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.”
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