Court Opinion

ID: 8413477
Source: CourtListenerOpinion
Date Created: 2022-11-02 20:24:58.261849+00
Date Added: 2024-06-11T16:48:03.621417
License: Public Domain

W. FLETCHER, Circuit Judge,
concurring in the denial of rehearing en banc:1
The panel’s opinion speaks for itself, and I will not repeat our analysis, much of *920which is directly responsive to concerns expressed by the Supreme Court in Fifth Third Bancorp v. Dudenhoeffer, — U.S. -, 134 S.Ct. 2459, 189 L.Ed.2d 457 (2014).
I write only to correct three ways in which the dissent misrepresents what is in our opinion.
1. Impact of Withdrawal
The dissent characterizes our opinion as holding that withdrawing a fund as an investment option is appropriate because, “as a general matter, ‘when the previously concealed material information about [a] company is eventually revealed.... the stock price will inevitably decline, almost certainly by more than the amount it would have declined as a result of merely withdrawing the [f|und as an investment option.’ ” Dissent at 926 (emphasis in original) (quoting Opinion at 938). Based on that characterization, the dissent claims that we ignore the Court’s instruction in Fifth Third to consider whether there will be a net harm to plan participants resulting from withdrawal of a fund. The dissent contends that our reasoning is circular ■ because, under the reasoning it ascribes to us, “withdrawing the fund will always be the better option, because any stock price decline it may precipitate will be deemed ‘inevitable.’ ” Dissent at 938. (emphasis in original).
Our opinion contains no such general, all-purpose holding. We addressed only the situation where “the previously concealed material information about the company is eventually revealed as required by the securities laws.” Opinion at 938 (emphasis added). As we wrote in the opinion:
In a separate class action simultaneously pending before the same district judge, investors in Amgen common stock claimed violations of federal securities laws based on the same alleged facts as in the ERISA action now before us. In a careful thirty-five page order, the district court concluded that the investors had sufficiently alleged material misrepresentations and omissions, scien-ter, reliance, and resulting economic loss to state claims under Sections 10(b) and 20(a) of the 1934 Exchange Act. See 15 U.S.C. §§ 78j(b), 78t(a). The district court certified a class based on the facts alleged in the complaint. We affirmed the district court’s class certification in Conn. Ret. Plans & Trust Funds v. Amgen, Inc., 660 F.3d 1170 (9th Cir.2011). The Supreme Court affirmed in Amgen, Inc. v. Conn. Ret. Plans & Trust Funds, — U.S. -, 133 S.Ct. 1184, 185 L.Ed.2d 308 (2013).
Opinion at 934. We therefore assumed, under Federal Rule of Civil Procedure 8(a) and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), that there was material information that had been withheld in violation of the securities laws. Our analysis is based on that assumption.
Withdrawal of the fund as an investment option might indeed “do more harm than good to the fund,” Fifth Third, 134 S.Ct. at 2473, where the securities laws do not independently require disclosure. But where the securities laws do require disclosure of previously withheld material information, as in this case, the impact of the eventual disclosure of that information must be taken into account in assessing the net harm that will result from the withdrawal of the fund. In such a case, as we wrote in our opinion, it is plausible to conclude that the withdrawal of the fund will result in a net benefit, rather than a net harm, to plan participants.
*9212. Knowledge of Fiduciaries
The dissent contends that we impose on fiduciaries an obligation to act when they “only ... suspect” there has been a violation of the federal securities laws, and that under our opinion a fiduciary would have an obligation to act whenever there is “any arguable violation” of those laws. Dissent at 926 (emphasis in original). That is not what we wrote. Our opinion nowhere requires a fiduciary to act based on mere suspicion or arguable violation of the federal securities laws. Under well-established circuit precedent, “[a] violation [of ERISA’s prudent person standard] may occur where a company’s stock ... was artificially inflated during that time by an illegal scheme about which the fiduciaries knew or should have known, and then suddenly declined when the scheme was exposed.” In re Syncor ERISA Litig., 516 F.3d 1095, 1102 (9th Cir.2008) (emphasis added); see also 29 U.S.C. § 1105(a)(3) (imposing liability on a plan fiduciary for another fiduciary’s breach of fiduciary responsibility “if he has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach”). We wrote repeatedly and consistently that a fiduciary’s obligation to act is triggered only when he or she “knew or should have known” of a violation of the securities laws.
For example, we wrote that the fiduciaries in this case were obliged to act only when they “knew or should have known that material information was being withheld from the public.” Opinion at 938 (emphasis added). We concluded that the plaintiffs in this case had shown that it was “plausible,” under Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), that at least some fiduciaries “knew or should have known that the Am-gen Common Stock Fund was purchasing stock at an artificially inflated price due to material misrepresentations and omissions by company officers.” Opinion at 937 (emphasis added). And we held that, on remand, the defendants were entitled to argue “that their liability, or the extent of their liability, should depend upon the extent to which they knew, or should have known, that material information was being withheld from the public in violation of the federal securities laws.” Opinion at 939 (emphasis added). See also id. at 934, 935, 941, 942, 942.
3. Disclosure Obligations Under ERISA
Finally, the dissent contends that our opinion imposes on ERISA fiduciaries greater disclosure obligations than those imposed under the federal securities laws. It writes:
The panel also disregards the Court’s second key instruction, that we carefully consider how ERISA-based obligations may conflict with disclosure requirements under the securities laws. The panel reasons that such a conflict simply can’t occur because “if defendants had revealed material information in a timely fashion to the general public ... they would have simultaneously satisfied their duties under both the securities laws and ERISA.” But the panel fails to appreciate the Court’s concerns in Fifth Third. The Court was not only concerned that fiduciaries would be forced to violate the securities laws to comply with ERISA, it was also worried that “ERISA-based obligations” would be broader than the disclosure requirements under the securities law and would therefore interfere with the compromise Congress struck when enacting those laws.
The securities laws do not require continuous disclosure of all information that may bear on a stock price. Congress ... enacted a comprehensive and tessellated statutory scheme for corpo*922rate disclosure that imposes obligations on certain corporate officers to reveal information at specific times. See, e.g., 15 U.S.C. §§ 78m, 78o(d). There is no allegation that 17 of the 19 defendants here violated the securities laws, or that they even had disclosure obligations under those laws. Yet under the panel’s holding, they are liable under ERISA for failing to do precisely what the securities law do not require of them: immediately disclose inside information at the moment they “should have known” it was material.
Dissent at 926-27 (emphases in original).
The dissent is mistaken. We nowhere wrote that ERISA fiduciaries, including defendants in this case, have broader disclosure obligations than those imposed under the federal securities law. In response to Fifth Third (and to arguments made by defendants before Fifth Third was decided), we carefully considered whether “ERISA-based obligations may conflict with disclosure obligations under the securities laws.” We also carefully restricted our description of defendants’ disclosure duties under ERISA to those disclosure obligations that complied with, but did not exceed, obligations under the securities laws. We agree with the dissent that “the securities laws do not require continuous disclosure of all information that may bear on a stock price,” and we nowhere wrote that ERISA requires any such “continuous disclosure.”
We wrote:
Compliance with ERISA would not have required defendants to violate [federal securities] laws; indeed, we interpret ERISA to require first and foremost that defendants not violate those laws. That is, 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.... Alternatively, if defendants had made no disclosures but had simply not allowed additional investments in the Fund with the price of Amgen stock was artificially inflated, they would not thereby have violated the prohibition against insider trading, for there is no violation absent purchase or sale of stock.
Opinion at 939 (emphasis in original).
In response to defendants’ argument that they “owe no duty under ERISA to provide material information about Amgen stock to plan participants who must decide whether to invest in such stock,” we wrote that defendants’ “fiduciary duties of loyalty and care to plan participants under ERISA, with respect to company stock, are [not] less than the duty they owe to the general public under the securities laws.” Id. at 940 (emphasis added). But we never wrote, or even suggested, that defendants owe a greater disclosure duty than that imposed under the securities laws. We summarized, “[T]here is no contradiction between defendants’ duty under the federal securities laws and ERISA. Indeed, properly understood, these laws are complementary and reinforcing.” Id.

. Senior Circuit Judge Farris and Senior District Judge Korman were not eligible to vote on whether the appeal in this case should have been reheard en banc, and therefore cannot concur in the denial of rehearing en *920banc. However, Judge Farris and Judge Kor-man both agree with what is written here.