This past March, the Supreme Court asked the Solicitor General to weigh in as to whether two rather technical questions about ERISA stock-drop actions are worthy of the Court’s attention. See Fifth Third Bancorp v. Dudenhoeffer, No. 12-751. The Solicitor General filed his brief (pdf) yesterday. Sidestepping the technical questions, he asked the Court to intervene on a different (and highly significant) question: whether ERISA plan fiduciaries are entitled to a presumption that they have acted prudently in permitting plan participants to invest in their own company’s common stock.

With the Solicitor General’s recommendation, the Supreme Court is highly likely to grant certiorari. And with the questions reformulated by the Solicitor General, this case stands either to sound the death knell for stock-drop class actions or to start a frenzied wave of such cases.

Stock-drop cases often arise as siblings to securities fraud class actions. When a company’s stock price falls precipitously, some plaintiffs’ lawyers scramble to identify corporate statements and omissions that might be responsible. Meanwhile, other plaintiffs’ lawyers focus on the company’s retirement plans. Many companies offer employees an ownership interest in their company, either through a freestanding Employee Stock Ownership Plan (an “ESOP”) or as an ESOP investment option in a participant-directed savings plan (a “401(k) plan”). When securities-fraud plaintiffs allege that corporate officers have violated the securities laws, ERISA plaintiffs will often allege that retirement plan fiduciaries acted imprudently by permitting plan participants to invest in a flawed product.

But Congress encouraged the creation of ESOPs by excluding them from certain ERISA requirements. See, e.g., 29 U.S.C. §§ 1104(a)(2), 1106(b)(1), 1107(d)(6)(a). Thus, allegations that plan fiduciaries should have shielded plan participants from investing in their own companies are in tension with Congress’s special treatment of ESOPs. To resolve that tension, the Third Circuit, in Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995), held that “an ESOP fiduciary who invests the assets in employer stock is entitled to a presumption that it acted consistently with ERISA by virtue of that decision.” Six other circuits have followed suit and recognized presumptions (with some differences on the details of how the presumptions operate).

The Solicitor General has urged the Court to hold that “courts should not apply a presumption that an ESOP fiduciary has acted prudently at any stage of the proceedings.” If the Court agrees with the Solicitor General, then plaintiffs’ lawyers will have new avenues for litigating perceived securities violations—avenues not limited by recent procedural reforms directed at securities actions. But if the Court recognizes a robust presumption, then such actions may appear far less desirable.

The Court is expected to consider the petition in Dudenhoeffer at its December 13 conference, with an order to issue sometime thereafter. If the Court grants certiorari, the case will likely be heard during the current term, with a decision on the merits expected by June 2014.