of Fidelity over

the interests of Plan participants. Id. ¶ 131.

The Plaintiffs additionally assert that payment by the Plan

to FMR LLC for administrative expenses constitutes a prohibited

transaction with Fiduciary, in violation of 29 U.S.C. §

1106(b)(3). Id. ¶ 143. While Prohibited Transaction Exemption

77-3 (“PTE 77-3”), 42 Fed. Reg. 18734, 18735 (Apr. 8, 1977),

would provide the Defendants a safe harbor were the Plan treated

no less favorably than any other non-proprietary option, the

Plaintiffs dismiss PTE 77-3 as a defense for two reasons: (1)

they claim that the Revenue Credit is essentially illusory, so

FMR LLC is still receiving net compensation from administrative

expenses; and (2) the class members did not receive the Revenue

Credits because they are former employees. Pls.' Mem. Supp.

Partial Summ. J., (“Pls.’ Mem.”) 18, ECF No. 136.

Derivative of the claimed breach of fiduciary duties, count

IV is viable against FMR LLC only were this Court to find the

Plan Fiduciaries to have committed a breach. Compl. ¶¶ 148-152.

Similarly, count V asks for the disgorgement of profits that

Fidelity has accrued pursuant to its breaches of duty and

applies only to the extend this Court finds such a breach of

duty. Id. ¶¶ 155-158.

The Court addresses the issues in this order.

A. Prior Court-Approved Class Action Settlement and Res

Judicata

Fidelity argues that all claims in the complaint are barred

by the prior approved class action settlement and res judicata.

Defs.’ Mem. 5-6. The Plaintiffs submit that the settlement and

res judicata do not bar their claims because their claims arise

from breaches of Fidelity’s continual duty of prudence and

loyalty after the signing of the settlement. Pls.’ Opp’n 10-15.

The Court agrees.

“‘Under the federal law of res judicata, a final judgment

on the merits of an action precludes the parties or their

privies from relitigating claims that were raised or could have

been raised in that action.’” Breneman v. United States ex rel.

FAA, 381 F.3d 33, 38 (1st Cir. 2004) (quoting Apparel Art Int’l,

Inc. v. Amertex Enters. Ltd., 48 F.3d 576, 583 (1st Cir. 1995)).

A claim of res judicata must establish the following elements:

“‘(1) a final judgment on the merits in an earlier proceeding,

(2) sufficient identicality between the causes of action

asserted in the earlier and later suits, and (3) sufficient

identicality between the parties in the two actions.’” Id.

(quoting Banco Santander de P.R. v. Lopez-Stubbe (In re Colonial

Mortg. Bankers Corp.), 324 F.3d 12, 16 (1st Cir. 2003)).

ERISA provides that, unless covered by specified

exceptions, “any provision in an agreement or instrument which

purports to relieve a fiduciary from responsibility or liability

for any responsibility, obligation, or duty under this part

shall be void as against public policy.” 29 U.S.C. § 1110(a).

In the interest of encouraging settlement of claims, courts have

consistently held that section 1110(a) does not prevent parties

from negotiating a release from existing fiduciary violations.

See Leavitt v. Northwestern Bell Tel. Co., 921 F.2d 160, 161-62

(8th Cir. 1990) (noting that such a release does not relieve a

fiduciary of its responsibilities, but “merely settles a dispute

that the fiduciary did not fulfill its responsibility or duty on

a given occasion”); see also Howell v. Motorola, Inc., 633 F.3d

552, 561 (7th Cir. 2011); Taylor v. Visteon Corp., 149 F. App’x

422, 427 (6th Cir. 2005). Courts have held, however, that such

releases cannot protect a fiduciary from suit when the cause of

action arose after the signing of the release. See Ruppert v.

Alliant Energy Cash Balance Pension Plan, 255 F.R.D. 628, 635

(W.D. Wis. 2009) (“[T]o the extent plaintiffs’ releases could be

construed as releasing defendant from this ERISA suit, the

agreement would be unenforceable because agreements that waive

future violations of ERISA are unenforceable . . . .”). An

attempt to release future ERISA violations would not be valid

because it would be an attempt to relieve the fiduciary of

responsibility. See Taylor, 149 F. App’x at 426; Srein v. Soft

Drink Workers Union, Local 812, 93 F.3d 1088, 1096 (2d Cir.

1996) (citing Leavitt, 921 F. 2d at 161-62).

Fidelity points to two provisions in the original Bilewicz

Settlement Agreement that it argues bar the Plaintiffs’ claims.

Defs.’ Mem 3-5. First, section 3.3 of the Settlement defines

the scope of claims released by the Settlement. Id.; Bilewicz

Settlement Agreement § 3.3. The provision covers “both known

Claims and Unknown Claims,” including those “in any way arising

out of, relating to, based on, or in connection with: the

structure, management, monitoring, servicing, administration,

size and/or expenses of the Plan” as well as “any assertions

regarding revenue sharing.” Id. (emphases in original).

Additionally, the Settlement includes a release barring

litigation over any features of the Plan included in section

7.3, the section describing the steps Fidelity would take to

meet the demands of the Settlement. Id. §§ 3.3, 7.3. According

to Fidelity, the recordkeeping, breach of fiduciary duty, and

prohibited transaction claims are barred because they are all

related to the system implemented by section 7.3. Defs.’ Mem.

7-8. Fidelity additionally argues that the release should apply

because the Plaintiffs’ claims do not arise from a change in

events after the Settlement, and because those claims previously

could have been litigated. Id. at 9.

The Plaintiffs argue, and the Court agrees, that the

holding from Tibble v. Edison Int’l suggests that there has been

a sufficient “change in circumstances” justifying this new suit,

because fiduciaries have a continual duty to monitor

investments. Pls.’ Opp’n 12 (quoting 135 S. Ct. 1823, 1828

(2015)). In outlining this continual duty to monitor, the

Supreme Court held that “the trustee must ‘systematic[ally]

conside[r] all the investments of the trust at regular

intervals’ to ensure that they are appropriate.” Tibble, 135 S.

Ct. at 1828 (alterations in original) (quoting Amy Morris Hess,

George Gleason Bogert & George Taylor Bogert, The Law of Trusts

and Trustees § 684, at 147-48 (3d ed. 2009) (“Bogert 3d”)).

This continuing duty, combined with the case law interpreting

section 1110(a), must be given effect here. Fidelity could not

contract away this future duty to monitor by signing the

Bilewicz release.

This is not to say that the release is ineffective. The

Plaintiffs have had to limit their class only to those

participants whose claims arose after November 17, 2014, the

effective date of the release. See Class Cert. ¶ 1. The

Plaintiffs are also limited to claims concerning Fidelity’s

continuing duties, rather than those pre-dating the Settlement

or arising from the Settlement.

Fidelity’s arguments based on res judicata are similarly

unavailing. The present case and the Bilewicz case do not arise

from a “common nucleus of operative facts.” See Haag v. United

States, 589 F.3d 43, 46 (1st Cir. 2009) (quoting Gonzalez v.

Banco Cent. Corp., 27 F.3d 751, 755 (1st Cir. 1994)).

Fidelity’s duty of continual monitoring, combined with its

failure to monitor, means that the claims in the case at hand do

not arise out of the “same transaction or series of connected

transactions.” Id. (quoting Kale v. Combined Ins. Co., 924 F.2d

1161, 1166 (1st Cir. 1991)).

In conclusion, Fidelity’s claims based on the continual

duty to monitor are not barred by the Bilewicz settlement or res

judicata.

B. Legal Standard

1. ERISA Fiduciary Duties

Retirement plan trustees are fiduciaries who owe duties of

loyalty and prudence to participants in their plan. 29 U.S.C. §

1104(a)(1)(A); Bunch v. W.R. Grace & Co. (Bunch I), 532 F. Supp.

2d 283, 287-88 (D. Mass. 2008), aff’d, 555 F.3d 1 (1st Cir.

2009). The statute defining these fiduciary duties provides in

part:

[A] fiduciary shall discharge his duties with respect to

a plan solely in the interest of the participants and

beneficiaries and--

(A) for the exclusive purpose of

(i) providing benefits to participants and

their beneficiaries; and

(ii) defraying reasonable expenses of

administering the plan;

(B) with the care, skill, prudence, and diligence

under the circumstances then prevailing that

a prudent man 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). A court considers “the merits of [the]

transaction” and “the thoroughness of the investigation into the

merits of [the] transaction” when determining if a fiduciary has

breached the duties of loyalty or prudence. Bunch I, 532 F.

Supp. 2d at 288 (quoting Howard v. Shay, 100 F.3d 1484, 1488

(9th Cir. 1996)). These duties of loyalty and prudence are

among “the highest known to the law.” Braden v. Wal–Mart

Stores, Inc., 588 F.3d 585, 598 (8th Cir. 2009) (quoting Donovan

v. Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir. 1982)).

a. Duty of Loyalty

The duty of loyalty requires a fiduciary to act solely in

the interest of plan participants and beneficiaries, and with

the exclusive purpose of providing them benefits. 29 U.S.C. §

1104(a); see Vander Luitgaren v. Sun Life Assurance Co. of Can.,

765 F.3d 59, 65 (1st Cir. 2014); Bunch I, 532 F. Supp. 2d at

291-92; Glass Dimensions, Inc. ex rel. Glass Dimensions, Inc.

Profit Sharing Plan & Tr. v. State St. Bank & Tr. Co., 931 F.

Supp. 2d 296, 305 (D. Mass. 2013) (Tauro, J.). The contours of

these duties are “derived from the common law of trusts.”

Tibble, 135 S. Ct. at 1828 (quoting Central States, Se. & Sw.

Areas Pension Fund v. Central Transp., Inc., 472 U.S. 559, 570

(1985)).

To prevail on a breach of duty of loyalty claim, a

plaintiff must show, by a preponderance of evidence, that

defendants failed to act in the best interest of the

participants and beneficiaries. Bunch I, 532 F. Supp. 2d at 291

(quoting 29 U.S.C. § 1104(a)(1)(A)). In making this inquiry,

the court considers the “totality of circumstances.” See Bunch

v. W.R. Grace & Co. (Bunch II), 555 F.3d 1, 7 (1st Cir. 2009)

(citing DiFelice v. U.S. Airways, Inc., 497 F.3d 410, 418 (4th

Cir. 2007)). It is not enough for a plaintiff to identify a

potential conflict of interest from the defendant’s investment

in its own proprietary funds, as a plan sponsor may invest all

plan assets with a single company, see Hecker v. Deere & Co.,

556 F.3d 575, 586 (7th Cir. 2009), and may invest in funds it

controls as long as it abides with the specific exemptions

governing self-dealing. See Dupree v. Prudential Ins. Co. of

Am., Civ. A. No. 99-8337, 2007 U.S. Dist. LEXIS 57857, at *144-

145 (S.D. Fl. Aug. 7, 2007) (noting the existence of exemptions

to ERISA § 408(b), 29 U.S.C. § 1108(b)(2), the statute barring

self-dealing). Instead, the Court must take into account the

fiduciary’s subjective motivation in making a decision for the

plan. See Perez v. First Bankers Tr. Servs., Inc., 210 F. Supp.

3d 518, 534 (S.D.N.Y. 2016) (“[T]he duty of loyalty is grounded

in the motivation driving a fiduciary’s conduct, and liability

will not lie where a fiduciary’s decisions were motivated by

what is best for the [plan], even if those decisions also

incidentally benefit the fiduciary.”).

b. Duty of Prudence

The duty of prudence requires that a fiduciary act with the

“care, skill, prudence, and diligence under the circumstances

then prevailing” equivalent to those of a prudent man in the

same position. 29 U.S.C. § 1104(a). There is no exact,

“uniform checklist” that a prudent fiduciary must follow. Tatum

v. RJR Pension Inv. Comm., 761 F.3d 346, 358 (4th Cir. 2014).

Generally, “ERISA requires fiduciaries to employ ‘appropriate

methods to investigate the merits of the investment and to

structure the investment’ as well as to ‘engage[] in a reasoned

decision[-]making process, consistent with that of a ‘prudent

man acting in [a] like capacity.’” Id. (alterations in

original) (quoting DiFelice, 497 F.3d at 420). The key question

when examining an alleged breach of the duty of prudence is

whether the fiduciary “took into account all relevant

information in performing its fiduciary duty under ERISA.”

Bunch I, 532 F. Supp. 2d at 288. The duty of prudence is

continuous and includes the requirement that fiduciaries

periodically ensure existing investments are sound, in addition

to future investments. See Tibble, 135 S. Ct. at 1828-29.

2. Prohibited Transaction

ERISA bars a fiduciary from causing a plan to engage in

prohibited transactions, which include providing services or

transferring assets between the fiduciary and the plan. 29

U.S.C. § 1106(b). There is an exception to these prohibited

transactions under PTE 77-3, which renders the prohibition

inapplicable to employee benefits plans investing in in-house

mutual funds under certain conditions. See Brotherston, 907

F.3d at 27. The relevant condition is as follows:

All other dealings between the plan and the investment

company, the investment adviser or principal underwriter

for the investment company, or any affiliated person of

such investment adviser or principal underwriter, are on

a basis no less favorable to the plan than such dealings

are with other shareholders of the investment company.

42 Fed. Reg. at 18,735.

3. Causes of Action

A plaintiff alleging a breach of fiduciary duties may sue

for losses sustained by the plan pursuant to two different

provisions of 29 U.S.C. § 1132, the statute granting a private

right of action for ERISA violations. Under section 1132(a)(2),

a Plaintiff may sue for violations of ERISA § 409, 29 U.S.C. §

1109, which allows for the recovery from a fiduciary of “losses

to the plan” resulting from a fiduciary duty’s breach, along

with “such other equitable or remedial relief as the court may

deem appropriate.” 29 U.S.C. § 1109(a). A plaintiff may also

sue for relief pursuant to 29 U.S.C. § 1132(a)(3), which allows

a court to provide relief when plaintiffs do not have another

section 1132 cause of action. See Varity Corp. v. Howe, 516

U.S. 489, 515 (1996). Section 1132(a)(3)(B) specifically allows

for equitable relief. When a complaint is filed against a

fiduciary, monetary relief available under section 1132(a)(2) is

comparable to the equitable remedy of surcharge, while section

1132(a)(3) authorizes other equitable remedies, including

disgorgement of profits. See Moitoso, 410 F. Supp. 3d at 328

(discussing nature of remedies under section 1109(a)).

Additionally, section 1132(a)(3) allows the equitable remedy of

surcharge when a fiduciary breaches its duties, CIGNA Corp. v.

Amara, 563 U.S. 421, 442 (2011), though the remedy of surcharge

is not available against a non-fiduciary. Mertens v. Hewitt

Assocs., 508 U.S. 248, 256 (1993).

B. Duty to Monitor Funds other than the Designated

Alternative Investments

1. Duty to Monitor Self-Directed Brokerage Accounts

The Plaintiffs contend that the Plan Fiduciaries had a duty

to monitor investments other than the two DIAs (the PAS-W and

Freedom K Funds) as an aspect of their duty of prudence. Pls.’

Mem. 9-10. Fiduciaries have a general duty under ERISA

continuously to monitor investments and remove those that are

imprudent, which is a duty separate from their requirement

prudently to select those investments. Tibble, 135 S. Ct. at

1829. Even when a plan document dictates the investment scheme,

fiduciaries may follow that document only insofar as it is

consistent with their duties under ERISA, as “the duty of

prudence trumps the instructions of a plan document.” Fifth

Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459, 2468 (2014)

(citing 29 U.S.C. §§ 1104(1)(D), 1110(a)). DIAs are among the

class of funds that must be monitored. See 29 C.F.R. §

2550.404a-5(a), (c), (d). The definition of a DIA excludes,

however, “‘brokerage windows,’ ‘self-directed brokerage

accounts,’ or similar plan arrangements that enable participants

and beneficiaries to select investments beyond those designated

by the plan.” Id. § 2550.404a-5(h)(4).

Fidelity points out that there is no duty to monitor funds

offered in a manner “similar” to a brokerage window. Defs.’

Mem. 13 (citing 29 C.F.R. § 2550.404a-5(h)(4)); see also Wagner

Report ¶ 60. Thus, it argues that its proprietary plans are the

equivalent of a self-directed brokerage account. Defs.’ Mem. 14

(citing Request for Information Regarding Standards for

Brokerage Windows in Participant-Directed Individual Account

Plans, 79 Fed. Reg. 49,469, 49,471 (Aug. 24, 2014); Defs.’ SOF ¶

60). In so arguing, Fidelity notes that the Plaintiffs are not

alleging a breach of fiduciary duty with regards to the non-

proprietary funds offered through the Plan’s self-directed

brokerage accounts. Id. at 13.

The Plaintiffs’ argument is in two parts. First, they

argue that Fidelity had a continuing duty to ensure that all

Plan investments were prudent, and that this duty is unchanged

by 29 C.F.R. § 2550.404a-5(h)(4). Pls.’ Opp’n 3-4. They also

say that Fidelity ought not be able to take advantage of the

“brokerage window” safe harbor even if it does exist, because

the alternative funds were effectively still “available in the

plan.” Id. at 4 (citing Pls.’ SOF ¶¶ 10-11).

Some courts have extended the duty to monitor to funds

available through brokerage windows while others have not,

though this Court has not found a judicial opinion actually

analyzing the issue. Compare Troudt v. Oracle Corp., Civ. A.

No. 16-00175-REB-SKC, 2019 U.S. Dist. LEXIS 33017, at *29 n.18

(D. Colo. Mar. 1, 2019) (noting, without comment, that the

recordkeeper (who happened to be Fidelity) did not monitor

investments available through a brokerage window), with Larson

v. Allina Health Sys., 350 F. Supp. 3d 780, 799 (D. Minn. 2018)

(examining the mix of funds available through a brokerage window

to determine whether the sponsor could face liability).

Multiple regulations explicitly tie the duty to monitor to the

existence of DIAs. See 29 C.F.R. § 2550.404c-1(d)(2)(iv)

(explaining that when a participant in a 404(c) plan exercises

independent control over an asset, the fiduciary of the plan

cannot be held responsible for losses, but that this “does not

serve to relieve a fiduciary from its duty to prudently select

and monitor any service provider or designated investment

alternative offered under the plan”); 29 C.F.R. § 2550.404a-5(f)

(noting that fiduciaries have a duty to “monitor . . .

designated investment alternatives offered under the plan”).4

Just because these regulations apply to DIAs, however, does not

4 The definition of “Designated Investment Alternative,”

though it originated in a regulation governing disclosure, see

29 C.F.R. § 2550.404a-5(h)(4), is a term of art now used

elsewhere throughout the ERISA landscape. Cf. 29 C.F.R. §

2550.408g–1(c)(1) (“The term ‘designated investment option’ has

the same meaning as the term ‘designated investment alternative’

as defined in 29 CFR 2550.404a–5(h).”).

preclude them from applying also to other forms of investments,

such as self-directed brokerage accounts.

Regulators have declined to weigh in on this question. In

2012 the Department of Labor (the “Department”) issued a Field

Assistance Bulletin indicating that an affirmative obligation to

monitor could arise when a large number of plan participants

partake in investments other than DIAs, see John J. Canary,

Department of Labor, Field Assistance Bulletin No. 2012-02 Q&A

30 (May 7, 2012), https://www.dol.gov/agencies/ebsa/employers-

and-advisers/guidance/field-assistance-bulletins/2012-02, but

then withdrew this guidance and replaced it with new guidance

that did not include this duty to monitor. See John J. Canary,

Department of Labor, Field Assistance Bulletin No. 2012-02R(1)

Q&A 39 (July 30, 2012),

https://www.dol.gov/agencies/ebsa/employers-and-

advisers/guidance/field-assistance-bulletins/2012-02r. This

Court sees the withdrawal of guidance as the Department

essentially declining to take a position on the issue, though

other communications indicate that it may not consider such a

duty to exist. See 79 Fed. Reg. at 49,472 (asking, in a request

for information, “[h]ow do plan fiduciaries monitor investments

made through their plan’s brokerage window, if at all?”)

(emphasis added).

This Court need not defer to these statements,5 but in the

absence of other regulations explicitly imposing such a duty, it

is hesitant to state unequivocally that there either is, or is

not, a fiduciary responsibility to monitor self-directed

brokerage accounts.

The goals of ERISA include protecting plan participants by

controlling the administration of plan benefits, including

through the imposition of stringent fiduciary standards. New

York State Conf. of Blue Cross & Blue Shield Plans v. Travelers

Ins. Co., 514 U.S. 645, 651 (1995). At the same time, “courts

have bristled at paternalistic theories that suggest ERISA

forbids plan sponsors to allow participants to make their own

choices.” Short v. Brown Univ. 320 F. Supp. 3d 363, 369 (D.

R.I. 2018) (quoting Sacerdote v. New York Univ., No. 16-6284

(KBF), 2017 U.S. Dist. LEXIS 137115, at *36 (S.D.N.Y. Aug. 25,

2017)).

Brokerage windows can provide plan participants significant

freedom by allowing them to select from a menu of hundreds or

5 Courts are required to defer to agency interpretations of

their own regulations under Auer v. Robbins, 519 U.S. 452

(1997). Here, however, there is no explicit agency

interpretation. Instead, there is a resounding absence of

interpretation created by the second Department Bulletin, and an

implication drawn from the phrasing of a request for

interpretation. These do not rise to level of agency

interpretation to which deference is owed. See Kisor v. Wilkie,

139 S. Ct. 2400, 2415-18 (2018) (explaining when Auer deference

applies and noting that “it often doesn’t”).

thousands of investments, making it perhaps unrealistic for a

fiduciary to monitor them all. See Wagner Report ¶ 60. On the

other hand, the same regulation that defines “Designated

Alternative Investments,” 29 C.F.R. 2550.404a-5(h)(4), also

includes the following language: “Nothing herein is intended to

relieve a fiduciary from its duty to prudently select and

monitor providers of services to the plan . . . .” 29 C.F.R.

2550.404a-5(f). Using section 2550.404a-5 as a vehicle entirely

to remove a fiduciary monitoring duty would seem to contradict

this language. See Field Assistance Bulletin No. 2012-02 Q&A

39, supra (“[A] plan fiduciary’s failure to designate investment

alternatives, for example, to avoid investment disclosures under

the regulation, raises questions under ERISA section 404(a)'s

general statutory fiduciary duties of prudence and loyalty.”).

Furthermore, a plan sponsor can incur liability when it

fails to carefully select or monitor the service provider, and

that service provider then breaches a delegated duty. See 29

U.S.C. §§ 1104, 1105(c)(2). If the service provider has no duty

to monitor the contents of a brokerage window, that implies the

plan sponsor has no duty to oversee the service provider of the

brokerage window, because it cannot breach its fiduciary duties

by failing to monitor a party that itself has no fiduciary

duties. Cf. Brotherston, 907 F.3d at 32 (explaining that a

fiduciary can incur liability for failing to independently

verify decisions by the service provider); Rinehart v. Lehman

Bros. Holdings Inc., 817 F.3d 56, 68 (2d Cir. 2016) (“Plaintiffs

cannot maintain a claim for breach of the duty to monitor . . .

absent an underlying breach of the duties imposed under ERISA .

. . .” (first omission in original) (quoting Rinehart v. Akers,

722 F.3d 137, 154 (2d Cir. 2013))). Thus, this lax reading of

section 2550.404a-5 could relieve a fiduciary of its duty

prudently to select a service provider, contradicting its own

language.

In sum, there is significant lack of clarity regarding the

duties a fiduciary owes with regard to the funds within a

brokerage window. This Court need not decide this thorny issue,

however, because Fidelity was not offering its proprietary funds

through a brokerage window or its equivalent.

a. “Brokerage Window” or “Equivalent”

The Plaintiffs contend that the proprietary funds offered

on Fidelity’s platform were not offered through a program

“similar” to a brokerage window. Pls.’ Reply Mem. L. Supp. Mot.

Summ. J. (“Pls.’ Reply”) 9-12, ECF No. 176. The Plaintiffs are

correct. The manner in which Fidelity offered funds to Plan

participants was not “similar” to the manner in which it offered

funds through a brokerage window, but instead was far more

similar to the manner in which it had offered the funds when

they were considered “on the Plan” prior to the Settlement.

At first glance, the definition of “brokerage window” would

appear sufficiently vague to encompass Fidelity’s program. The

original regulation defining “brokerage window” and “similar”

vehicles defines them as “plan arrangements that enable

participants and beneficiaries to select investments beyond

those designated by the plan,” see 29 C.F.R. § 2550.404a-

5(h)(4), without defining what “similar” means. See also Scott

Mayland, Ratcheting up the Duty: The Department of Labor's

Misguided Attempt to Impose a Paternalistic Model upon Defined

Contribution Plans Through ERISA, 75 Ohio St. L.J. 645, 661-62

(2014) (echoing the definition from § 2550.404a-5(h)(4)). The

common definition is similar, referring to “a facility allowing

plan participants to buy and sell securities through a brokerage

platform.” James Chen, Brokerage Window, Investopedia.com (Nov.

20, 2019),

https://www.investopedia.com/terms/b/brokerage_window.asp. The

Department has treated the term very broadly,6 but only in the

6 “The Department understands that a variety of different

plan and investment arrangements may be encompassed by the terms

‘brokerage window,’ ‘self-directed brokerage account,’ and

similar arrangements. For example, open mutual fund windows may

permit participants to invest in hundreds or thousands of mutual

funds. More limited mutual fund windows or ‘supermarkets’ may

permit participants to invest in any mutual fund on one or more

of a particular vendor’s platforms, but not necessarily every

mutual fund on the market. Other brokerage accounts also offer

participants access to a virtually unlimited number of

individual stocks, exchange-traded funds, and other securities.”

79 Fed. Reg. at 49,471.

preamble to a request for information that lacks the force of

law. See 79 Fed. Reg. at 49,471.

The way other courts have treated self-direct brokerage

accounts provides a better indicia of how they are defined in

practice. In Tracey v. Massachusetts Inst. of Tech., another

session of this Court described Fidelity’s BrokerageLink

platform as “designed for investors with a higher appetite for

risk and independent management.” 404 F. Supp. 3d 356, 359 (D.

Mass. 2019) (Gorton, J.). In Brotherston v. Putnam Invs., LLC,

this Court noted that only two percent of plan assets were

invested in a self-directed brokerage account offered by the

defendant company. No. 15-13825-WGY, 2017 U.S. Dist. LEXIS

93654, at *14 n.7 (D. Mass. June 19, 2017), aff’d in part and

vacated in part, 907 F.3d 17 (1st Cir. 2018). Another court has

contrasted funds available through BrokerageLink with

“principal” funds offered on a plan, which the fiduciary had a

duty to select and monitor. In re Wash. Mut., Inc., No. 2:08-

md-1919 MJP, 2009 U.S. Dist. LEXIS 109961, at *16 (W.D. Wash.

Oct. 5, 2009). On appeal in Brotherston, the First Circuit

noted that over 85% of assets were invested in the defendant

Putnam’s proprietary funds offered “under the Plan,” and that

Putnam was responsible for “selecting, monitoring, and removing

investments from the Plan’s offering.” 907 F.3d at 23. These

cases suggest that self-directed brokerage accounts are designed

for the small percentage of active, independent investors, as

opposed to normal funds -- whether called “DIA,” “principal” or

merely “on the plan” -- designed for the majority of non-expert

investors.

With these indicia in hand it is manifest that there are

significant similarities between how Fidelity offered its

designated and non-designated proprietary funds, and that the

treatment of these options differed significantly from that of

non-Fidelity funds. Fidelity itself has noted that self-

directed brokerage accounts allow investors to “access a larger

investment universe”; that was not what was happening with

Fidelity’s proprietary funds offered on the Plan. Def.’s SOF ¶

61. All proprietary funds were offered on Fidelity’s internal

NetBenefits platform rather than the BrokerageLink platform used

to access outside funds. Defs.’ Resp. SOF ¶ 10. Accessing the

BrokerageLink platform required visiting a separate webpage,

creating a separate login, and waiting up to two business days,

while participants could automatically access the Fidelity

funds. Pls.’ SOF ¶ 11. Additionally, there is “no difference”

between how Fidelity funds were offered before and after the

Settlement, even though Fidelity argues that after the

Settlement its proprietary funds should have been considered to

be in the equivalent of a separate window. Id. ¶ 10. Following

the re-enrollment period that resulted from the 2014 plan

amendment, only 1.41% of Plan participants moved to the non-

proprietary funds on BrokerageLink, and the majority of plan

assets remained in the non-monitored proprietary Fidelity funds.

Id. ¶¶ 15-16. Fidelity’s own description of brokerage windows

in a 2014 letter to the Department appears to describe the type

of offering available through BrokerageLink, not the proprietary

funds available through NetBenefits. See Decl. Kai Richter, Ex.

2, Letter from Douglas O. Kant & Krista M. D’Aloia to the

Department (Nov. 19, 2014) 4, ECF No. 177-2 (noting that

Fidelity typically offers BrokerageLink as the brokerage window

option for employers, and that only 2.6% of individuals across

all employers with access to BrokerageLink utilize it). On the

whole, the offering of the proprietary Fidelity funds on

NetBenefits appears highly dissimilar to expert-level self-

directed brokerage accounts (of the sort offered through

BrokerageLink), and highly similar to the type of fund normally

offered “on a plan.”

Additionally, allowing a recordkeeper easily to disclaim

fiduciary liability for its proprietary funds contradicts the

goals of ERISA. There is no law preventing a recordkeeper from

offering its own proprietary funds in a brokerage window. See

Larson, 350 F. Supp. 3d at 797 (citing Hecker, 556 F.3d at 586).

When a recordkeeper is also the manager of a retirement plan,

however, it is not a disinterested party. It may earn

significant profits at the expense of participants in the plan

because it has the unique ability to “stuff” a plan with its own

“costly investment products.” Id. (quoting In re M&T Bank Corp.

ERISA Litig., No. 16-CV-375 FPG, 2018 U.S. Dist. LEXIS 154641,

at *4, (W.D.N.Y. Sept. 11, 2018)). This Court need not, and

does not, decide whether any unseemly “stuffing” is happening in

this case. Yet this concern occasions significant reason not to

give Fidelity the benefit of the doubt, given that its theory

would allow it effectively to disclaim all fiduciary liability

whatsoever for mutual funds available outside the two DIAs.

When there are already ample indicia that the offering of

proprietary funds was not “similar” to a self-directed brokerage

window, this Court is not willing to extend that benefit and to

excuse it from a duty to monitor its proprietary funds.

In conclusion, as Fidelity was not offering its funds in

the equivalent of a brokerage window, it can face fiduciary

liability for its lack of monitoring subsequent to the

Settlement.

The question whether this alleged lack of prudence actually

led to any losses is one of causation: a question upon which the

defendant bears the burden of proof. Brotherston, 907 F.3d at

39. The plaintiff still bears the burden of showing the

existence and extent of the alleged loss. Id. In their

complaint, the Plaintiffs put forward numerous theories

regarding how Fidelity’s lack of monitoring could have caused

losses to the plan. Specifically, the Plaintiffs argue that

Fidelity retained proprietary funds in the Plan despite

excessive fees, Compl. ¶ 65, failed to investigate less-costly

non-proprietary funds, id. ¶¶ 66-67, failed to utilize the

cheapest available share class of certain proprietary funds, id.

¶ 72, retained inappropriately speculative funds, id. ¶¶ 76-84,

should have investigated better-performing non-proprietary

funds, id. ¶¶ 85-88, and failed to remove underperforming

proprietary funds from its lineup over time, id. ¶¶ 89-94. Yet

the parties in their letter requesting a case-stated resolution

indicated that the scope of this judgment ought be limited to

liability issues. It is therefore premature upon this record to

determine whether any loss has occurred and, if so, whether the

lack of monitoring caused it.

2. Investigation of Separate Accounts, Collective Trusts,

and Stable Value Funds

The Plaintiffs argue that Fidelity breached its fiduciary

duties by failing to investigate non-mutual fund investment

vehicles, such as collective trusts and separate accounts. Id.

¶¶ 68-71.7 They also argue that Fidelity had a duty to

7 Separate accounts and collective trusts are types of

investment vehicle available to institutional investors. For

plans with significant assets, offering separate accounts can

lead to substantial savings compared with utilizing mutual

investigate stable value funds as an alternative to its money

market accounts. Id. ¶¶ 95-100.8 This Court concludes, however,

that Fidelity did not incur liability because it had no inherent

duty to investigate these particular types of funds.

While Fidelity offered several money market funds as

capital preservation options, it did not offer stable value

funds as an option. See Defs.’ SOF ¶ 64. Fidelity also did not

offer collective trusts or separate accounts as investment

funds. See Pension & Welfare Benefits Administration, U.S.

Dep’t of Labor, Study of 401(k) Plan Fees and Expenses, at 16

(April 13, 1998),

https://www.dol.gov/sites/default/files/ebsa/researchers/analysi

s/retirement/study-of-401k-plan-fees-and-expenses.pdf. Many

funds have adopted collective trusts or separate accounts as

options in addition to mutual funds, and they are more common

for larger funds. BrightScope & Investment Co. Inst., The

BrightScope/ICI Defined Contribution Profile: A Close Look at

401(k) Plans, at 21 (Dec. 2014),

https://www.ici.org/pdf/ppr_14_dcplan_profile_401k.pdf. The

regulatory and transparency requirements of separate accounts

and collective trusts, however, differ significantly from those

of mutual funds, making direct comparison between them “apples-

to-oranges.” White v. Chevron Corp., No. 16-cv-0793-PJH, 2016

U.S. Dist. LEXIS 115875, at *37 (N.D. Cal. Aug. 29, 2016)

(citing Tibble v. Edison Int’l, 729 F.3d 1110, 1134 (9th Cir.

2013), vacated and remanded, 135 S. Ct. 1823 (2015)).

8 Stable value funds are a type of investment vehicle that

provide a low-volatility rate of return guaranteed by an

underlying contract. David F. Babbel & Miguel A. Herce, Stable

Value Funds Performance, 6 Risks 2018, no. 1(12), Feb. 2018, at

3, http://www.mdpi.com/2227-9091/6/1/12/pdf. Many large plans

use stable value funds rather than money market funds as their

default capital preservation option. Chris Tobe, Do Money-

Market Funds Belong in 401(k)s?, MarketWatch (Aug. 30, 2013),

http://www.marketwatch.com/story/do-money-market-funds-belong-

in-401ks-2013-08-30.

options. Id. ¶¶ 60, 93. In fact, the June 2014 amendment to

the Plan required that Fidelity make only mutual funds available

through its “open architecture” window. Id. ¶ 53; Thomson

Decl., Ex. 3, First Amendment to 2014 Plan Restatement, §

12.2(c), ECF No. 138-4. Fidelity declined to investigate the

possibility of including alternatives to mutual funds on the

Plan –- including collective trusts and stable value funds –-

because of these restrictions in the 2014 First Amendment.

Thomson Decl., Ex. 9, Deposition Ralph Derbyshire 85:16-88:7,

ECF No. 138-11.

Fidelity makes two arguments in rebuttal. It first asserts

that the original design of the Plan in the 2014 amendment was a

settlor act for which Fidelity did not owe a fiduciary duty.

Defs.’ Mem. 14 (quoting Lockheed Corp. v. Spink, 517 U.S. 882,

890 (1996)). This argument is unavailing because the Plaintiffs

are claiming that Fidelity breached its duty not in the original

design of the Plan, but instead in its continued failure to

investigate mutual fund alternatives during the class period, an

aspect of its continued duty to monitor. See Pls.’ Opp’n 5

(citing Dudenhoeffer, 134 S. Ct. at 2468).

Fidelity also argues that it had no specific duty to

investigate alternatives to mutual funds. Defs.’ Mem. 15. Here

it is on firmer ground. Numerous courts have ruled that plans

are under no duty to offer alternatives to mutual funds, even

when the plaintiffs argue they are markedly superior. See id.

at 15 n.17 (citing Larson, 350 F. Supp at 796; White, 2016 U.S.

Dist. LEXIS 115875, at *25-37; Dorman v. Charles Schwab Corp.,

No. 17-00285-CW, 2018 U.S. Dist. LEXIS 218049, at *10-12 (N.D.

Cal. Sept. 20, 2018)); see also Loomis v. Exelon Corp., 658 F.3d

667, 670 (7th Cir. 2011) (“[N]othing in ERISA requires every

fiduciary to scour the market to find and offer the cheapest

possible fund . . . .” (quoting Hecker, 556 F.3d at 586)).

Since plans are under no duty to offer any particular type or

mix of funds, “ERISA does not require a retirement plan to offer

an index fund or a stable value fund, and the failure to include

either in the Plan, standing alone, does not violate the duty of

prudence.” Wildman v. American Century Servs., LLC, 362 F.

Supp. 3d 685, 704 (W.D. Mo. 2019) (citing Hecker, 556 F.3d at

586).

Still, the Plaintiffs are correct in pointing out that most

of these cases imply there may be some duty to investigate the

possibility of offering alternatives to mutual funds. In

Wildman, the court found that defendants had not breached their

fiduciary duty in declining to offer index funds or stable value

funds because it analyzed their decision-making and found it

prudent. 362 F. Supp. 3d at 704-05 (“[T]he issue is whether the

Defendants considered these options and came to a reasoned

decision for omitting them from the Plan. The evidence shows

the[y] did so.”). Similarly, in White, the court denied a

motion to dismiss on this issue because the complaint had failed

to plead specific facts indicating that defendants had not made

a reasoned decision. 2016 U.S. Dist. LEXIS 115875, at *23-24.

There are several cases at the district court level holding

that a plan is under no such duty to investigate these

alternatives. In Main v. American Airlines, Inc., the Northern

District of Texas found that a fiduciary defendant had not

breached its duty by failing either to offer or investigate

alternatives to mutual funds. 248 F. Supp. 3d 786, 794 (N.D.

Tex. 2017). That opinion did not explain, however, why the lack

of duty to offer alternatives to mutual funds also translated

into a lack of duty to investigate. Id. In Larson, the

district court also found that the plaintiffs had failed to

state a claim for breach of duty by failing to “explore

collective trusts and separate accounts in lieu of mutual

funds,” particularly as the plan document in that case

prohibited offering these investment vehicles. 350 F. Supp. 3d

at 796. That opinion similarly did not analyze the issue of

whether there was a duty to “explore” these options, focusing

instead on the merits of the respective options. Id. at 796,

802-03.

This Court agrees that there is no fiduciary duty to

investigate alternatives to mutual funds. Separate accounts,

collective trusts, and stable value funds are all common

investment instruments with the potential to outperform mutual

funds. See Terraza v. Safeway Inc., 241 F. Supp. 3d 1057, 1075

(N.D. Cal. 2017) (analyzing common trusts and separately managed

accounts); Abbott v. Lockheed Martin Corp., 725 F.3d 803, 806

(7th Cir. 2013) (noting that stable value funds generally

outperform money market funds). These non-mutual fund vehicles

differ so much from mutual funds, however, in terms of their

regulatory and transparency features that other courts have

found it impossible to make an “apples-to-oranges” comparison of

the two. White, 2016 U.S. Dist. LEXIS 115875, at *37 (quoting

Tibble, 729 F.3d at 1134); see also Loomis, 658 F.3d 671-72.

Unlike mutual funds, these alternatives are not subject to the

reporting, governance, and transparency requirements of the

Securities Act of 1933, 15 U.S.C. § 77a et seq., and the

Investment Company Act of 1940, 15 U.S.C. § 80a-1 et seq. See

Tibble, 729 F.3d at 1134 (citing Renfro v. Unisys Corp., 671

F.3d 314, 318 (3d Cir. 2011); Jones v. Harris Assocs. L.P., 559

U.S. 335, 338 (2010)). Other courts have found that ERISA

defendants acted prudently in both offering and declining to

offer these alternatives to mutual funds. Compare Terraza, 241

F. Supp. 3d at 1075 (rejecting the argument that choosing to

offer mutual fund alternatives is a per se violation of

fiduciary duty), with Larson, 350 F. Supp. 3d at 796 (rejecting

the argument that choosing not to offer mutual fund alternatives

is a per se violation of fiduciary duty). Conversely, the

Plaintiffs (and this Court) have found no cases where a court

held that a fiduciary breached its duty by making an informed

decision not to offer these alternatives. The fact that courts

have repeatedly upheld fiduciaries’ decisions not to offer these

alternatives indicates that a prudent fiduciary is under no

reasonable duty to offer them.

As Fidelity pointed out at oral argument, the managers of

the fund “didn’t consider . . . gold bars or they didn’t

consider hedge funds.” Tr. Case Stated Hr’g 20. There is no

inherent fiduciary duty to offer any particular type of

investment vehicle, whether gold bars, hedge funds, collective

accounts, or stable value funds. See Hecker, 556 F.3d at 586;

Wildman, 362 F. Supp. 3d at 704. The Plaintiffs have failed to

show that a prudent fiduciary would have considered these

alternatives to mutual funds, and because liability for

Fidelity’s lack of monitoring is derivative of the underlying

violation, Brotherston, 907 F.3d at 39, without an underlying

breach there can be no liability. In conclusion, Fidelity has

breached no duty by declining to offer stable value funds,

collective accounts, or collective trusts.

3. Duty to Monitor Recordkeeping Expenses

The Plaintiffs next argue that Fidelity has breached its

fiduciary duty to monitor the Plan’s recordkeeping expenses.

Pls.’ Mem. 1. Fidelity does not dispute that the Plan

Fiduciaries declined to monitor recordkeeping expenses but

argues that it has not violated its fiduciary duties because all

expenses were returned to the Plan through the mandatory Revenue

Credit, and thus netted to zero. Defs.’ Mem. 15-16. Its

argument rests on the proposition that “there is no breach of a

duty to be cost-conscious where there are no costs.” Defs.’

Opp’n Mot. Partial Summ. J. (“Defs.’ Opp’n”) 10, ECF No. 165

(emphasis in original).

Fiduciaries have a general duty to monitor recordkeeping

expenses. This duty stems from a fiduciary’s prudential duty to

be cost-conscious in administering its duties. Restatement

(Third) of Trusts § 88 cmt. a (2007); Tibble v. Edison Int’l,

843 F.3d 1187, 1197-98 (9th Cir. 2016). Courts have found that

fiduciaries can breach their duty of prudence by failing

diligently to investigate and monitor recordkeeping expenses.

Tussey v. ABB, Inc., 746 F.3d 327, 336 (8th Cir. 2014)

(upholding a district court finding of breach of duty for

failure to monitor); Pledger v. Reliance Tr. Co., 240 F. Supp.

3d 1314, 1329-30 (N.D. Ga. 2017); Tracey v. Massachusetts. Inst.

Of Tech., No. 16-11620-NMG, 2017 U.S. Dist. LEXIS 162806, at

*42-47, 60 (D. Mass. Aug. 31, 2017) (Bowler, M.J), adopted in

relevant part, 2017 U.S. Dist. LEXIS 161263, at *2-3 (D. Mass.

Sept. 29, 2017) (Gorton, J.); Order, Tracey v. Massachusetts.

Inst. Of Tech., Civ. A. No. 16-11620 (D. Mass. Oct. 4, 2017),

ECF No. 79.

The Plan’s current recordkeeping expense regime first

appeared in the Eighth Amendment to the 2005 Restatement of the

Plan. Defs.’ SOF ¶ 16. This Amendment included the addition of

a Revenue Credit, which approximated the revenue paid to

Fidelity by the Plan. Id.; Rosenberg Decl., Ex. 34, FMR Corp.

Profit Sharing Plan, Eighth Amendment to 2005 Restatement

MOITOSO0014016, ECF 142-34. When Fidelity amended the Plan

again in July 2014 pursuant to the Bilewicz Settlement

Agreement, this Revenue Credit was altered to require the

inclusion of any revenue-sharing Fidelity received for

investments in non-Fidelity funds. Thomson Decl., Ex. 1, FMR

LLC Profit Sharing Plan: 2014 Restatement (“2014 Profit Sharing

Plan”) art. 5.1, ECF No. 138-1. The full amount of this Revenue

Credit is calculated and distributed each year back to the Plan.

Defs.’ SOF ¶¶ 122-123. These clauses, in effect, reimburse the

Plan an amount at least equivalent to all fees paid into it,

which is an amount higher than the total recordkeeping expense.

Id. ¶ 126. The entire system of returning Revenue Credits to

the Plan is codified in the 2014 amendment and is mandatory

under those rules. 2014 Profit Sharing Plan art. 5.1-2. The

establishment of this Revenue Credit was a settlor act, as the

design of a plan is a settlor function. See Lockheed Corp., 517

U.S. at 890.

Because Fidelity credited all revenue generated by the Plan

back to the Plan through this Revenue Credit, the Plan

Fiduciaries, including the Retirement Committee, did not monitor

these expenses or conduct third-party benchmarking of its fees.

Def.’s SOF ¶ 128. The Retirement Committee also never reviewed

the fee disclosures required by ERISA section 408(b)(2), 29

U.S.C. § 1108, and the relevant regulation, 29 C.F.R. §

2550.408b-2(c). Pls.’ SOF ¶ 29. These fee disclosures

indicated that, in 2017 for example, Fidelity charged $288 per

participant for recordkeeping services, as well as an additional

$212 per person for “Additional Value for Fidelity Products”

(making an even $500 per head), or a total of 0.19% of assets.

Thomson Decl., Ex. 59, Statement Services & Compensation

Fidelity Retirement Savings Plan FID0001247, ECF 138-61. The

parties have stipulated that if Fidelity were a third party

negotiating this fee structure at arms-length, the value of

services would range from $14-$21 per person per year over the

class period, and that the recordkeeping services provided by

Fidelity to this Plan are not more valuable than those received

by other plans of over $1,000,000,000 in assets where Fidelity

is the recordkeeper. Thomson Decl., Ex. 65, Stipulations of

Facts (“Stipulations of Facts”) 3-4, ECF 138-67.

The 2014 Amendment also dictated how the Revenue Credit

would be distributed to Plan participants. 2014 Profit Sharing

Plan arts. 3.3, 5.1, 5.2, 6.2. Article 6.2(f) of the 2014

Profit Sharing Plan states that each participant shall receive

an amount equal to the sum of the Revenue Credit and the

discretionary Employer Profit Sharing Contribution, in an amount

proportionate to their compensation. This clause applies only

to those employees who meet the requirements of section 3.3.

Id. Article 3.3 states that the Employer Profit Sharing

Contribution and the Revenue Credit shall be distributed only to

current employees. All members of the class action in this case

are former employees of Fidelity who did not receive the Revenue

Credit for at least a portion of the class period because they

were excluded by the Plan. Compl. ¶ 119.

For qualified employees, the total of the Revenue Credit

and the discretionary company contribution was 10% for all years

immediately preceding the 2014 Settlement and for all years

since then. Pls.’ SOF ¶ 35. Prior to 2014, this 10%

contribution consisted entirely of discretionary profit sharing,

while after 2014 the amount consisted of the Revenue Credit plus

a discretionary amount. Id. Thus, the discretionary

contribution from Fidelity increased or decreased based on the

value of the mandatory Revenue Credit. See Thomson Decl., Ex.

70, FMR LLC Retirement Committee Meeting Minutes (Dec. 9, 2014)

2, ECF No. 138-73; Thomson Decl., Ex. 69, Retirement Benefits

Overview FID0000128, ECF No. 138-72.

Fidelity argues that the Bilewicz release shields it from

liability because the Revenue Credit structure derives from the

2014 Amendment, which was part of the Settlement. Defs.’ Mem.

7. As explained in section II.A, supra, the release cannot

disclaim Fidelity’s continued duty to monitor, so the Plaintiffs

are correct that Fidelity can potentially incur liability for

any losses that stem from a lack of monitoring. See Pls.’ Opp’n

13-14.

The main dispute between the parties concerns whether the

Revenue Credit system shields Fidelity from fiduciary liability

notwithstanding the lack of monitoring, because the Plan itself

could not have sustained any losses when all revenue was

automatically returned to it. The Plaintiffs present two

theories to explain how the Plan may have incurred a loss: that

the Revenue Credits were “illusory,” and that all members of the

class action, as former employees, did not receive the benefit

of these Revenue Credits.

a. The Revenue Credits theory

The Plaintiffs’ first theory of liability is that the

Revenue Credit system is essentially “illusory” because the

total compensation returned to eligible employees remained at

10% both before and after the 2014 amendment, and thus the

Revenue Credits are nothing more than an “accounting gimmick.”

Pls.’ Mem. 7. This matters, the Plaintiffs argue, because it

shows that the Revenue Credit was really being used to shore up

Fidelity’s compensation structure. Tr. Case Stated Hr’g 38-39.

The Plaintiffs assert in summary that Fidelity is attempting to

use these Revenue Credits as a “double credit” -- against both

the Plan expenses and against Fidelity’s profit-sharing year-end

bonus. Id. at 40.9

The Plaintiffs point to the First Circuit’s holding in

Brotherston for the proposition that employers may not “claw

back with their fiduciary hands compensation granted with their

employer hands.” Id. at 36 (quoting 907 F.3d at 26). The facts

in Brotherston differ enough from the facts here, however, that

the cited language is not on point. There, the employer,

9 At the case-stated hearing, the Plaintiffs also argued

that Fidelity was seeking a “triple credit” because if an

employee departs the company in less than five years, her

account balance will not be fully vested, and the Revenue Credit

portion can be used to offset other company contributions. Tr.

Case Stated Hr’g 44 (citing 2014 Profit Sharing Plan arts. 6.4,

9.2, 9.4). While the Revenue Credit portion is not itself

subject to forfeiture, the forfeiture account as a whole can be

used to pay for “appropriate Plan expenses.” 2014 Profit

Sharing Plan art. 6.4(c). If the forfeiture account is being

used to pay Plan expenses, though, there would still be no loss

to the owner of the account because it could only be used to pay

for expenses she would otherwise owe regardless. Thus, this

Court finds that there is no “triple credit” problem.

Putnam, provided discretionary payments to employees’ 401(k)

accounts to offset recordkeeping fees, and the First Circuit

ruled that the plan itself could nonetheless be considered to

have lost value, because these payments were made in Putnam’s

capacity as an employer, rather than as a fiduciary. 907 F.3d

at 28, 31-32. Here, the payments into the 401(k) accounts of

Fidelity employees, though created by a settlor act, are

mandatory. This distinction matters because it means that after

the changes came into effect, Fidelity paid the revenue credits

pursuant to its duty to administer the Plan, a fiduciary -- not

settlor -- act. Thus there is no “clawing back” within the

context of the Plan, because only Fidelity’s fiduciary hand is

at work within the Plan.

To the Plaintiffs’ charge that Fidelity was not providing

any real consideration by offering the Revenue Credits, see

Pls.’ Opp’n 7, Pls.’ Reply 14-15, Fidelity responds that “a

legally enforceable right is not a gimmick,” and that following

the 2014 Amendment, Plan participants gained a right to enforce

the Revenue Credits that did not exist before. Defs.’ Opp’n 11

(citing In re Halpin, 566 F.3d 286, 289 (2d Cir. 2009)). It

further points out that if it had made no discretionary

contributions to supplement the mandatory credits, then the

Plaintiffs would not have a claim, so they are alleging a breach

based on “Fidelity’s being generous.” Id. at 11 n.8 (emphasis

deleted). On this point, Fidelity is correct that Plan

participants did receive consideration in the Settlement by

virtue of the Revenue Credit becoming mandatory. See In re

Halpin, 566 F.3d at 289.

Regarding the alleged “accounting gimmick,” ERISA does not

protect members of a Plan from employers who reduce

discretionary compensation to offset fiduciary benefits.

“ERISA’s principal function [is] to ‘protect contractually

defined benefits.’” US Airways, Inc. v. McCutchen, 569 U.S. 88,

100 (2013) (quoting Massachusetts Mut. Life Ins. Co. v. Russell,

473 U.S. 134, 148 (1985)). ERISA protects only benefits granted

by a plan, and generally does not protect participants from

decisions made by their employers outside the plan’s language.

See Coulter v. Morgan Stanley & Co. Inc., 753 F.3d 361, 368 (2d

Cir. 2014) (“Courts have consistently explained that conflicts

may exist between an employer’s interests and an employee’s

interests and that, as a result, settlor functions may

detrimentally impact a benefits plan.”); Akers v. Palmer, 71

F.3d 226, 231 (6th Cir. 1995) (explaining that the existence of

conflicts between employers and employees is inevitable and does

not give rise to fiduciary duty).

Decisions made at an employer’s discretion are said to be

made in its “business” capacity. See Noorily v. Thomas & Betts

Corp., 188 F.3d 153, 158 (3d Cir. 1999) (explaining that an

employer must administer a plan in its fiduciary capacity by

providing all contractual benefits to eligible employees, but

that the determination about which employees were eligible was

instead a business decision allowed by the plan). A trustee’s

discretionary decision-making when granted by a plan is reviewed

under an abuse of discretion standard, see Varity Corp., 516

U.S. at 514-15, while a business’s discretionary decisions

outside a plan are protected by the highly deferential “business

judgment rule,” the presumption that it acted on an informed

basis and in good faith. Cf. Risberg ex rel. Aspen Tech., Inc.

v. McArdle, 529 F. Supp. 2d 213, 220 (D. Mass. 2008) (Stearns,

J.) (discussing business judgment rule under Delaware law).

Here, Fidelity’s decision to change its yearly

discretionary payments based on the amount of mandatory Revenue

Credit was a business judgment. These discretionary payments

were outside the Plan; calculated in response to the Plan, but

not dictated by the Plan. Businesses must be able to make

business decisions based on weighing the costs of their

fiduciary outflows, simply as a function of balancing their

books. See, e.g., Douglas J. Elliott, What Happens to GM

Pensions in Bankruptcy?, Brookings (May 29, 2009),

https://www.brookings.edu/research/what-happens-to-the-gm-

pensions-in-bankruptcy/ (describing how General Motors’ 2009

bankruptcy would affect its pension plan, and how overfunding

the pension plan contributed to its bankruptcy). What Fidelity

is doing here with its year-end bonuses is no different from a

legal standpoint. In conclusion, Fidelity’s business decision

to set the total end-of-year bonus at 10% does not violate its

fiduciary duties because a proper fiduciary analysis includes

only the actions taking place within the Plan, all of which were

mandatory.

b. The Former Employees Theory

The Plaintiff’s second theory of liability is that members

of its class have incurred losses because all of them, at some

point during the class period, paid for recordkeeping expenses,

but did not receive back Revenue Credits because they were no

longer employed by Fidelity. Pls.’ Opp’n 8. The Plaintiffs

developed this theory first as part of their now-withdrawn

second claim that Fidelity had violated its duty of

impartiality, but at oral argument repurposed it as evidence

that the Revenue Credits were being used as a form of

compensation rather than reimbursement. Tr. Case Stated Hr’g

39-41. They argue that this means, in effect, that the members

of the class action have suffered a loss. Id. at 41. Fidelity

argues that losses to the plan must be analyzed at the Plan

level, not the individual level, and as the Plan has not

suffered a net loss, the individualized members of the class

have no claim. Defs.’ Mem. 17.

The Plaintiffs’ theory has merit because 29 U.S.C. §

1132(a)(2) allows for the equitable relief of surcharge for

losses sustained by individuals, even when a Plan has not

suffered losses. Here, members of the class paid higher

recordkeeping fees as a result of Fidelity’s failure to monitor.

This is a violation of the duty of prudence for which the

Plaintiffs may seek equitable relief, even though the Court does

not credit Plaintiffs’ theory that the high recordkeeping

expenses evidence a breach of the duty of loyalty.

There are two potential pathways for analyzing loss under

the duty of prudence: through section 1132(a)(2) and through

section 1132(a)(3). For purposes of a section 1132(a)(2) cause

of action, the controlling case is LaRue v. DeWollf, Boberg &

Assocs., Inc., 552 U.S. 248 (2008). The Supreme Court in LaRue

held that, in circumstances where the beneficiary of a defined

contribution 401(k) retirement plan incurred losses in his

individual account due to his employer’s failure to carry out

his directions, that individual beneficiary could have a cause

of action for fiduciary breach under section 1132(a)(2) of

ERISA. Id. at 256. The Supreme Court distinguished its

previous holding in Russell that there was no such

individualized injury for the beneficiary of a defined benefits

plan, 473 U.S. at 140, by stating that “[f]or defined

contribution plans . . . fiduciary misconduct need not threaten

the solvency of the entire plan to reduce benefits below the

amount that participants would otherwise receive.” LaRue, 522

U.S. at 255-56. In so ruling, the Supreme Court also stated

that “[section 1132(a)(2)] does not provide a remedy for

individual injuries distinct from plan injuries.” Id. at 256.

This distinction is crucial. In LaRue, the plaintiff

alleged that the plan had suffered a loss due to its fiduciary

breach, even if the entirety of that loss was confined to his

account. 552 U.S. at 251. Here, the Plaintiffs have alleged

only individual losses, with no net loss to the Plan. Though

the Court in LaRue distinguished Russell insofar as it stated

that a loss need not threaten the “entire plan,” it did not

overturn the analysis in Russell that defined the fiduciary

relationship as being one between the fiduciary and the “plan.”

LaRue, 552 U.S. at 254 (citing Russell, 473 U.S. at 136-42; 29

U.S.C. § 1109(a)). Reading the two cases together, the Court

concludes that there must be some net loss to the Plan to create

cognizable liability under sections 1132(a)(2) and 1109(a).

This Court may, however, grant equitable relief under

section 1132(a)(3). Courts may grant equitable relief for

“those categories of relief that were typically available in

equity (such as injunction, mandamus, and restitution, but not

compensatory damages).” Mertens, 508 U.S. at 256. Equitable

relief is an available remedy for individuals even when the Plan

as a whole has not suffered losses, see Varity Corp., 516 U.S.

at 510, if such relief is “appropriate.” 29 U.S.C. §

1132(a)(3). Surcharge, the equitable form of relief that

compensates a beneficiary for losses traceable to a fiduciary’s

breach, may be available under section 1132(a)(3) even when a

party does not have a cause of action under other sections of

ERISA. See Amara, 563 U.S at 442; Moitoso, 410 F. Supp. 3d at

329. Surcharge is defined as “the imposition of personal

liability on a fiduciary for wilful or negligent misconduct in

the administration of his fiduciary duties.” LeBlanc v. Salem

(In re Mailman Steam Carpet Cleaning Corp.), 196 F.3d 1, 7 (1st

Cir. 1999) (alteration omitted) (quoting Black’s Law Dictionary

1441 (6th ed. 1990)).

The decision by the Plan Fiduciaries not to monitor

recordkeeping expenses was clearly negligent. The Plan

Fiduciaries conducted multiple meetings over the course of years

in which they could have accessed the section 408(b)(2)

disclosure reports that contained recordkeeping fees, but they

chose not to request or review them. Pls.’ SOF ¶ 29.

Fidelity’s own training material acknowledged that the Plan

Fiduciaries had an ongoing duty to monitor recordkeeping fees

and perform due diligence, and to ensure that the fees paid were

reasonable. Id. ¶ 27. Particularly, in light of the 2015

ruling in Dudenhoeffer, 134 S. Ct. at 2468, and the 2016 ruling

in Tibble, 135 S. Ct at 1828, both of which emphasized the

importance of the duty to monitor, it was imprudent for the Plan

Fiduciaries to fail to monitor recordkeeping expenses. The

apparent belief on the part of the Plan Fiduciaries that the

Plan incurred no recordkeeping expenses does not provide a

defense, because they failed closely to investigate the

available documentation to confirm that this belief was true.

Pls.’ SOF ¶ 30.

Given the stipulated facts that the recordkeeping services

would have been available to the Plan for a significantly lower

cost per head, Stipulations of Facts 3-4, it is fair to say that

but for the lack of monitoring on the part of the Plan

Fiduciaries, the members of the class action would have paid

less in recordkeeping costs. Surcharge is an “appropriate”

remedy in these circumstances. Here, the Plan Fiduciaries were

negligent in failing to monitor recordkeeping expenses, an

important component of the administration of their fiduciary

duties. There are no “special circumstances” excusing this

breach of their duties, see Restatement (Third) of Trusts § 95

cmt d., and Fidelity’s primary defense is based on an analysis

of losses at the Plan level that is not necessarily applicable

for equitable remedies.

Conversely, restitution and disgorgement of ill-gotten

gains are not appropriate remedies for this breach. These

remedies are appropriate only if Fidelity had received gains or

profits as a result of the breach, but 100% of the money

collected for recordkeeping expenses was returned to the Plan.

See Mertens, 508 U.S. at 252 (defining “restitution” as

restoring to the plan any profits made by the fiduciary as a

result of breach (citing 29 U.S.C. § 1109(a)). In order to

provide these remedies, this Court would have to find that

Fidelity had in fact accrued profits as a result of its breaches

of fiduciary duty, which would involve finding that the design

of the Plan itself served to extract value from beneficiaries

and place it in Fidelity’s pocket, and thus violated the duty of

loyalty.

The Plaintiffs contend exactly this, arguing that the

Revenue Credits were actually a form of compensation, providing

larger reimbursements to more highly compensated individuals.

Pls.’ Mem. 15 n.14, 17-18; Tr. Case Stated Hr’g 38-39. This is

really a question of how the Plan allocates expenses, rather

than benefits, because after the distribution of the Revenue

Credit each member of the Plan will have paid a different amount

of net expenses, with the members of this class action paying a

higher amount relative to current employees. Fidelity’s Plan

did provide a larger Revenue Credit (and thus lower expenses) to

highly compensated individuals and to current employees than to

former employees, supporting the Plaintiffs’ theory that the

Revenue Credits were acting as a form of compensation, and thus,

gains for Fidelity. Defs.’ SOF ¶ 141; 2014 Profit Sharing Plan

art. 6.2(f). It is common, however, for retirement plans to

differentiate expenses between current and former employees, and

between employees based on factors such as their compensation.

Defs.’ SOF ¶ 141.

Fidelity points out that the design and distribution of the

Revenue Credits is a settlor act, and that ERISA “does not

‘proscribe discrimination in the provision of employee

benefits.’” Defs.’ Mem. 18 (quoting Shaw v. Delta Air Lines,

Inc., 463 U.S. 85, 91 (1983) & citing Walsh v. Bank of Am. Corp.

Severance Program, No. 07cv12315-NG, 2008 WL 2856805, at *4 n.5

(D. Mass. July 22, 2008) (Gertner, J.)). It further argues that

it is barred from providing “addition[s]” to the accounts of

former employees in excess of their compensation, and that as

former employees received no compensation, it could not

reimburse them for administrative expenses. Defs.’ Opp’n 12

(citing 26 U.S.C. § 415(c)(1)). This is because a violation of

these provisions can lead to the loss of the plan’s tax-exempt

status. See, e.g., Churchill, Ltd. Emp. Stock Ownership Plan &

Trust v. Commissioner of Internal Revenue, 104 T.C.M. (CCH) 508,

511-12 (2012).

Ultimately, these are arguments over the design of the Plan

rather than over Fidelity’s lack of monitoring, and the design

of the Plan is covered by the Bilewicz release. Bilewicz

Settlement Agreement § 3.3. Thus, the release in the Settlement

Agreement and the principle of res judicata foreclose analysis

of this issue. Additionally, though “a trustee has a duty to

deal impartially with beneficiaries,” see Morse v. Stanley, 732

F.2d 1139, 1145 (2d Cir. 1984), Fidelity designed the Revenue

Credit system in its capacity as a settlor, and there are no

allegations that it has done anything except accurately carry

out the dictates of the plan document.10 As a settlor, Fidelity

was not under a fiduciary duty of loyalty, so this settlor act

cannot form the basis of an alleged fiduciary violation. See

Lockheed Corp., 517 U.S. at 890. Unlike the Supreme Court

decisions altering Fidelity’s ongoing duty of prudence, there

have been no major changes in binding law since the signing of

the Settlement Agreement indicating that the duty of loyalty

“trumps the instructions of a plan document.” Dudenhoeffer, 134

S. Ct. at 2468; see also Peter J. Wiedenbeck, Untrustworhy:

ERISA’s Eroded Fiduciary Law, 59 Wm. & Mary L. Rev. 1007, 1025-

33 (2018) (explaining that courts do not conduct fiduciary

review of settlor plan design decisions that discriminate

between employees). But see Dana Muir & Norman Stein, Two Hats,

10 That Fidelity violated its duty of impartiality is the

argument the Plaintiffs originally made in their now-withdrawn

Count II. See Compl. ¶ 135-141.

One Head, No Heart: The Anatomy of the ERISA Settlor/Fiduciary

Distinction, 93 N.C. L. Rev. 459, 464-65 (2015) (arguing that

the rigid settlor/fiduciary distinction does not allow for

nuanced policy analysis, and allows plan sponsors to craft plans

that dilute its fiduciary duties).

In conclusion, Fidelity has breached its duty of prudence

with regard to its failure to monitor the recordkeeping

expenses, and the class members may recover under the equitable

doctrine of surcharge. As with the failure to monitor the

proprietary mutual funds, the Plaintiffs at trial will bear the

burden of proving the exact extent of loss (an exercise that may

or may not be trivial given the parties’ stipulations), while

Fidelity will bear the burden of showing this lack of monitoring

has not caused this loss. See Brotherston, 907 F.3d at 39.

C. Count III: The Prohibited Transaction Claim

The Plaintiffs’ third count is based on the alleged

violation of 29 U.S.C. § 1106, which prohibits transactions

between a plan and a party in interest unless one of four

exceptions apply. See 42 Fed. Reg. 18,734, 18,735; Brotherston,

907 F.3d at 27. At issue here is the fourth element of the PTE

77-3 exemption, which asks whether “[a]ll other dealings between

the plan and the investment company . . . are on a basis no less

favorable to the plan than such dealings are with other

shareholders of the investment company.” 42 Fed. Reg. at

18,735.

Fidelity has stipulated that, absent the Revenue Credit

system, “Fidelity’s dealings with the Plan during the Class

Period . . . would have been on terms less favorable than

Fidelity’s dealings with some other shareholders of certain

Fidelity-advised mutual funds.” Stipulations of Facts 4. With

the inclusion of the Revenue Credit system, there was no net

transfer of consideration from the Plan to Fidelity. Defs.’ SOF

¶ 126.

The Plaintiffs cite Brotherston for the proposition that

the Revenue Credits are “irrelevant” to the PTE 77-3 analysis

because they are made in Fidelity’s capacity as an employer,

Pls.’ Mem. 18 (quoting 907 F.3d at 29), but this argument is

based on a misreading of that case. The First Circuit in

Brotherston held that discretionary payments are a form of

compensation. 907 F.3d at 28. The discretionary nature of

these payments was key to the First Circuit’s analysis, because

those contributions were non-fiduciary by virtue of being

“decisions relating to the timing and amount of contributions,”

and therefore did not affect the fiduciary analysis. Id.

(quoting ERISA Practice & Litigation § 3:32). In contrast, the

Revenue Credits system here was mandatory, see 2014 Profit

Sharing Plan art. 5.1(e), and by the logic of Brotherston this

Court may thus consider these mandatory contributions when

conducting its analysis of “[a]ll other dealings.” 42 Fed. Reg.

at 18,735; see also Akers, 71 F.3d at 230 (noting that a company

is bound by fiduciary duty to follow the written terms of a

plan, but not when it is making discretionary decisions).

The Plaintiffs also argue that Fidelity’s actions do not

fall within the PTE 77-3 safe harbor because the Revenue Credits

were not provided to the class members. Pls.’ Mem. 18. As with

the duty to monitor, this is another question of whether a

fiduciary incurs liability at the level of the Plan or of the

individual. The language of the exemption asks if “dealings

between the plan [and the company] . . . are on a basis no less

favorable to the plan” than are comparable dealings with other

shareholders. This language mirrors the language of section

1109, which creates a liability for a breach of fiduciary duty

“with respect to a plan.” The Supreme Court has held that

section 1109 provides for recovery only when the plan itself has

suffered an injury. See LaRue, 552 U.S. at 256; Russell, 473

U.S. at 142. In contrast, section 1132(a)(3)(B), which grants

equitable relief, makes no mention of “the plan,” and can

provide a remedy for individual beneficiaries whose rights have

been violated. See Varity Corp., 516 U.S. at 510. The

Plaintiffs’ theory requires relief at the level of individual

beneficiaries, as allowed under section 1132(a)(3)(B), but the

language of the particular regulations governing prohibited

transactions clearly refers to “the plan.” The appropriate

level of analysis is therefore at the level of the plan, and at

that level, the transactions are protected by PTE 77-3.

In conclusion, because there was no net transfer of

consideration from the Plan to Fidelity for administrative

expenses, and because the proper level of analysis is at the

level of the Plan, Fidelity has not engaged in prohibited

transactions in violation of section 1106.

D. Count IV: the Failure to Monitor Fiduciaries Claim

The Plaintiffs’ fourth count, against FMR LLC only, alleges

that it is a fiduciary and that it failed in its fiduciary duty

of monitoring the FBIC and Retirement Committees to ensure they

were properly administering the plan. Compl. ¶¶ 148-154.

An employer is considered a plan fiduciary when it controls

the administration of the plan. Negron-Fuentes v. UPS Supply

Chain Solutions, 532 F.3d 1, 10 (1st Cir. 2008). FMR LLC is the

sponsor of the Plan, Defs.’ SOF ¶ 14, was responsible for the

writing of the current Plan documents, id., and appointed the

Retirement Committee, which was the named fiduciary and plan

administrator, Pls.’ SOF ¶ 13. Though the Retirement Committee

had the “authority and obligation to control and manage the

operation and administration of the Plan,” these powers were

delegated from FMR LLC. Defs.’ Resp. SOF ¶ 13; see also Thomson

Decl., Ex. 72, Fiduciary Obligations 2, ECF No. 138-75 (naming

the FMR LLC Board of Directors as a fiduciary in an internal

briefing).

A plan sponsor is a fiduciary only when acting in certain

roles. For example, when amending or terminating a plan, a plan

sponsor acts in a settlor role, Lockheed Corp., 517 U.S. at 890,

but when overseeing the ongoing administration of a plan, the

sponsor acts in a fiduciary role. See 29 U.S.C. § 1002(21)(A)

(explaining that a person is a fiduciary of a plan if she

exercises any discretionary authority, renders investment

advice, or has any discretionary authority in the administration

of a plan). In particular, when a plan sponsor appoints other

fiduciaries, that appointment is a fiduciary function because it

is discretionary and carries an ongoing duty to monitor. Kling

v. Fidelity Mgmt. Trust Co., 323 F. Supp. 2d 132, 142 (D. Mass.

2004) (Lasker, J.) (citing Coyne & Delany Co. v. Selman, 98 F.3d

1457, 1465 (4th Cir. 1996)). The Department has also weighed

in, advising that a fiduciary who has delegated responsibility

should review the delegate’s performance at reasonable

intervals. 29 C.F.R. § 2509.75-8, at FR-17. A fiduciary who

violates this ongoing duty to monitor is responsible for any

breaches on the part of the appointed fiduciaries. 29 U.S.C. §§

1104, 1105(a)(2); Howell, 633 F.3d at 573 (citing Leigh v.

Engle, 727 F.2d 113, 133-35 (7th Cir. 1984)).

Here, the FBIC, which derived its fiduciary power from

appointment by FMR LLC, has specifically disclaimed any

obligation to monitor investments other than the two DIAs.

Pls.’ SOF ¶¶ 20-21. By the same token, FMR LLC conducted no

fiduciary monitoring of the FBIC or Retirement Committee to

ensure they were themselves prudently monitoring the menu of

Fidelity investments, because it delegated all investment-

related plan fiduciary duties to the FBIC. Defs.’ Resp. SOF ¶

17. It appears that it did not monitor or investigate the Plan

Fiduciaries either to ensure they were monitoring recordkeeping

expenses. Defs.’ SOF ¶ 128 (“The Plan’s fiduciaries, and in

particular the Retirement Committee that was responsible for the

operation and administration of the Plan, did not conduct

benchmarking or otherwise monitor the administrative revenue

that the Plan generated to Fidelity . . . .”). As this Court

has ruled that the Retirement Committee and FBIC breached their

fiduciary duties in failing to monitor the non-DIA investments

as well as recordkeeping expenses, FMR LLC is also liable for

its breach in failing to monitor.

E. Count V: The Failure to Monitor Fiduciaries Claim

The fifth count of the complaint charges all the Defendants

with profiting from the breach of their fiduciary duties, and

requests equitable relief under section 1132(a)(3) for these

breaches. Compl. ¶¶ 155-162. Like the fourth count, this count

is derivative of the underlying fiduciary breaches alleged in

counts I and III.

Equitable relief may be available to the Plaintiffs based

on Fidelity’s violation of its duty of prudence under count I.

See Moitoso, 410 F. Supp. 3d at 322. This Court notes, however,

that it may not award duplicate recoveries stemming from the

same injury by classifying the injury as creating both loss and

gain. See Silva v. Metro. Life Ins. Co., 762 F.3d 711, 726 (8th

Cir. 2014). At the stage in the proceedings where both parties

have the opportunity to contest causation and loss, additional

equitable remedies may be available to the Plaintiffs, where

appropriate. Amara, 563 U.S. at 444.

III. CONCLUSION

There remains a live issue as to whether Fidelity’s statute

of limitations defense is viable. Additionally, this decision

addresses only the question of liability, not causation or loss.

On the case-stated record, the Court has made the following

findings and rulings:

Fidelity has incurred liability under count I for its

breach of the duty of prudence in failing to monitor proprietary

funds other than the two DIAs, and for failing to monitor

recordkeeping expenses. FMR LLC is liable under count IV for

breaches related to this failure to monitor. All Fidelity

Entities may be liable under count V for breaches related to the

failure to monitor. At the close of this case, judgment will

enter for Fidelity on the other theories under count I, as well

as count III.

SO ORDERED.

_/s/ William G. Young__

WILLIAM G. YOUNG

U.S. DISTRICT JUDGE