Fifth Third Bancorp v. Dudenhoeffer
Issues
When a company maintains an employee stock ownership plan, do plan managers have discretion to decide whether to remain invested in employer stock based on long-term, rather than short-term, goals, or do the managers have to change investment tactics to minimize losses and maximize present value for the investors?
John Dudenhoeffer and Alireza Partovipanah are former employees of Fifth Third Bancorp. As part of their benefits plan, they contributed to an employer stock ownership plan (“ESOP”). By participating in the plan, employees have an option to invest in Fifth Third stock as well as several other funds. In a two-year span, stock value for Fifth Third dropped dramatically. Dudenhoeffer and his fellow class members argue that Fifth Third made misleading disclosures regarding the health of the stock and that the trust managers failed to represent the best interests of the trustees by allowing employees to continue to invest in the company. Fifth Third argues that there is a strong presumption in favor of ESOP managers and their decisions to invest stocks based on long-term company goals. The decision in this case will affect the duties that employers owe to employees who invest in ESOPs and the protection afforded to employee-investors.
Questions as Framed for the Court by the Parties
- Whether the Sixth Circuit erred by holding that Respondents were not required to plausibly allege in their complaint that the fiduciaries of an employee stock ownership plan (“ESOP”) 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 the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1101, et seq. (“ERISA”), and every other circuit to address the issue.
- The complaint in this case alleges a breach of the fiduciary duties of loyalty and prudence, in violation of ERISA § 404(a)(1), 29 U.S.C. §1104(a)(1), by the trustees of an employee pension benefit plan that invests in the stock of the employer. The question before the Court is whether those allegations are inadequate on their face unless they establish that the employer’s financial status is dire.
Facts
John Dudenhoeffer and Alireza Partovipanah are former employees of Fifth Third Bank. See Dudenhoeffer v. Fifth Third Bancorp, 692 F.3d 410, 414 (6th Cir. 2012).
Edited by
- National Center for Employee Ownership, ESOP (Employee Stock Ownership Plan) Facts.
- Workplace Prof, U.S. Supreme Court Accepts Cert in Dudenhoeffer ERISA Moench Presumption of Prudence Case (Dec. 13, 2013).