A decision by the Supreme Court to remand a long-standing “stock-drop” case brought under the Employee Retirement Income Security Act underscores the significance of the high court’s unanimous 2014 decision in Fifth Third Bancorp v. Dudenhoeffer.

In its landmark Fifth Third ruling, the Supreme Court raised the bar for defined contribution fiduciaries by finding they no longer enjoyed a “presumption of prudence” in offering participants company stock in retirement plans.

In the wake of that decision, ERISA experts weighed in, noting that the ruling also raised the bar for plaintiffs claims in stock drop cases: yes, plan fiduciaries could no longer hide behind a presumption of prudence, but plaintiffs would also have a higher bar in bringing stock-drop claims.

Yesterday, the Supreme Court reversed a 9^th Circuit Court of Appeals decision that ruled in favor of plaintiffs in Harris v. Amgen, Inc., a 401(k) stock-drop claim first filed in 2007 against the global pharmaceutical firm.

The original claim alleged fiduciaries of Amgen defined contribution plans breached their fiduciary obligations under ERISA by continuing to offer company stock to participants as its value plummeted 33 percent amid safety concerns and allegations of misleading marketing tactics regarding one of its flagship drugs for treating anemia in cancer patients.

A U.S. District Court ruled in favor of Amgen, dismissing the case, in part on the grounds the Amgen fiduciaries enjoyed a presumption of prudence in offering company stock.

On appeal in 2013, the 9^th Circuit disagreed, saying the presumption of prudence did not apply to Amgen. The case then made its first trip to the Supreme Court.

At the time, the high court was considering the Fifth Third Bancorp v. Dudenhoeffer case.

After unanimously ruling in Fifth Third, the Supreme Court remanded the case back to the 9^th Circuit, instructing the appellate court to reconsider the case in light of the new prudence benchmarks established in the Fifth Third ruling.

The 9^th Circuit didn’t budge.

In ruling for plaintiffs again—this time after considering the Supreme Court’s Fifth Third ruling—the 9^th Circuit in part based its decision on the fact that other claims against Amgen had found for stockholders.

Again, the case made its way back to the Supreme Court, which yesterday overruled the 9^th Circuit in a so-called per curiam ruling—one issued by the court as a whole, and not signed by a given justice.

In remanding the case again, the Supreme Court ruled the 9^th Circuit “failed to properly evaluate the complaint,” according the high court’s ruling.

The Supreme Court’s order also said:

“The Ninth 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’.”

In its ruling, the 9^th Circuit argued that removing the Amgen Common Stock Fund from the investment lineup could be viewed as a fiduciary action that satisfies the new standards of prudence established in the Fifth Third case.

The Supreme Court did not necessarily disagree, but said that the facts supporting that position “should appear in the stockholders’ complaint,” according to Supreme Court documents.

“The (Supreme) Court has not found sufficient facts and allegations to state a claim for breach of the duty of prudence,” the high court said.

Now, it is up to the original district court to determine if plaintiffs in Harris v. Amgen, Inc. can amend the original complaint.

Instant Insights /

SCOTUS and 9th Circuit at loggerheads over Amgen stock-drop case

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