Fifth Third Bancorp v. Dudenhoeffer
134 S. Ct. 2459
| SCOTUS | 2014Background
- Fifth Third Bancorp's defined-contribution plan includes an ESOP investing primarily in Fifth Third stock.
- Respondents, former employees and ESOP participants, allege ESOP fiduciaries breached ERISA §1104(a)(1)(B)’s prudent-person standard.
- Allegations: insiders knew Fifth Third stock was overvalued and riskier; fiduciaries did not sell or disclose, harming the ESOP.
- District Court dismissed; Sixth Circuit reversed, recognizing a purported ESOP-specific presumption of prudence at pleadings.
- Supreme Court holds no ESOP-presumption; ESOP fiduciaries face the same prudence duty as others, with no diversification requirement only under §1104(a)(2).
- Remands to apply standard Twombly/Iqbal pleading analysis, considering public and inside information within securities-law constraints.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is there a presumption of prudence for ESOP fiduciaries at pleading? | ESOP fiduciaries benefit from a presumption of prudence. | No special ESOP presumption; same duty as ERISA fiduciaries applies. | No presumption; same prudence standard applies. |
| What is the governing prudence standard for ESOP fiduciaries? | Treat ESOPs with a relaxed standard due to diversification exemption. | ESOP fiduciaries are ERISA fiduciaries; diversification exception only relaxes §1104(a)(1)(C). | Prudence standard applies; diversification not required for ESOP fiduciaries. |
| Can allegations based on publicly available information state a claim? | Public signals show overvaluation; fiduciaries should have acted. | Public market efficiency usually makes such allegations implausible. | Generally implausible; requires context-specific considerations on pleading. |
| Can insider-information-based inaction or disclosure claims survive pleadings? | Insiders had information; failures to act/disclose harmed the fund. | Securities laws limit actions; ERISA cannot override them. | ERISA cannot require actions that violate securities laws; pleading must account for conflicts. |
| Should the case be remanded for further pleading under Iqbal/Twombly? | Complaint plausibly alleges imprudence under insider/public information rules. | Dismissal was improper only if pleading is adequate under Twombly/Iqbal. | Remanded to apply pleading standards with context-specific prudence analysis. |
Key Cases Cited
- Massachusetts Mut. Life Ins. Co. v. Russell, 473 U. S. 134 (1985) (prudent-man standard; ERISA fiduciary duties described)
- Central States, Southeast & Southwest Areas Pension Fund v. Central Transport, Inc., 472 U. S. 559 (1985) (trustee duties; loyalty and care)
- In re Citigroup ERISA Litigation, 662 F.3d 128 (2d Cir. 2011) (presumption of prudence debate at pleading stage)
- Kuper v. Iovenko, 66 F.3d 1447 (6th Cir. 1995) (prudent-investment standard discussion)
- White v. Marshall & Ilsley Corp., 714 F.3d 980 (7th Cir. 2013) (presumption of prudence description for ESOPs)
- Quan v. Computer Sciences Corp., 623 F.3d 870 (9th Cir. 2010) (insider information and prudence pleading standards)
- Ashcroft v. Iqbal, 556 U. S. 662 (2009) (pleading standards; plausibility requirement)
- Bell Atlantic Corp. v. Twombly, 550 U. S. 544 (2007) (pleading standards; plausibility)
- Rinehart v. Akers, 722 F.3d 137 (2d Cir. 2013) (insider-trading and ERISA interaction)