Among the many lawsuits Boeing confronted following the disclosure of problems with the 737 Max was a class action brought by participants in the Boeing Voluntary Investment Plan who invested in the Boeing ESOP. The plaintiffs alleged that the Boeing defendants breached their ERISA fiduciary duties by concealing problems with the 737 Max, which allegedly
Minimizing the Risk of ERISA Litigation in a Turbulent Economic Climate
As recent history has shown, ERISA claims seeking recovery of investment losses tend to proliferate during times of market volatility. The Coronavirus (COVID-19) pandemic presents a unique opportunity for plaintiffs to search for and bring fiduciary-breach claims based on the underperformance of company stock funds and other available investment options in 401(k) and 403(b) plans. …
U.S. Supreme Court Seeks Solicitor General’s Input on Co-fiduciary Indemnification
Earlier this month, the U.S. Supreme Court invited the Solicitor General to file a brief expressing the government’s views on a petition for certiorari asking the Court to decide whether ERISA permits a cause of action for indemnity or contribution by an individual found liable for breach of fiduciary duty. The underlying dispute resulted from…
Fifth Third Bancorp v. Dudenhoeffer – An Analysis of the U.S. Supreme Court’s Decision
For over two decades, federal courts have embraced the so-called Moench presumption of prudence in ERISA stock-drop cases. Pursuant to that presumption, courts have routinely dismissed such claims absent allegations in a complaint that a company’s situation was dire, or that the company was on the brink of collapse. On June 25,2014, the U.S. Supreme Court issued its decision in the highly anticipated case, Fifth Third Bancorp v. Dudenhoeffer, wherein it concluded by unanimous decision that the presumption of prudence could not be supported by the text of ERISA. As discussed below, that may be at most only mixed victory for the plaintiffs’ bar.
Factual Background
Participants in Fifth Third Bancorp’s (Fifth Third’s) defined contribution retirement plan (Plan) brought a putative class action against the Plan’s fiduciary committee, among others, alleging that defendants breached their fiduciary duties in violation of ERISA.
Under the Plan, participants made contributions into an individual account and directed the Plan to invest those contributions in a menu of options pre-selected by Fifth Third. Of the twenty options available to participants during the relevant period, one was the Fifth Third stock fund, which had been designated an employee stock ownership plan (ESOP). Fifth Third matched the first 4% of a participant’s contributions with company stock, after which participants could move such contributions to any other investment option.
Plaintiffs’ complaint alleged that Fifth Third shifted from a conservative to a subprime lender and, consequently, Fifth Third’s loan portfolio became increasingly exposed to defaults. It further alleged that Fifth Third either failed to disclose the resulting damage to the company and its stock or provided misleading disclosures. During the relevant period, Fifth Third’s stock price declined 74%, resulting in the ESOP losing tens of millions of dollars.
Plaintiffs commenced a putative class action lawsuit, alleging, among other things, that defendants breached their fiduciary duties under ERISA by: (i) imprudently maintaining significant investment in Fifth Third stock and continuing to offer it as an authorized investment option; and (ii) by failing to provide Plan participants with accurate and complete information about Fifth Third and the risks of investment in Fifth Third stock.
SCOTUS Says No Presumption of Prudence In ERISA Stock Drop Cases
Earlier today, in Fifth Third Bancorp v. Dudenhoeffer, the U.S. Supreme Court declined to adopt the so-called Moench presumption of prudence pursuant to which many circuit courts had dismissed ERISA stock drop claims unless plan participants had pled allegations that the company’s economic situation was dire or the company was on the brink of…
District Court Finds Fiduciaries Have No Duty to Investigate False Sale Allegations for ESOP Investment
In Malcolm v. Trilithic, Inc., 2014 WL 1324082, No. 1:13-cv-00073 (S.D. Ind. Mar. 31, 2014), the Southern District of Indiana held that plan fiduciaries were under no duty to investigate allegations that a false sale had been included in the company’s records as a way of “puff[ing] up [its] receivables account and profitability” to…
Courts Continue to Apply Presumption of Prudence While Awaiting the USSC’s Views
As the employee benefits world awaits the U.S. Supreme Court’s decision in Dudenhoeffer v. Fifth Third Bancorp, two federal courts recently dismissed employer stock-drop cases brought under ERISA on the ground that plaintiffs failed to overcome the presumption that a fiduciary’s decision to remain invested in employer stock was prudent. See Smith v. Delta…
High Court Employee Benefits Cases: A Review and Look Ahead
Having settled into the new year, we reflect on decisions from the U.S. Supreme Court in 2013 that are likely to have a significant impact in the world of pension and welfare employee benefits and, in some cases, already have had such an impact. The issues addressed by the Supreme Court are wide ranging and are both substantive and procedural.
They include same sex marriage benefits, welfare plan reimbursement provisions, statute of limitations and class certification. Looking ahead into 2014, we see that the Supreme Court has already agreed to decide several significant benefits issues, including issues pertaining to Employee Retirement Income Security Act stock-drop litigation, the so-called “contraceptive mandate” under the Affordable Care Act and whether the Federal Insurance Contributions Act tax applies to reduction in force related severance pay.
Arbitrator Determined to Have Erroneously Denied Enforcement of Indemnification Agreement
In Schafer v. Multiband Corp., 2013 WL 607910 (E.D. Mich. Feb. 19, 2013), a district court vacated the decision of an arbitrator who concluded that indemnification agreements executed in connection with the establishment of an employer stock ownership plan and an employee stock ownership trust violated ERISA § 410(a), 29 U.S.C. § 1110(a). The…