Plan fiduciaries may create a fiduciary duty in stock drop cases by incorporating filings with the Securities and Exchange Commission into the Summary Plan Description.

We have been waiting for the Ninth Circuit to rule on a big case concerning stock drop cases.

Here’s the case of Harris v. Amgen, __ F.3d __ (October 30, 2014) (PDF)(Reversing dismissal of stock drop case: incorporation of the securities filings by reference into the Summary Plan Description created fiduciary duty that may be relied upon in ERISA-governed stock drop case.)


Current and former employees of Amgen participated in ERISA-governed retirement savings plans that qualified as “individual account plans.”  The Amgen Common Stock Fund was included as an investment option. Participants brought an ERISA class action after they lost money in their retirement savings accounts when the value of Amgen’s common stock dropped.

DISTRICT COURT HELD.  The district court dismissed the breach of fiduciary duty claim and the lawsuit relying on the presumption that offering company stock as an investment option is prudent (commonly known as the “Moench presumption”).

NINTH CIRCUIT PROCEDURAL POSTURE. There is a long appeal history. In 2013, the Ninth Circuit reversed the district court’s dismissal and held that the presumption of prudence did not apply because the plans did not mandate or require investment in employer stock, applying the presumption criteria applicable at the time. The U.S. Supreme Court then granted certiorari and vacated and remanded the case for reconsideration in light of the Supreme Court’s June 25, 2014 decision in Fifth Third Bancorp v. Dudenhoeffer.

NINTH CIRCUIT REVERSES/RATIONALE. The Ninth Circuit again reversed the district court’s dismissal.

  1. The U.S. Supreme Court held in Fifth Third Bancorp v. Dudenhoeffer, __ U.S. __ (2014) that there is no presumption of prudence for employee stock ownership plan fiduciaries, except in certain limited circumstances.
  2. Plaintiffs did not have to satisfy the criteria (under prior law) to show that the presumption of prudence was inapplicable.
  3. Plaintiffs properly stated a claim that the defendants failed to act prudently, and violated their ERISA fiduciary duties, by continuing to offer Amgen common stock as an investment option when they knew or should have known that the stock was being sold at an artificially inflated price.
  4. If defendants had disclosed adverse safety test results regarding its drug products, they would have concurrently satisfied duties under both the securities laws and ERISA.
  5. Fiduciaries are under no obligation to violate securities laws in order to satisfy their ERISA fiduciary duties.
  6. The Summary Plan Descriptions (SPD) incorporated Amgen’s securities filings, including its financial statements, by reference.  Consequently, the Ninth Circuit rejected defendants’ argument that assertions made in documents filed with the Securities and Exchange Commission were not made in a fiduciary capacity. Defendants’ preparation and distribution of the SPDs, including the incorporation of the securities filings by reference, were acts performed in their fiduciary capacities, and could be used in the ERISA case.