A federal appeals court in Atlanta has ruled for Home Depot in a lawsuit by former 401(k) plan participants, while also rebuffing a petition by the Department of Labor that advocated for the plaintiffs in Pizarro et al. vs. The Home Depot Inc. et al.
The 11th U.S. Circuit Court of Appeals on Aug. 2 supported a federal District Court’s rejection of the lawsuit in which plaintiffs’ accused the company and plan fiduciaries of allowing excessive record-keeping fees, retaining poor-performing investments and failing to monitor advisory fees.
The decision was broader in scope because it rejected arguments by plaintiffs and by a Labor Department amicus brief over the controversial issue of loss causation. The plaintiffs and the DOL said the defendants had to disprove allegations that plan management caused participants’ losses. The defendants said plaintiffs must prove plan management caused losses.
Loss causation is controversial because ERISA isn’t clear, and this has led to different conclusions by different appeals courts. This is the first time the 11th Circuit has ruled on loss causation. According to the DOL, one other appeals court agrees with the 11th Circuit while five have issued rulings placing the burden on defendants.
ERISA “offers no indication that Congress intended to require defendant fiduciaries to disprove loss causation,” the 11th Circuit judges wrote. “The plaintiffs thus bore the burden, but they did not sustain it. ERISA requires a prudent process, but it does not guarantee good results.”
Home Depot’s investment decisions “were objectively prudent, whether or not it used the right process to evaluate and monitor them,” they added. “We agree with the district court that the damages claims fail, and we affirm its well-reasoned order granting summary judgment to Home Depot.”
A motion for summary judgment is usually filed after the parties have completed discovery, giving a judge the opportunity to review details of a case. A motion to dismiss, usually requested soon after a complaint is filed, argues that the plaintiff has failed to state a claim.
The plaintiffs sued in April 2018 and later filed an amended complaint. A U.S. District Court judge in Atlanta ruled in September 2022 that they had failed to prove that alleged breaches of fiduciary duty had caused a loss in plan assets.
"There is no evidence that Home Depot defendants' actions or inactions caused the plan a loss," U.S. District Court Judge Steven D. Grimberg wrote.
The plaintiffs appealed, and the DOL filed its amicus brief. "The district court incorrectly placed the burden of proof on the participants to show loss causation,” the DOL wrote.
"Because ERISA is silent on who bears the burden of proving loss causation in fiduciary breach cases, the majority of courts to consider the question have adopted the trust-law rule that once a plaintiff proves a fiduciary breach and a related loss, the burden shifts to the breaching ERISA fiduciary to disprove loss causation," the DOL wrote.
With appeals courts offering different interpretation of loss causation in ERISA cases, it’s possible the Supreme Court could be asked to review the “circuit split” among the courts.
This happened once before in Putnam Investments LLC et al. vs. Brotherston et al. The Supreme Court declined — without comment — in January 2020 to hear Putnam’s petition.
Home Depot FutureBuilder, Atlanta, had $10.6 billion in assets as of Dec. 30, 2022, according to the latest Form 5500.
