In our August issue, we reported on a stock drop case decided in June 2013 by the U.S. Court of Appeals for the Ninth Circuit (Harris v. Amgen, Inc. (9th Cir. 2013)). In that case, the Ninth Circuit reversed a district court decision and remanded the case for further proceedings. In reaching its decision, the Ninth Circuit ruled that because the plan terms did not require or encourage the defendant fiduciaries to invest in employer stock, a presumption of prudence did not apply – plan language merely permitting investments in employer stock is not sufficient to protect the presumption of prudence. In the absence of the presumption, the Ninth Circuit held that the plaintiffs sufficiently alleged violation of defendants’ fiduciary duties regarding two employer-sponsored retirement plans. Following the Ninth Circuit’s decision, the defendants in the case filed a petition for rehearing.

The Ninth Circuit has since denied the petition. In doing so, the Ninth Circuit also amended its June 2013 opinion. The reversal of the district court’s decision to dismiss as well as other holdings remain unchanged. But the amended opinion is significant because it expressly holds that the defendants’ preparation and distribution of summary plan descriptions (SPDs), which incorporated certain filings with the Securities Exchange Commission (SEC) by reference, were acts performed in a fiduciary capacity. The plaintiffs allege the SEC filings that were incorporated into the SPDs include false and materially misleading statements concerning the company’s financial health and the value of its stock. The Ninth Circuit reasoned that the SPDs are fiduciary communications to plan participants, and the defendants exercised discretion in choosing to incorporate the SEC filings into the SPDs as a means for providing information on the company’s financial health. Accordingly, statements, including the allegedly misleading statements made in the incorporated SEC filings, may be used under ERISA to show that the defendants knew or should have known that the price of the company’s stock was artificially inflated and to show that the plaintiffs presumptively relied on those statements to their detriment.

A decision to incorporate SEC filings into an SPD should be carefully considered in light of the potential ERISA liability implications suggested by this case. Harris v. Amgen, Inc. (9th Cir. 2013)