Archive for July, 2014

The Supreme Court: Insulated from accountability

Monday, July 7th, 2014
Douglas Cohn and Eleanor Clift

July 06, 2014

WASHINGTON — Most people assumed the debate over contraception was over a long time ago, but the Supreme Court apparently thinks otherwise.

In a 5 to 4 decision in the Hobby Lobby case, five male justices, all Republican appointees and all religious Catholics, upheld the family-held corporation’s religious objections to certain types of contraceptives.

A strongly worded dissent from Justice Ginsberg said the ruling creates a precedent that allows people to choose whether or not to follow any law.

Ginsberg was one of the three women on the Court along with Justice Breyer who opposed the decision. Democratic Presidents Clinton and Obama appointed the four dissenters; the others were Republican appointees. It’s becoming more and more commonplace to see the stark political divide on the Court despite efforts by Chief Justice Roberts to find areas where all nine justices can agree.

On the big issues of reproductive rights, civil rights, money in politics, and religion in government and politics, there are two radically different worldviews on the Court. The only thing the justices sadly have in common is their isolation and insulation from the real world.

That’s not true of every one of them. Justice Sotomayor in particular makes a real effort to stay in touch with the hopes and dreams of people like her who were not born into privilege.

The irony of the Court striking down the 35-foot buffer zone around abortion clinics while maintaining a buffer of its own around the Supreme Court building and grounds is not lost on the average Joe, and that decision was unanimous.

The Founding Fathers got a lot of things right, but their determination to grant Supreme Court Justices lifetime tenure to insulate them from politics is having the opposite effect. Instead, they are insulated from accountability. Granted, it’s taken a couple hundred years for this corrosive effect to become as insidious as it is today, but sooner or later there will be a reckoning.

Decisions this week on religious exclusions for corporations, and a rollback in union protection for public service workers, add to the Court’s relentless march to the right. It’s as though the justices start with where they want the decision to fall ideologically and then work backward to find the reasoning.

Justice Alito, writing for the majority in the Hobby Lobby case, asserted that it only applies to family corporations that are closely held, implying they are just one step above mom-and-pop operations. The billionaire Koch brothers are the brains and the backers of Koch Industries, and there is nothing small about their corporate holdings or their politics.

Lifetime appointments are supposed to separate the justices from political orthodoxy, but the links are too obvious to ignore. The most blatant of course was Bush v. Gore that elected a Republican president by ordering the vote count halted in Florida. Insulation from momentary swings in public opinion is appropriate, but the justices should not be immune to the arc of history and a rapidly changing America.

The heart of the Founding Fathers philosophy was that government can exist only if there is faith in its institutions. Congress is at its lowest recorded rating ever, the tax system is in disarray with rich people overly rewarded and inequality growing, and the Court increasingly is seen as catering to corporate interests at the expense of women and minorities.

President Obama isn’t faring all that well either with his approval rating at 41 percent, and in the dozen states with key Senate races, even lower at 38 percent. He often says the system is rigged, but seems to be powerless to effect the change he was elected to bring about. Something is going to get people sufficiently angry about our broken politics, and if it’s the Supreme Court and its bone-headed decisions, then maybe some of these rulings will have been worth it.

Twitter @WMerryGoRound

BENGALS FOOTBALL SCHEDULE FOR 2014

Friday, July 4th, 2014
NFL Preseason: Kansas City Chiefs vs.
Cincinnati Bengals
Thursday, August 7, 2014 at 7:00 PM
Arrowhead Stadium
Kansas City, Missouri
View Tickets
Parking: NFL Preseason: Cincinnati Bengals vs.
New York Jets
Saturday, August 16, 2014 at [time TBA]
Paul Brown Stadium Parking Lots
Cincinnati, Ohio
View Tickets
NFL Preseason: Cincinnati Bengals vs.
New York Jets
Saturday, August 16, 2014 at 7:00 PM
Paul Brown Stadium
Cincinnati, Ohio
View Tickets
PARKING: NFL Preseason: Arizona Cardinals vs.
Cincinnati Bengals
Sunday, August 24, 2014 at [time TBA]
University Of Phoenix Stadium Parking Lots
Glendale, Arizona
View Tickets
NFL Preseason: Arizona Cardinals vs.
Cincinnati Bengals
Sunday, August 24, 2014 at 5:00 PM
University Of Phoenix Stadium
Glendale, Arizona
View Tickets
Parking: NFL Preseason: Cincinnati Bengals vs.
Indianapolis Colts
Thursday, August 28, 2014 at [time TBA]
Paul Brown Stadium Parking Lots
Cincinnati, Ohio
View Tickets
NFL Preseason: Cincinnati Bengals vs.
Indianapolis Colts
Thursday, August 28, 2014 at 7:00 PM
Paul Brown Stadium
Cincinnati, Ohio
View Tickets
2014 Cincinnati Bengals Season Tickets (Includes Tickets To All Regular Season Home Games) Friday, August 29, 2014 at [time TBA]
Paul Brown Stadium
Cincinnati, Ohio
View Tickets
Parking: Baltimore Ravens vs.
Cincinnati Bengals
Sunday, September 7, 2014 at [time TBA]
M&T Bank Stadium Parking Lots
Baltimore, Maryland
View Tickets
Baltimore Ravens vs.
Cincinnati Bengals
Sunday, September 7, 2014 at 1:00 PM
M&T Bank Stadium
Baltimore, Maryland
View Tickets
Parking: Cincinnati Bengals vs.
Atlanta Falcons
Sunday, September 14, 2014 at [time TBA]
Paul Brown Stadium Parking Lots
Cincinnati, Ohio
View Tickets
Cincinnati Bengals vs.
Atlanta Falcons
Sunday, September 14, 2014 at 1:00 PM
Paul Brown Stadium
Cincinnati, Ohio
View Tickets
Parking: Cincinnati Bengals vs.
Tennessee Titans
Sunday, September 21, 2014 at [time TBA]
Paul Brown Stadium Parking Lots
Cincinnati, Ohio
View Tickets
Cincinnati Bengals vs.
Tennessee Titans
Sunday, September 21, 2014 at 1:00 PM
Paul Brown Stadium
Cincinnati, Ohio
View Tickets
Parking: New England Patriots vs.
Cincinnati Bengals
Sunday, October 5, 2014 at [time TBA]
Gillette Stadium Parking Lots
Foxborough, Massachusetts
View Tickets
New England Patriots vs.
Cincinnati Bengals
Sunday, October 5, 2014 at 8:30 PM
Gillette Stadium
Foxborough, Massachusetts
View Tickets
Parking: Cincinnati Bengals vs.
Carolina Panthers
Sunday, October 12, 2014 at [time TBA]
Paul Brown Stadium Parking Lots
Cincinnati, Ohio
View Tickets
Cincinnati Bengals vs.
Carolina Panthers
Sunday, October 12, 2014 at 1:00 PM
Paul Brown Stadium
Cincinnati, Ohio
View Tickets
Indianapolis Colts vs.
Cincinnati Bengals
Sunday, October 19, 2014 at 1:00 PM
Lucas Oil Stadium
Indianapolis, Indiana
View Tickets
Parking: Cincinnati Bengals vs.
Baltimore Ravens
Sunday, October 26, 2014 at [time TBA]
Paul Brown Stadium Parking Lots
Cincinnati, Ohio
View Tickets
Cincinnati Bengals vs.
Baltimore Ravens
Sunday, October 26, 2014 at 1:00 PM
Paul Brown Stadium
Cincinnati, Ohio
View Tickets
Parking: Cincinnati Bengals vs.
Jacksonville Jaguars
Sunday, November 2, 2014 at [time TBA]
Paul Brown Stadium Parking Lots
Cincinnati, Ohio
View Tickets
Cincinnati Bengals vs.
Jacksonville Jaguars
Sunday, November 2, 2014 at 1:00 PM
Paul Brown Stadium
Cincinnati, Ohio
View Tickets
Parking: Cincinnati Bengals vs.
Cleveland Browns
Thursday, November 6, 2014 at [time TBA]
Paul Brown Stadium Parking Lots
Cincinnati, Ohio
View Tickets
Cincinnati Bengals vs.
Cleveland Browns
Thursday, November 6, 2014 at 8:25 PM
Paul Brown Stadium
Cincinnati, Ohio
View Tickets
New Orleans Saints vs.
Cincinnati Bengals
Sunday, November 16, 2014 at 12:00 PM
Mercedes-Benz Superdome (formerly Louisiana Superdome)
New Orleans, Louisiana
View Tickets
Parking: Houston Texans vs.
Cincinnati Bengals
Sunday, November 23, 2014 at [time TBA]
NRG Stadium Parking Lots (Formerly Reliant Stadium Parking Lots)
Houston, Texas
View Tickets
Houston Texans vs.
Cincinnati Bengals
Sunday, November 23, 2014 at 12:00 PM
NRG Stadium (Formerly Reliant Stadium)
Houston, Texas
View Tickets
Parking: Tampa Bay Buccaneers vs.
Cincinnati Bengals
Sunday, November 30, 2014 at [time TBA]
Raymond James Stadium Parking Lots
Tampa, Florida
View Tickets
Tampa Bay Buccaneers vs.
Cincinnati Bengals
Sunday, November 30, 2014 at 1:00 PM
Raymond James Stadium
Tampa, Florida
View Tickets
Parking: Cincinnati Bengals vs.
Pittsburgh Steelers
Sunday, December 7, 2014 at [time TBA]
Paul Brown Stadium Parking Lots
Cincinnati, Ohio
View Tickets
Cincinnati Bengals vs.
Pittsburgh Steelers
Sunday, December 7, 2014 at 1:00 PM
Paul Brown Stadium
Cincinnati, Ohio
View Tickets
Parking: Cleveland Browns vs.
Cincinnati Bengals
Sunday, December 14, 2014 at [time TBA]
FirstEnergy Stadium Parking Lots
Cleveland, Ohio
View Tickets
Cleveland Browns vs.
Cincinnati Bengals
Sunday, December 14, 2014 at 1:00 PM
FirstEnergy Stadium (formerly Cleveland Browns Stadium)
Cleveland, Ohio
View Tickets
Parking: Cincinnati Bengals vs.
Denver Broncos
Monday, December 22, 2014 at [time TBA]
Paul Brown Stadium Parking Lots
Cincinnati, Ohio
View Tickets
Cincinnati Bengals vs.
Denver Broncos
Monday, December 22, 2014 at 8:30 PM
Paul Brown Stadium
Cincinnati, Ohio
View Tickets
Pittsburgh Steelers vs.
Cincinnati Bengals
Sunday, December 28, 2014 at 1:00 PM
Heinz Field
Pittsburgh, PennsylvaniaBENGALS

Madeline Abramson records children’s book

Friday, July 4th, 2014

Education and Workforce Development Cabinet


FRANKFORT, Ky. 
(July 3, 2014) – Madeline Abramson, wife of Lieutenant Governor Jerry Abramson, recently volunteered her time and voice to record a children’s book for the Kentucky Talking Book Library (KTBL) at the Kentucky Department for Libraries and Archives (KDLA). Mrs. Abramson recorded A Pocketful of Cricket by Kentucky author Rebecca Caudill, so that this classic children’s book can be enjoyed by people who can’t read print because of a visual, physical or reading disability.

 

“Reading is one of life’s most treasured and simplest pleasures,” Mrs. Abramson said. “That’s why I’m so happy to support the Talking Book Library and open the world of books to people who might not otherwise have a chance to experience these stories.”

 

Mrs. Abramson recorded the short children’s book June 26 at the KTBL studio housed at KDLA in Frankfort as a special guest. Normally, it can take months to record a book. Volunteers must commit an hour per week in the studio until a project is complete. 

 

The free library service is part of a nationwide network of libraries administered by the National Service for the Blind and Physically Handicapped, a division of the Library of Congress that began in 1931.

 

“We really appreciate Mrs. Abramson taking the time to help us provide a classic children’s book that otherwise would not be accessible to our readers. She has been active in the arts, education, and children’s issues, and we felt she would enjoy this experience in addition to helping a good cause,” said Barbara Penegor, manager of KTBL.

In 2013, KTBL served 3,616 Kentucky customers from ages four through 104. Its collection includes more than 200,000 Braille and audio books for preschoolers through seniors in every subject and genre. The service circulated more than 4,000 Braille books, more than 150,000 digital books and in excess of 7,000 cassette works last year.

 

KTBL makes a special effort to record digital versions of books by Kentucky authors and books that are of special interest to Kentuckians. In 2013, 40 volunteers contributed more than 1,300 hours to produce 37 books relevant to Kentucky users. Nearly 8,000 digital Kentucky books were circulated in 2013.

People who are interested in volunteering for the program must fill out an application. Volunteers start by training to review and edit raw recordings, then monitor recording sessions, and then may audition to narrate.

Only registered patrons who have been certified as physically unable to read print have access to the collection and the special equipment needed to listen to them. Books can be sent to users and returned through the mail free of charge to customers or downloaded from a website. KTBL provides users with a special digital player, or they can use their own iPad or iPhone for downloading books.

 

Penegor encourages more Kentuckians to access the free service. According to a 2012 Disability Status Report from Cornell University, approximately 3 percent or about 130,000 of Kentuckians have a visual disability that might make them eligible for Talking Book service.

Those interested in volunteering or becoming a customer of the service, may call the KTBL at 1-502-564-8300, ext. 276 or email ktbl.mail@ky.gov.

The Supreme Court’s Fish Tale A federal case involving a commercial fisherman who discarded some groupers could broaden Sarbanes-Oxley’s scope to a burdensome degree.

Friday, July 4th, 2014

  • July 4, 2014 2:38 a.m. ET
    Holy mackerel! The biggest Supreme Court shredding case since the justices overturned Arthur Andersen’s conviction for destroying Enron-related records in 2005 turns out to be a fish story. Former Florida commercial fisherman John L. Yates was convicted in federal court in 2012 for violating the document-destruction provisions of the 2002 Sarbanes-Oxley law by dumping overboard three undersized groupers netted in federal waters five years earlier in an effort to avoid a $500 penalty.

    Under Sarbanes-Oxley, no person is allowed to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make false entry in any record, document, or tangible object with the intent to impede or obstruct a federal investigation. You might conclude that tangible object in this case is something like disk drives with potentially incriminating e-mails the IRS recently destroyed. But the district court judge sided with federal prosecutors in the case and said it included the groupers. Last August the Federal Circuit Court of Appeals upheld the lower court after the judges looked up the definition of “tangible” in Black’s Law Dictionary and decided it “unambiguously” included fish.

    HERE’S THE BIG NEWS hook for investors: This fishy prosecution, if upheld by the high court during its October 2014 session, would swamp publicly traded companies with huge, unanticipated storage costs. Corporations—especially manufacturers—might find themselves in the position of never being able to throw anything away for fear of running afoul of the statute, which can send a person to prison for up to 20 years. Corporate counsels already have a legal obligation to preserve records whenever their companies are faced with litigation or investigations. The Yates ruling turns this into an obligation to preserve inventory as well, says Donna Elm, the federal defender for the Middle District of Florida. Following the logic of the Yates prosecution, BP violated that statute when it used chemicals to dissolve globs of oil on the bottom of the Gulf of Mexico following its 2010 spill.

    Elm’s office represents Yates and took his case all the way to the Supreme Court. Why? Instead of charging him with obstruction of justice, with a five-year max, it incongruously pursued the Sarbanes-Oxley angle, which would have left the 64-year-old behind bars to die had he gotten the max. Fortunately for Yates, the district court judge sentenced him to 30 days and three years of supervision. Nevertheless, it stands as a case of overreach and judicial indiscretion with negative ramifications for all. The decision violates the right of a fair warning as to what kind of behavior crosses the legal red line, says Cory Andrews, senior litigation counsel for the Washington Legal Foundation, an organization dedicated to protecting free markets. Andrews is writing an amicus brief for the foundation which will be filed this week. Business groups like the U.S. Chamber of Commerce are also preparing amicus briefs.

    SARBANES-OXLEY WAS PASSED by Congress in reaction to corporate frauds at Enron and WorldCom that were aided and abetted by crooked accountants. Investors who relied on rosy corporate earnings reports lost their shirts when the companies collapsed. At the Sarbanes-Oxley signing ceremony, President George W. Bush said the act was intended to strengthen corporate reporting under the Securities and Exchange Act. Nothing advised, “Fishermen beware!”

    Yates’ boat was boarded by a Florida wildlife officer in federal waters. The officer also was a federal deputy. He found 72 groupers under the 20-inch legal limit and ordered Yates to box them and bring them back to port. When the officer returned to the ship, there were 69 fish in the box. A crewman admitted Yates had told him to toss the three smallest fish overboard.

    The Yates defense team sought dismissal of the Sarbanes-Oxley charge, arguing that the statute was aimed at destruction of records and documents. The court ruled that owing to the law’s broad language a reasonable jury could conclude it included the tossed fish. In a brief supporting Yates’ petition for a Supreme Court hearing, the National Association of Criminal Defense Lawyers wrote that if the shredding section of Sarbanes-Oxley is read to encompass fish destruction, then “the statute truly knows no bounds.”

    The lawyers further argued that “it is up to the courts, as the gatekeepers, to ensure that congressional laws are not abused by the executive branch to criminalize conduct not contemplated under the applicable statute.”

    The federal defenders argued the law’s language is vague and ambiguous. They criticized the appeals court for turning to a dictionary instead of conducting “a diligent inquiry into the plain meaning of the statute, which was intended by Congress to prohibit tampering with items having a record-keeping, documentary, or informational use.”

    A fisherman in Shakespeare’s Pericles, Prince of Tyre, notes that fish in the sea live as men upon the land, with the great ones eating up the little ones. This could very well apply to the barracudas in the Justice Department who handled this hard-to-swallow Yates case.

    Kentucky Retirement Systems Bankruptcy Court Denies Motion for Stay Pending Appeal

    Thursday, July 3rd, 2014

     
    On June 24, 2014, the United States Bankruptcy Court denied KERS’ Motion for Stay Pending Appeal in the bankruptcy proceedings of Seven Counties Services, Inc. (“Seven Counties”).  KERS had sought to “stay” the Court’s May 30 ruling while its appeal proceeds.  If granted, the stay would have preserved the situation which existed before May 30.  The KERS appeal itself will proceed, but the denial of the stay means the Bankruptcy Court’s decision will be effective while the appeal is pending.  Therefore, the Kentucky Retirement Systems will have to comply with the order issued by the Bankruptcy Court.

    Based upon that order and in compliance with our state law, employees of Seven Counties will retain their service credit, and any benefits to which they were entitled, through the period that both employer and employee contributions were paid to KERS.  For approximately 1,000 employees of Seven Counties, that period ended April 6, 2013, when Seven Counties filed bankruptcy and ceased making payments for those employees.  For any period after April 6, 2013, when employee and employer contributions were not made, these employees will not receive service credit and that period not be included in the calculation of their benefits under KERS.  For Seven Counties’ employees who work at Central State Hospital (CSH) and Kentucky Correctional Psychiatric Center (KCPC), both owned by the Commonwealth, employee and employer contributions were made through May 2014.  For any period after May 2014, when employee and employer contributions were not made, the Seven Counties’ employees at CSH and KCPC will not receive service credit and that period will not be included in the calculation of their KERS benefits.  KERS retirees with service credit earned through employment with Seven Counties prior to these cut off dates will be entitled to continue receiving their retirement benefits based on their earned service credit in compliance with state law.

    Seven Counties will continue with its bankruptcy proceedings and KERS will continue to pursue its appeal.  As a result, there will likely be further developments and we will keep the membership informed as that occurs.

    Guardianship of Adults: A Guide to Disability Proceeedings By Kenton County Attorney Garry Edmonson

    Thursday, July 3rd, 2014

    Guardianship of Adults:

    A Guide to Disability Proceeedings

    By Kenton County Attorney Garry Edmonson

    In 1982, Kentucky passed a guardianship statute designed to address the sensitive issue of adult guardianships.

    Who is considered disabled?  A person is considered ‘disabled” under the guardianship statute if he or she is 14 years of age or older and is unable to make informed decisions about his or her personal day-to-day activities or financial affairs.  A determination of diability is a legal determination and not a determination of medical disability.

    Who is NOT considered disabled?  A person that shows a single or isolated instance of negligent conduct or bad or inappropriate decision-making.  A person that may be considered “odd” but only shows occasional negligent conduct or bad or inappropriate decision-making.  A person that may have some paranoid delusions but has the ability to manage his or her day-to-day activities.

    What does a guardian do?  Unless specifically instructed by the court, a guardian must take custody and establish a home for the disabled individual.  They must make povisions for the disabled individual’s care, comfort and maintenance.  They must manage the finacial resources of the individual and report annually to the court.

    Steps to a Disability Hearing:

    1.) Complete and file a Petition to Determine if Disabled (AOC-740) and an Application for Appointment of Fiduciary (AOC-745) with the Kenton County District Court.  You may obtain these forms at the Kenton County Justice Center or online atwww.courts.ky.gov/forms.

    2.) After the petition is filed, the District Court will appoint a team of three professionals to evalulate the person you are seeking guardianship of.

    3.)  The District Court sets a hearing date for jury trial.  An Attorney will be appointed for the person you seek guardianship of.  The County Attorney (our office) will represent the Commonwealth.

    4.) The jury will determine whether the person you seek guardianship of is partially or fully disabled.

    5.) The judge will appoint the most suitable guardian based on the information provided.

    The law can be accessed in its entirety at www.lrc.ky.gov/krs/387-00/chapter.htm(KRS 387.500-387.900)

    To read more about what is going on in the Kenton County Attorney’s Office see our web page at www.KentonCoAtty.com

     

    Is law school like an undervalued stock? Job hunt could be ‘relative cinch’ for class of 2016

    Thursday, July 3rd, 2014

    LAW SCHOOLS

    Posted Jul 1, 2014 7:41 AM CDT

    By Debra Cassens Weis

    Is now a good time to go to law school? A Slate columnist has answered “yes,” at least for those who really do dream of becoming a lawyer, and is backing up his claim with statistics.

    “Right now, law school looks like a stock that crashed too far after a panic, and is suddenly a bit undervalued,” says Jordan Weissmann in Slate’s Moneybox column. “It’s a good time to buy.”

    Weissmann says the number of law school applications is at its lowest level in 30 years, and the legal market is starting to stabilize. Law school isn’t a good idea for those who don’t have an overwhelming desire to be a lawyer, Weissmann says, but those who dream of depositions should go for it.

    Not everyone agrees with that view, particularly the “delightfully acidic folks at Above the Law, Weissmann says. So Weissmann is attempting to refute the blog’s criticism of his earlier column, “Apply to Law School Now!”

    First, Above the Law says it’s unclear how many jobs will be available. ATL cites the Bureau of Labor Statistics, which projects that 19,650 jobs will open up for lawyers each year between 2012 and 2022. That’s not enough to provide employment to new law grads.

    Weissmann instead cites ABA statistics finding that, last year, 26,377 law school graduates found long-term, full-time employment requiring bar passage. Another 6,438 found long-term, full-time jobs that didn’t require a law license.

    “If the market produces the same number of jobs in 2016,” Weissmann says, “when around 36,000 students are set to graduate, job hunting is going to become a relative cinch. Theoretically, 91 percent of the class could land long-term, full-time work—on par, if not better, than some of the legal industry’s best years.”

    Second, Above the Law says the increase in hiring has been spurred by large law firms, which tend to hire from elite law schools. Weissmann points instead to the lower number of graduates law school will produce, which will benefit all law grads.

    Third, Above the Law says Slate isn’t taking into account all those unemployed law grads still searching for work. In an ideal world, Weissmann says, employers would hire them. But law firms are creatures of habit, he says, and are more likely to hire graduating law students.

    He also argues that:

    • Despite the drop in salaries for newbie lawyers, combined with increased tuition debt, law school may pay off in the long term.

    • The growth in law grads taking “JD advantage jobs” may be worrisome, but most of those jobs are professional opportunities with pay that isn’t out of line with many legal jobs.

    Above the Law has a new rebuttal here. “If you think the crash in law school applications is temporary,” write ATL bloggers Elie Mystal and Joe Patrice, “now might be a good time to BUY A LAW SCHOOL, not buy the education on the theory that you’ll be good as long as nobody else gets the memo.”

    Updated on July 2 to add a link to Weissmann’s earlier column.

    United States: Moench On This – U.S. Supreme Court’s Decision In Fifth Third Bancorp v. Dudenhoeffer For ESOP Fiduciaries

    Wednesday, July 2nd, 2014

     

    Last Updated: July 2 2014

    Article by Keith R. McMurdy

    Fox Rothschild LLP

                   

    On June 25, 2014, in a unanimous decision, the U.S. Supreme Court in Fifth Third Bancorp v. Dudenhoeffer, held that fiduciaries of employee stock ownership plans (ESOPs) are not protected by a presumption that they have acted prudently in making investment decisions—a presumption commonly referred to as the “presumption of prudence” or the “Moenchpresumption.”

    The presumption of prudence, as originally approved in 1995 by the Third Circuit Court of Appeals in the case of Moench v. Robertson, provided that ESOP fiduciaries are presumed to be acting prudently in holding or offering employer stock as plan investments unless there is reason to believe the company’s survival is at risk or in doubt. The presumption had been adopted, in one form or another, by all of the circuit courts of appeal, and although some circuits had placed limits on it, no circuit court had specifically rejected it.

    As a result of the Supreme Court ruling, except for the obligation to diversify investments, ESOP fiduciaries are subject to the same duty of prudence that applies to all ERISA fiduciaries. On the surface, this decision seems to be a major victory for plaintiffs filing lawsuits against ESOP fiduciaries; in reality, the decision may not have a significant impact on fiduciary investment decisions.

    Key Facts

    This case arose when former employees and participants in the Fifth Third Bancorp ESOP filed a lawsuit against Fifth Third and several of its officers (as fiduciaries of the ESOP) alleging that the fiduciaries breached their duty of prudence imposed by ERISA because: (1) they should have known, based both on publicly available and inside information, that Fifth Third stock was overpriced and excessively risky, and (2) a prudent fiduciary would have responded to this information by selling off the ESOP’s Fifth Third stock holdings, refraining from purchasing more of the stock, or disclosing the negative inside information so that the market could correct the stock’s price downward. According to the complaint, the fiduciaries failed to do these things, resulting in a decreased stock price and diminished retirement savings for the ESOP participants.

    The district court dismissed the complaint, but the Sixth Circuit Court of Appeals reversed, concluding that ESOP fiduciaries are entitled to the presumption of prudence, though only at the evidentiary stage and not at the pleading stage. The Supreme Court held that ESOP fiduciaries are not entitled to any special presumption of prudence, but rather, are subject to the same duty of prudence that applies to ERISA fiduciaries in general. Further, the Supreme Court concluded that, on remand, the Sixth Circuit Court of Appeals should reconsider whether the complaint states a valid claim and provided standards for this reconsideration.

    Implications for ESOP Fiduciaries

    While rejecting the presumption of prudence that for so long had shielded them from liability, the ruling provided significant reassurance for ESOP fiduciaries. Justice Stephen Breyer, writing for the Court, made it clear that: (1) when employer stock in an ESOP is publicly traded, allegations that a fiduciary should have recognized, based on generally available information, that the market is overvaluing or undervaluing the stock are generally implausible under current standards, and (2) to state a claim for breach of the duty of prudence, a complaint must identify alternative action that the fiduciary could have taken that would have been legal and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it. With respect to disclosure of insider information, Justice Breyer confirmed that a fiduciary never is required to break the law to satisfy the duty of prudence under ERISA.

    Additionally, the Court acknowledged that Congress seeks to encourage the establishment of ESOPs, recognized that ESOPs should not be treated like conventional retirement plans and expressly preserved the exemption from the diversification requirement that allows ESOPs to invest primarily or exclusively in employer stock. Consequently, in our view, the decision will not significantly impair or diminish the ability of ESOP fiduciaries to make plan decisions and is unlikely to have any substantial impact on closely held ESOP companies.

    The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.