I recently posted my initial impressions on the 11th Circuit’s Decision in the Pizarro v. Home Depot 401(k) case:

It should be noted that the court granted HD summary judgment even though the court found that there were significant issues of material facts, which typically precludes summary judgment under Rule 56 of the federal rules of civil procedure. Hopefully, SCOTUS will have an opportunity to weigh in in order to resolve the split within the courts to ensure all employees’ rights guaranteed under ERISA are protected by the uniform and equitable interpretation and enforcement of ERISA in the courts, The 11th Circuit’s decision is also contra to the amicus brief filed by the Solicitor General with SCOTUS in the Brotherston case, hashtag#401k #hashtag #fiduciaryprudence

Having gone back and reviewed the district court’s original decision, the 11th Circuit’s decision and the the amicus brief that the DOL filed, I would like to share these additional observations and opinions, as this case will shape the future of both ERISA and ERISA litigation, and thus the rights and protections gauranteed to American workers.

Right now, ERISA can fairly be defined by the well-known acronym SNAFU due to the inconsistent interpretation and enforcment of ERISA within the federal courts. The courts are split on the issue as to which party has the burden of proof with regard to causation of damages in ERISA actions.

While there is currently a split within the federal courts, the majorituy of the courts adhere to the principle that plan sponsors have the burden of proof on causation, based on the basic principles set out in the common law of trusts. In Tibble v. Edison International,¹ the Supreme Court (SCOTUS) endorsed the Restatement (Third) of Trusts (Restatement) as a legitimate resource in resolving trust and fiduciary disputes.

The Restatement’s position is generally that once plan participants show a fiduciary breach and resultinng loss, the burden of proof on the issue of causation shifts to the plan sponsor. This is different than the general rule in civil litigation, where the plaintiff is responsibleible for proving all aspects of his/her case. As the Solicitor General explained in an amicus brief filed with SCOTUS in the Putnam Investments, LLC v. Brotherston case, the change in ERISA litigation is due largely to the fact that plan sponsors often have access to relevant information, such as the rationale behind the internal plan decisions about why certain investment options were selected, that is known only to them.

When plan participants file an ERISA action against a plan sponsor, the plan sponsor typically responds quickly by filing a motion to dismiss and or a motion for summary judgment to quickly resolve the case and prevent discovery by the plan participants. This strategy creates a fundamental fairness/equity issue, as it may prevent the plan participants to obtain the critical information needed to prove their case, the information uniquely known only to the plan sposnsor.

The Solicitor General has addressed the current situation regarding shifting the burden of proof, stating that

In trust law, burden shifting rests on the view that ‘as between innocent beneficiaries and a defaulting fiduciary, the latter should bear the risk of uncertainty as to the consequences of its breach of duty. ERISA likewise seeks to ‘protect *** the interests of participants in employee benefit plans’ by imposing high standards of conduct on plan fiduciaries. Indeed, in some circumstances, ERISA reflects congressional intent to provide more protections than trust law. Applying trust law’s burden-shifting framework, which can serve to deter ERISA fiduciaries from engaging in wrongful conduct, thus advances ERISA’s protective purposes.³

More importantly, we have many decades of experience with the allocation of the burden of proof called for routinely by trust law, with no evidence of any particular difficulties, unfairness, or costs in applying that rule in the few cases in which it actually makes a difference.⁴ Solicitor General’s Brotherston amicus brief , 10 (Amicus brief) and 907 F.3d 39

The Sixth Circuit Court of Appeals recently acknowledged the equity issues in the current situation, stating

But at the pleading stage, it is too early to make these judgment calls. ‘In the absence of further development of the facts, we have no basis for crediting one set of reasonable inferences over the other. Because either assessment is plausible, the Rules of Civil Procedure entitle [the three employees] to pursue [their imprudence] claim (at least with respect to this theory) to the next stage….⁵

This wait-and-see approach also makes sense given that discovery holds the promise of sharpening this process-based inquiry. Maybe TriHealth ‘investigated its alternatives and made a considered decision to offer retail shares rather than institutional shares’ because ‘the excess cost of the retail shares paid for the recordkeeping fees under [TriHealth’s] revenue-sharing model….’ Or maybe these considerations never entered the decision-making process. In the absence of discovery or some other explanation that would make an inference of imprudence implausible, we cannot dismiss the case on this ground. Nor is this an area in which the runaway costs of discovery necessarily cloud the picture. An attentive district court judge ought to be able to keep discovery within reasonable bounds given that the inquiry is narrow and ought to be readily answerable.⁶

In support of awarding Home Depot a summary judgment, both the district court and the 11th Circuit cited previous 11th Circuit decisions as controlling. However, as the DOL’s amicus brief pointed out, the cited cases do not support the argument against shifting the burden of proof on the issue of causation, but rather the decisions cited actually support the argument for shifting the burden of proof on causation.

As the DOL pointed out,

The district court’s error infected its disposition of nearly every strand of Plaintiff’s claim.⁷

Willett did not even consider burden shifting, let alone reject it. If anything, the Eleventh Circuit precedent – including Willett itself – supports applying trust law’s burden shifting rule to ERISA fiduciary cases^.8

However, the 11th Circuit’s decision not t o shift the burden on the issue of causation is questionable for more than just its reliance on its Willett decision. The 11th Circuit rejected prior rulings citing the informational edge held by plan sponsors. As the Supreme Court ruled in the Schaffer decision

the ordinary rule does not place the burden upon a litigant of establishing facts peculiarly within the knowledge of his adversary.⁹

This approach is aligned with the Supreme Court’s instruction to “look to the law of trusts ” for guidance in ERISA cases.¹⁰ Tibble The 11th Circuit’s decision is contrary to ERISA’s trust law roots , the weight of circuit authorty, and the 11th Circuit’s case law. amicus

In rejecting Plaintiff’s burden shifting argument, the 11th Circuit denied the existince of an “informational advantage” in favor of plan sponsors, stating that

ERISA imposes on fiduciaries a comprehensive scheme of mandatory disclosure and reporting, both to plan particiapnts and to the public at large. The statute itself thus enforces a suite of requirements mitigating the informational advantage imputed to the trustee at common law. These disclosures, combined with the ‘proper use of discovery tools,” men that ERISA fiduciaries lack the informational advanatge that would justify shifting the burden.¹¹

I would argue that the Court’s argument is misleading. Furthemore, the facts in this case itself, and Home Depot itself , nullify the Court’s argument.

First, the disclosures required by ERISA, are primarily quantitative in nature, e.g., returns, and do not address the qualitative/fiduciary prudence aspects of a plan’s deliberative process.

In the immediate case, the very lack of meaningful minutes of the plans deliberative meetings deny the plan participants the information needed to properly prove their case, resulting in the very “informational advantage that the plan said would be needed to justify shifting the burden of proof.

The district noted the qualitative problems with the plan’s minutes, including
(1) the lack of an explanation on why the court failed to remove a fund whose trailing three-year performance had underpermed its benchmark for fourteen consecutive quarters, and its five-year performance had underperformed its benchmark for ten consecutive quarters, yet removed another fund when it lagged its benchmark for only one quarter;

(2) The fact that the investment committee did not benchmark to the benchmarks specified in the plans investment policy statement (IPS), and in some cases relied on customized benchmarks, which are always suspect due to the potenial for self-serving manipulation. Failure to follow a plan’s IPS is evidence of a fiduciary breach that a plan did not engage in a prudent monitoring process;

(3) The minutes consistently failing to disclose the amount of time spent deliberating and the content of such discussions.

(4) the evidence indcates that Home Depot “neither invetigated nor discussed whether advisory fees of certain advisors were “reasonable relative to the service they provided, even thought the evidence clearly indicated that such fees were higher than rates offered by competitors for active account management. The evidence showed that the plan’s fees were also higher than those charged by competitors to comparably-sized plans.¹²

(5) Home Depot measured some funds against changing benchmarks, the rationale for which was never discussed in the Investment Committee meeting minutes.¹³

(6) The Investment Committee did not discuss the fact that the TS&W Fund, As of March 2017, had underperformed 99% of its peers on a three-year basis and 83% of its peers on a five-year basis.¹⁴ * 27

(7) The Inveastment Committee measured the Blackrock TDFs using a BlackRock custom benchmark, in violation of the terms of the IPS. The BlackRock TDFs underperformed from 2013-2015.¹⁵

The Home Depot’s response is both evidence of the plan’s attitude toward its fiduciary responsibilities and the fallacy in the the 7th Circuit’s “no informational advantage” theory:

Minutes are not verbatim transcripts of everything discussed at IC (investment committee) meetings so this evidence does not raise a material fact question about the prudence of their monitoring process.¹⁶ District Court @218

The district court obviously disagreed, ruling that the lack of information and explanation within Home Depot’s minutes did create a material fact questions. Under Rule 56, that alone should have precluded summary judgment in favor of Home Depot. Yet, the district court did grant Home Depot’s motion for summary judgments and the 11th Circuit has now upheld such action,

Home Depot’s nondisclosure position creates the “guessing” situation that the 1st Circuit warned against in their Brotherston decision:

It makes liittle sense to have the plaintiff hazard a guess as to what the fiduciary would have done had it not breached its duty in selecting investment vehicles, only to be told “guess again.”¹⁷ Brother @ 39

Using the 11th Circuit’s own announced standard, the 11th Circuit’s failure to shift the burden of proof on causation should be reviewed by SCOTUS. The ongoing refusal of some federal courts to adopt the majority position of shifting the burden of proof on causation is unjustifiable and continues to deprive a signficant portion of workers the protections and rights guaranteed to them under ERISA, simply due to the jurisdictions they live in.

The Solicitor General of the United States has already weighed in on this issues by virtue of the amicus brief it filed in connection with the Brotherston. While the Solicitor General ultimately recommended that the Court not grant certiorari in the case, his opinion was basednot on the merits, but on the fact that it was an interlocutory appeal from an ongoing case. Based on the merits of the case, he supported the shifting the burden of proof argument based on the principles established by the Restatement of Trusts and the Supreme Court’s support of the Restatement in resolving fiduciary issues.

ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries. The statute promotes this interest by, among other things, imposing stringent trust law-derived duties on those who manage the plan and its assets.¹⁸ DOL amicus @1,

However, the current split between the federal courts on the issue of the burden of proof on causation has resulted in inconsistent and inequitable decisions, causing investors to suffer unnecessary financial loss over the six years since the Court denied certiorari in Brotherston. Hopefully, the plaintiffs in this case will appeal for certiorari so that SCOTUS has an opportuntity to establish a uniform standard on this issue in order to resolve the inconsistent interpresentation and enforcement of ERISA.

Notes
1. Tibble v. Edison Int’l, 575 U.S. 523 (2015)
2. Amicus Brief of the Solicitor Genral of the United States, Putnam Investments, LLC v. Brotherston, at 19. (Solicitor’s Brief)
3. Solicitor’s Brief, at 17.
4. Solicitor’s Brief, at 17 and Brotherston v. Putnam Invesments, LLC., 907 F.3d 17, 39 (1st Cir. .
5. Foreman v. TriHealth, Inc, 40 F.4th 443, 450 (6th Cir. 2022) (TriHealth)
6. TriHealth, 453.
7. DOL Amicus Brief in Pizarro v. Home Depot, at 24. (DOL brief)
8, Ibid., at 19, Useden v. Acker, 947 F.2d 1563 (11th Cir. 1991), Willett v. Blue Cross and Blue Shield of Alabama, 953 F.2d 1335 (11th Cir. 1992).
9. Schaffer v. Weast, 546 U.S. 49, 60.
10. Tibble v. Edison Int’l, 575 U.S. 523, 529 (2015).
11.Pizarro v. Home Depot, Inc., Case No. 22-13643 (11th Circuit 2024)
12. DOL Brief, at 4, 5, 8
13. Pizarro v. Home Depot, Inc.,2022 WL 4687096, at *7, *8,*16 and *21-22. (N.D. Ga.
14. DOL brief, 27
15. Pizarro v. Home Depot, 2022 WL 46709687096, at *8, *21-22.
16. Pizarro v. Home Depot, 2022 WL 46709687096, at *7, *8,*16 and *21-22.
17. Brotherston, 39
18. DOL brief, 1

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