The United States Supreme Court issued a per curiam opinion on Tuesday in Retirement Plans Committee of IBM v Jander, punting back to the court of appeals the determination of whether plan fiduciaries can be liable under ERISA for failing to disclose inside information that ultimately led to a drop in stock price.

In Jander, IBM offered company stock as an investment in a company-sponsored Employee Stock Ownership Plan (ESOP). Following an incorrect business valuation, at which time the company did not disclose projected losses, the per share value of IBM’s company stock dropped significantly. Jander, a participant in the ESOP, brought suit arguing that the plan fiduciaries should have disclosed the proper valuation, and claimed that in failing to accurately disclose this information, plan fiduciaries breached their fiduciary duty of prudence under ERISA. The IBM fiduciary committee argued that ERISA imposes no duty on an ESOP fiduciary to make disclosures or act on inside information.

The district court dismissed the case, and Jander appealed to the Second Circuit. The court of appeals reversed, finding that the plaintiff participants had satisfied a standard set by the Supreme Court in Fifth Third Bancorp v. Dudenhoeffer, that plan fiduciaries may be liable for a breach under ERISA only if they “could not have concluded that stopping purchases … would do more harm than good.” The Second Circuit found that Jander had satisfied this standard, noting that participants will experience smaller losses upon prompt disclosure of adverse information.

The question presented and argued to the Supreme Court primarily focused on the Dudenhoeffer “more harm than good” pleading standard, and whether the standard could be satisfied by allegations that an inevitable disclosure of an alleged fraud generally increases harm over time. Urging the Supreme Court to adopt a bright-line rule under which fiduciaries were prohibited from using inside information, the IBM fiduciaries, supported by the government, argued that “an ERISA-based duty to disclose inside information that is not otherwise required to be disclosed by the securities laws would ‘conflict’ at least with the ‘objective’ of the complex insider trading and corporate disclosure requirements imposed by the federal securities laws.”

Unwilling to address these arguments, the Supreme Court stated “[t]he Second Circuit did not address these arguments, and, for that reason, neither shall we. . . . Nevertheless, in light of our statement in Dudenhoeffer that the views of the U. S. Securities and Exchange Commission might well be relevant to discerning the content of ERISA’s duty of prudence in this context … we believe that the Court of Appeals should have an opportunity to decide whether to entertain these arguments in the first instance. For this reason we vacate the judgment below and remand the case, leaving it to the Second Circuit whether to determine their merits, taking such action as it deems appropriate.”