“This perverse and harmful holding has extraordinary consequences for the investment management industry, ERISA litigation, and ERISA plans as a whole.”

In its rebuttal brief to the Solicitor General’s amicus brief, Putnam points out the  significance of Putnam Investments, LLC v. Brotherston.  And they are absolutely correct in their assessment. This case has the potential to be a complete game changer for the ERISA and the investment management industries.

If the First Circuit’s decision is allowed to stand, the case goes back to the district court to complete the trial. Putnam will have the burden of proof as to causation if the plan participants can show both a breach of Putnam’s fiduciary duties and resulting financial losses.

Putnam, in fact the entire ERISA and mutual funds industries, know that they will rarely be able to carry the burden of proof on causation, as studies have consistently shown that very few actively managed funds are cost-efficient, one of basic requirements of prudence under the Restatement (Third) of Trusts, specifically Section 90, comment h(2). My metric, the Active Management Value Ratio metric, confirms those studies when applied to most actively managed funds. That is why so many investment management entities filed amicus briefs with SCOTUS.

In my opinion, Putnam’s arguments have no merit. First, as both the Court of Appeals and the Solicitor General pointed out, the burden proof as to causation is different in civil cases, where the plaintiff has the burden of proof, and trust cases, where the fiduciary has the burden of proof once the beneficiary/plan participant shows a breach of fiduciary duty resulting in damages. The Court of Appeals and the Solicitor General simply objectively stated the applicable law, which can be verified with research.  That is hardly evidence of bias.

Second, as the Solicitor General pointed out, Putnam has overstated the extent of the division between the federal courts on the shifting of the burden of proof in trust/ERISA cases. Therefore, there is no merit in Putnam’s argument a to the need to hear this case on that issue, especially since the plan participants were not allowed to present all of their evidence in the proceedings in the district court.

Given the strength of the arguments and the logic contained in both the Court of Appeals’ opinion and the Solicitor General’s amicus brief, I expect SCOTUS to deny the application for certiorari and allow the case to resume in the district court. Knowing the position of Court of Appeals and the Solicitor General about the case in case it were to go back to them on appeal, I would not be surprised to see Putnam settle the case in an attempt to minimize damages.