The plaintiffs — all former employees of Fidelity who participated in the Fidelity Retirement Savings Plan — filed a class action on the plan’s behalf alleging Fidelity breached its fiduciary duties under ERISA by mismanaging the plan.

Plaintiffs who brought a class action accusing their former employer of breaching its fiduciary duties by mismanaging its employee retirement plan were not entitled to a jury trial, a U.S. District Court judge in Massachusetts has found.

The plaintiffs sought a monetary award against the defendant, Fidelity Investments, for allegedly managing their retirement plan in a manner that caused substantial losses. The plan is subject to the federal Employee Retirement Income Security Act of 1974.

In objecting to the plaintiffs’ jury demand, Fidelity argued that the claim did not constitute a “suit at common law,” and thus the plaintiffs had no right to a jury trial under the Seventh Amendment to the U.S. Constitution.

While calling it a “close call,” Judge William G. Young agreed.

“After close study of historical practice and ERISA’s text, this Court concludes that a money award, if any, that the plaintiffs might win would be an equitable surcharge, not legal damages,” Young wrote, granting Fidelity’s motion to strike the plaintiffs’ demand. “As a result, the Court rules that the Seventh Amendment does not require a jury trial in this case.”

Nonetheless, citing the “vital role” of juries, Young ordered that an advisory jury be empaneled.

The 24-page decision is Moitoso, et al. v. FMR LLC, et al.

‘Steep climb’

Lead plaintiffs’ counsel, Kai H. Richter of Minneapolis, declined to comment. Attorneys for Fidelity, meanwhile, could not be reached for comment prior to deadline.

But Gavin G. McCarthy, a Portland, Maine, lawyer who defends ERISA class actions, said Young’s ruling would not come as a surprise to plan administrators.

“A plaintiff suing under ERISA for breach of fiduciary duty will typically have a very steep climb trying to get to a jury given the statute’s roots in the common law of trusts, where most proceedings were equitable,” said McCarthy, who also practices in Massachusetts.

At the same time, McCarthy predicted that Young’s decision to order an advisory jury could motivate parties in future cases similarly to characterize the jury question as a “close call” and suggest an advisory jury as a fallback position.

That would shift the fight to a whole different set of issues, he said, explaining that by empaneling an advisory jury, the court is creating an inefficiency because it will need to exercise its independent judgment once the jury renders its advisory verdict.

“Also, generally speaking, the sorts of equitable issues to which no jury right attaches involve more issues of judgment and discretion than legal issues,” McCarthy said.

Boston ERISA attorney Stephen Rosenberg said it was noteworthy that the plaintiffs tried to apply the “immediate and unconditional payment” exception to circumvent the equitable barrier to their jury demand. The exception is a concept in trust law that allows a beneficiary to maintain a legal action against a trustee that violates an immediate, unconditional duty to transfer chattel or pay the beneficiary money.

Here, the plaintiffs argued that while they technically brought their complaint on behalf of the plan, making the suit sound in equity, they had an immediate and unconditional right to relief because they could withdraw funds on demand, an argument that Young rejected.

“The court’s analysis [of whether the exception applied] is a perfect illustration of the traps for plaintiffs embedded in historical trust doctrines, as well as the extent to which those historical doctrines favor defendants … when imported into modern-day ERISA cases,” Rosenberg said.

Johanna L. Matloff, an ERISA litigator in Boston who represents defendants, said she was not surprised by the decision, particularly since one of the underlying goals of ERISA is to encourage employers to offer these types of benefits to employees.

“If employers know they have exposure to expensive and time-consuming jury trials, they may not be as likely to take on the risk of offering such benefits.”

— Johanna L. Matloff, ERISA litigator

“If employers know they have exposure to expensive and time-consuming jury trials, they may not be as likely to take on the risk of offering such benefits,” Matloff said.

John J. Roddy, a Boston lawyer who represents plaintiffs in ERISA class actions, said that while there is “no stauncher advocate of the jury trial” than Young, beneficiary claims against trustees are so bound up in the constraints of equity jurisprudence that there was no viable way to find a right to jury trial under the circumstances.

“The silver lining here is that the equitable notion of surcharge gives the court the ability to not just restore the parties back to square one but to put the plan participants in as good a position as they would have been but for the claimed fiduciary breach,” he said.

Jonathan M. Feigenbaum, an ERISA lawyer in Boston, said Young’s characterization of monetary remedies against fiduciaries under ERISA as a surcharge rather than as legal damages follows U.S. Supreme Court and 1st U.S. Circuit Court of Appeals precedent.

“This may not make sense because the relief sought is money — as [Justice Ruth Bader] Ginsburg has pointed out in dissents in ERISA cases for more than a decade,” he said. “But the Supreme Court has held the line in classifying relief under ERISA as equitable rather than legal.”

Jury demand

In October 2018, the plaintiffs — all former employees of Fidelity who participated in the Fidelity Retirement Savings Plan, a defined-contribution plan — filed a class action on the plan’s behalf in U.S. District Court alleging Fidelity breached its fiduciary duties under ERISA by mismanaging the plan.

Specifically, the plaintiffs claimed Fidelity used the plan to promote its own mutual fund business to the detriment of the plan and its participants, by loading it with Fidelity investment products instead of more suitable non-proprietary investments.

According to the plaintiffs, many of the Fidelity products the plan invested in were particularly inappropriate because of poor performance, high fees and lack of diversification.

As a result, the plaintiffs claimed, for the time period in which data was available, Fidelity’s plan performed worse than any other plan with more than $5 billion in assets, sustaining more than $100 million a year in losses compared to the average plan.

Arguing that as former employees they could immediately withdraw a proportional share of the loss award from the plan should the court enter judgment in their favor, the plaintiffs filed a jury demand, which the defendants moved to strike. In the alternative, the plaintiffs requested an advisory jury.

Matter of equity

Young found the plaintiffs did not have a right to a jury trial under the Seventh Amendment, which guarantees a jury for suits at common law but not at equity.

In so finding, the judge identified two factors in determining whether a suit involves legal or equitable issues: whether the action is analogous to common law causes of action ordinarily decided in English law courts in the late 1700s, and whether the requested remedy is legal or equitable.

Regarding the first factor, Young wrote that “the chancery courts of old traditionally heard claims for breach of fiduciary duty, which militates against a jury trial right.”

As to the second factor, the judge observed that ERISA provided for the equitable remedy of surcharge, as opposed to the legal remedy of damages, for breach of fiduciary duty.

Meanwhile, Young rejected the plaintiffs’ argument that the “immediate and unconditional right to payment” exception, under which beneficiaries may bring fiduciary duty claims against trustees at law, applied to their claim.

“Although the Plaintiffs’ argument has superficial appeal, historical practice undermines it,” Young wrote.

Courts have applied the exception in which trust beneficiaries seek a specific sum from the trustee, who the courts have treated akin to a debtor, he explained. By contrast, he said, the plaintiffs here were asserting that Fidelity’s breach of fiduciary duty caused the plan to suffer loss of income.

Accordingly, Young granted Fidelity’s motion to strike but ordered that an advisory jury be empaneled “so as to preserve the Plaintiffs’ rights.”