Supreme Court to Hear Case on Presumption of Prudence

On Friday, the Supreme Court granted certiorari in Fifth Third Bancorp v Dudenhoeffer (No. 12-751), meaning that the court will review a ruling by the Sixth Circuit Court of Appeals to determine whether ESOP fiduciaries are entitled to a presumption of prudence. The so-called Moench presumption has been accepted by some circuit courts, although in different forms.

The Sixth Circuit had ruled that plaintiffs were not required to "plausibly allege" in their complaint that fiduciaries had abused their discretion to overcome the presumption of prudence. Fifth Third requested that the Supreme Court review that finding and a second question of whether SEC filings become fiduciary communications when they are referred to in plan documents. The Supreme Court agreed to review the first question but not the second.

The Solicitor General had requested that the Supreme Court review the first question, but to expand the scope of the review from the role of the presumption of prudence in the complaint to whether the presumption should ever apply in cases involving employer stock. The Supreme Court instead elected to review the first question as Fifth Third presented it.

In its December 16 analysis of the Supreme Court's announcement, the law firm McDermott Will & Emery writes, "The Supreme Court's decision to grant certiorari suggests that the Supreme Court will resolve the current division among circuit courts regarding the application of the 'presumption of prudence' in employer stock cases—in particular, whether the parties must engage in expensive discovery before plaintiffs' claims will be addressed by the courts."