Moitoso v. FMR LLC, CIVIL ACTION NO. 18-12122-WGY

• Decision Date: 27 March 2020
• Docket Number: CIVIL ACTION NO. 18-12122-WGY
• Citation: 451 F.Supp.3d 189
• Parties: 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. 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.
• Court: U.S. District Court — District of Massachusetts

451 F.Supp.3d 189

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.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.

CIVIL ACTION NO. 18-12122-WGY

United States District Court, D. Massachusetts.

Filed March 27, 2020

Brock J. Specht, Pro Hac Vice, Carl F. Engstrom, Pro Hac Vice, Grace I. Chanin, Pro Hac Vice, Jacob T. Schutz, Pro Hac Vice, James H. Kaster, Pro Hac Vice, Kai H. Richter, Pro Hac Vice, Mark E. Thomson, Pro Hac Vice, Paul J. Lukas, Pro Hac Vice, Nichols Kaster & Anderson LLP, Minneapolis, MN, Jacob A. Walker, Jason M. Leviton, Pro Hac Vice, Block & Leviton LLP, Boston, MA, for Plaintiff.

Christina L. Hennecken, Pro Hac Vice, Michael K. Isenman, Pro Hac Vice, William M. Jay, Pro Hac Vice, Goodwin Procter LLP, Washington, DC, Alison V. Douglass, Benjamin S. Reilly, David Rosenberg, John J. Falvey, Jr., Paul E. Nemser, Goodwin Procter, LLP, Boston, MA, for Defendant.

MEMORANDUM & ORDER

YOUNG, D.J.

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)-(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. 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...