For nearly two decades, some courts presumed that it was prudent to invest a retirement plan’s assets in an Employer Stock Option Plan (ESOP), i.e., a benefit plan invested in the employer’s own company stock. Recently, however, the U.S. Supreme Court decided in Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014), that there is no statutory basis for excluding fiduciaries of ESOPs from ERISA’s generally applicable duty of prudence. After discarding the “presumption of prudence” for ESOPs, the Court addressed pleading standards in such cases, holding that in order to plead that a fiduciary violated his or her duty of prudence, a plaintiff must “plausibly allege that a prudent fiduciary in the defendant’s position could not have concluded” that stopping purchases of the employer’s stock “would do more harm than good” to the retirement fund in question.
After Dudenhoeffer was decided, the Whitley Defendants argued that the Plaintiffs’ claims must be dismissed unless the Plaintiffs could plausibly allege—and subsequently prove—that no prudent fiduciary could have concluded that stopping purchases of BP stock would have caused more harm than good to the underlying fund. In sum, the Defendants’ proposed standard would force the Plaintiffs to undertake the practically impossible task of demonstrating what every potential plan fiduciary would do in a given situation.
As NELA and our co-amici wrote, the “Defendants’ standard is too extreme. The test to show imprudence is not whether the fiduciary was acting as would all reasonable, prudent persons. Rather, under the statute, trust law, and Dudenhoeffer, in order to be a ‘prudent fiduciary,’ a fiduciary must act as would a reasonable, prudent person in a like capacity. The corollary is that, in order to plead that a fiduciary was not prudent, the plaintiff must plausibly allege that the fiduciary was not acting as would a reasonable, prudent person.” Accepting the Defendants’ conception of the appropriate pleading standard would, the brief argues, effectively replace the now-discarded “presumption of prudence” with a standard that is equally insurmountable. Further, the Defendants’ standard is fundamentally inconsistent with the accepted function of the complaint in our system of notice pleading, and amounts to “a probability requirement,” which was rejected explicitly by the U.S. Supreme Court in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007).
The brief was authored by NELA member Mary Ellen Signorille of AARP Foundation Litigation (Washington, D.C.), and NELA member Lynn L . Sarko, Erin M. Riley, and Matthew M. Gerend of Keller Rohrback, LLP (Seattle, WA).