Court ruling on Amgen case could lead to more ERISA-based suits
On Oct. 30, a federal appeals court approved a class-action lawsuit brought by employees of Amgen Inc. The plaintiffs say that the biotech company mismanaged their retirement funds. This decision could open the door to other suits against companies whose actions or inactions regarding their employee investment funds caused employees to lose significant amounts of their retirement savings.
Specifically, plaintiffs contend that the employees’ common stock fund was buying Amgen stock at an inflated price. They say that the company withheld information about problems with its anemia drugs that were linked to accelerated tumor growth, blood clotting and death. Because of these problems, the company’s stock price dropped by about one-third between 2005 and 2007.
A California federal judge previously dismissed the case using the “presumption of prudence” standard that such funds are managed prudently. This standard protected companies from claims under the Employee Retirement Income Security Act. The case ended up in the Ninth Circuit, but Amgen asked the U.S. Supreme Court to hear it. The high court sent the case back to the Ninth Circuit.
In the meantime, the Supreme Court ruled in a similar case that the Ninth Circuit used in making its recent ruling. That high court ruling, which involved Fifth Third Bancorp, ended the “presumption of prudence” standard. This can make it easier for plaintiffs to bring ERISA-based cases against their employers for mismanaging their employer stock ownership plans.
An attorney representing the Amgen plaintiffs says that the removal of the “presumption of prudence” standard could lead the way for other plaintiffs to bring similar cases. He noted that the standard had been “almost insurmountable” for plaintiffs in the past.
While some argue that the Supreme Court decision makes it easier for employee-investors to sue for their stock price drops, there was more to this case. As the Ninth Court justice writing the opinion said, the defendants “knew or should have known that the Amgen common stock fund was purchasing stock at an artificially inflated price.” He also noted “material misrepresentations and omissions by company officers, as well as by illegal off-label marketing.”
When companies and their officers knowingly or negligently engage in actions that result in the loss of funds that employees have invested in company-sponsored plans, they can and should be held responsible under ERISA. It remains to be seen if the Fifth Third and Amgen cases result in more such actions.
Source: The Recorder, “Ninth Circuit Clears Path for ERISA Suits” Marisa Kendall, Oct. 30, 2014