In the wake of the Supreme Court's decision in Fifth Third Bancorp v. Dudenhoeffer, the suit against Lehman Brothers by retirement plan participants, In re Lehman ERISA Litigation, 2nd U.S. Circuit Court of Appeals, No. 11-4232, is being sent back to the judge for another look.
New York's 2nd U.S. Circuit Court of Appeals said that U.S. District Judge Lewis Kaplan will have to take another look at the case in the wake of Fifth Third. Kaplan had dismissed the original lawsuit, filed in October of 2008, in which plaintiffs said that members of the employee benefit plans committee and the directors of Lehman Brothers, who appointed the committee members, breached their fiduciary duties under ERISA by leaving the plan invested in Lehman stock even as it tanked, rendering participants' plan assets virtually worthless.
Recommended For You
Kaplan had dismissed the suit in October of 2011, using — as have most court decisions prior to Fifth Third — the "presumption of prudence" provision that basically says participants have to prove that fiduciaries knew that Lehman was in a "dire situation." In his dismissal, Kaplan said that the plaintiffs had not proved such knowledge on the part of fiduciaries.
The presumption of prudence stems from a 1995 court case, Moench v. Robertson, in which the 3rd Circuit Court used ERISA's diversification requirement and the interpretation the requirement made for holdings of employer stock within an employee stock ownership plan. Moench found that an ESOP fiduciary putting employer stock into a plan was in compliance with ERISA requirements.
However, Fifth Third stripped away that presumption, thus weakening fiduciaries' ability to defend against such claims as in the Lehman case.
The case was appealed, and the appeals court upheld Kaplan's decision — but that was before Fifth Third, the Supreme Court's unanimous decision that held that the presumption of prudence does not apply to suits over investments in retirement plans.
As a result, the 2nd Circuit Court has ordered Kaplan to have another look, then decide whether the plan participants can advance their case.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
