The 9th U.S. Circuit Court of appeals denied plaintiffs’ petition for a “rehearing en banc” in Harris vs. Amgen, and filed an amended opinion in the case explaining its reasoning. In so denying a rehearing by the full panel of 9th Circuit judges, a previously revisited appellate decision in the case has essentially been confirmed and finalized, pushing the case back to a district court for additional proceedings.

One can easily get lost in the details, but the denial of a rehearing en banc essentially means the case can move forward from the district court level again, to be considered by the court in a manner consistent with the newest opinion. This latest step forward comes after the circuit court revisited its ruling in the retirement plan stock drop suit in light of the U.S. Supreme Court’s decision in Fifth Third Bancorp v. Dudenhoeffer.

Before the case reached the U.S. Supreme Court, the 9th Circuit initially reversed the district court’s dismissal of the case, based on a now-defunct “presumption of prudence” for fiduciaries of retirement plans that invest in company stock. In that ruling, the appellate court relied on a 2nd U.S. Circuit Court of Appeals opinion that since the plan terms did not require or encourage fiduciaries to invest primarily in employer stock, the presumption of prudence did not apply.

While it still reversed the district court dismissal and remanded the case back to the lower court, in its most recent decision, the 9th Circuit based its discussion on the U.S. Supreme Court’s finding in Dudenhoeffer that there is no presumption of prudence for employee stock ownership plan fiduciaries beyond the Employee Retirement Income Security Act (ERISA) exemption from the otherwise-applicable duty to diversify. This overrode the previous decision that no presumption of prudence applies if the plan does not actively require employer stock investments.

The amended opinion explains the initial case was brought as a class action by current and former employees of Amgen, Inc., and an Amgen subsidiary, alleging a breach of fiduciary duties regarding two employer-sponsored pension plans administered by the company. The plans were employee stock ownership plans that qualified as “eligible individual account plans,” or “EIAPs.” All of the plaintiffs’ EIAPs included holdings in the Amgen Common Stock Fund, which held only Amgen common stock.

The Supreme Court held in Fifth Third vs. Dudenhoeffer that there is no presumption of prudence for employee stock ownership plan fiduciaries beyond the statutory exemption from the otherwise applicable duty to diversify. The 9th Circuit panel held, therefore, that the plaintiffs were not required to satisfy the criteria of yet another case, Quan v. Computer Sci. Corp. (2010), in order to show that no presumption of prudence applied.

The panel held that the plaintiffs stated a claim that the defendants acted imprudently, and thereby violated their duty of care, by continuing to provide Amgen common stock as an investment alternative when they knew or should have known that the stock was being sold at an artificially inflated price.

The panel further concluded that there was no contradiction between Amgen’s duty under the federal securities laws and ERISA. The judges held that the plaintiffs sufficiently alleged that the defendants violated their duty of loyalty and care by failing to provide material information to plan participants about investment in the Amgen Common Stock Fund.

The 9th Circuit panel also reversed the dismissal of derivative claims, as well as a claim that the defendants caused the plans directly or indirectly to sell or exchange property with a party-in interest. Because the Amgen plan contained no clear delegation of executive authority, the panel reversed the district court’s dismissal of Amgen from the case as a non-fiduciary.

Interestingly, the appellate court’s decision was not unanimous, and one dissenting judge suggested the majority’s opinion could oblige plan fiduciaries to break securities law in order to comply with the duty of prudence in investment selection and monitoring under ERISA. The dissenting judge also warned the amended decision “created almost unbounded liability for ERISA fiduciaries and subjected corporations to novel, judicially-fashioned disclosure requirements that conflict with those of the securities laws.”

But the majority of judges on the appellate panel, contrary to the dissent from the denial of rehearing en banc, deemed the amended opinion “did not impose on fiduciaries an obligation to act when they only suspect that there has been a violation of the federal securities laws. Finally, the opinion did not impose on ERISA fiduciaries greater disclosure obligations than those imposed under the federal securities laws.”