Fifth Third Bancorp v. Dudenhoeffer

Fifth Third Bancorp and various officers (Fifth Third) (defendants) administered a retirement-savings plan for its employees. The plan included up to 4 percent matching of contributions made by an employee. The matching contributions by Fifth Third were invested in an employee stock-ownership plan (ESOP), which bought and held Fifth Third stock. Fifth Third was heavily invested in subprime mortgages. As early warning signs indicated that the company was at risk from the pending subprime-mortgage crisis, Fifth Third continued to hold and purchase more of its stock with ESOP funds. Between July 2007 and September 2009, Fifth Third’s stock price fell 74 percent. Former Fifth Third employees (plaintiffs) filed a putative class action in the district court against Fifth Third officers as fiduciaries, claiming a violation of the duty of loyalty and prudence imposed by the Employee Retirement Income Security Act of 1974 (ERISA). The former employees alleged that Fifth Third and its officers knew or should have known that Fifth Third stock was overvalued and too risky. The district court applied a presumption that the ESOP fiduciaries’ investment decisions to buy and hold Fifth Third stock was reasonable and dismissed the complaint for failure to state a claim. The appellate court reversed the district court, holding that the presumption that a fiduciary acted reasonably does not apply during the pleading stage of litigation and that the former employees had stated a plausible duty-of-prudence claim. Fifth Third appealed to the United States Supreme Court.