The Court also considered the argument that, without a presumption of prudence, fiduciaries, who are often company insiders, will be faced with conflicts regarding their responsibilities under securities laws. For example, an officer with insider information who believes that continued investment in employer stock may not be prudent could not act on that information without violating the insider trading prohibitions. The Court found that this was a legitimate consideration, but not one that created the necessity of a presumption of prudence. Finally, with respect to the argument that, absent a presumption of prudence, participants might be more inclined to bring meritless lawsuits, the Court acknowledged that this is also a legitimate concern and that district courts could address this through careful scrutiny of the complaint’s allegations, rather than a presumption of prudence.

A Roadmap for the Lower Courts and for Plan Fiduciaries

In vacating the Sixth Circuit’s decision and remanding the case for reconsideration, the Court provides a roadmap of the elements of judicial consideration in determining whether plaintiffs have stated a plausible claim. The Court instructed the lower court to use the pleading standard established in prior cases(that only a complaint that states a plausible claim for relief can survive a motion to dismiss, and that determining whether a complaint states a plausible claim for relief is context-specific). 

The Court laid out key considerations to be taken into account in determining whether a claim alleging a breach of the duty of prudence in the context of a stock drop scenario will meet the “plausible claim” pleading standard:

• Publicly available information: Where a stock is publicly traded, allegations that a fiduciary should have recognized, from public information alone, that the marketplace was either over- or under-valuing employer stock are “implausible as a general rule,” absent special circumstances. As a result, generally a fiduciary will be not considered imprudent when assuming that the market value of employer stock on a major exchange provides the best estimate of the stock’s value.   The Court did not elaborate on what circumstances might give rise to a situation where reliance on the stock price as set on a public exchange is not considered prudent.  
  
  
• Insider information: A claim for the breach of the duty of prudence on the basis of inside information will not withstand a motion to dismiss unless the plaintiff plausibly alleges another course of action that the fiduciary could have taken.  To be plausible, the course of action must be must be one that does not violate or conflict with securities laws.  Also, the course of action must be one that a prudent fiduciary in the same situation would not have viewed as more likely to harm the employer stock fund than to help it (e.g., could a prudent fiduciary have concluded that ceasing investment in employer stock, or selling stock, would have caused or worsened a decline in the value of the stock). The Court suggested that SEC input on this aspect may be relevant to the analysis.

The Court observed that the Sixth Circuit had not referenced any special circumstances in the Fifth Third case that would have rendered the fiduciaries’ reliance on the market price of the Fifth Third stock imprudent. It also noted that, to the extent the Sixth Circuit was basing its decision on the theory that the fiduciaries should have sold Fifth Third stock based on insider information, the denial of dismissal was erroneous because ERISA’s duty of prudence cannot require an ESOP fiduciary to perform an action, such as selling employer stock on the basis of insider information, that would violate federal securities laws. This suggests the possibility that, upon remand, the Fifth Third case may not survive the motion to dismiss.