Stock DropIn a rebuke to the Ninth Circuit, the Supreme Court granted the Amgen defendants’ petition for certiorari, reversed the Ninth Circuit’s judgment and remanded the case for further proceedings consistent with its opinion in the district court. The unanimous per curiam opinion was issued without further briefing and oral argument, an unusual step in civil cases. The substance of the opinion and its handling by summary disposition sends a clear message: the Court meant what it said in Dudenhoeffer when it stressed the role of motions to dismiss in “divid[ing] the plausible sheep from the meritless goats” and crafted new liability requirements that plaintiffs must plausibly allege are met in order to state a claim. Admittedly, we steal liberally from Judge Kozinski’s dissent in Amgen in characterizing the opinion this way. But the Court’s summary handling of the Ninth Circuit’s judgment leaves no doubt that motions to dismiss must be given serious consideration and that boilerplate allegations will not suffice.

A Short Review of Amgen’s Long History

The continuing Amgen litigation began in 2007 when former employees filed a class action against Amgen defendants alleging that the fiduciaries violated the duty of prudence under ERISA. The complaint alleged that the fiduciaries knew or should have known, on the basis of inside information, that the company’s stock price was inflated. The district court dismissed the original complaint for lack of standing and other non-merits grounds. After the Ninth Circuit reversed and remanded, the district court dismissed again, this time for failure to state a claim. Nothing if not consistent, the Ninth Circuit again reversed the district court’s dismissal. The Amgen defendants petitioned for certiorari and asked the Supreme Court to hold the case pending the Dudenhoeffer decision. Following its opinion in Dudenhoeffer, the Supreme Court granted certiorari, vacated the Ninth Circuit decision, and remanded the decision back to the Ninth Circuit for further consideration in light of Dudenhoeffer. The Ninth Circuit reissued its prior opinion with minor changes, and Amgen filed another petition for certiorari.

Supreme Court – Take Two

Today’s opinion once again reversed the Ninth Circuit’s determination that the complaint states a sufficient claim for breach of the duty of prudence. The Court repeated the Dudenhoeffer standard for assessing claims based on the fiduciaries’ possession of inside information: “[A] plaintiff must plausibly allege an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.” The Ninth Circuit had defended its decision by reasoning that it is “quite plausible” that removing the Amgen Common Stock Fund from available investment options would not cause undue harm. The Supreme Court’s response to this assertion was pointed. The Ninth Circuit’s conclusion regarding alternative actions might be true but “[h]aving examined the complaint, the Court has not found sufficient facts and allegations to state a claim for breach of the duty of prudence.” Neither conclusory allegations nor court guesswork provide what Dudenhoeffer requires. The Court left to the district court to determine in the first instance whether the stockholders may amend their complaint to adequately plead a claim. As we said in analyzing Dudenhoeffer in 2014, good luck with that.

They Really, Really Mean It

Together, Dudenhoeffer and Amgen serve notice that a complaint must do much more than allege a drop in stock price. The complaint must plead special circumstances showing that the market did not provide a reliable indication of price; where, as in Amgen, the complaint relies on the plan fiduciaries’ failure to act on nonpublic information, it must identify the action which the fiduciaries should have taken which would not have violated federal securities law prohibitions on insider trading as well as facts showing that a prudent fiduciary would not have viewed the action as more likely to harm the stock fund than to help it. These high standards are not satisfied by the complaints routinely filed upon a substantial drop a company’s stock price.