Dudenhoeffer Ruling Benefits Both Sides, Attorneys Who Argued Case Agree

The U.S. Supreme Court's recent decision in Fifth Third Bancorp v. Dudenhoeffer accomplished something rare: It gave both employees and employers a reason to smile.         

In a July 28 webinar sponsored by the Practising Law Institute, the attorneys who argued the case before the Supreme Court said that Dudenhoeffer, 2014 BL 175777, contained victories for both fiduciaries of company stock plans and the employees who invest in those plans.         

That's because the ruling—which invalidated the pro-fiduciary presumption of prudence that had been used to shield employers from liability for declining stock price—also articulated a number of new obstacles for participants challenging fiduciaries' actions in the face of such declines, the attorneys said.           

The webinar was entitled Fifth Third Bancorp v. Dudenhoeffer: Supreme Court Eschews Moench Presumption, but Recognizes Limitations on Stock-Drop Litigation Under ERISA.         

Half Full, Half Empty          

Robert A. Long, a partner with Covington &  Burling LLP in Washington who argued on behalf of Fifth Third Bancorp, said that the decision invalidating the presumption of prudence wasn't a total loss for sponsors of employee stock ownership plans.         

“We no longer have a presumption of prudence, but we have a series of other obstacles that plaintiffs would have to surmount in order to survive a motion to dismiss in an ESOP case involving a publicly traded stock,” Long said.         

Ronald J. Mann, who argued on behalf of the ESOP participants and is a professor at Columbia Law School in New York, agreed that the ruling was a mixed bag, calling it “glass half full, glass half empty.”         

Despite being on opposite sides of the issue, both Long and Mann identified ways in which the ruling could be seen as a victory for their respective positions.         

In Long's view, Dudenhoeffer is actually “slightly more protective of some fiduciaries in certain respects.” In particular, Long said that stock-drop plaintiffs no longer are able to defeat a plan's motion to dismiss by demonstrating that the sponsoring company was in dire financial circumstances. Before Dudenhoeffer, that option was available to them, he said.         

However, Mann expressed optimism about the ability of plan participants to pursue stock-drop claims in the wake of Dudenhoeffer.         

“Before this case, you lost,” Mann said. “It didn't really matter what the information was, what the fiduciaries knew, or what they did or didn't do—you lost.”         

Mann said that, pre-Dudenhoeffer, participants in many plans had difficulty demonstrating that their company was in dire financial circumstances. For example, the potential for a government bailouts made it unlikely that large national banks would find themselves in dire financial straits, he said.         

Excerpted from a story that ran in Pension & Benefits Daily (07/29/2014).