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DOL Backs Plaintiffs in Fiduciary Breach Appeal

Fiduciary Rules and Practices

The Labor Department has weighed in on an excessive fee case on behalf of the participant-plaintiffs — asserting that the district court made a bad call on the burden of proof.

The case under appeal involves Home Depot, and a decision last fall by Judge Steven D. Grimberg in the U.S. District Court for the Northern District of Georgia regarding allegations that the fiduciaries of the $9 billion plan had breached their fiduciary duties under ERISA in two principal ways: by failing to prudently monitor the investment advisory services offered to Plan participants by third-party professional managed account services providers (resulting in “excessive” fees charged to the Plan), and that they failed to prudently monitor and remove certain Plan investment options that performed poorly relative to other available investment options. 

Lower Court Comments

That said, Judge Grimberg noted that the plaintiffs had “failed to adduce evidence to show why the Plan’s fees for Professional Management, expressed in basis points or per capita, were imprudent or imprudently bargained, let alone a result of anything other than the Plan’s unique characteristics.” He also found that the plaintiffs “failed to marshal any evidence that no prudent fiduciary in Home Depot Defendants’ proverbial shoes would have selected FE or AFA[1] over other managed account providers,” commenting that “plaintiffs mistake competitors for comparators,” finding differences in the services provided, not to mention the aforementioned integration of recordkeeping data with the managed account services.

More than that, he explained that “even if Plaintiffs adduced evidence to raise a disputed material fact as to whether these companies were appropriate comparators, a higher fee alone does not compel the conclusion that the fees charged to a plan are excessive; instead, fees must be evaluated ‘relative to the services rendered.’” Judge Grimberg noted that the “undisputed record evidence shows that Plaintiffs’ identified competitors were not apt for apples-to-apples comparison based on the services they provided…” Beyond that he found no evidence that the services offered were “both less expensive and satisfied the Plan’s goals as well as or better” than the providers used by the plan.

The Amicus Brief

Enter the Department of Labor in an amicus brief[2] submitted to the U.S. Court of Appeals for the Eleventh Circuit (Pizarro v. Home Depot, Inc., 11th Cir., No. 22-13643, amicus brief 2/10/23), which argued that the lower court applied the wrong standard in making its determination. “Despite largely finding disputes of material fact on whether the breaches occurred, the district court granted summary judgment in favor of the fiduciaries because it found that the participants — by failing to adduce sufficient evidence that ‘no prudent fiduciary’ would have taken the challenged actions — failed to raise a genuine dispute that the alleged breaches were the cause of the plan’s losses,” the Labor Department commented. 

“In so holding, the district court incorrectly placed the burden of proof on the participants to show loss causation, when it should have applied a burden-shifting framework, adopted from trust law, that places the burden to disprove loss causation on the fiduciary after a plaintiff demonstrates a fiduciary breach and a related loss.” The brief continued by stating that “the Secretary has a strong interest in ensuring that the Eleventh Circuit, which has not yet opined on the issue, articulates the proper standards of proof to show loss causation in ERISA fiduciary breach cases.”

Trust Law

As for what the Labor Department considered the proper standard of review, they comment that, “As the Supreme Court and this Court have recognized, where ERISA is silent, principles of trust law — from which ERISA is derived — should guide the development of federal common law under ERISA. Trust law provides that once a beneficiary establishes a fiduciary breach and a related loss, the burden on causation shifts to the fiduciary to show that the loss was not caused by the breach.” 

The brief then notes that “that is why five[3] circuits have held that once an ERISA plaintiff proves a fiduciary breach and a related loss to the plan, the burden shifts to the fiduciary to prove the loss would have occurred even if it had acted prudently.” The brief argues that the district court “deviated from the weight of circuit authority and the law of trusts and instead placed the burden to prove loss causation solely on Plaintiffs.” Rather, the brief argues that “to the extent this Court’s case law implicitly supported burden shifting in ERISA cases, the Court should now make it explicit. By adopting trust law’s burden-shifting framework, the Eleventh Circuit would align itself with the vast majority of circuits that have considered how to allocate the burden to prove loss causation in ERISA fiduciary breach cases. This Court should correct the district court’s error and vacate the grant of summary judgment…”

Burden ‘Shifts’

“The district court’s error infected its disposition of nearly every strand of Plaintiffs’ claims,” the brief continues. “Under the correct burden-shifting framework, where Home Depot (the movant) bears the burden to disprove loss causation, Home Depot could have prevailed at summary judgment on that element only if it presented evidence allowing a reasonable factfinder to conclude that the alleged breach did not cause the Plan’s losses.”

“But the district court did not hold Home Depot to that standard,” the brief continues, “instead granting summary judgment to Home Depot because of Plaintiffs’ failure to offer sufficient evidence that ‘no prudent fiduciary’ would have acted as Home Depot did—a ruling erroneously grounded on Plaintiffs having the burden to prove loss causation.”

“The district court’s formulation is fundamentally inconsistent with trust law’s burden-shifting framework,” the brief continues. “If a plaintiff succeeds in showing that ‘no prudent fiduciary’ would have taken the challenged action, they have conclusively established loss causation, and there is no burden left to ‘shift’ to the fiduciary defendant.”

“The district court failed to apply trust law’s burden-shifting framework on the issue of loss causation, instead placing on Plaintiffs the exclusive burden to prove loss causation. Because that error infected its decision to award summary judgment to Home Depot, the decision should be vacated,” the brief concludes.
Will the court be persuaded? We shall see.


[1] Financial Engines Advisors, LLC (FEA) and Alight Financial Advisors, LLC (AFA)

[2] Amicus Curiae is literally translated from Latin—"friend of the court." Plural is "amici curiae." It generally refers to a person or group who is not a party to an action, but has a strong interest in the matter, and who—in filing the brief is attempting to inform/influence the court’s decision. Such briefs are called "amicus briefs."

[3] The amicus brief states that “First, Second, Fourth, Fifth, and Eighth Circuits unequivocally hold that, once a plaintiff has proven a breach of fiduciary duty and a related loss to the plan, the burden shifts to the fiduciary to prove that the loss was not caused by the breach. Sacerdote v. N.Y. Univ., 9 F.4th 95, 113 (2d Cir. 2021); Brotherston v. Putnam Invs., LLC, 907 F.3d 17, 35 (1st    Cir. 2018); Tatum v. RJR Pension Inv. Comm., 761 F.3d 346, 363 (4th Cir. 2014); McDonald v. Provident Indem. Life Ins. Co., 60 F.3d 234, 237 (5th Cir. 1995); Martin v. Feilen, 965 F.2d 660, 671 (8th Cir. 1992).”