The court found that the plan document required that company stock be offered as an investment option in the plan, giving plaintiffs the “assumption of reasonableness,” and the defendants did not prove that a reasonable fiduciary in the same circumstances would have made different investment decisions. “Allegations that Fifth Third was “a complete and total mess’ and that members of the Profit Sharing Committee “conceded that they knew about these problems throughout the entire Class Period—but did not think they warranted any action’ are insufficient as a matter of law to establish a basis in the facts that a reasonable fiduciary in the same or similar circumstances would have made different investment decisions,” U.S. Magistrate Judge Timothy S. Black said in his opinion.
Black also determined that the fact that the defendants may have engaged in some non-optimal business practices is insufficient to rebut the presumption of reasonableness. That determination was similar to another recent ruling by the court in which it stated that Huntington Bancshares’ decision to merge with another firm that had high subprime mortgage exposure was a corporate decision, not conduct governed by the Employee Retirement Income Security Act (ERISA) (see “Court Says Credit Crisis No Reason to Investigate Company Stock Offering“).
According to the court opinion, statements by Fifth Third about its financial situation in press releases and Securities and Exchange Commission filings were also made in a purely corporate capacity and plan fiduciaries did not violate ERISA by failing to disclose information to plan participants prior to making the information public.
Finally, the court found participants failed to prove their claim that plan fiduciaries were deficient in monitoring the plan’s administrative committee and it excused Fifth Third’s outside directors of any fiduciary liability “[b]ecause the Outside Directors did not have any discretion over the management of the Plan assets.’
The suit was filed in 2005 by Benjamin Shirk seeking to represent participants and beneficiaries in the Fifth Third Master Profit Sharing Plan. In October 2008, the court refused to dismiss the claim that the plan charged excessive fees (see “Stock-Drop Plaintiffs Win Skirmishes in Fifth Third Case“). That claim was left outstanding in the recent ruling.
Shirk alleged, among other things, that Fifth Third stock was not a prudent investment for the plan in light of the bank’s inappropriate accounting and business practices, resulting in a breakdown in internal controls which caused Fifth Third to suffer an $81 million dollar pre-tax charge due to a treasury impairment. The suit charged that the merger of Fifth Third with Old Kent Financial Corp. exposed “a widespread breakdown in Fifth Third’s internal controls.’
The case is Shirk v. Fifth Third Bancorp, S.D. Ohio, No. 05-cv-049, 1/29/09.
Fifth Third faces another stock drop lawsuit filed in August by a participant in Florida (see “Fifth Third Slapped with Stock-Drop Lawsuit“).