The Supreme Court (Again) Addresses Fiduciary Standards for Company Stock Investments
On January 14, 2020, the Supreme Court—for the third time in six years—issued an opinion discussing the legal standard for alleging a breach of fiduciary duty in connection with the retention of company stock in a 401(k) plan. See Ret. Plans Comm. of IBM v. Jander, 140 S. Ct. 592 (2020).
In Jander v. Ret. Plans Comm. of IBM, 910 F.3d 620 (2d Cir. 2018), the Second Circuit issued a rare victory for plaintiffs, allowing a claim to go forward alleging that the IBM 401(k) plan fiduciaries breached their duties by failing to take action with respect to the plan’s company stock holdings when IBM’s stock was allegedly artificially inflated. The Second Circuit held (among other things) that the ultimate disclosure of the alleged fraudulent manipulate of IBM’s stock price was inevitable—along with the concomitant fall in stock price—so the plan’s fiduciaries at least plausibly had a duty to take action to protect participants.
This was the first time that a circuit court had allowed a company “stock drop” case to go forward since Fifth Third Bancorp v. Dudenhoeffer in 2014 (and Amgen v. Harris shortly after), so the Supreme Court’s decision was closely watched. Ultimately, however, the Supreme Court did not answer the questions raised by Dudenhoeffer. Instead, the Court remanded to the Second Circuit to evaluate an issue not discussed in the original opinion—whether and to what extent the securities’ laws prohibition against acting on insider information would preclude a fiduciary from taking action with respect to company stock holdings.
The issue raised in Jander (and Dudenhoeffer) will have to wait another day.