SUPREME COURT OF THE UNITED STATES
AMGEN INC., et al. v. STEVE
HARRIS, et al.
on petition for writ of certiorari to the
united states court of appeals for the ninth circuit
No. 15–278. Decided January 25, 2016
Per Curiam.
The Court considers for the second time the
Ninth Circuit’s determination that respondent stockholders’
complaint states a claim against petitioner fiduciaries for breach
of the duty of prudence. The first time, the Court vacated and
remanded in light of Fifth Third Bancorp v.
Dudenhoeffer, 573 U. S. ___ (2014), a case which set
forth the standards for stating a claim for breach of the duty of
prudence against fiduciaries who manage employee stock ownership
plans (ESOPs). On remand, the Ninth Circuit reiterated its
conclusion that the complaint states such a claim. The Court now
reverses and remands.
The stockholders are former employees of Amgen
Inc. and its subsidiary Amgen Manufacturing, Limited, who
participated in plans that qualified under 29 U. S. C.
§1107(d)(3)(A) as eligible individual account plans. Like ESOPs,
these plans offer ownership in employer stock as an option to
employees. The parties agree that the decision in Fifth
Third is fully applicable to the plans at issue here. See 788
F. 3d 916, 935 (2014).
All of the plans had holdings in the Amgen
Common Stock Fund (composed, unsurprisingly, of Amgen common stock)
during the relevant period. The value of Amgen stock fell, and in
2007, the stockholders filed a class action against petitioner
fiduciaries alleging that they had breached their fiduciary duties,
including the duty of prudence, under the Employee Retirement
Income Secur-ity Act of 1974 (ERISA), 88Stat. 829, as amended, 29
U. S. C. §1001 et seq. The District Court
granted the fiduciaries’ motion to dismiss, and the Ninth Circuit
reversed, Harris v. Amgen, Inc., 738 F. 3d 1026
(2013). The fiduciaries sought certiorari.
While that petition was pending, this Court
issued a decision that concerned the duty of prudence owed by ERISA
fiduciaries who administer ESOPs. That decision, Fifth
Third, held that such ERISA fiduciaries are not entitled to a
presumption of prudence but are “subject to the same duty of
prudence that applies to ERISA fiduciaries in general, except that
they need not diversify the fund’s assets.” 573 U. S., at ___
(slip op., at 1–2).
Notwithstanding the lack of a presumption of
prudence, Fifth Third noted that “Congress sought to
encourage the creation of” employee stock-ownership plans,
id., at ___ (slip op., at 14), a purpose that the decision
recognized may come into tension with ERISA’s general duty of
prudence. Moreover, ESOP fiduciaries confront unique challenges
given “the potential for conflict” that arises when fiduciaries are
alleged to have imprudently “fail[ed] to act on inside information
they had about the value of the employer’s stock.” Id., at
___ (slip op., at 13). Fifth Third therefore laid out
standards to help “divide the plausible sheep from the meritless
goats,” id., at ___ (slip op., at 15):
“To state a claim for breach of the duty
of prudence on the basis of inside information, a plaintiff must
plausibly allege an alternative action that the defendant could
have taken that would have been consistent with the securities laws
and that a prudent fiduciary in the same circumstances would not
have viewed as more likely to harm the fund than to help it.”
Id., at ___ (slip op., at 18).
It further clarified that courts should
determine whether the complaint itself states a claim satisfying
that liability standard:
“[L]ower courts faced with such claims
should also consider whether the complaint has plausibly
alleged that a prudent fiduciary in the defendant’s position
could not have concluded that stopping purchases—which the market
might take as a sign that insider fiduciaries viewed the employer’s
stock as a bad investment—or publicly disclosing negative
information would do more harm than good to the fund by causing a
drop in the stock price and a concomitant drop in the value of the
stock already held by the fund.” Id., at ___ (slip op., at
20) (emphasis added).
In the matter that is once again before the
Court here, following the issuance of Fifth Third, the Court
granted the fiduciaries’ first petition for a writ of certiorari,
va-cated the judgment, and remanded for further proceedings
consistent with that decision. Amgen Inc. v. Harris,
576 U. S. ___ (2014). On remand, the Ninth Circuit reversed
again the dismissal of the complaint and denied the fiduciaries’
petition for rehearing en banc. See 788 F. 3d 916. The
fiduciaries once more sought certiorari.
The Court now holds that the Ninth Circuit
failed to properly evaluate the complaint. That court explained
that its previous opinion (that is, the one it issued before
Fifth Third was decided) “had already assumed” the standards
for ERISA fiduciary liability laid out by this Court in Fifth
Third. 788 F. 3d, at 940. And it reasoned that the
complaint at issue here satisfies those standards because when “the
federal securities laws require disclosure of material
information,” it is “quite plausible” that removing the Amgen
Common Stock Fund “from the list of investment options” would not
“caus[e] undue harm to plan participants.” Id., at 937–938.
The Ninth Circuit, however, 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.” Fifth
Third, supra, at ___ (slip op., at 20).
The Ninth Circuit’s proposition that removing
the Amgen Common Stock Fund from the list of investment options was
an alternative action that could plausibly have satisfied Fifth
Third’s standards may be true. If so, the facts and allegations
supporting that proposition should appear in the stockholders’
complaint. Having examined the complaint, the Court has not found
sufficient facts and allegations to state a claim for breach of the
duty of prudence.
Although the Ninth Circuit did not correctly
apply Fifth Third, the stockholders are the masters of their
complaint. The Court leaves to the District Court in the first
instance whether the stockholders may amend it in order to
adequately plead a claim for breach of the duty of prudence guided
by the standards provided in Fifth Third.
The petition for certiorari is granted. The
judgment of the Ninth Circuit is reversed, and the case is remanded
for further proceedings consistent with this opinion.
It is so ordered.
