The U.S. Supreme Court’s decision in Fifth Third Bancorp v. Dudenhoeffer eliminates an ESOP fiduciary’s presumption of prudence in relation to the holding employer securities. Many have viewed this decision with horror. However, my perspective is that the “revised” pleading standards articulated by the court will actually be a significant silver lining for ESOP fiduciaries.
According to the court, it is generally implausible that a claim can made against an ESOP fiduciary based solely on public information. Apparently, this means that in order for a claim to be made, the fiduciary must have been in possession of some negative information about the employer stock that was not publicly known. But on the other hand, the court also clearly stated that a fiduciary cannot be expected to violate securities laws by acting on “insider” information.
Given those two points, it is not clear to me how a plaintiff is supposed to make a claim against an ESOP fiduciary. What type of information is the plaintiff going to have to allege the fiduciary had in its possession, that clearly showed that is was no longer prudent for the fiduciary to either hold and/or stop buying company stock?
I will never underestimate the creativeness of the plaintiff’s bar. I am certain plaintiff’s lawyers will come up with something. But, at least on the surface, it looks to me like the Supreme Court’s decision may have actually made it more difficult for plaintiffs to be able to plead valid claims against ESOP fiduciaries.