9th Circuit Handed New Reversal on Amgen Case

WASHINGTON (CN) - As Ninth Circuit Judge Alex Kozinski predicted, the Supreme Court handed the federal appeals court a reversal Monday, reviving securities claims against drugmaker Amgen.

Having already gone before the Ninth Circuit twice, the case at hand involves claims that Amgen violated the Employee Retirement Income Security Act, or ERISA, by failing to yank the company stock option when its executives knew or should have known that the stock's price was inflated.

Amgen stock prices tanked by one third when safety concerns about its anemia drugs Epogen and Aranes became public, but the company's retirees say Amgen had the results of damning clinical trials since the late 1990s and early 2000s.

While one group of investors accused Amgen of violating its fiduciary duty under ERISA, another alleged violations of federal securities law in artificial inflation of the company's stock price.

The U.S. Supreme Court upheld class certification in the securities-law case, but U.S. District Judge Philip Gutierrez dismissed Amgen from the ERISA lawsuit on the basis that the company was not a fiduciary.

Gutierrez rejected the remaining claims in light of the "presumption of prudence," a three-judge panel of the Ninth Circuit reversed after finding that the presumption does not shield Amgen because the company's pension plans did not require or encourage employees to invest in company stock.

The Supreme Court weighed in on the presumption of prudence while assessing similar claims in 2013 with the case Fifth Third Bancorp v. Dudenhoeffer .

Though both a federal judge and the Sixth Circuit found that the plan fiduciaries enjoy that presumption, the unanimous Supreme Court rejected Fifth Third's claim "that the presump­tion at issue here is an appropriate way to weed out merit­less lawsuits or to provide the requisite 'balancing.'"

"The proposed presumption makes it impossible for a plaintiff to state a duty-of-prudence claim, no matter how meritori­ous, unless the employer is in very bad economic circum­stances," Justice Stephen Breyer wrote for the court. "Such a rule does not readily divide the plausible sheep from the meritless goats. That important task can be better accomplished through careful, context-sensitive scrutiny of a complaint's allegations. We consequently stand by our conclusion that the law does not create a special presumption of prudence for [certain] fiduciaries."

With Fifth Third in mind, the Supreme Court later vacated the Amgen holding and ordered the Ninth Circuit to take another look.

When the Ninth Circuit did just that in 2014, it found no reason to affirm dismissal of the investors' case. The court later refused to rehear the case en banc last year, leading Kozinski to complain that the court both failed "to give effect to those requirements, but also insulates our circuit law from important aspects of the Supreme Court's holding."

The Supreme Court summarily reversed for Amgen again Monday, saying "the Ninth Circuit failed to properly evaluate the complaint."

In a four-page unsigned opinion, the court said it "has not found sufficient facts and allegations to state a claim for breach of the duty of prudence."

"Although the Ninth Circuit did not correctly apply Fifth Third, the stockholders are the masters of their complaint," the ruling states. "The court leaves to the District Court in the first instance whether the stockholders may amend it in order to adequately plead a claim for breach of the duty of prudence guided by the standards provided in Fifth Third."

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