U.S. Supreme Court Abolishes the Presumption of Prudence in ERISA Stock Drop Cases


A recurring scenario in ERISA litigation involves claims against fiduciaries of 401(k) retirement plans who are alleged to have breached their fiduciary duty by failing to discontinue investment in employer stock following a material drop in the stock price. The question is: Under what circumstances will a failure to stop investment in employer stock support a claim for breach of fiduciary duty? To date, every circuit—except the Sixth—that has considered the issue has applied a “presumption of prudence” that required a complaint to allege non-conclusory facts showing that the fiduciaries knew or should have known that the corporate employer faced dire circumstances that threatened its financial viability.

On June 25, 2014, the U.S. Supreme Court issued its opinion in Dudenhoeffer v. Fifth Third Bancorp, et al., No. 12-751, categorically rejecting the “presumption of prudence.” The Court instead held that complaints in ERISA stock drop cases should be reviewed under Rule 12 “plausibility” standards, applying a “careful, context-sensitive scrutiny of a complaint’s allegations.”

Please see full alert below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:

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.

© Morrison & Foerster LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.