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Putnam Seeks SCOTUS Review of Fiduciary Burden of Proof Claim

Putnam Investments, LLC has officially asked the nation’s highest court to weigh in on an issue on which district courts have split 6-4: Who bears the burden of proof when alleging losses due to a fiduciary breach?

Indeed, the issue seems ripe for consideration. As Putnam states in its petition to the U.S. Supreme Court, “Nearly every regional circuit has now weighed in, and their holdings are diametrically opposed: six follow the default rule in federal statutory cases and place the burden on plaintiffs. Four shift the burden to defendants based on their perception that this rule … is better policy and fairer to ERISA plaintiffs.”

For those keeping score at home, 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 determined that the “plaintiff bears the burden of proving this element of an ERISA claim.” The Putnam defendants argue that “This case offers the perfect opportunity to resolve a deep divide.”

The Original Case

By way of background, in the original case, Brotherston v. Putnam Investments, LLC (2017 BL 208765, D. Mass., No. 1:15-cv-13825-WGY, 6/19/17), participants in the Putnam Investments’ plan alleged 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.” That case – which alleged many of the same arguments that have been made in excessive fee/proprietary fund suits – was 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, at the time Judge Young also noted that the Putnam plan fiduciaries “review of the Plan lineup was no paragon of diligence.”

However, last October 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. Putnam filed for, and was granted, a stay in the proceedings while it petitioned the Supreme Court to weigh in.

The Issues

In their petition, the Putnam defendants outline the issues to be considered:


  • Whether an ERISA plaintiff bears the burden of proving that “losses to the plan result[ed] from” a fiduciary breach, as the Second, Sixth, Seventh, Ninth, Tenth, and Eleventh Circuits have held, or whether ERISA defendants bear the burden of disproving loss causation, as the First Circuit concluded, joining the Fourth, Fifth, and Eighth Circuits.

  • Whether, as the First Circuit concluded, showing that particular investment options did not perform as well as a set of index funds, selected by the plaintiffs with the benefit of hindsight, suffices as a matter of law to establish “losses to the plan.”


Those two issues wind up being related because the First Circuit – which held that the burden of proof should shift to the defendants – opined that the holding would impose no significant new burden on ERISA defendants because it thought that a fiduciary “can easily insulate itself” by selecting index funds, rather than active funds, according to the Putnam petition.

It’s not the first time the Supreme Court has considered considering the issue. In fact, as the Putnam petition explains, the Supreme Court has twice asked the federal government to file a brief stating its position on the issue since 2015, when the U.S. Solicitor General praised the shift in burden of proof to the defendants, but advised the court against taking up the issue. And then that case, Pioneer Centres Holding. Co. Emp. Stock Ownership Plan & Tr. v. Alerus Fin, N.A. (858 F.3d. 1324, 1337 (10th Cir. 2017), cert. dismissed) was voluntarily dismissed before that brief was filed.

Why it Matters

This much uncertainty on a key burden of proof issue leaves both plaintiffs and defendants vulnerable to a decision based on the venue in which suit is filed.

Moreover, the Putnam 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, the 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).

Putnam’s petition cites the “broad significance” of this issue, that “hundreds of ERISA class actions claiming breach of fiduciary duty are currently pending in federal court, demanding billions of dollars in recovery, and the burden-of-proof and loss issues are germane to all of them,” and that, “if not reversed, the First Circuit’s errors will leave retirement plans in a difficult position.” They explain that the court acknowledged that its rule would create pressure on fiduciaries to substitute index funds for fear of ERISA liability – and that defendants in future cases will be pressed to settle rather than litigate, and that this will “encourage plaintiffs to file cases irrespective of their merits.”

In other words, how this case goes could have a dramatic effect on a significant number of cases currently being litigated – not to mention who knows how many in the future.

Stay tuned.

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