Fifth Third Bancorp v. Dudenhoefer

Whether a plaintiff alleging ERISA violations of an Employee Stock Ownership Fund must allege an abuse of discretion on the part of the fiduciaries of the fund to overcome a presumption of reasonableness for investing in employer securities.

Respondent filed suit against Petitioner alleging ERISA violations as a result of their retirement plan's continuing investment in employer stock of declining value. The district court granted a 12(b)(6) motion to dismiss to Petitioner, finding that Petitioner, as an Employee Stock Ownership Fund (ESOP), was entitled to a presumption of reasonableness for the plan's choosing to remain invested in employer securities.

Respondent appealed to the Sixth Circuit Court of Appeals, reraising the argument of violations of fiduciary duty. The panel held that the application of reasonableness should not be used as a test of the sufficiency of the complaint at the 12(b)(6) stage. Because the complaint stated a plausible allegation of breach of fiduciary duty and a causal connection between that breach and harm suffered, they reversed the ruling of the district court.

The Court granted certiorari limited to the issue of whether Respondents were required to allege fiduciaries' abuse of discretion to overcome a presumption of reasonableness. On review, Petitioner asks the Court to resolve a split created by the Sixth Circuit ruling contrary to three others on this issue, those circuits holding that the presumption of reasonableness applies at the pleading stage and that ESOP fiduciaries are exempted from ERISA's duty to diversify.