First Circuit Holds Defendants Have Burden To Negate Loss Causation In ERISA Fiduciary Duty Cases

Summary

The US Court of Appeals for the First Circuit has solidified a circuit split on who has burden of proving loss causation in ERISA breach of fiduciary duty cases. The First Circuit joined the Fourth, Fifth and Eighth Circuits holding that once a plaintiff demonstrates a fiduciary breach, the defendant has the burden to negate loss causation. Other circuits, including the Sixth, Ninth, Tenth and Eleventh Circuits, have held that a plaintiff bears to burden to establish loss causation. This issue is ripe for Supreme Court review.

In Depth

The US Court of Appeals for the First Circuit Court of Appeal's decision in Brotherston v. Putnam Investments, LLC, No 17-1711 (Oct. 15, 2018) solidifies a circuit split on whether an ERISA fiduciary has the burden to affirmatively negate loss causation when the plaintiff has established a breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA). The First Circuit sided with the Fourth, Fifth and Eighth Circuits, holding that once a plaintiff demonstrates that a fiduciary breach under ERISA, the burden shifts to the fiduciary to demonstrate that the breach did not cause the plaintiffs' claims loss. The Court of Appeal's decision has wide ranging implications and may garner the attention of the Supreme Court given the circuit split on this issue.

In this case, the plaintiffs were two former employees of Putnam Investments, LLC (Putnam) who participated in Putnam's 401(k) plan. The plaintiffs asserted that Putnam and the other named plan fiduciaries breached their fiduciary duties by offering plan participants investment options that included all of Putnam's mutual funds, irrespective of whether those funds were prudent investment options.

The plaintiffs further alleged that Putnam structured fees and rebates in the plan in a manner that was unreasonable and treated plan participants worse than other investors who invested in Putnam funds. Based upon those allegations, the plaintiffs asserted claims under ERISA for breach of fiduciary duty and also asserted that defendants engaged in prohibited transactions under ERISA.

According to the trial court, the plaintiffs' claims fundamentally asserted that by failing to implement or follow a prudent objective process for investigating and monitoring the individual merits of each of the plan's investments in terms of costs, redundancy or performance, the defendants breached their fiduciary duties under ERISA. During a seven-day...

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