The Supreme Court Once Again Visits The Employer Stock Dispute — Amgen, Inc. v. Harris
Background — fiduciary obligations vs. ERISA’s specific nod to employer stock. Courts have long struggled to determine how to reconcile ERISA’s rules explicitly allowing participants in defined contribution plans to invest in so-called “company stock funds” (i.e., funds only holding the stock of the employer) with ERISA’s requirement that a fiduciary ensure that all plan investments be “prudent.” In 2014 in Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014), the Supreme Court tried to clarify things, ruling that although the fiduciary decision to invest in employer stock was not “presumed” to be “prudent,” plaintiffs must meaningfully articulate in their complaint why the decision was imprudent. Otherwise, the case is subject to dismissal before expensive (and possibly illuminating) discovery can begin.
Today’s ruling — Supreme Court is serious about demonstrating imprudence. Today, in Amgen Inc. v. Harris, 577 U.S. ___ 2016, the Supreme Court reminded lower courts that it meant what it said when it required plaintiffs to articulate why company stock was an imprudent investment option. In Amgen the Supreme Court reversed a Ninth Circuit decision, which had concluded that participants had properly alleged a company stock claim based upon allegations that Amgen’s stock was allegedly artificially inflated due to alleged fraud. The Supreme Court, however, held that the Complaint did not ‘plausibly’ allege that the relief plaintiffs requested (removing the stock fund as an option) would have actually benefited the plan. The Court remanded the case back to the lower courts, which will likely give the Plaintiffs a chance to properly plead a claim.
What would they say about this one? The Supreme Court’s reversal of the Ninth Circuit’s decision in Amgen highlights the struggles courts have had interpreting Dudenhoeffer. To give just one example, in Gedek v. Perez, the district court allowed a claim that fiduciaries of the Kodak ESOP imprudently allowed the plan to continue to invest in Kodak’s stock when it was allegedly “obvious” that Kodak was headed for bankruptcy due to its long and steady decline. Again, under Dudenhoeffer, how could the Gedek court have required the Kodak plan fiduciaries to second guess the market’s valuation of Kodak’s stock? Forcing the fiduciaries to predict Kodak’s demise based upon publically available information seems to directly contradict Dudenhoeffer.
Supreme Court to lower courts (and plaintiffs’ lawyers)– read Dudenhoeffer. So although Dudenhoeffer and Amigen helpfully (and properly) emphasize the need for a court to carefully review a complaint’s allegations to see if its “plausibly” states a claim for relief, it seems that lower courts have yet to really absorb Dudenhoeffer’s meaning.