Wednesday, June 5, 2013
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Ninth Circuit Reinstates Amgen Employees’ Suit Over Stock Price
By KENNETH OFGANG, Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday reinstated a putative class action by present and former employees of Amgen, Inc., who claim the company concealed information that would have discouraged the plaintiffs from investing in the company’s stock.
The panel, in an opinion by Judge William A. Fletcher, said the plaintiffs had sufficiently pled a violation of the company’s fiduciary duties under the Employee Retirement Income Security Act.
Steve Harris and Dennis F. Ramos filed suit in 2007, claiming Amgen and related defendants continued to allow workers to hold Amgen stock in their retirement and savings plans despite their knowledge that the company stock was valued at an artificially high price. The defendants, the plaintiffs alleged, knew or should have known that the price would tumble once the public discovered adverse health effects caused by widespread off-label use of two drugs Amgen had developed to treat anemia.
One drug, Epogen, was approved by the FDA in 1989, and the other, Aranesp, in 2001. But in 2007, the FDA ordered the company to give “black box” warnings—the most serious level of warnings the agency requires—regarding off-label use of both drugs.
The complaint alleged the company concealed poor results from clinical studies on the drugs—used to stimulate red blood cell production in cancer patients—including a temporary halt to one study in 2006 due to safety concerns.
A similar action has been filed by shareholders who bought or held the company’s stock—the value of which dropped by a third between September 2005 and May 2007—in the same period.
Allegations Denied
Amgen has denied that it should have foreseen the drop in the stock price and has raised a number of technical objections to the employees’ suit, beginning with standing. The suit was originally dismissed in February 2008 on the grounds that Harris already had withdrawn his assets from Amgen’s pension plan and that Ramos—an employee of a Puerto Rico-based subsidiary of Amgen—failed to properly identify the fiduciaries of his company’s plan.
The Ninth Circuit reversed four years ago, holding that Harris had standing because he was in the plan during the period covered by the action and that Ramos should have been given leave to amend. The complaint was subsequently amended to add new defendants and three more plaintiffs.
U.S. District Judge Philip S. Gutierrez of the Central District of California dismissed the amended complaint with prejudice, saying the plaintiffs failed to sufficiently allege violations of ERISA, and that the suit “appears to be a securities case posing as an ERISA case.”
Fletcher, however, in his opinion for the Ninth Circuit, said the fiduciaries’ duties of “loyalty and care” under ERISA are just as extensive as the corporation’s duties to the general public under the securities laws.
“If defendants had revealed material information in a timely fashion to the general public (including plan participants), thereby allowing informed plan participants to decide whether to invest in the Amgen Common Stock Fund, they would have simultaneously satisfied their duties under both the securities laws and ERISA,” Fletcher wrote.
‘Presumption of Prudence’
Fletcher said the district judge erred in applying a “presumption of prudence” based on Quan v. Computer Sciences Corp., 623 F.3d 870 (9th Cir. 2010), in which the appeals court held that an ERISA fiduciary who invests in the stock of the employees’ own company is presumed to have acted prudently “when plan terms require or encourage the fiduciary to invest primarily in employer stock.”
The presumption does not apply in this case, the appellate jurist concluded, because the language of the plans merely allowed investment in Amgen stock, rather than encouraging it.
Stripped of the benefit of the presumption, Fletcher wrote, the defendants were not entitled to dismissal because the plaintiffs’ allegations were sufficient to state a claim for breach of fiduciary duty.
The defendants’ argument that the alleged non-disclosure was not a breach of fiduciary duty because the company was and remains financially sound “is beside the point,” the judge wrote.
He explained:
“Amgen was not ‘experiencing severe financial difficulties’ during the relevant time period in part because of the very actions about which plaintiffs are now complaining, that were producing large but unsustainable profits. Further, Amgen may now be a ‘strong, viable, and profitable company,’ but that does not mean that the price of Amgen stock was not artificially inflated during the class period.”
The case is Harris v. Amgen, Inc., 10-56014.
Copyright 2013, Metropolitan News Company