Putnam Investments, LLC, which recently had its win in an excessive fee case rebuffed and directed by the appellate court for a reconsideration with a shift in the burden of proof, has asked for a pause while it makes its case to the Supreme Court.
Noting that, while the appellate court remanded for the district court to complete the bench trial, “…that proceeding should not resume until the Supreme Court has the opportunity to decide who bears the burden of proof,” the Putnam defendants noted in their petition.
The case, which has drawn the interests of a wide-ranging number of organizations in filing friend of the court briefs on behalf of the plaintiffs (AARP, the AARP Foundation and the National Employment Lawyers Association) and the Putnam fiduciary defendants (the Chamber of Commerce of the United States of America, American Benefits Council, the Securities Industry and Financial Markets Association (SIFMA), and the Investment Company Institute), has been cited by a number of settlement filings as indicative of the uncertain nature of plaintiffs prevailing in similar cases (see Terms Announced in Proprietary Fund Settlement, Settlement Struck in Excessive Fee Suit and Airline’s Excessive Fee Turbulence Settles).
Case, Briefed
The 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.”
The plaintiffs’ arguments had been dismissed in June 2017, with District Judge William G. Young determining that not only had the plaintiffs failed to identify any specific circumstances in which the company and its 401(k) plan put their own interests ahead of the interests of plan participants, but that the plaintiffs failed to show how Putnam’s allegedly imprudent actions resulted in losses that required compensation. That said, Judge Young had also noted that the Putnam plan fiduciaries “review of the Plan lineup was no paragon of diligence.”
However, less than two weeks ago, 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.”
Having made that determination, and “finding several errors of law in the district court’s rulings,” the appellate court remanded the case for further proceedings by the district court.
‘Stay’ Case
Explaining that “without a stay the mandate is scheduled to issue on November 5, 2018,” and that “a stay of the mandate would preserve the status quo during the limited period necessary to seek Supreme Court review,” the petition notes that only two requirements must be met for a stay to issue: (1) the potential petition must “present a substantial question,” and (2) there must be “good cause for a stay” – elements that they say are “readily met here.”
The petition states that the appellate court has already acknowledged that this issue is one on which the circuits are deeply split, with now four circuits (the First, Fourth, Fifth, and Eighth Circuits) holding that an ERISA defendant bears the burden of proof on loss causation, while it states that at least four circuits (the Sixth, Ninth, Tenth, and Eleventh Circuits) have determined that the “plaintiff bears the burden of proving this element of an ERISA claim.” Consequently, “at this point, nearly every circuit has decided the issue, and the conflict will not be resolved without Supreme Court review,” they write.
Indeed, and as the petition notes, the Supreme Court was already considering taking up the issue this term in a case from the Tenth Circuit (Pioneer Centres Holding Co. Stock Ownership Plan and Its Trustees et al. v. Alerus Financial NA), but the parties in that case settled in September.
As for the Putnam request, the petition goes on to explain that “…if the district court retried the case in accordance with this Court’s decision, and if the Supreme Court then articulated a different loss-causation standard, the case could even have to be retried again. Resuming proceedings in the district court while Appellees seek Supreme Court review would be neither efficient nor cost-effective.
“The trial took place a year and a half ago. The incremental delay in further proceedings to accommodate a petition for certiorari is certainly outweighed by the burden and expense to the parties if the district court proceedings resume prematurely.”
The petition concludes that “because Appellees’ forthcoming petition for certiorari presents a substantial question on which the circuits are deeply split, and because there is good cause to maintain the status quo and defer retrying the case while the Supreme Court considers that governing legal question, this Court should stay the mandate pending the filing and disposition of a petition for certiorari.”
As for the plaintiff-appellants in this case, they are not contesting the request to stay, though they reserved the right “to oppose any petition filed for writ of certiorari by Defendants-Appellees’ with the United States Supreme Court.”
Stay tuned.
