Fifth Third Bancorp v. Dudenhoeffer

Summarized by:

  • Court: United States Supreme Court
  • Area(s) of Law: Corporations
  • Date Filed: June 25, 2014
  • Case #: 12-751
  • Judge(s)/Court Below: Breyer, J. delivered the opinion for a unanimous Court.
  • Full Text Opinion

There is no "presumption of prudence" for an Employee Stock Ownership Plan fiduciary; they are subject only to the duty of prudence that applies to all ERISA fiduciaries in general, with the exception of the diversification requirement.

Respondents were employees of Petitioner who invested in an Employee Stock Ownership Plan (ESOP) as a means of retirement. ESOP invests primarily in employer’s stock as means of encouraging employee ownership of companies. Petitioner’s stock was overvalued as of 2007, subsequently the price plummeted. Respondents allege Petitioners breached fiduciary duties to Respondents by not selling off employer stock, by continuing to purchase employer stock, and by not disclosing negative information that would have allowed market to correct the overvaluation of employer stock.

The district court dismissed the case for failure to state a claim; Sixth Circuit reversed, concluding that ESOP Fiduciaries are entitled to a “presumption of prudence” beginning at the evidentiary phase.

The Supreme Court holds that ESOP fiduciaries are not entitled to a “presumption of prudence” but are subject to the same duty of prudence as all ERISA fiduciaries, except that they do not have to diversify assets.

The Supreme Court reasoned that the statute makes no reference to a special presumption of prudence for ESOP fiduciaries, but does exempt them from responsibility for losses due to not diversifying assets.

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