SCOTUS Again Remands Stock Drop Case

The Supreme Court returned Amgen’s ESOP case to the lower court for a second time.

The U.S. Supreme Court in a per curiam decision on Monday sent back, for the second time, the 9th U.S. Circuit Court of Appeals’ decision reviving a proposed Employee Retirement Income Security Act (ERISA) class action against Amgen Inc

SCOTUS says in its decision that the appellate court failed to properly evaluate the complaint, given a new precedent. 

The first time, the high court vacated and remanded, in light of Fifth Third Bancorp v. Dudenhoeffer, which set forth the standards for stating a claim for breach of the duty of prudence against fiduciaries who manage employee stock ownership plans (ESOPs). On remand, the circuit court reiterated its conclusion, and this time, the Supreme Court reversed for Amgen, saying in its four-page, unsigned opinion, that it “has not found sufficient facts and allegations to state a claim for breach of the duty of prudence.”

According to the high court’s ruling, the 9th Circuit failed to assess whether the complaint in its current form has plausibly alleged that a prudent fiduciary in the same position could not have concluded that the alternative action “would do more harm than good.”

The circuit court did not correctly apply Fifth Third, the high court said, but emphasized that Amgen stockholders are “masters of their complaint. The court leaves to the District Court in the first instance whether the stockholders may amend it in order to adequately plead a claim for breach of the duty of prudence guided by the standards provided in Fifth Third.”

Notwithstanding the lack of a presumption of prudence, the Fifth Third decision acknowledged that the congressional encouragement for creating ESOPs could potentially clash with ERISA’s general duty of prudence.

Given the potential for conflict that arises when fiduciaries are alleged to have failed to act on inside information about the value of the employer’s stock, ESOP fiduciaries confront unique challenges, the ruling said. Fifth Third therefore laid out standards to help “divide the plausible sheep from the meritless goats.”

The Supreme Court’s opinion is here.