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The Ninth Circuit has declined to rehear an ERISA case from 2014 which held that a lawsuit by employees of the biotech company Amgen can go forward. Those employees accuse Amgen of violating its fiduciary duties by including the company's own stock in retirement holdings when plan administrators should have known that stock was overvalued.
The decision is one of the first ERISA-related rulings since the Supreme Court unanimously rejected the presumption of prudence for Employee Stock Ownership Plan (ESOP) fiduciaries. The refusal to rehear it en banc has lead to a strongly worded disagreement between Judges Fletcher and Kozinski.
The Meat of the Matter
Following the Circuit's refusal to rehear the case, the Ninth has republished its original opinion to include a dissent and concurrence to that en banc denial. The substance of the dispute, the 2014 opinion, held that employees who lost ERISA-covered ESOP (a sort of hybrid retirement fund and stock "buy in" benefit) funds due to stock drops could bring claims of fiduciary violations. It was one of the first cases to apply the Supreme Court's ruling in Fifth Third Bancorp v. Dudenhoeffer.
In Fifth Third, the Supreme Court ruled that there is no presumption of prudence for employee stock ownership plan fiduciaries except for their statutory exemption from the duty to diversify. After Fifth Third, then, plaintiffs do not need to make a showing, previously required, that no presumption of prudence applied, the Ninth found.
A Dueling "Dissental" and Concurrence
The Ninth's decision could, some argue, allow for increased litigation around the management of employee retirement funds. Judge Kozinski, joined by three other conservative justices, issued a strong "dissental," his neologism for a dissent to an opinion in a case in which a judge has not participated. Such dissentals are fashioned to attract the Supreme Court's attention. According to Kozinski, the opinion "will have dire consequences for corporations and employees alike." He argues, pointedly, that the court ignored Fifth Third's instructions to "weed out meritless lawsuits" by carefully weighing the factors impacting a fiduciary's decision.
Judge Fletcher, in his concurrence with the decision to not rehear the case, argues that Kozinski and company are "mistaken." The court's opinion "nowhere requires a fiduciary to act based on mere suspicion" or if there is a potential violation of insider trading laws. Further, fiduciaries would only be obliged to act when they knew or should have known that material information was being withheld from the public. Here, plaintiffs had accused Amgen of knowing that its stock was overvalued based on its knowledge, hidden from the public, of health risks caused by Amgen's anemia drugs.
This is the second time the Ninth Circuit has reversed the district court's initial dismissal of the suit, resulting in three different published opinions. From here, the class action will either go to trial or, if Kozinski's dissental is effective, up to the Supreme Court.