Yesterday, the U.S. Supreme Court ruled unanimously in favor of the fiduciaries of the Amgen 401(k) Savings Plan, in the latest of the so-called stock drop cases. In Amgen v. Harris, the Court held that the Ninth Circuit had failed to correctly apply its guidance from the June 2014 case of Fifth Third Bancorp v. Dudenhoeffer. Although these cases involve 401(k) Plan subject to ERISA (as opposed to true executive compensation), I discuss them because corporate executives are nearly always the fiduciaries getting sued.
Regular readers will recall our frequent updates on ongoing saga of litigation against the fiduciaries of public companies that maintain an ESOP or 401(k) Plan with a Company Stock investment option. Stock drop litigation had stalled during the 2010-2014 period, as the Court of Appeals for every federal circuit save one adopted the so-called “Moench presumption” (a presumption of prudence) in favor of the fiduciaries. In Dudenhoeffer, the Supreme Court expressly rejected the Moench presumption, and set forth specific standards for stating a claim for breach of the duty of prudence against fiduciaries.
The plaintiffs’ bar promptly renewed their stock drop claims under the new standards, looking for new openings. Nearly every court that has considered a stock drop case since Dudenhoeffer had found in favor of the plan fiduciaries. That is, every court except the Ninth Circuit.
In its Amgen decision, the Supreme Court held that the Ninth Circuit failed to assess whether the complaint in its current form had “plausibly alleged” that a prudent fiduciary in the same position could not have concluded that the alternative action proposed by plaintiffs—removing the Amgen Common Stock Fund from the list of investment options would not do more harm than good.
One would think that the Amgen case spells doom for future plaintiffs’ stock drop lawsuits. However, one should never underestimate the creativity and persistence of the plaintiffs’ bar or the credulity of the Ninth Circuit on these issues.