Latest Harris Stock-Drop Decision A Halloween Surprise

Fiduciaries of retirement plans received a nasty pre-Halloween surprise last week when the Court of Appeals for the Ninth Circuit, in Harris v. Amgen, Inc., No. 10-56014, 2014 U.S. App. LEXIS 20816 (9th Cir. October 30, 2014) (Harris II), reaffirmed its earlier decision refusing to dismiss ERISA "stock-drop" claims of breach of fiduciary duty.

Harris II is the first court of appeals ruling on an ERISA stock-drop motion to dismiss since the Supreme Court's ruling in Dudenhoeffer v. Fifth Third Bancorp, 134 S.Ct. 2459 (2014). We discussed Dudenhoeffer in an article earlier this year. In Dudenhoeffer, the Supreme Court vacated the Sixth Circuit's decision for the plaintiffs and directed the court of appeals to reconsider whether their suit stated plausible claims for breach of ERISA fiduciary duty based on allegations that 401(k) plan fiduciaries imprudently remained invested in company stock as the stock dropped in value following news of safety concerns over one of its best-selling drugs.

The Harris Stock-Drop Decisions

In an earlier opinion, Harris v. Amgen, Inc., 738 F.3d 1026 (9th Cir. 2013) (Harris I), the Ninth Circuit reversed the district court's dismissal of the complaint, holding that (1) no "presumption of prudence" applied to the fiduciaries' decision to continue to offer Amgen stock as an investment option for participants in two 401(k) plans at an allegedly "inflated" price and (2) plaintiffs had sufficiently alleged violation of the fiduciaries' ERISA duties. Specifically, the Ninth Circuit reasoned:

Any negative price impact from removing a company stock fund would be mitigated by several factors such that the fiduciary action would be extremely unlikely to negatively impact the stock price. "If defendants had revealed material information in a timely fashion to the general public (including plan participants), thereby allowing informed plan participants to decide whether to invest in the Amgen Common Stock Fund, they would have simultaneously satisfied their duties under both the securities laws and ERISA." The defendants in Harris I petitioned for a writ of certiorari. After deciding Dudenhoeffer, the Supreme Court granted certiorari in Harris I, vacated the Ninth Circuit's decision and remanded for reconsideration in light of Dudenhoeffer. Amgen, Inc. v. Harris, 134 S. Ct. 2870 (2014).

On remand, the Ninth Circuit in Harris II again reversed the district court's dismissal of the plaintiffs' complaint and remanded to the district court, holding...