On January 25, 2016, the US Supreme Court reversed the Ninth Circuit's decision in Amgen Inc. v. Harris (Amgen) for a second time and remanded the case to the district court, finding that:

The Amgen class action alleged that that the company and other defendants (Amgen fiduciaries) breached their fiduciary duties by continuing to offer the Amgen Common Stock Fund despite knowing that the price of the stock was artificially inflated due to illegal off-label use and other material omissions and misrepresentations by company officers.

In June 2013, the Ninth Circuit reversed the district court's decision to grant the employer fiduciaries' motion to dismiss based on the Moench presumption of prudence that the Supreme Court rejected the following year in Fifth Third (see Legal Update, Ninth Circuit Limits Reach of Moench Presumption of Prudence for ERISA Plan Fiduciaries). In Fifth Third, the Supreme Court held that ERISA fiduciaries are not entitled to a presumption of prudence and are bound by the same duty of prudence that applies to all ERISA fiduciaries (with the exception of the duty to diversify). It also set out new, stricter standards for plaintiff stockholders to state a claim for a breach of the duty of prudence on the basis of inside information, requiring:

(See Legal Update, Supreme Court Rejects Moench Presumption of Prudence.)

In light of Fifth Third, the Supreme Court granted the Amgen fiduciaries' petition for a writ of certiorari, vacated the Ninth Circuit's judgment and remanded for further proceedings.

On remand, the Ninth Circuit in October 2014 again reversed the dismissal of the plaintiff stockholders' complaint (770 F.3d 865). In May 2015, it then amended and superseded this decision by further denying the Amgen fiduciaries' petition for rehearing en banc (788 F. 3d 916). It explained that it viewed the complaint at issue as satisfying the Fifth Third standard 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 plan investment options would not cause undue harm to participants. (Notably, US Circuit Judge Alex Kozinski – joined by US Circuit Judges Carlos Bea, Conseulo Maria Callahan and Diarmuid O’Scannlain – issued a 50-page dissenting opinion asserting that the Ninth Circuit failed to properly apply Fifth Third.)

The Amgen fiduciaries then petitioned for a second writ of certiorari and the Supreme Court again granted it, holding that the Ninth Circuit failed to properly evaluate the plaintiff stockholders' complaint. It found that the Ninth Circuit failed to consider the second prong of the Fifth Third standard – whether the complaint plausibly alleged that a prudent fiduciary in the same position could not have concluded that the alternative action would do more harm than good. While it acknowledged that the Ninth Circuit may have been correct that removing the Amgen Common Stock Fund was an alternative action that could have satisfied the Fifth Third standards, the complaint itself did not allege facts and allegations that supported that argument.

The Supreme Court ultimately left it to the district court to determine whether the complaint may be amended to adequately plead a claim for a breach of fiduciary duty under the Fifth Third standard.

Providing good news to employer stock fund fiduciaries, this case reinforces the high bar the Supreme Court requires under Fifth Third for employee stockholders to successfully allege a breach of fiduciary duty by employer fiduciaries due to a failure to remove an employer stock fund from a plan in light of inside information. It also provides clear guidance to lower courts evaluating these cases on how to properly evaluate an employer stock drop complaint in light of standards set out in Fifth Third.

For our Advisory Board members' take on the implications of Fifth Third, see Article, Fifth Third v. Dudenhoeffer: Advisory Board Roundtable Discussion.