When an ERISA Plaintiff Proves a Breach of Fiduciary Duty and a Loss to the Plan, Who Has the Burden of Proving (or Disproving) Causation?
When an ERISA plaintiff proves a breach of fiduciary duty and a monetary loss to an employee benefit plan, the circuit courts are split as to who bears the burden of proving (or disproving) that the breach caused the loss.1 The Eighth and Fifth Circuits apply a common law burden-shifting framework based on trust law principles: once the plaintiff proves a breach of fiduciary duty and a prima facie loss to the plan, the burden of persuasion shifts to the fiduciary to prove that the loss was not caused by his or her breach. In contrast, the Second Circuit has stated that the burden remains on the plaintiff, citing the loss-causation requirement in ERISA § 409(a)--that a fiduciary is liable for losses "resulting from" his or her breach of fiduciary duty.2 The common law of trusts, however, includes a loss-causation requirement similar to that in ERISA § 409(a), with the same "resulting from" language. To harmonize ERISA with the common law of trusts, the better approach is to shift the burden on causation to the breaching fiduciary.
ERISA § 404(a) imposes on plan fiduciaries the duties of loyalty, prudence, and diversification of investments with respect to an employee benefit plan.3 Relief for a breach of fiduciary duty under § 404(a) is available under § 409(a), which contains a loss-causation requirement: a fiduciary is personally liable for any losses to the plan "resulting from" his or her breach of ERISA's fiduciary duties.4
The Eighth and Fifth Circuits have applied a three-step burden-shifting analysis based on the common law of trusts. In Martin v. Feilen, the Eighth Circuit, citing a treatise on trust law, concluded that once an ERISA plaintiff proves "a breach of fiduciary duty and a prima facie case of loss to the plan or ill-gotten profit to the fiduciary, the burden of persuasion shifts to the fiduciary to prove that the loss was not caused by, or his profit was not attributable to, the breach of duty."5 The court reiterated this framework in Roth v. Sawyer-Cleator Lumber Co. and instructed the district court to apply the three-step test in Martin on remand.6 The Fifth Circuit has taken the same approach.7
In contrast, the Second Circuit has placed the burden of causation on the plaintiff, and a concurring opinion explicitly rejected the burden-shifting framework derived from the common law of trusts. In Silverman v. Mutual Benefit Life Insurance Co., the Second Circuit's majority opinion simply cited ERISA § 409(a) and stated that the plaintiff had to prove that the losses resulted from the breach.8 The concurring opinion was more explicit, quoting § 409(a) and stating that "[c]ausation of damages is therefore an element of the claim, and the plaintiff bears the burden of proving it."9 The concurrence discussed and rejected the common law burden-shifting framework for causation and concluded that "Congress has placed the burden of proving causation on the plaintiff by requiring him to prove that the losses ‘result[ed] from' the defendant's inaction."10
The Eleventh Circuit has also stated that the plaintiff bears the burden of proving causation, but did not discuss the common law burden-shifting approach in trust law or cite any statutory or decisional authority. In Willett v. Blue Cross & Blue Shield of Alabama, the Eleventh Circuit discussed the substantive burden of causation for co-fiduciary liability--what must be shown to prove causation, but not which party bears the burden--and simply stated that on remand, the plaintiff must demonstrate causation.11
The Fourth, Third, and Tenth Circuits have noted a split in authority among the circuit courts, but have declined to take a position on who bears the burden of causation once the plaintiff proves a breach and prima facie loss.12 Some district courts in circuits that have not decided the issue have also adopted the burden-shifting approach.13
Some courts have overstated the extent of the split in authority, however, by citing the Sixth Circuit's decision in Kuper v. Iovenko, which discussed causation in a different context--whether there was a breach of fiduciary duty, not who bears the burden on causation once a breach has been established.14 In Kuper, the Sixth Circuit simply noted that a causal connection must exist between the breach and the loss and stated that the plaintiff must demonstrate that link.15 The language on causation, however, appears in the context of discussing a presumption of prudence regarding fiduciaries' investment of an Employee Stock Ownership Plan (ESOP) in employer stock, and whether the plaintiffs had rebutted that presumption to demonstrate a breach.16 Kuper is thus not in conflict with cases applying the common law burden-shifting approach, because the burden only shifts after the plaintiff has established a breach and a prima-facie case of loss.
The Burden-Shifting Approach Best Harmonizes ERISA with the Common Law of Trusts
The burden-shifting approach harmonizes ERISA with the common law of trusts, which informs the interpretation of ERSIA's fiduciary standards.17 The common law of trusts contains a loss-causation requirement similar to that in ERISA § 409(a): "A trustee who commits a breach of trust is liable for a loss resulting from the breach."18 The Restatement of Trusts provides that while a plaintiff generally bears the burden of proof, the rule is modified with respect to causation so that "when a beneficiary has succeeded in proving that the trustee has committed a breach of trust and that a related loss has occurred, the burden shifts to the trustee to prove that the loss would have occurred in the absence of the breach."19 The Restatement explains that the rationale for burden shifting on causation is to "take account of the trustee's duties of disclosures and of recordkeeping and reporting, as well as the trustee's superior (often, unique) access to information about the trust and its activities, and also to encourage the trustee's compliance with applicable fiduciary duties."20
Contrary to the concurrence in Silverman, the common law of trusts is not inconsistent with the ERISA's "resulting from" language in § 409(a). In rejecting the burden-shifting approach, the concurrence in Silverman suggested that § 409(a) departed from the law of trusts, quoting the statute's "resulting from" language.21 As noted above, the Restatement of Trusts contains a similar loss-causation requirement, however, so there is no inconsistency between the statutory language and the common law.22 Accordingly, the presence of the "resulting from" language in the statute does not establish, as the Silverman concurrence assumed, that Congress intended the burden on causation to remain on the plaintiff even once he or she proved a breach of fiduciary duty and prima facie loss.
While the Supreme Court has cautioned that "trust law will offer only a starting point, after which courts must go on to ask whether, or to what extent, the language of the statute, its structure, or its purposes require departing from common-law trust requirements,"23 such concerns are not present here, as the "resulting from" language in § 409(a) is consistent with the common law of trusts.
Although the courts of appeals are split as to whether the burden on causation shifts to the breaching fiduciary once the plaintiff proves a breach and a prima facie loss to the plan, the burden-shifting framework is the better approach. Contrary to the concurrence in Silverman, there is nothing inconsistent between ERISA § 409(a)'s "resulting from" language and the common law of trusts, which contains a similar loss-causation requirement. It remains to be seen how this split in authority will continue to develop, and whether the Supreme Court will eventually weigh in on the issue.
Julie Wilensky, Lewis, Feinberg, Lee, Renaker & Jackson, P.C.
1This discussion of causation is limited to cases under ERISA § 502(a)(2) seeking relief under § 409(a) for monetary losses to a plan. This article does not address equitable relief under § 409(a), such as removal of a breaching fiduciary, nor does it address cases under § 502(a)(3) seeking equitable relief.
2ERISA § 409(a), 29 U.S.C. § 1109(a).
4 Id. Even in the absence of a monetary loss to the plan, a plaintiff may still obtain equitable relief under § 409(a) for a breach of fiduciary duty, such as removal of the breaching fiduciary. See id.; see also Brock v. Robbins, 830 F.2d 640, 647 (7th Cir. 1987) (discussing availability of the remedy of removal of trustees who breached their fiduciary duties without any monetary loss to the plan and noting that § 409(a) "allows equitable relief independent of any financial loss that a breach of fiduciary duty may have caused").
5965 F.2d 660, 671-72 (8th Cir. 1992) (citing, inter alia, Bogert,The Law of Trusts and Trustees § 871 (2d rev. ed. 1982 & Supp. 1991)), cert. denied sub nom. Henss v. Martin, 506 U.S. 1054 (1993).
616 F.3d 915, 921 (8th Cir. 1994).
7See McDonald v. Provident Indem. Life Ins. Co., 60 F.3d 234, 237 & n. 13-14 (5th Cir. 1995) (following Roth), cert. denied, 516 U.S. 1174 (1996); see also Whitfield v. Lindemann, 853 F.2d 1298, 1304-05 (5th Cir. 1988) (citing trust law cases and assuming the burden was on the breaching defendant to disprove causation), cert. denied sub nom. Klepak v. Dole, 490 U.S. 1089 (1989).
8138 F.3d 98, 104 (2d Cir. 1998), cert. denied, 525 U.S. 876 (1998).
9Id. at 105-06 (Jacobs, J., concurring).
10Id. at 106 (quoting 29 U.S.C. §§ 1109(a), 1105(a)(3)).
11953 F.2d 1335, 1343-44 (11th Cir. 1992).
12Plasterers' Local Union No. 96 Pension Plan v. Pepper, 663 F.3d 210, 219-20 (4th Cir. 2011) (noting split in authority, expressing "no opinion" on who bears the burden of causation, and instructing district court on remand to "consider the parties' arguments upon remand to determine the method most consistent with the relevant statutory provisions"); In re Unisys Sav. Plan Litig., 173 F.3d 145, 160 (3d Cir. 1999) (noting split in authority but declining to reach the issue in light of holding that there was no breach), cert. denied sub nom. Meinhardt v. Unisys Corp., 528 U.S. 950 (1999); see also Holdeman v. Devine, 572 F.3d 1190, 1195 & n.1 (10th Cir. 2009) (noting split in authority and concluding that "any burden-shifting error by the district court was irrelevant").
13Tatum v. R.J. Reynolds Tobacco Co., ___ F. Supp. 2d ___, No. 1:02CV00373, 2013 WL 692832, at *31 (M.D.N.C. Feb. 25, 2013) (noting that the burden-shifting approach is "the most fair considering that a causation analysis would only follow a finding of breach"); see also Chao v. Trust Fund Advisors, No. Civ. A. 02-559 (GK), 2004 WL 444029, at *4-6 (D.D.C. Jan. 20, 2004) (applying trust law which requires the fiduciary to "bear the risk of uncertainty as a consequence of his breach of fiduciary duty" and requiring defendants to prove the loss was not caused by their breach); Chao v. Moore, No. CIV. A. AW-99-1283, 2001 WL 743204, at *8 (D. Md. June 15, 2001) (describing burden-shifting framework and citing McDonald and Roth).
14See Plasterers' Local Union, 663 F.3d at 219-20 (citing Kuper v. Iovenko, 66 F.3d 1447, 1459-60 (6th Cir. 1995)); In re Unisys, 173 F.3d at 160 (citing Kuper).
1566 F.3d at 1459-60.
16See id. (adopting the Third Circuit's presumption in Moench v. Robertson, 62 F.3d 553, 560 (3d Cir. 1995), that a fiduciary's decision to invest in employer securities was reasonable, cert. denied sub nom. Robertson v. Moench, 516 U.S. 1115 (1996)). Similarly, in analyzing whether ESOP fiduciaries breached their fiduciary duties, the Ninth Circuit has cited Kuper for the proposition that a "plaintiff must show a causal link between the failure to investigate and the harm suffered by the plan." Wright v. Oregon Metallurgical Corp., 360 F.3d 1090, 1099 (9th Cir. 2004) (quoting Kuper, 66 F.3d at 1459); see also Quan v. Computer Sci. Corp., 623 F.3d 870, 885 (9th Cir. 2010) (quoting Wright).
17See, e.g., Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 153-54 (1985) ("Congress intended by § 404(a) to incorporate the fiduciary standards of trust law into ERISA, and it is black-letter trust law that fiduciaries owe strict duties running directly to beneficiaries in the administration and payment of trust benefits") (footnotes omitted); Central States, Se. & Sw. Areas Pension Fund v. Central Transp., Inc., 472 U.S. 559, 559-60 (1985) ("Congress invoked the common law of trusts to define the scope of [trustees' and other fiduciaries'] authority and responsibility").
18Restatement (Third) of Trusts § 100 cmt. e (2012) (emphasis added); see also Restatement (Second) of Trusts § 205 (1959) (stating that if the trustee commits a breach of trust, he is chargeable with . . . any loss or depreciation in value of the trust estate resulting from the breach of trust"); id. at cmt. f ("a trustee is liable for a loss resulting from a breach of trust.").
19Restatement (Third) of Trusts § 100 cmt. f (2012).
20Id. (internal citations omitted).
21Silverman, 138 F.3d 98 at 105 (Jacobs, J., concurring); see also In re State St. Bank & Trust Co. Fixed Income Funds Inv. Litig., 842 F. Supp. 2d 614, 653 (S.D.N.Y. 2012) (noting that "because the panel in Silverman found that ERISA section 409 departed from the common law of trusts by placing the burden to prove causation on the plaintiff, Silverman ‘cautions against drawing too much upon the law of trusts for the causation analysis in ERISA.'") (citation omitted).
22See supra n.18.
23Varity Corp. v. Howe, 516 U.S. 489, 497 (1996).