ERISA Developments: Supreme Court reverses and remands a second time a case in which the Ninth Circ
In an action emanating from a 2007 class action complaint against Amgen ESPP administrators, the Court reaffirms that special pleading requirements apply to ESPP administrators when they are accused of breaching the duty of prudence under the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 829, as amended, 29 U. S. C. §1001 et seq. The case involves accusations that an ESPP administrator acted imprudently (and thus in breach of ERISA fiduciary obligations) by failing to terminate purchases of its own company stock for its employees during a period of falling share prices. It implicates the potentially difficult scenario that ESPP administrators confront when they consider whether to “weather the storm” by continuing to purchases additional shares for its employees, and potentially benefiting employees in the longer run, or terminate purchases for employees, thereby demonstrating lack of confidence in stock values, and risking a more dramatic decline in share prices.
Noting that Congress in ERISA had sought to encourage the availability of optional ESPPs, and sensitive to a potential “damned if you, damned if you don’t” predicament faced by ERISA ESPP administrators, the Supreme Court reiterated that the federal court of appeals must scrutinize an imprudence complaint in ESPP context to ensure that it “has plausibly alleged” that a “prudent fiduciary in the same position could not have concluded that the alternative action” of removing the company stock from the list of approved stock purchases “would do more harm than good.”
The decision here follows on the heels of a prior Supreme Court decision in Fifth Third Bancorp v. Dudenhoeffer, 573 U. S. ___ (2014), which contains a full exposition of the need for a heightened standard of particularized pleading in ESPP imprudence cases under ERISA. It underscores both the need for pleadings to allege specific facts that would permit a conclusion that the ESPP fiduciary could not have believed that terminating company stock purchases would have done more harm to employees than continuing the purchases, as well as the duty on the part of the federal courts to dismiss complaints (or permit pleading amendments) where the pleadings do not satisfy the above standard.
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