Two former participants of the Amgen Retirement and Savings Plan and the Retirement and Savings Plan for Amgen Manufacturing, Ltd., alleged that Amgen defendants violated their fiduciary obligations under the Employee Retirement Income Security Act (ERISA) to avoid conflicts of interest by failing to appoint independent fiduciaries and failing to notify federal agencies that Amgen stock was no longer a suitable investment for the plans. The participants said the plan fiduciaries had a conflict because some of their compensation was in company stock and removing the stock from the plan would have caused the price to go down, decreasing their salaries.
However, the U.S. District Court for the Central District of California said such allegations are insufficient to state a claim for beach of the fiduciary duty of loyalty under ERISA, and ERISA explicitly permits a corporate officer, employee, or agent to serve as a plan fiduciary. The court dismissed the claim for breach of the fiduciary duty of loyalty.
In dismissing a claim for breach of fiduciary duty of care, the court noted that under the standard set by the 3rd U.S. Circuit Court of Appeals’ decision in Moench v. Robertson, fiduciaries of an Eligible Individual Account Plan are entitled to a presumption of prudence, unless “the ERISA fiduciary could not have believed reasonably that continued adherence to the [plan’s terms] was in keeping with the settlor’s expectations of how a prudent trustee would operate.”
Moench said the presumption of prudence may be rebutted by allegations that the fiduciaries were aware that the “company’s financial condition is seriously deteriorating and [that] there is a genuine risk of insider self-dealing,” or that “the company is on the brink of collapse or undergoing serious mismanagement,” according to the opinion. But, the district court found that the plaintiffs do not allege that Amgen was in a seriously deteriorating financial condition or was on the brink of collapse. In contrast, the court said, “defendants have provided evidence that Amgen was in a relatively stable financial condition.”
The court also cited the case of Kirschbaum v. Reliant Energy, Inc. (see “Reliant Wins 2nd Stock Drop Case Ruling”) in which the 5th U.S. Circuit Court of Appeals found that a “fiduciary cannot be placed in the untenable position of having to predict the future of the company stock’s performance. In such a case, he could be sued for not selling if he adhered to the plan, but also sued for deviating from the plan if the stock rebounded.” Furthermore, the district court said. eliminating the Amgen investment option may have violated federal securities laws because the decision would have been based on inside information.
Finally, the opinion noted that the cases cited by the plaintiffs to suggest that federal securities laws did not relieve defendants of their duty to eliminate the Amgen investment option involved allegations of criminal conduct, but they offered no evidence that the Amgen defendants engaged in “an illegal scheme.” On the contrary, defendants noted that “there have been no lawsuits filed against Amgen by the SEC, or any other federal agencies.”
The former participants alleged that the value of the company stock dropped, and caused losses to the plan, it was revealed that the defendants concealed the negative results of clinical studies of the Amgen drug Aranesp and also allegedly marketed Aranesp and another Amgen drug, Epogen, for “off-label” uses that they knew were risky while at the same time they purported to market the drugs for uses consistent with the FDA label.
In 2008, the district court dismissed claims by one of the former participants for lack of standing since he had already taken a distribution of his account, and also dismissed the rest of the claims for failure to name the proper plan fiduciaries. However, the 9th U.S. Circuit Court of Appeals reversed, holding that subsequent case law conferred standing on individuals who have received the full distribution from a plan, and allowed for the filing of an amended complaint (see “Case Sensitive: Second Chances”).
The case is Harris v. Amgen Inc., C.D. Cal., No. CV 07-5442 PSG (PLAx), 3/2/10.