The U.S. Supreme Court on Monday declined to hear a petition by Putnam Investments asking to rule on the contentious issue of whether plaintiffs must prove a loss in an ERISA fiduciary breach lawsuit or whether sponsors must disprove a loss and that the loss was caused by the fiduciary breach.
The Supreme Court provided no explanation for its decision in the case of Putnam Investments LLC et al. vs. Brotherston et al. Putnam Investments asked the court to overturn a Boston federal appeals court ruling that placed the burden on Putnam regarding a participant's complaint about its 401(k) plan.
This case had rattled the DC industry as evidenced by the filing of friend-of-the court briefs — by trade groups such as the Investment Company Institute, American Benefits Council and ERISA Industry Committee — asking the Supreme Court to create a uniform standard for evaluating loss causation, placing the responsibility on plaintiffs.
They said different appeals courts applied different standards for responsibility in fiduciary breach cases. Some appeals courts sided with sponsors, but some, like the 1st U.S. Circuit of Appeals Court in Boston, supported the plaintiffs.
The federal government filed a friend-of-the court brief on Nov. 27 recommending that the Supreme Court decline to hear the case.
"Although some disagreement exists among courts of appeals" about loss causation, "this case would be a poor vehicle in which to resolve that disagreement," Noel Francisco, the solicitor general, wrote in his brief. He was supported by Kate S. O'Scannlain, solicitor of labor for the Department of Labor.
Mr. Francisco focused primarily on errors made by a U.S. District Court judge in Boston, who had ruled in favor of Putnam. The federal appeals court in Boston cited these errors in reversing part of the judge's decision. The District Court judge had held a trial, but he dismissed certain allegations against Putnam before the trial was completed, he wrote.
"The facts have not been fully developed," Mr. Francisco wrote. "The antecedent determinations necessary to address whether (Putnam's) alleged breach caused a loss — and whether there was even a breach and a related loss — have not been decided."
The Supreme Court routinely asks the federal government, represented by the solicitor general, for its views. The court doesn't automatically follow these recommendations.
Plan participant John Brotherston sued Putnam in November 2015, alleging several breaches of fiduciary duty, including stocking the plan with proprietary products and failing to monitor the investment lineups' cost and performance.
The U.S. District Court judge in Boston dismissed two claims against Putnam in March 2017 and dismissed other complaints in June 2017 during a bench trial.
The appeals court reversed the ruling in October 2018, and sent the case back to the District Court. The appeals court said it had rejected two reasons cited by the District Court judge in dismissing the case. Putnam filed its petition to the Supreme Court in January.
The case had been put on hold by the appeals court, pending the outcome of Putnam's petition to the Supreme Court. It will now return to the U.S. District Court with the appeals court's instructions to follow guidelines requiring Putnam to disprove the loss.
