Circuit Court Rules ESOP Fiduciaries Should Have Sold Stock in Plan Based on Nonpublic Information

In Harris v. Amgen, Inc., remanded to the Ninth Circuit Court of Appeals by the Supreme Court following its decision in Dudenhoeffer, the Ninth Circuit said that the fiduciaries should have removed Amgen stock as an investment option in the company's 401(k) plan. Such a removal would have the same effect on the market as disclosure of the potentially adverse information, but the court said that securities laws would ultimately require that decision anyway.

In a sharp dissent, Judge Alex Kozinski, joined by three others concurring, said that the decision failed to incorporate the heightened pleading standards of Dudenhoeffer and would result in fiduciaries scrambling to remove or sell stock any time any potentially adverse news arose. The court then stayed enforcement of the decision pending an appeal to the Supreme Court.