Supreme Court To Review Sixth Circuit’s Reinstatement Of ERISA 'Stock-Drop' Class Action

Article by Elliot Morrison and Patrick T. Lewis

The Supreme Court recently agreed to resolve a circuit split on the pleading requirements for claims that ERISA fiduciaries imprudently invested employee stock ownership plan (ESOP) assets in the stock of the employer—so-called "stock-drop" cases. Under the "Moench presumption," named after Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995), courts presume that investments of ESOP assets in employer stock are reasonable, raising the bar for claims of imprudent investment decisions. Id. at 571. Until recently, all of the circuits to face the issue have found that the Moench presumption applies at the pleading stage, requiring plaintiffs to plausibly allege that fiduciaries abused their discretion by deciding to include employer stock as an investment option or to remain invested in employer stock. See, e.g., Lanfear v. Home Depot, Inc., 679 F.3d 1267, 1279 (11th Cir. 2012); In re Citigroup ERISA Litig., 662 F.3d 128, 139 (2d Cir. 2011); Edgar v. Avaya, Inc., 503 F.3d 340, 349 (3d Cir. 2007).

But the Sixth Circuit rejected that notion, holding that the Moench presumption was an evidentiary principle and that it was not properly raised at the pleading stage. Dudenhoefer v. Fifth Third Bancorp, 692 F.3d 410, 419 (6th Cir. 2012). As a result, the defendants in Dudenhoefer were required to go through discovery.

Defendant Fifth Third Bancorp, with aid from amicus curiae KeyCorp (represented by BakerHostetler LLP), petitioned for a writ of certiorari. After the Solicitor General weighed in on behalf of the government, the Court agreed to hear the case. In doing so, the Court declined the government's invitation to reformulate the question presented to consider whether the presumption should apply at alla step not even the Sixth Circuit had contemplated. (The Court...