On January 25, 2016, 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 apply correctly its guidance from the June 2014 case of Fifth Third Bancorp v. Dudenhoeffer.
Winston’s Benefit Blast and client alerts have frequently covered the 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 stalled between 2010 – 2014, 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 the 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 Dudenhoefferhad found in favor of the plan fiduciaries. That is, every court except the Ninth Circuit. In itsAmgen 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.
While the Amgen decision presents additional hurdles for plaintiffs in pursuing stock drop lawsuits, the creativity and persistence of the plaintiffs’ bar in pursuit of these matters should not be underestimated.