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(Article from Securities Law Alert, June 2017) 

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On June 5, 2017, the Tenth Circuit held that the burden to prove loss causation in an ERISA breach of fiduciary duty action “falls squarely on the plaintiff.” The Pioneer Ctrs. Holding Co. Emp. Stock Ownership Plan and Tr. v. Alerus Fin., 2017 WL 2415949 (10th Cir. 2017) (McHugh, J.). The Tenth Circuit’s decision deepened a circuit split on this issue.

Pursuant to 29 U.S.C. § 1109(a), “a fiduciary who breaches its duties under ERISA shall be personally liable for ‘any losses to the plan resulting from each such breach.’” Id. (quoting 29 U.S.C. § 1109(a)). The Tenth Circuit noted that “[t]he plain language of § 1109(a) establishes liability for losses ‘resulting from’ the breach, which . . . indicates that there must be a showing of some causal link between the alleged breach and the loss plaintiff seeks to recover.” The court underscored that “the statute is silent as to who bears the burden of proving a resulting loss.”

The Tenth Circuit explained that “[w]here a statute is silent on burden allocation, ‘the ordinary default rule [is] that plaintiffs bear the risk of failing to prove their claims.’” Id. (quoting Schaffer ex rel. Schaffer v. Weast, 546 U.S. 49 (2005)). The court recognized that “[t]here are exceptions to the default rule, such as when ‘certain elements of a plaintiff’s claim . . . can fairly be characterized as affirmative defenses or exemptions.’” Id. (quoting Schaffer, 546 U.S. 49). The court noted that “[a]nother exception to the default rule unique to the fiduciary duty question arises under the common law of trusts.” The court stated that “[t]rust law advocates a burden-shifting paradigm whereby once 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.”

The Tenth Circuit determined that none of these exceptions to the default rule apply to ERISA breach of fiduciary duty claims. The court stated that “nothing in the language of § 1109(a) or in its legislative history . . . indicates a Congressional intent to shift the burden to the fiduciary to disprove causation.” Moreover, the court found no evidence “that suggests Congress intended to make the lack of causation an affirmative defense or an exemption to liability.” The Tenth Circuit concluded that “causation is an element of the [ERISA breach of fiduciary duty] claim and that the plaintiff bears the burden of proving it.”

The Tenth Circuit noted that “[t]he majority of federal circuits that have considered the issue . . . have refused to incorporate any burden shifting into ERISA breach of fiduciary duty claims.”[1] However, the court observed that “some circuits have incorporated the common law of trust’s burden shifting into ERISA breach of fiduciary duty claims.”[2] The Tenth Circuit declined to “follow these decisions” and refused to “shift the burden to the fiduciary once the plaintiff establishes a prima facie showing of loss related to the breach.”

The Tenth Circuit reasoned that “[w]here the plain language of the statute limits the fiduciary’s liability to losses resulting from a breach of fiduciary duty, there seems little reason to read the statute as requiring the plaintiff to show only that the loss is related to the breach.” Moreover, the court found that adopting “the burden-shifting framework could result in removing an important check on the otherwise sweeping liability of fiduciaries under ERISA.”