By Kathleen Kapusta, J.D. The Ninth Circuit failed to properly evaluate a class action complaint alleging breach of the duty of prudence brought by stockholders and former employees of Amgen, Inc., and its subsidiary Amgen Manufacturing, Limited, against ERISA plan fiduciaries, held the U.S. Supreme Court in a per curiam order. Remanding the case to the federal appeals court for the second time, the U.S. High Court found that the Ninth Circuit did not correctly apply its decision in Fifth Third Bancorp v. Dudenhoeffer (Amgen Inc. v. Harris, January 25, 2016, per curiam). Current and former employees of Amgen, Inc., a biotech company that develops pharmaceutical drugs, filed a class action under ERISA after their employer-sponsored pension plans lost significant value due to concerns about the safety of certain Amgen drugs. The employees alleged the plans violated their fiduciary duties by continuing to invest in Amgen common stock under these circumstances. They also alleged that the fiduciaries violated the duties of loyalty and care by failing to provide them with material information about Amgen stock. The district court granted the fiduciaries’ motion to dismiss, and the Ninth Circuit reversed. Fifth Third. The fiduciaries sought certiorari, and while that petition was pending, the Supreme Court issued Fifth Third, a decision that concerned the duty of prudence owed by ERISA fiduciaries who administer employee stock ownership plans (ESOPS). In Fifth Third, the High Court held that such ERISA fiduciaries are not entitled to a presumption of prudence but are “subject to the same duty of prudence that applies to ERISA fiduciaries in general, except that they need not diversify the fund’s assets.” Up to the courts. Noting that “Congress sought to encourage the creation of ” ESOPS, a purpose that the decision recognized may come into tension with ERISA’s general duty of prudence, Fifth Third laid out standards to help “divide the plausible sheep from the meritless goats,” holding that: “To state a claim for breach of the duty of prudence on the basis of inside information, a plaintiff must plausibly allege an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.” It also clarified that courts should determine whether the complaint itself states a claim satisfying that liability standard. First remand. Following the decision in Fifth Third, the Court granted the fiduciaries’ first petition for a writ of certiorari, vacated the judgment, and remanded for further proceedings consistent with that decision. On remand, the Ninth Circuit again reversed the dismissal of the complaint and denied the fiduciaries’ petition for rehearing en banc. The fiduciaries again sought certiorari. Did not properly evaluate complaint. Finding that the Ninth Circuit failed to properly evaluate the complaint, the Supreme Court noted that the appeals court had explained that its previous opinion “had already assumed” the standards for ERISA fiduciary liability laid out in Fifth Third and reasoned that the stockholders’ complaint satisfied those standards because when “the federal securities laws require disclosure of material information,” it is “quite plausible” that removing the Amgen Common Stock Fund “from the list of investment options” would not “caus[e] undue harm to plan participants.” The High Court found, however, that the Ninth Circuit failed to assess whether the complaint in its current form “has plausibly alleged” that a prudent fiduciary in the same position “could not have concluded” that the alternative action “would do more harm than good.” “The Ninth Circuit’s proposition that removing the Amgen Common Stock Fund from the list of investment options was an alternative action that could plausibly have satisfied Fifth Third’s standards may be true,” said the Court, explaining that if so, the facts and allegations supporting that proposition should appear in the stockholders’ complaint. After reviewing the complaint, however, the Court found that it did not contain sufficient facts and allegations to state a claim for breach of the duty of prudence. While the appeals court did not correctly apply Fifth Third, the High Court pointed out that the stockholders are the masters of their complaint. Thus, it left it to the district court in the first instance to determine whether the stockholders can amend the complaint in order to adequately plead a claim for breach of the duty of prudence as guided by the standards provided in Fifth Third.
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