The SCOTUS reversed and remanded an ERISA plan case involving the question of a trustee’s duty of prudence case to the Ninth Circuit.
Amgen v. Steve Harris is a case that involved employees of an employee stock ownership plan (“ESOP”). The employer administered the plan. The employees sued alleging a breach in ERISA’s duty of prudence by the employer for failing to stop offering Amgen stock as a purchase option to plan members in 2007 when it had inside information that the stock was about to take a precipitous drop in value.
In the District Court, the employer succeeded on a motion to dismiss that the employees appealed to the Ninth Circuit. The Ninth Circuit held that the employees had stated a claim sufficient to survive the motion to dismiss. The case initially came before SCOTUS in 2014, in which session the Court also issued its opinion in Fifth Third Bancorp v. Dudenhoeffer, which spelled out the test for a motion to dismiss in an ERISA duty of prudence case involving a tradition ESOP:
1)Has P alleged an alternative action D could have taken which would have actually resulted in less financial loss to members and which
2)Is legal under securities law, and
3)Would not have appeared to a reasonable fiduciary as more likely to harm the plan than to help it.
In 2014, SCOTUS vacated and remanded the Amgen case to Ninth Circuit for a decision in keeping with Fifth Third Bancorp. The Ninth Circuit again found that the Employee/Members had stated a claim, and this cert. petition followed.
In a per curiam decision, SCOTUS chastised the Ninth Circuit for “failing to properly evaluate the complaint.” SCOTUS then read the complaint and found that it failed to state a claim under the Fifth Third Bancorp standard because a prudent fiduciary could have plausibly believed that to cease offering Amgen stock would cause the stock price to drop based on the market’s assessment that the Employer/Fiduciaries, who have inside information, no longer value the stock. Since that could end up doing more harm to the plan than good, it was acceptable to continue offering the stock.
As a result, SCOTUS reversed and remanded, leaving it to the district court’s discretion whether to permit the employees amend their complaint in order to plead a claim within the Fifth Third Bancorp standard.