A decision issued yesterday by the Ninth Circuit Court of Appeals illustrates the peril that can inhere in offering a company stock alternative in a plan governed by the Employee Retirement Income Security Act (ERISA). 

Several years ago, Connecticut Retirement Plans and Trust Funds brought a securities fraud action against Amgen Inc. and several of its officers, alleging that, by misstating and failing to disclose safety information about two Amgen products used to treat anemia (a red blood cell deficiency), they violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.  In 2009, Judge Philip S. Gutierrez granted class certification.  Conn. Ret. Plans & Trust Funds v. Amgen, Inc., 2009 U.S. Dist. LEXIS 71653 (Aug. 12, 2009).  Two years later, the Ninth Circuit Court of Appeals affirmed.  Conn. Ret. Plans & Trust Funds v. Amgen, Inc., 660 F.3d 1170 (9th Cir. 2011) and the U.S. Supreme Court affirmed,  Amgen Inc. v. Conn. Ret. Plans & Trust Funds, __ U.S.__, 133 S. Ct. 1184 (2013).

At about the same time, the current and former employees of Amgen brought a suit alleging a breach of fiduciary duty under ERISA.  Judge Gutierrez found that the plaintiffs had failed to state any claims and dismissed the complaint without prejudice.  Rather than amend, the plaintiffs appealed the dismissal of all but one of their claims to the Ninth Circuit Court of Appeals.  In an opinion issued yesterday, the Court of Appeals reversed.  Harris v. Amgen, Inc., 9th Cir. Case No. 10-56014 (June 4, 2013).  While the opinion is likely to excite vigorous cogitation in ERISA lawyers, I found the following statement to be of particular interest and concern:

If the alleged misrepresentations and omissions, scienter, and resulting decline in share price in Connecticut Retirement Plans were sufficient to state a claim that defendants violated their duties under Section 10(b), the alleged misrepresentations and omissions, scienter, and resulting decline in share price in this case are sufficient to state a claim that defendants violated their more stringent duty of care under ERISA.

In other words, allegations that are sufficient to state a violation of Section 10(b) will be sufficient to state a breach of duty of care claim under ERISA.