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Current and former employees of Lehman Brothers came away disappointed again in their legal battle that first began when the recession started back in 2008. According to the Second Circuit, application of Amgen Inc. v Harris means that the plaintiffs failed to prove that an SEC ban on short selling constituted "special circumstances."
This ruling marks the first time a federal circuit court has applied the 2016 SCOTUS case of Amgen to a pending ERISA case.
In the Wake of the Recession
Lehman Brothers became the defendant by a number of employees who claimed violation of fiduciary duties by the company and prayed for ERISA relief. In their complaints, the employees argued that special orders from the SEC that banned short-selling of Lehman's securities were contemplated by Congress and met a special circumstances requirement.
In the past, this element has been the main hurtle that has killed previous ERISA lawsuits against large companies including GM and RadioShack.
Fifth Third (Dudenhoeffer)
Unfortunately for plaintiffs, claims against fiduciaries essentially got harder because the previous "presumption of prudence" test that had been the standard for stock ownership plans like the Lehmans plan got ratcheted up or replaced by the "special circumstances" elements test as established (or clarified, depending on your point of view) in Dudenhoeffer.
In that case, plaintiffs must plausibly allege special circumstances that fiduciaries should have recognized, based on public information, that the market for securities was oversold and undervalued. Alternatively, fiduciaries should have taken different action that would leave the beneficiaries no worse off. Although this sounds harmless enough, it is generally agreed that this is a more fiduciary friendly standard than presumption of prudence.
The Second Circuit rejected the plaintiff's arguments and found that the SEC orders "speak only conditionally" about the market effects of short sales, and that they did not amount to material public information.
Jonathan Youngwood, an attorney for Lehman, asserted that arguing special circumstances would be difficult for employees. "In most cases courts are going to reject [employer challenge cases]."