The nation’s highest court just took a step towards considering review of a case with significant implications for the burden of proof in ERISA lawsuits.
The suit, Brotherston v. Putnam Investments, LLC, was filed in 2017 by participants in the Putnam Investments plan who alleged that the defendants “loaded the Plan exclusively with Putnam’s mutual funds, without investigating whether Plan participants would be better served by investments managed by unaffiliated companies.” That case – which alleged many of the same arguments that have been made in excessive fee/proprietary fund suits – was dismissed in June 2017, only to be revived last October when the appellate court opted to “…align ourselves 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.”
It’s a case that a number of retirement industry groups – including the American Retirement Association – have asked that the U.S. Supreme Court resolve because it involves an issue which has split the nation’s district courts nearly in half.
As it turns out, four circuits (the First, Fourth, Fifth and Eighth Circuits) have ruled that an ERISA defendant bears the burden of proof on loss causation, while the Second, Sixth, Seventh, Ninth, Tenth, and Eleventh Circuits have left that burden on those bringing suit. However, in acknowledging that the First Circuit was shifting the burden in its decision in the Brotherston case, 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.”
While the U. S. Supreme Court hasn’t yet agreed to take on the case, it has now invited the Solicitor General to “file a brief in this case expressing the views of the United States.”
The case is Putnam Invs., LLC v. Brotherston, U.S., No. 18-926, invitation to file brief 4/22/19.
