By Pension and Benefits Editorial Staff
On remand from the Supreme Court, the U.S. Court of Appeals in New York (CA-2) has reinstated its original ruling in favor of ESOP participants in a dispute over the pleadings required in their suit alleging that IBM plan fiduciaries breached their duties by failing to disclose an overvaluation of IBM stock prior to its decline in value. Accepting a cue from Justice Kagan’s concurring opinion, on remand the Second Circuit declined to entertain new arguments made by the fiduciaries and by the government and once again held that that the participants plausibly pled that the plan fiduciaries breached their duty of prudence under ERISA.
Supreme Court decision. Rather than accept remand to the trial court after the Second Circuit’s initial ruling in favor of the participants in 2018, the ESOP fiduciaries filed a petition for certiorari (No. 18-1165). The fiduciaries asked the Supreme Court to resolve a circuit split over the pleading requirements to state a claim for breach of the duty of prudence as set forth in Fifth Third Bancorp v. Dudenhoeffer. Specifically, the petition asked whether Dudenhoeffer’s “more harm than good” pleading standard can be satisfied by generalized allegations that the harm of an inevitable disclosure of an alleged fraud generally increases over time. In their Supreme Court briefing on the merits, however, both the petitioners (the fiduciaries of the ESOP) and the government (the Department of Labor and the Securities and Exchange Commission) focused on other matters.
The fiduciaries argued that ESOP fiduciaries have no duty under ERISA to act on inside information. The government, for its part, maintained that an ERISA-based duty to disclose inside information not otherwise required to be disclosed by the securities laws would conflict with the objectives of the insider trading and corporate disclosure requirements imposed by the federal securities laws.
Because these arguments had not been raised before the Second Circuit, the Supreme Court declined to address them, believing that the lower court should be given the chance to entertain the arguments in the first instance. To that end, the judgment below was vacated and the case remanded to the Second Circuit to determine the merits of the arguments and take “such action as it deems appropriate.”
In a concurrence, Justice Kagan observed that the appellate court could, under its rules of waiver or forfeiture, simply opt to not consider the new arguments at all.
Original judgment reinstated. In a per curiam opinion, the Second Circuit essentially took Justice Kagan’s suggestion and declined to hear the new arguments. It concluded that the arguments raised by the parties after remand from the Supreme Court either were previously considered by the Court or were not properly raised. “To the extent that the arguments were previously considered, we will not revisit them,” the court explained. “To the extent that they were not properly raised, they have been forfeited, and we decline to entertain them.”
With that, the appellate court reversed and remanded the judgment of the trial court for further proceedings consistent with the its initial 2018 opinion.
Source: Jander v. Retirement Plans Committee of IBM (CA-2).
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