Groups Ask for Stronger Presumption in Stock Drop Case

February 5, 2014 ( – A brief of amici curiae was recently filed with the U.S. Supreme Court for a case addressing prudent investment decisionmaking within employee stock ownership plans (ESOPs).

By Kevin McGuinness | February 05, 2014
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In the document, submitted for the case Fifth Third Bancorp v. John Dudenhoeffer in support of Third Fifth Bancorp, the Chamber of Commerce of the United States, the ERISA Industry Committee, the American Benefits Council, the Plan Sponsor Council of America and the National Association of Manufacturers argue plan sponsors will be discouraged from offering employer stock absent a strong presumption of prudence that applies at the pleading stage of the court process.

The groups say if the standard for overcoming the presumption of prudence is weakened or rendered inapplicable at the pleading phase, the costs of offering employer stock could increase dramatically. There is also a concern that employees would file nuisance suits every time a company’s stock price decreased.

"If fiduciaries cannot obtain dismissal of baseless stock-drop suits at an early stage of the litigation, they will be less likely to offer employer stock funds in the first instance for fear of incurring significant legal fees to defend the prudence of their decisions,” states the brief.

The brief asks that the Supreme Court should “hold that a plaintiff claiming that it was imprudent for a plan fiduciary to offer an employer stock fund must plead plausible facts to establish that the employer was not viable as a going concern.” Further, the brief asks that the judgment of the 6th U.S. Circuit Court of Appeals should be reversed.

The decision issued by the 6th Circuit was that the presumption of prudence is not to be applied at the pleading stage of such a lawsuit (see “SCOTUS Takes Up Presumption of Prudence Issue”).