United States District Court, D. Massachusetts
JOHN BROTHERSTON and JOAN GLANCY, individually and as representatives of a class of similarly situated persons, and on behalf of the Putnam Retirement Plan, Plaintiffs,
PUTNAM INVESTMENTS, LLC, PUTNAM INVESTMENT MANAGEMENT, LLC, PUNTNAM INVESTOR SERVICES, INC., the PUTNAM BENEFITS INVESTMENT COMMITTEE, the PUTNAM BENEFITS OVERSIGHT COMMITTEE, and ROBERT REYNOLDS, Defendants.
FINDINGS OF FACT, RULINGS OF LAW, &
WILLIAM G. YOUNG, DISTRICT JUDGE
November 13, 2015, John Brotherston
(“Brotherston”) and Joan Glancy
(“Glancy”), individually and on behalf of a class
of similarly situated persons and the Putnam Retirement Plan
(“Plan”) (collectively, the
“Plaintiffs”), brought this class action under
section 502(a) of the Employee Retirement Income Security Act
of 1974 (“ERISA”), codified as amended at 29
U.S.C. §§ 1001-1461, against the Plan's
fiduciaries: Putnam Investments, LLC, Putnam Investment
Management, LLC, Putnam Investor Services, Inc., the Putnam
Benefits Investment Committee, the Putnam Benefits Oversight
Committee, and Putnam's Chief Executive Officer Robert
Reynolds (collectively, the “Defendants”), for
breach of the fiduciary duties of loyalty and prudence in
violation of 29 U.S.C. § 1104(a)(1)(A)-(B) (count I),
prohibited transactions with a party in interest in violation
of 29 U.S.C. § 1106(a)(1) (count II), prohibited
transactions with a fiduciary in violation of 29 U.S.C.
§ 1106(b) (count III), failure to monitor in violation
of 29 U.S.C. § 1109(a) (count IV), and other equitable
relief based on ill-gotten proceeds under 29 U.S.C. §
1132(a)(3) (count V). Second Am. Compl. (“SAC”)
¶¶ 117-48, ECF No. 73.
a case stated hearing on March 30, 2017, this Court entered
judgment for the Defendants on counts II and III. Order, ECF
No. 158. A bench trial on the remaining counts commenced
before this Court on April 7, 2017. Upon the conclusion of
the Plaintiffs' final witness, the Defendants moved for
judgment on partial findings pursuant to Rule 52(c) of the
Federal Rules of Civil Procedure. Defs.' Mot. J. Partial
Findings Fed.R.Civ.P. 52(c), ECF No. 167. The parties briefed
the issues. Pls.' Mem. Opp'n Defs.' Mot. J.
Partial Findings Fed.R.Civ.P. 52(c) (“Pls.'
Opp'n”), ECF No. 189; Mem. Supp. Defs.' Mot. J.
Partial Findings Fed.R.Civ.P. 52(c) (“Defs.'
Mem.”), ECF No. 168; Defs.' Suppl. Br. Supp. Mot.
J. Partial Findings Fed.R.Civ.P. 52(c) (“Defs.'
Suppl. Br.”), ECF No. 190. Having heard oral argument
on the Defendants' motion, this Court now makes the
following findings of fact and rulings of law.
THE LEGAL FRAMEWORK
Judgment on Partial Findings
52(c) motion for judgment on partial findings is the analogue
of a Rule 50(c) motion for directed verdict in a jury
trial. See Federal Ins. Co. v. HPSC,
Inc., 480 F.3d 26, 32 (1st Cir. 2007); Northeast
Drilling, Inc. v. Inner Space Servs., Inc., 243 F.3d
25, 37 (1st Cir. 2001) (characterizing defendant's motion
for judgment after plaintiff rested at bench trial as a
motion for judgment on partial findings, rather than as a
motion for judgment as a matter of law under Rule 50(c)). A
court should enter a judgment under Rule 52(c) only
“[w]hen a party has finished presenting evidence and
that evidence is deemed . . . insufficient to sustain the
party's position.” Morales Feliciano v.
Rullan, 378 F.3d 42, 59 (1st Cir. 2004); see also
Halpin v. Atkinson-Kiewit, J.V., 894 F.Supp. 486,
494 (D. Mass. 1995) (Collings, M.J.) (“Rule 52(c)
plainly permits the court to decline to render any judgment
until the close of all the evidence.”).
rule promotes efficiency. If a party bearing the burden of
proof fails to persuade the court once it has been fully
heard on a crucial issue, the court need not forge ahead to
finish the case, but may make its findings on that issue
against the party and thus dispose of the case. While this
makes eminent sense, it places the court in the somewhat
awkward position of making factual findings absent a complete
evidentiary record developed by the contending parties.
The Substantive Legal Framework
an equitable action to charge a group of trustees. Like its
closest analogue -- an action at law to recover for a
statutory tort -- it requires proof of three matters, viz.:
1) a violation of a statutory duty, 2) loss causation, and 3)
damages. The Court considers these issues in turn.
Statutory Duties Under ERISA
Duty of Loyalty
ERISA, retirement plan trustees are fiduciaries who owe a
duty of loyalty to plan participants. 29 U.S.C. §
1104(a)(1)(A); Bunch v. W.R. Grace & Co. (Bunch
I), 532 F.Supp.2d 283, 288 (D. Mass. 2008) (“ERISA
fiduciaries owe participants duties of prudence and
loyalty.” (citing Moench v. Robertson, 62 F.3d
553, 561 (3d Cir. 1995)), aff'd, 555 F.3d 1 (1st Cir.
2009). The duty of loyalty requires fiduciaries to administer
the plan “solely in the interest of the [plan]
participants and beneficiaries” and “for the
exclusive purpose” of providing them with benefits.
Bunch I, 532 F.Supp.2d at 291-92; see also Pegram v.
Herdrich, 530 U.S. 211, 224 (2000); Vander Luitgaren
v. Sun Life Assurance Co. of Can., 765 F.3d 59, 65 (1st
Cir. 2014); Glass Dimensions, Inc. ex rel. Glass
Dimensions, Inc. Profit Sharing Plan & Tr. v. State St.
Bank & Tr. Co., 931 F.Supp.2d 296, 304-05 (D. Mass.
2013) (Tauro, J.); Alves v. Harvard Pilgrim Health Care,
Inc., 204 F.Supp.2d 198, 214 (D. Mass. 2002) (Saris,
J.), aff'd, 316 F.3d 290 (1st Cir. 2003).
well-established that under ERISA, “a fiduciary does
not breach its duty of loyalty solely by conducting other
activities that relate to or impact the Plan.” Bunch I,
532 F.Supp.2d at 291 (citing Hughes Aircraft Co. v.
Stanley Jacobson, 525 U.S. 432, 443-46 (1999)).
Accordingly, identifying a potential conflict of interest
alone is not sufficient to establish a breach of the duty of
loyalty. See Pegram, 530 U.S. at 225 (2000) (“Under
ERISA, . . . a fiduciary may have financial interests adverse
to beneficiaries.”); DiFelice v. U.S. Airways,
Inc., 497 F.3d 410, 421 (4th Cir. 2007). Nor is it
sufficient merely to point to a defendant's self-dealing,
such as the investment of plan assets in their own mutual
funds. See Dupree v. Prudential Ins. Co. of Am., No.
99-8337, 2007 WL 2263892, at *45 (S.D. Fla. Aug. 10, 2007)
(“Simply because [the plan sponsor] followed such a
practice . . . does not give rise to an inference of
disloyalty, especially where these practices are universal
among plans of the financial services industry.”). In
fact, the Department of Labor explicitly allows, and courts
have upheld, financial services institutions' practice of
offering their own investment products to their own sponsored
plans. See, e.g., Hecker v. Deere & Co., 556
F.3d 575, 586 (7th Cir. 2009) (finding “no statute or
regulation prohibiting a fiduciary from selecting funds from
one management company”); Participant Directed
Individual Account Plans, 56 Fed. Reg. 10, 724, 10, 730 (Mar.
13, 1991) (to be codified at 29 C.F.R. pt. 2550) (noting that
it would be “contrary to normal business practice for a
company whose business is financial management to seek
financial management services from a competitor”).
order to prevail on a claim for breach of the duty of
loyalty, the Plaintiffs must show by a preponderance of the
evidence that the Defendants, while wearing their ERISA
fiduciary hats, failed to “‘discharge [their]
duty with respect to the plan solely in the interest of the
participants and beneficiaries and for the exclusive purpose
of providing benefits to participants and their
beneficiaries.'” Bunch I, 532 F.Supp.2d at 291
(quoting 29 U.S.C. § 1104(a)(1)(A)). In making this
inquiry, courts take into consideration “the totality
of the circumstances.” See Bunch v. W.R. Grace
& Co. (Bunch II), 555 F.3d 1, 7 (1st Cir. 2009)
(citing DiFelice, 497 F.3d at 418; Keach v. U.S. Tr.
Co., 419 F.3d 626, 636-37 (7th Cir. 2005)); Kenney
v. State St. Corp., No. 09-10750-DJC, 2011 WL 4344452,
at *3 (D. Mass. Sept. 15, 2011) (Casper, J.).
“Exclusive Benefit Rule” of section 1104(a)(1)(A)
is rooted in the trust law duty of loyalty. Peter J.
Wiedenbeck, ERISA in the Courts 155 (2008). The trust law
duty of loyalty, however, is governed by an objective test,
Restatement (Second) of Trusts § 170, whereas courts
have held that “the Exclusive Benefit Rule looks to the
fiduciary's subjective motivation in determining whether
the fiduciary is in compliance with the rule, ”
A.F. v. Providence Health Plan, 173 F.Supp.3d 1061,
1073 (D. Or. 2016) (citing Wiedenbeck, supra, at
156); see also Varity Corp. v. Howe, 516 U.S. 489,
506 (1996); Perez v. First Bankers Tr. Servs., Inc.,
210 F.Supp.3d 518, 534 (S.D.N.Y. 2016) (“[T]he duty of
loyalty is grounded in the motivation driving a
fiduciary's conduct, and liability will not lie where a
fiduciary's decisions were motivated by what is best for
the [plan], even if those decisions also incidentally benefit
the fiduciary.”); Degnan v. Publicker Indus.,
Inc., 42 F.Supp.2d 113, 120 (D. Mass. 1999) (Garrity,
Plaintiffs' burden, therefore, is to point to the
Defendants' motivation behind specific disloyal conduct.
In re McKesson HBOC, Inc. ERISA Litig., 391
F.Supp.2d 812, 834-35 (N.D. Cal. 2005) (“[T]he duty of
loyalty requires fiduciaries to refrain from actual disloyal
conduct, not simply running the risk that such behavior will
occur.”). Examples of disloyal conduct might include
“mislead[ing] plan participants about the operation of
a plan, ” Adamczyk v. Lever Bros. Co., Div. of
Conopco, 991 F.Supp. 931, 939 (N.D.Ill. 1997), or
“receiv[ing] commissions from insurance companies,
” Patelco Credit Union v. Sahni, 262 F.3d 897,
911 (9th Cir. 2001).
Duty of Prudence
fiduciaries also owe participants a duty of prudence,
according to which they must “act with the care, skill,
prudence, and diligence under the circumstances then
prevailing that a prudent man acting in a like capacity and
familiar with such matters would use.” 29 U.S.C. §
1104(a)(1)(B); see also Tibble v. Edison Int'l,
135 S.Ct. 1823, 1828 (2005) (“[A] trustee has a
continuing duty to monitor trust investments and remove
imprudent ones.”); Bunch II, 555 F.3d at 7; Beddall
v. State St. Bank & Tr. Co., 137 F.3d 12, 18 (1st
prudent fiduciary need not, however, follow a uniform
checklist. See Tatum v. RJR Pension Inv. Comm., 761
F.3d 346, 358 (4th Cir. 2014). Instead, a variety of actions
can support a finding that a fiduciary acted with prudence.
Id. In general, “ERISA requires fiduciaries to
employ ‘appropriate methods to investigate the merits
of the investment and to structure the investment' as
well as to ‘engage in a reasoned decision[-]making
process, consistent with that of a ‘prudent man acting
in [a] like capacity.'” Id. (quoting
DiFelice, 497 F.3d at 420). “[T]he test of prudence . .
. is one of conduct, and not a test of the result of
performance of the investment.” Bunch II, 555 F.3d at
7; see also Donovan v. Cunningham, 716 F.2d 1455,
1467 (5th Cir. 1983). A breach of the duty of prudence,
therefore, “cannot be measured in hindsight.”
DiFelice, 497 F.3d at 424; see also Roth v.
Sawyer-Cleator Lumber Co., 16 F.3d 915, 917-18 (8th Cir.
1994) (“[T]he prudent person standard is . . . a test
of how the fiduciary acted viewed from the perspective of the
time of the [challenged] decision rather than from the
vantage point of hindsight.” (alteration in original)
(quoting Katsaros v. Cody, 744 F.2d 270, 279 (2d
Cir. 1984)) (internal quotation marks omitted)). Rather, the
appropriate test is whether the fiduciary behaved like
“a prudent investor [would have behaved] under similar
circumstances, ” Hecker, 556 F.3d at 586,
given “the totality of the circumstances involved in
the particular transaction, ” Bunch I, 532 F.Supp.2d at
288. The crucial question is whether the defendants
“took into account all relevant information in
performing [their] fiduciary duty under ERISA.”
Id. Importantly, ERISA does not require a fiduciary
to maximize the value of investments or “follow a
detailed step by step process to analyze investment
options.” Id. at 287 (citing Roth, 16 F.3d at
requires plaintiffs to prove losses to the plan for any
breach of fiduciary duty claim. Evans v. Akers, 534
F.3d 65, 74 (1st Cir. 2008) (“ERISA § 409 . . .
requires fiduciaries who breach their duties ‘to make
good to such plan the losses to the plan resulting from such
breach.'” (citing 29 U.S.C. §§ 1109(a),
1132(a)(2))). Section 1109(a) provides that “[a]ny
person who is a fiduciary with respect to a plan who breaches
any of the responsibilities, obligations, or duties imposed
upon fiduciaries by this subchapter shall be personally
liable to make good to such plan any losses to the plan
resulting from each such breach.” 29 U.S.C. §
1109(a). Section 1132(a)(3) further allows the Court to award
“other appropriate equitable relief” for ERISA
violations. 29 U.S.C. § 1132(a)(3).
have consistently ruled that plaintiffs bear the burden of
persuasion to establish loss to the plan as a result of the
breach. Circuits split, however, on whether this burden
shifts upon a plaintiff's prima facie showing. The
Fourth, Fifth, and Eighth Circuits, applying trust law
principles, have held that the fiduciary bears the burden of
disproving loss causation once a plaintiff shows breach of a
fiduciary duty. Tatum, 761 F.3d at 363 (4th Cir. 2014);
McDonald v. Provident Indem. Life Ins. Co., 60 F.3d
234, 237 (5th Cir. 1995); Martin v. Fellen, 965 F.2d
660, 671 (8th Cir. 1992). In contrast, the Second, Sixth,
Ninth, Tenth, and Eleventh Circuits have all refused to adopt
burden shifting in ERISA breach of fiduciary duty claims.
Pioneer Centres Holding Co. Emp. Stock Ownership Plan
& Tr. v. Alerus Fin., N.A., No. 15-1227, 2017 WL
2415949, at *10 (10th Cir. June 5, 2017); Silverman v.
Mutual Benefit Life Ins. Co., 138 F.3d 98, 104 (2d Cir.
1998); Wright v. Oregon Metallurgical Corp., 360
F.3d 1090, 1099 (9th Cir. 2004); Kuper v. Iovenko,
66 F.3d 1447, 1459-60 (6th Cir. 1995), abrogated on other
grounds by Fifth Third Bancorp v. Dudenhoeffer, 134
S.Ct. 2459 (2014); Willett v. Blue Cross & Blue
Shield of Ala., 953 F.2d 1335, 1343-44 (11th Cir. 1992).
The First Circuit has not yet addressed this issue.
this is an equitable action to charge the trustees, the
Plaintiffs need only to prove the aggregate loss to the Plan.
See Cal. Ironworkers Field Pension Tr. v. Loomis Sayles
& Co.,259 F.3d 1036, 1047 (9th Cir. 2001)
(“[A] fiduciary is liable for the total aggregate loss
of all breaches of trust and may reduce liability for the net
loss of multiple breaches only when such multiple breaches
are so related that they do not constitute separate and
distinct breaches.” (citing Restatement (Third) of
Trusts § 213)). Conceptually at least, with liability
established, there would be no problem with requiring the
Defendants to sort out damages to each class member,
potentially off-setting any voluntary contributions or other
payments the class member received from the Defendants. See
In re Nexium (Esomeprazole) Antitrust Litig., 309
F.R.D. 107, 135 (D. Mass. 2015) (“[Had] liability been
established, my idea was to shift to the Defendants the
burden of going forward with evidence of lack of injury to
particular class members, while leaving the  Plaintiffs
with the ultimate burden of persuasion as to the damages
suffered by particular ...