Retirement Plans Comm. of IBM v. Jander

Whether the“more harm than good” pleading standard set forth in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014) can be satisfied by generalized allegations that the harm of an inevitable disclosure of an alleged fraud generally increases over time.

Respondents filed a federal securities fraud action alleging artificial market price inflation and an Employee Retirement Income Security Act (ERISA) action, which asserted the same fraud made company stock an imprudent investment for Petitioner’s employee stock ownership plan (ESOP). Respondents argued that the ESOP’s fiduciaries breached their duty of prudence under ERISA § 404 by continuing to invest in Petitioner’s stock, despite knowing the market price was artificially inflated. The district court dismissed both lawsuits reasoning that Respondents failed to plead facts showing Petitioners could not have concluded that disclosing the alleged fraud or halting investments would be more likely to harm the ESOP than help it as required under Fifth Third and Amgen Inc. v. Harris, 136 S. Ct. 758 (2016). The Second Circuit reversed, splitting with the Fifth and Sixth Circuits and reasoning that Respondents had sufficiently pleaded that a prudent fiduciary could not have concluded an earlier disclosure would do more harm than good. Petitioner argues that generalized allegations of the increasing harm of a disclosure over time do not satisfy the high pleading standard set forth in Fifth Third and Amgen. Petitioner further argues that the Second Circuit’s decision upends ERISA and will lead to frivolous lawsuits. Finally, Petitioner argues the decision is an end-run around the high pleading requirements of the Private Securities Litigation Reform Act.