An excessive fee suit that highlighted an apparent split between the nation’s courts in establishing who bears the burden of proof in ERISA litigation has settled—without resolving the issue(s).
The defendants here—Putnam Investments, LLC—had prevailed at the district court level, only to have that ruling appealed, and to find that the appellate court adopted a different view of which party bore the burden of proof.[i] That court aligned itself with the Fourth, Fifth, and Eighth Circuits, holding 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.” That decision, which was not only a shift from the position previously adopted by the First Circuit, but was also, the defendants argued, different than decisions in the Second, Sixth, Seventh, Ninth, Tenth, and Eleventh Circuits, which had left that burden on those bringing suit.
Be that as it may, the U.S. Supreme Court didn’t see it that way. Rather, in the the high court's view, the lower courts hadn’t really confronted the issue, though the Court acknowledged that the Second, Sixth, Seventh, Ninth, Tenth, and Eleventh Circuits have left that burden on those bringing suit. All that said, the Supreme Court, having found nothing to resolve, sent the case back down to the district court where those issues of fact could be fully adjudicated.
And now, roughly 70 days after that decision, the parties have notified the court that they “have reached an agreement in principle to settle this action on a class-wide basis. The parties anticipate that they will finalize the settlement agreement and submit a motion for preliminary approval of the settlement by April 17, 2020.”
What This Means
While the burden of proof determination loomed largest in this case—though neither the Supreme Court nor the Labor Department saw it as an issue—there was another issue that arose in the appellate court’s ruling. Specifically, whether passively managed index funds can be appropriate benchmarks for establishing losses from the improper monitoring of actively managed funds. More specifically, in the original appellate decision, Judge William J. Kayatta, Jr. shrugged off arguments that the shift in burden of proof would undermine plan formation and encourage litigation by claiming that “…any fiduciary of a plan such as the Plan in this case can easily insulate itself by selecting well-established, low-fee and diversified market index funds.”
The case may be settled—but the issues, it seems, are not.
[i]The original case, Brotherston v. Putnam Investments, LLC (2017 BL 208765, D. Mass., No. 1:15-cv-13825-WGY, 6/19/17), was filed against Putnam Investments by participants in that plan, alleging that the defendants “have loaded the Plan exclusively with Putnam’s mutual funds, without investigating whether Plan participants would be better served by investments managed by unaffiliated companies.”
