In an August 2, 2024, decision in Pizarro v. The Home Depot, Inc., No. 22-13643 (11th Cir. Aug. 2, 2024), the Eleventh Circuit reaffirmed its position — and the position of the majority of federal circuit courts to address the issue — on the burden of proving loss causation for purposes of an ERISA claim for fiduciary breach. Loss causation is an element of a plaintiff’s claim for damages because of a breach of fiduciary duty, and the plaintiff bears the burden of proving causation of loss.
Pizarro involves claims by a putative class of Home Depot employees (Plaintiffs) who participated in Home Depot’s 401(k) plan. Plaintiffs alleged that the plan had excessive fees and imprudent investment options, but the United States District Court for the Northern District of Georgia granted summary judgment in Home Depot’s favor because Plaintiffs could not prove that they suffered any losses caused by a fiduciary’s alleged breach. To make such a showing, Plaintiffs would have to prove that a hypothetical “prudent” fiduciary would have not made the same choices that the defendants made. The District Court held that Home Depot’s investment decisions were “objectively prudent,” whether or not those decisions resulted from the right process, and thus Plaintiffs could not prove damages.
On appeal to the 11th Circuit, Plaintiffs argued that Home Depot should have borne the burden of proving that any plan losses were not caused by an alleged fiduciary breach (Plaintiffs also challenged the District Court’s factual determinations regarding Home Depot’s process for evaluating fees and investments). The Eleventh Circuit began its analysis with the text of ERISA’s provisions that set forth the fiduciary standard of prudence and a fiduciary’s liability for breach of that standard. Under ERISA § 404, a fiduciary 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 in the conduct of an enterprise of a like character and with like aims.” 29 U.S.C. § 1104(a)(1)(B). Under ERISA § 409(a), a fiduciary is personally liable for “any losses to the plan resulting from” a breach of a fiduciary duty. 29 U.S.C. § 1109(a). The Eleventh Circuit observed that “the last words in” § 409, which refer to loss “resulting from” a fiduciary breach, impose an important limit on a fiduciary’s potential liability — namely, a fiduciary can be liable for only that loss that is caused by the fiduciary breach. The court called attention to the fact that ERISA’s text provides no evidence that the burden of proving no loss caused by a fiduciary breach should fall on the fiduciary. In short, “ERISA does not impose a burden-shifting framework; instead, plaintiffs bear the ultimate burden of proof on all elements of their claims, including loss causation.” Delving deeper into loss causation, the Eleventh Circuit explained that ERISA requires a plaintiff to prove “[p]roximate causation” of some recoverable loss.
The Eleventh Circuit also explained that its interpretation of ERISA’s burdens accords with the ordinary civil-litigation rule that “plaintiffs bear the burden of persuasion regarding the essential aspects of their claims.” “Requiring a defendant to disprove causation so long as a plaintiff can show breach and some loss would turn the usual principles of civil liability on their head.”
To be sure, the Eleventh Circuit explained that the burden of proof can be shifted on specific elements if they can fairly be characterized as affirmative defenses or exemptions. But causation is not an affirmative defense; it is an element of the plaintiff’s claim. While the Eleventh Circuit’s conclusion is consistent with general principles of civil litigation, as well as ERISA’s text, not all federal circuit courts agree. The Sixth, Seventh, Ninth and Tenth do: To them, plaintiffs bear the burden of proving loss causation. But the First, Fourth, Fifth and Eighth Circuits have held that the burden of disproving loss causation falls on fiduciaries.
Pizarro potentially sets the stage for the Supreme Court to weigh in on this issue, but this remains relatively unlikely because the Supreme Court has not granted certiorari on an ERISA matter since 2022.
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