On Friday, December 13, the Supreme Court granted the petition for certiorari in Dudenhoefer v. Fifth Third Bancorp, 692 F.3d 410 (6th Cir. 2012) and agreed to evaluate whether the “presumption of prudence” regarding employer stock is a proper legal standard for evaluating breach of fiduciary duty claims.
Last December, Fifth Third filed a petition for writ of certiorari to the Supreme Court on the following two issues: “(1) Whether the Sixth Circuit erred by holding that [participants] were not required to plausibly allege in their complaint that the fiduciaries of an employee stock ownership plan abused their discretion by remaining invested in employer stock, in order to overcome the presumption that their decision to invest in employer stock was reasonable, as required by [ERISA] and every other circuit to address the issue; and (2) whether the Sixth Circuit erred by refusing to follow [Supreme Court] precedent  (and the holdings of every other circuit to address the issue) by holding that filings with the [SEC] become actionable ERISA fiduciary communications merely by virtue of their incorporation by reference into plan documents.”
On November 12, the Solicitor General recently weighed in, opining that only the first issue presented, not the second, warranted review. The Solicitor General urged the Court to reformulate the first question as follows: “(1) Whether, in a suit claiming that an ESOP fiduciary violated the statutory duty of prudence,  the fiduciary should be accorded a presumption that he acted prudently, [and] (2) If so, whether the presumption applies at the pleadings stage and what a plaintiff must allege to rebut it.”
While the Supreme Court showed deference to the Solicitor General’s opinion and granted review if of the first question only, the high court declined to reformulate the question as the Solicitor urged, and instead, accepted the question exactly as presented by Fifth Third.
For those superstitious readers, Friday the 13th may indeed end up being an “unlucky” day for the plaintiffs bar. Despite the Solicitor General’s contention that a Circuit split exists, it does not. The so-called “presumption of prudence” has been adopted by every Circuit court to consider the issue, including the Second, Third, Fifth, Sixth, Seventh, Ninth and Eleventh Circuits, and no federal appellate court has rejected the Moench presumption on its merits. As such, the high court should affirm this unanimous Circuit court view. And, because this presumption is the basis for most of the early dismissals in such “stock drop” cases, if the presumption is affirmed, it could put the nail in the coffin to these types of suits.