Seyfarth Synopsis: There is a deep circuit split on who bears the burden of proving loss causation on ERISA breach of fiduciary duty claims. The Supreme Court has now invited the U.S. Solicitor General to submit the United States position on the issue in connection with a petition for a writ of certiorari from a First Circuit decision finding that the burden of proof shifts to the breaching fiduciary to disprove causation once a plaintiff proves loss.
Putnam Investments has filed a petition for a writ of certiorari that raises an important issue in the developing law on complex ERISA litigation. Putnam is asking the Supreme Court to decide whether plaintiff bears the burden of proof not only on breach of fiduciary duties and on loss, but also on causation. Courts of Appeal for the Fourth, Fifth and Eighth Circuits have held that an ERISA defendant bears the burden of proof on causation, while the Second, Sixth, Seventh, Ninth, Tenth, and Eleventh Circuits have held that the plaintiff bears the causation burden. Putman argues: “This case offers the perfect opportunity to resolve a deep divide.”
On April 18, 2019, Putnam’s petition and related papers were distributed to the Justices. On April 22, the Court asked for the U.S. Solicitor General’s position on the petition. The invitation to the Solicitor General is a sign that certiorari might be granted, so this case is worth watching carefully.
The backdrop to the case is the claim by participants in Putnam’s 401(k) Plan that the Plan fiduciaries imprudently allowed 85% of Plan assets to be invested in proprietary mutual funds. It is worth noting that the fiduciaries also allowed participants to use a self-directed brokerage window. The class nonetheless alleged that the mutual fund fees were unreasonably high.
In June 2017, the District of Massachusetts ruled in favor of Putman, determining that plaintiffs failed to prove at trial that the fiduciaries acted imprudently, and put their and the company’s own interests ahead of the interests of plan participants.
On appeal, the First Circuit vacated the trial court’s judgment and opted to “align [itself] with the Fourth, Fifth, and Eighth Circuits and hold that once an ERISA plaintiff has shown a breach of fiduciary duty and loss to the plan, the burden shifts to the fiduciary to prove that such loss was not caused by its breach, that is, to prove that the resulting investment decision was objectively prudent.” The First Circuit remanded the case to the district court, explaining that, if loss is proven on remand, the burden shifts to the fiduciary to prove that the fiduciary decision was objectively prudent. See Brotherston v. Putnam Investments, LLC, No. 17-1711 (1st Cir. Oct. 15, 2018).
Burden of proof issues are key to the defense of any case, including of course complex ERISA cases. If the Supreme Court grants certiorari, the outcome of the case in that Court will have substantial impact on how ERISA litigation defendants organize and pursue their defense efforts and arguments. There is no question that ERISA fiduciaries would prefer not to have any burden of proof, other than as to true affirmative defenses.