Two former participants of the Amgen Retirement and
Savings Plan and the Retirement and Savings Plan for Amgen Manufacturing, Ltd. alleged
that Amgen defendants violated their fiduciary obligations under the Employee
Retirement Income Security Act (ERISA) to avoid conflicts-of-interest by
failing to appoint independent fiduciaries and failing to notify federal
agencies that Amgen stock was no longer a suitable investment for the plans. The
participants said the plan fiduciaries had a conflict because some of their
compensation was in company stock and removing the stock from the plan would
have caused the price to go down, decreasing their salaries.
However, the U.S. District Court for the Central District
of California said such allegations are insufficient to state a claim for beach
of the fiduciary duty of loyalty under ERISA, and ERISA explicitly permits a
corporate officer, employee, or agent to serve as a plan fiduciary. The court
dismissed the claim for breach of the fiduciary duty of loyalty.
In dismissing a claim for breach of fiduciary duty of
care, the court noted that under the standard set by the 3rd U.S.
Circuit Court of Appeals' decision in Moench
v. Robertson, fiduciaries of an Eligible Individual Account Plan are
entitled to a presumption of prudence, unless "the ERISA fiduciary could
not have believed reasonably that continued adherence to the [plan’s terms] was
in keeping with the settlor’s expectations of how a prudent trustee would
operate."
Moench said the presumption of prudence may be rebutted
by allegations that the fiduciaries were aware that the "company’s
financial condition is seriously deteriorating and [that] there is a genuine
risk of insider self-dealing," or that "the company is on the brink
of collapse or undergoing serious mismanagement," according to the
opinion. But, the district court found that the plaintiffs do not allege that
Amgen was in a seriously deteriorating financial condition or was on the brink
of collapse. In contrast, the court said, "Defendants have provided
evidence that Amgen was in a relatively stable financial condition."
The court also cited the case of Kirschbaum v. Reliant Energy, Inc. (see Reliant Wins 2nd Stock Drop Case Ruling) in which the 5th U.S.
Circuit Court of Appeals found that a "fiduciary cannot be placed in the
untenable position of having to predict the future of the company stock’s performance.
In such a case, he could be sued for not selling if he adhered to the plan, but
also sued for deviating from the plan if the stock rebounded." Furthermore,
the district court said. eliminating the Amgen investment option may have
violated federal securities laws because the decision would have been based on
inside information.
Finally, the opinion noted that the cases cited by the plaintiffs
to suggest that federal securities laws did not relieve defendants of their
duty to eliminate the Amgen investment option involved allegations of criminal
conduct, but they offered no evidence that the Amgen defendants engaged in "an
illegal scheme." On the contrary, defendants noted that "there have
been no lawsuits filed against Amgen by the SEC, or any other federal agencies."
The former participants alleged that the value of the
company stock dropped, and caused losses to the plan, it was revealed that the
defendants concealed the negative results of clinical studies of the Amgen drug
Aranesp and also allegedly marketed Aranesp and another Amgen drug, Epogen, for
"off-label" uses that they knew were risky while at the same time
they purported to market the drugs for uses consistent with the FDA label.
In 2008, the district court dismissed claims by one of
the former participants for lack of standing since he had already taken a distribution of his account, and also dismissed the rest of the claims for
failure to name the proper plan fiduciaries. However, the 9th U.S.
Circuit Court of Appeals reversed, holding that subsequent case law conferred
standing on individuals who have received the full distribution from a plan,
and allowed for the filing of an amended complaint (see Case Sensitive:Second Chances).
The case is
Harris
v. Amgen Inc.,
C.D. Cal., No. CV 07-5442 PSG (PLAx), 3/2/10.