Supreme Court Hears Oral Arguments on Presumption of Prudence

On April 2, the Supreme Court heard arguments in Fifth Third Bancorp v. Dudenhoeffer, U.S., No. 12-751, concerning the so-called Moench presumption, which has been adopted by several circuit courts and is often used as a basis to dismiss stock-drop suits. The presumption holds that a plan fiduciary is presumed to have acted prudently when it allows certain plans to continue holding employer stock unless plaintiffs can demonstrate the impending collapse of the plan sponsor or other dire circumstances. Much of the focus of the discussion was on how a fiduciary should act when he or she has inside information about the company.

Richard Siegel, a senior associate with Alston & Bird LLP, said in an interview with BNA, "There was substantial discussion of the fact that these [stock-drop] cases typically arise in circumstances in which fiduciaries are in possession of nonpublic information, and the court appeared to struggle with how a fiduciary could have a duty to act on nonpublic information when doing so would violate insider trading laws."

Observers noted that the oral arguments included very little focus on the question of whether the Moench presumption should apply at the motion-to-dismiss stage of litigation.