(Adds details from the decision)
By Lawrence Hurley and Carlyn Kolker
WASHINGTON, June 25 (Reuters) - The U.S. Supreme Court on Wednesday weakened the defenses available to banks in class-action lawsuits over retirement plan investment decisions.
The case involved allegations against Fifth Third Bancorp for putting its own stock in employee retirement plans prior to a drop in share price.
In a 9-0 vote, the court sent the case back to an appeals court to review whether the investors had properly framed their lawsuit on technical grounds, giving a technical win to the bank.
But the justices rejected the bank's central argument that the plaintiffs were required to allege that the bank's fiduciary officers had abused their discretion by continuing to put company stock in the retirement plan.
A spokesman for the bank said it was pleased the case was sent back to the appeals court for more consideration and declined to comment further.
The case was being closely watched by the business community, including companies such as Delta Air Lines Inc and Cleveland, Ohio-based bank KeyCorp that have faced similar lawsuits.
The lawsuit filed by two employees, John Dudenhoeffer and Alireza Partovipanah, alleged that the bank and officers in charge, including its president and chief executive officer, Kevin Kabat, violated their fiduciary duties.
The plaintiffs said in the 2008 lawsuit that the bank, which they claim took risks by issuing an increasing number of subprime loans, should have made a determination about whether it was still prudent to invest in company stock.
The bank would have known that experts were warning that real estate delinquencies and foreclosures were on the rise, the plaintiffs alleged. The bank's stock price subsequently declined 74 percent between July 2007 and September 2009.
The high court ruled that the officers did not merit the high standard of a "presumption of prudence" in the investment decisions that the bank suggested.
The decision could mean that judges allow more cases against investment plan advisers to proceed, said Andrew Oringer, an attorney at law firm Dechert.
"There is now at least a risk that cases will proceed to later stages, and there is an increased possibility of settlements and the like," said Oringer.
The U.S. Chamber of Commerce and other business groups backed the bank in the case, noting in a friend-of-the-court brief that companies would be discouraged from including employee stock funds as an investment choice as part of their retirement plans if the court ruled for the plaintiffs.
The bank's lawyers said the Employee Retirement Income Security Act presumes that such investments are reasonable unless the company is in a dire financial position.
A federal judge in Cincinnati said the claims could not go forward but the 6th U.S. Circuit Court of Appeals revived the case in a September 2012 ruling.
A lawyer for the investors did not return a message seeking comment.