Fifth Circuit Applies Moench Presumption of Prudence at Motion to Dismiss Stage

The Fifth Circuit recently joined four other circuits (the Second, Third, Seventh and Eleventh Circuits) in holding that the presumption of prudence applicable in employer stock fund cases is appropriately applied at the motion to dismiss stage of a litigation. Kopp v. Klein, 2013 WL 3449866 (5th Cir. July 9, 2013). Applying the presumption, the Court upheld the dismissal of a claim for fiduciary breach alleging that defendants – various members of Idearc’s board of directors and Idearc’s officers, the Plan Benefits Committee, and the Human Resources Committee – should not have permitted the continued investment in an employer stock fund and also should have liquidated the plan’s employer stock holdings prior to the corporate sponsor’s bankruptcy filing. The Court determined that, although plaintiffs had alleged sufficient facts that, if proven, would demonstrate that defendants should have been concerned about the company’s financial condition, the allegations were insufficient to create awareness that the company stock was in danger of becoming worthless. To the contrary, the court found that in “the months following the Idearc Defendants’ decision to stop offering Idearc stock as an investment option under the Plan and prior to Idearc filing for bankruptcy, there [was] a near total dearth of facts asserted in the complaint indicating the Idearc Defendants had any reason to believe, based on public or nonpublic information that Idearc was on the brink of collapse.” The Court also found that the defendants had no duty to liquidate the employer stock based on nonpublic information because doing so could have amounted to a securities law violation.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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